The New Zealand Wine Company

The New Zealand Wine Company Hit by the Wine Industry ‘Perfect Storm’

The 2010 year has been the most challenging faced by The New Zealand Wine Company Limited (NZWC) in two decades as the wine industry has been working through a ‘perfect storm’ created by the oversupply of wine from vintage 2008 and 2009, the Global Financial Crisis and the strength of the NZD.
 
NZWC has announced an audited net loss after NZ IFRS revaluation adjustments and tax for the 30 June 2010 full year of ($1,898,000), which compares to a net profit of $1,283,000 for the same period in 2009:
 
Income Statement Summary - $’000
12 months
30 June 2010
12 months
30 June 2009
Revenue
       $13,047
       $12,518
 
 
 
Underlying profit/(loss) before NZ IFRS revaluations and income tax
      ($      46)
       $     571
Revaluation gains and losses
 
 
Unrealised ‘mark to market’ gain/(loss) in the fair value of financial assets/liabilities – held for trading
      ($    396)
       $ 2,580
Unrealised loss from the revaluation of grape vine values classified as biological assets
      ($ 1,383)
      ($    726)
Unrealised loss in the value of harvested grapes valued at ‘fair value’
      ($    306)
      ($    366)
Realised gain/(loss) in the value of harvested grapes valued at fair value
       $      96
      ($    216)
 
 
 
Profit/(loss) before income tax
     ($ 2,032)
       $ 1,843
Income tax expense
      $     763
      ($    560)
Income tax expense – change in depreciation of buildings
      $    (626)
       $        -
Profit/(loss) for the period
     ($ 1,898)
       $ 1,283
Basic earnings per share
      (21.9) cps
        14.8 cps
 
NZ IFRS non-cash unrealised revaluation adjustments have had a significant impact on the full year net earnings with significant movement’s year on year to ‘mark to market’ foreign exchange management transactions. Property revaluations have also had a significant negative impact on net earnings through a reduction in the valuation of grape vine values classified as biological assets.
 
A one offnon-cash income tax expense of $626,000 from an increase in NZWC’s deferred tax liability has been taken up as a result of the Government’s 2010 Budget tax measures which removed the depreciation deductions for buildings with an estimated useful life of 50 years or more from the 2011/12 tax year.  
 
Shareholders equity has reduced by $3,310,000 to $18,628,000 as at 30 June 2010.Lower grape prices have seen market valuations of vineyard and winery assets reduced by $2,605,000 or 13% to $16,910,000 and this write down makes up the majority of the $3,310,000 reduction in shareholders equity.
 
Net cash flow from operating activities improved in 2010 through increased revenue, cost reductions and reduced inventory to be strongly positive at $1,793,000
 
Faced with reporting an underlying loss before revaluations and income tax of $46,000 for the full year to 30 June 2010, Directors have decided to take a responsible approach and have resolved that the company should not pay a 2010 final dividend.
 
With 8,677,199 shares on issue as at 30 June 2010 year end, the net tangible asset backing was $2.15 per share compared to the equivalent $2.53 per share reported for the same period in 2009.
 
CEO, Rob White said that:
 
“To work through this difficult period for the NZ wine industry and come out in a stronger position to compete effectively in the global market we have placed our own in-market resources in our key global markets to increase sales and improve margins.”
 
We will continue to position the company as a producer of premium NZ branded wines with an overriding focus of delivering quality in the bottle, with our key point of difference being built on excellent environmentally sustainable and quality programmes.”
 
“It was good news for a NZ wine industry that is working hard to re-balance grape supply with global demand for branded wine that the 2010 grape harvest was restricted to 266,000 tonnes.”
 
We intend to maintain a disciplined approach to control our 2011 grape harvest. It is important for the reputation of Brand NZ and in particular, Brand Marlborough, that this is an industry wide approach.
 
 “NZ wine is a quality product with a great future but it has to fix the fundamental problems of supply and demand and nurturing brand value.
 
Chairman, Alton Jamieson said that:
 
“The NZ bulk wine surplus peaked at 43 million litres in 2009 and sales rose from 20% of total NZ export sales volume in the June 2009 financial year to 27% in the June 2010 financial year, which is severely testing the financial sustainability of the wine industry.”
 
“NZ’s Bulk wine surplus created opportunities for substantial global competitors to bottle NZ wine and create new labels with no history or brand equity that have significantly undercut the branded wine export prices of NZ wine companies.”
 
“The only financially sustainable solution for the NZ wine industry is to rebalance the supply of grapes harvested with the sales demand for NZ branded wine.”
 
 “Sauvignon Blanc grape prices grew to an unsustainable level and since the 2008 price of $2,400 per tonne they have now halved to $1,200 per tonne, so it was inevitable that vineyard valuations would reduce while a sustainable long term grape price is established.”
 
 “NZWC is pursuing a strategic growth plan to increase the scale of the business to more than 500,000 cases of branded wine which would enable the company to increase its in-market resources in key markets and realise a number of operational and financial benefits to add value for shareholders.”
 
 “We are confident that there will be a range of suitable merger and acquisition and/or organic growth opportunities available to the company in the year ahead that will make financial sense and would add value to NZWC. There are a number of equity and debt funding options that NZWC would carefully consider to fund suitable opportunities to grow the scale of the business.
 
“NZ wine has a very positive future once the bulk wine surplus has been sold through and future grape supply is balanced with the demand for branded NZ wine. NZWC’s Strategic Plan provides a sustainable platform to enable the company to bounce back and deliver strong cash-based underlying earnings growth to add value for shareholders.”
 
“NZWC is unable to provide reliable net earnings guidance for the June 2011 financial year due to the significant swings we are seeing in annual NZIFRS revaluation adjustments coupled with the impacts flowing from the wine oversupply problems, the market distortions from the sales of discounted bulk wine and the persistent strength of the NZD.”
 
A full copy of the Annual Report for the twelve months ended 30 June 2010 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