Update: Delegat's lifts profit 10% but forecasts sales drop
Aug. 25 (BusinessDesk) - Winemaker Delegat's Group lifted underlying annual net profit 10% and is forecasting a massive drop in British and European sales for the year ending June 2012 which won't be fully offset by increased sales elsewhere and higher case prices.
“The next two years will be challenging, primarily due to increasingly unfavourable exchange rates and the persistence of the industry's supply imbalance,” Delegat's told NZX.
Net profit before one-off non-cash adjustments rose to $23.9 million for the year ended June 30 from $21.7 million the previous year on a 5% increase in sales to $229.8 million. The result was also about the company's February guidance of a $21.9 million annual profit.
The non-cash adjustments pushed the bottom line up to $32.7 million from just $200,000 the previous year but the company said the accounting standards requiring such adjustments “do not provide adequate insight into the group's underlying operational performance.”
Delegat sold 1.97 million cases of wine, up 1% on the previous year, and lifted its price per case to $116.72, 4% higher than the previous year's $112.70.
Managing director Jim Delegat said the company successfully implemented price increases while continuing to grow retail distribution in its key growth markets of North America, Australia, New Zealand and Asia Pacific.
Case sales to North America jumped 27% to 452,000 for the year while Australian, New Zealand and Asia Pacific case sales rose 10%.
However, case sales to Britain, Ireland and Europe fell 14% to 820,000 and the company is forecasting that will drop 27% to 598,000 cases in the year ending June 2012 and to 586,000 in the year ending June 2014. Overall, it expects total case sales will drop 6.6% in the current year but will grow to 2,192,000 in the year ending 2014.
Still, it expects to lift its price per case to $121.2 in 2012, $122.6 in 2013 and $124.3 in 2014. That will mean sales for the year ending June 2012 easing to $222.9 million in 2012 before rising to $252.3 million the following year.
The wine industry has been suffering from an over-supply of grapes since the 2008 harvest and Delegat's 16% rise to 25,469 tonnes [figure corrected] for the 2011 is contributing to the glut. Industry figures show the harvest jumped 23% to 328,000 tonnes this year.
New Zealand Winegrowers chief executive Philip Gregan had recommended the industry limit the 2011 harvest to 265,000 tonnes. The excess supply is putting downwards pressure on prices and damaging New Zealand's reputation for producing premium wines, particularly in Britain.
Delegat's is clearly resisting these pressures, choosing to make fewer sales rather than sacrifice a premium price point for its Oyster Bay brand.
Delegat's will pay a fully imputed final dividend of 8 cents per share, unchanged from last year. It doesn't pay first-half dividends.
Delegat's shares unchanged at $2, up from the $1.58 year low but down from the $2.30 peak in April.