Optimism in wine industry

New Zealand's wine industry is seeing "signs of a new optimism emerging" after enduring tough times since 2008, New Zealand Winegrowers chief executive Philip Gregan says.

An annual financial benchmarking survey, released this week by Deloitte and New Zealand Winegrowers, showed all but the largest wineries had improved profitability during the past financial year, compared with 2011.

Vintage 2012 tracked the results of survey respondents accounting for a third of the industry's export sales revenue for the 2012 financial year.

Wineries in all but the highest revenue band (more than $20 million) improved profitability and all but the smallest ($0-$1.25 million revenue) were turning a profit in 2012.

While it was pleasing to see the survey results continue to support the signs of a turnaround within the industry which began last year, there was still some way to go to be at a point where the financial returns were appropriate to the capital invested, Deloitte partner Paul Munro said.

The issue of high levels of external debt did not seem as prominent as in past years, with debt reducing to more acceptable levels, another positive sign.

However, with more than 50% of total sales in export markets, the high New Zealand dollar continued to be the main issue facing the industry, the survey showed.

Mr Gregan said 2012 saw a markedly smaller grape harvest than the previous year, and with that reduction had come a changed supply and demand balance.

With wine exports now worth more than $1.2 billion a year, strong and growing demand for the industry's branded products and reduced supply from the 2012 vintage, that should provide further opportunity for improvement in winery margins in the year ahead, he said.

The most profitable category was wineries earning $10 million-$20 million in revenue, with an average profit of 17%.

That marked a return to historical levels of profit for that category prior to a dip in 2010, and was partly because of having the lowest overhead and interest costs.

With the reduced harvest, primarily attributed to seasonal conditions, the supply and demand balance had shifted markedly from the bumper crops of previous years, causing some industry nervousness of too little grape supply rather than previous years' worries of too much, Mr Munro said.

"It is important for the sector to continue to focus on the growth in value, rather than the volume, of sales," he said.

There were anecdotal reports new vineyard investments were being considered and such investments needed to be carefully assessed to ensure they were strongly market-led, he said.

New Zealand wine export volumes increased 5.3% to 175.4 million litres in the year to September, a recent Rabobank report showed.

During the past 12 months, annual bottled wine shipment volumes lifted by 9.4% on the previous corresponding period to 118.5 million litres, while bulk wine shipments decreased by 2.6% to 56.8 million litres.

 

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