NZ Wineries Fare Better than Oz in Survey

New Zealand Wineries Fare Better than Australian Counterparts
Annual Deloitte New Zealand Wine Industry Survey Released

Results of the third annual Deloitte financial benchmarking survey for vintage 2008 have shown that the New Zealand wine industry was stable financially for the period surveyed. However, the results were not as positive as the prior periods survey, suggesting that the New Zealand industry may yet encounter the effects of oversupply that have hit the Australian wine industry in recent years.

In terms of profitability, New Zealand wineries generally outperformed their Australian counterparts for the 2008 vintage period with four of the five categories recording profits. The larger wineries in particular recorded respectable earnings, with the $20m+ and $10-$20m revenue categories recording earnings before tax of 21% and 17% respectively.

Paul Munro, a corporate finance partner at Deloitte in Christchurch, said that reviewing the results of the Australian benchmarking surveys from recent years confirmed that an oversupply of grapes has led to a decline in profitability in the Australian industry.

“A bumper 2008 harvest in New Zealand (a 39% increase in volume from 2007), and an understanding that the 2009 harvest was of a similar size suggests care must be taken in managing the growth of production volumes to avoid the issues experienced in Australia. We will watch with interest when the vintage 2009 results are compiled and released later this year,” Munro said.

Export sales continue to dominate the distribution channels utilised by New Zealand wineries including the smaller players who appear to have developed new sales channels overseas. All revenue categories surveyed generated in excess of 39% of their sales from exports.

While positive, this also leaves our industry more vulnerable to international consumption trends or the possibility of bulk wine being ‘dumped’ into the global market place. “If supply is not carefully matched with global demand and care is not taken to protect New Zealand’s brand, our exporters could find that they are unable to obtain the premium prices they require to remain profitable,” Munro said.

New Zealand Winegrowers have stressed the importance to growers of being market led in regards to grape and wine intake in an attempt to preserve the brand image of New Zealand wines in international markets.

The Deloitte New Zealand wine industry benchmarking survey is designed to assist winemaking businesses to make more informed decisions about their relative strengths and weaknesses compared with others in the industry. Philip Gregan, New Zealand Winegrowers CEO, said the study provides wineries with an insight into the relative efficiency and financial performance of their business. “This information is a very valuable resource given the challenging environment winemakers currently face.”

A worrying trend that has emerged from the New Zealand survey results is the general increase in wineries debt to equity ratios. Smaller wineries, in particular, have current ratios of less than 2:1 (the generally accepted benchmark) which signals the potential for cash flow issues in the future.

“The high levels of short term debt observed in the results pose a significant problem for those smaller wineries that may also be experiencing cash flow difficulties as revenue per case declines and inventory levels increase. While ‘cash is king’ from a trading perspective, for long term solvency access to debt financing is likely to become increasingly important,” Munro added.

Other findings.

The top industry issues from the survey in the past three years have been surprisingly consistent with previous years within each revenue category.
• The $0-1m category struggles to meet the regulatory and compliance costs which require specialist legislative knowledge and ‘indoors’ desk time to resolve.
• The $1-5m category has identified the price premium available through overseas sales but struggles to access these markets.
• The $5-10m category has access to overseas markets, and is large enough to be affected by movements in the exchange rate, but does not have the resources to dedicate to active foreign exchange management.
• The $10-20m and $20m+ categories face a constant balancing act of matching supply and demand.


About the New Zealand Wine Industry Benchmarking Survey

The annual New Zealand wine industry financial benchmarking survey is conducted by Deloitte in conjunction with the New Zealand Winegrowers Association. The survey captured responses which covered approximately 32% of the wine industry, via a written questionnaire. Research was conducted between October and December 2009 and is based upon financial statements that cover the 2008 vintage.

The full New Zealand survey report is available on www.deloitte.co.nz.

Comparisons have been made to results of the Deloitte Australian Vintage 2008 survey. This report is available on www.wfa.org.au.

ENDS

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