The New Zealand Wine Company

The New Zealand Wine Company Limited – December 2009 Half Yearly Report

2009 was a very difficult year with the oversupply of wine from Vintage 2008 and 2009, the global financial crisis, the recession impacted New Zealand economy and the strength of the NZD against the GBP and USD all providing unprecedented challenges for the industry.
 
The New Zealand Wine Company Limited (NZWC) announces an unaudited net loss after NZ IFRS revaluation adjustments and tax for the 31 December 2009 half year of ($646,000), which compares to a net profit of $702,000 for the same period in 2008. Underlying earnings compare favourably with the prior period, while NZ IFRS revaluation losses have had a significant impact on the operating earnings for the half year:
 
Income Statement Summary - $’000
6 months
31 Dec 2009
6 months
31 Dec 2008
Revenue
 $6,700
 $6,340
Underlying profit before NZ IFRS revaluations and income tax
 $   511
 $  471
Revaluation gains and losses
 
 
Unrealised ‘mark to market’ losses in the fair value of financial assets/liabilities – held for trading
($   206)
 $  584
Unrealised losses from the revaluation of grape vine values classified as biological assets
($1,060)
         -
Realised losses in the value of harvested grapes valued at ‘fair value’
($   169)
($   52)
Profit/(loss) before income tax
($   924)
 $1,003
Income tax expense
 $   278
($ 301)
Profit/(loss) for the period
($   646)
 $  702
 
A 31 December 2009 mid-year valuation report was commissioned to reflect current market conditions at balance date, as lower grape prices have impacted on the market values of NZWC property. The valuation of company vineyard and winery property assets have reduced to $17, 605,000, which is $1,910,000 or 10% less than the 30 June 2009 valuation of $19,515,000.
 
A fully imputed interim dividend of 2 cents per share for the half year will be paid to shareholders on 1 April 2010, which is the same as the 2009 interim dividend.
 
Chairman, Alton Jamieson said that:
 
The large oversupply of grapes from the 2008 and 2009 harvests produced a wine surplus estimated by NZ Winegrowers at 40 million litres of wine. This has become a millstone around the neck of the New Zealand wine industry, as the discounting of bulk wine sales to clear the stock has impacted on the demand for branded bottled wine export sales.”
                                                                                                                                                                                                                                                                                    
The sheer volume of bulk wine sales, currently 25% of total export sales, is testing the financial sustainability of the New Zealand wine industry and has created short term opportunities for a number of substantial global competitors who have the ability to buy bulk wine at prices lower than the cost of production to undercut the sales prices of New Zealand wine companies branded bottled wine exports.”
 
“The 2010 New Zealand wine harvest has been targeted at 265,000 tonnes by NZ Winegrowers (20,000 tonnes lower than 2009) to re-balance grape supply with global demand for branded wine. The size of the 2010 harvest will dictate how quickly the industry can recover.”
 
“NZWC is working hard to balance its own 2010 grape intake with its branded wine sales opportunities to avoid having to sell surplus bulk wine at a loss. A disciplined approach to limiting the 2010 harvest yields is also aimed at improving the quality of our wines and should see around 2,250 tonnes of grapes delivered to the winery, which would be 10% less than the 2,478 tonnes harvested in 2009.”
 
“NZWC is pursuing M&A and organic growth opportunities to add value for shareholders by increasing the scale of the business to more than 500,000 cases of branded wine. Directors believe that there are good long term growth opportunities available in the New Zealand wine industry and that selling through the present structural wine oversupply will provide the platform for financially sustainable growth.”  
 
A full copy of the Half Yearly Report for the six months ended 31 December 2009 including the Directors’ Report, comparative financial statements and explanatory notes is available on the NZWC web site, at: http://www.nzwineco.co.nz/financial.aspx.
 
Authorised for public release.
 
For further information please contact:
 
Alton Jamieson                                                       Or Rob White
Chairman, The New Zealand Wine Co Ltd         CEO, The New Zealand Wine Co Ltd
PO Box 67, Renwick, Marlborough                     PO Box 67, Renwick, Marlborough
Tel: +64 21 964 995                                               Tel: +64 3 572 8200 or +64 21 448 332