Vintage 2009 financial survey on wine industry

Vintage 2009 financial survey confirms wine industry challenges

Fourth annual wine industry financial benchmarking survey
shows clear downward profitability trend

Returns by New Zealand wineries continue to decline as a consequence of larger than expected recent vintages and the global economic recession, according to a new survey.

Vintage 2009, the fourth annual financial benchmarking survey for the wine industry, was released today by Deloitte and New Zealand Winegrowers. It tracks the results of 32 survey respondents for the previous financial year.

The survey confirms that while most participants are managing to make positive returns, profitability has been declining since the Vintage 2007 survey and there is a worrying trend of increasing debt levels, particularly in smaller-scale operations.

Philip Gregan, CEO of New Zealand Winegrowers, says the turbulent past year has had an impact on every sector of the industry, from grape growers and wineries to the many companies supplying goods and services to it.

“Certainly many of our members are feeling the pinch right now, as trading conditions are the toughest in the past two decades,” Mr Gregan says.

“However it is important to remember that the industry has built a solid international reputation for producing unique, premium quality wines, and that hasn’t diminished even in these difficult times.”

Deloitte partner Paul Munro says that despite the tough international trading conditions, export volumes do not seemed to have been too adversely affected, with smaller wineries in particular experiencing a significant increase in the proportion of export sales.

However, the challenge many exporters are facing is making sure they get paid, as the financial pressures that customers and distributors along the supply chain are experiencing ultimately flow back to New Zealand producers.

Wineries have taken measures to limit their grape intake in order to achieve a better balance between supply and demand.

“Oversupply has presented a number of challenges, and while it remains an issue we aren’t seeing the same level of fallout which has occurred in Australia,” Mr Munro says.

The ability of larger players to maintain increased inventories of wine until more favourable market conditions prevail has benefited the entire industry.

“The fact that larger wineries are bearing the cost of holding back stock shows they are acting responsibly for the overall benefit of New Zealand’s premium brand.”

The smaller vintage 2010 harvest should also help ease the situation.

In terms of the performance of different segments of the industry, the $1 million to $5 million category continues to be the least profitable, this year showing a 6.7% loss before tax.

The larger segments continue to be the most profitable, with the $10m to $20m category recording an average profit return before tax of 12.8% and the over $20m category returning 17.5%.

All categories were, however, several percentage points down on the 2008 vintage survey.

Of more concern has been the increasing level of debt, particularly in the $1m to $5m category. Mr Munro predicts that consolidation in this segment is inevitable, especially as falling land values will likely lead to increasing pressure from financiers.

“It’s unlikely that banks will be willing to maintain very high levels of risk, most likely requiring owners to provide additional capital.”

To read or download the full Vintage 2009 report, go to www.deloitte.com/nz/wine.

ENDS

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