Winemaker forecasts loss as dollar soars
September 14, 2011
Oversupply another big problem
A strong New Zealand dollar blended with an oversupply of New Zealand wine, high levels of bulk wine sales and strong competition hit The New Zealand Wine Company’s bottom line.
The Blenheim-based winemaker, which produces Grove Mill, Sanctuary and Frog Haven wines, said in an earnings guidance on Friday that it expected an underlying loss before revaluations and income tax for the June 2011 year of up to $1.3 million.
NZWC’s sales volumes for the June 2011 year were 7 per cent lower than the year before at 174,000 cases, and revenue for the June 2011 year was expected to be 14 per cent down at $11.3m.
The company’s earnings forecast came as the kiwi hit a post-float high of US86.60 cents on Friday. “Clearly the US dollar and the British pound are problematic for us,” NZWC chairman Alton Jamieson said. “We don’t know what’s going to happen with the New Zealand dollar. The strength of the dollar and where it’s moved just over the last year, it’s concerning for everyone.” The company had some forward cover in place for the pound, but that would not last forever, he said.
NZWC exported similar volumes to each of its Australian, British and United States markets. Oversupply has been a problem for the industry since 2008. Currently, 30 per cent of the industry’s export sales were through bulk wine sales due to oversupply, and the industry needed to get demand and supply back into balance, Jamieson said.
There was not much the company could do to contend with the strong kiwi and oversupply issues.
“All you can do is get your costs down to be able to trade in the operating environment you are working in,” Jamieson said.
The company was focused on its restructuring and recovery plan for the 2012 year, he said. On June 27, NZWC warned the market that it would be in breach of its loan agreement with ANZ, which stipulates that its underlying earnings must be at least 1.3 times its interest costs.
The winemaker, which had revenues of more than $13m last year, said it would miss the condition by a “significant” margin.
ANZ has waived the breach on the condition of the independent review of NZWC’s forecasts and business model.
PricewaterhouseCoopers is conducting that review, which will include NZWC’s stake in Lineage Imports LLC, a Californian import and distribution business.
NZWC’s 66 per cent interest in Lineage has also squeezed the wine company’s wallet. Lineage incurred startup and operating costs resulting in a net earnings loss at June 30, 2011.
NZWC’s share of that loss was expected to be up to NZ$300,000.
Jamieson said the Lineage loss had not been unexpected, but the extent of the loss had surprised.
“With a startup company, you don’t know to a large extent exactly what the losses will be.
“We didn’t expect it to be this high.”
The company expected the PWC report within the next couple of weeks, he said. “The key thing for us is to get on and implement the restructuring and recovery plan.”
NZWC’s New Zealand IFRS fair value adjustments had not yet been finalised. They were expected to increase its full-year net loss after tax.
The total June 2011 full-year net loss after tax and the annual report will be released on September 1. The company’s directors have said they expect underlying earnings to improve next year.
Source: http://www.stuff.co.nz/marlborough-express/news/5335754/Winemaker-forecasts-loss-as-dollar-soars
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