New Zealand wineries are on a slippery slope, facing steadily declining profitability and rising debt, with prospects for improvement unlikely in the short term, a new survey says.Vintage 2010, the fifth annual financial benchmarking survey for the indust
New Zealand wineries are on a slippery slope, facing steadily declining profitability and rising debt, with prospects for improvement unlikely in the short term, a new survey says.
Vintage 2010, the fifth annual financial benchmarking survey for the industry tracked the results of 35 respondents accounting for about 30 percent of the industry's export sales revenue.
An increase in bulk wine sales at reduced margins had resulted in declining profits across the board, said Deloitte partner Paul Munro.
The industry generated over $1 billion in export earnings in the year to June, but it had lost some sparkle over the past couple of years through impacts of oversupply and the largest economic downturn in 20 years.
Oversupply had been blamed for a decline in profitability in Australia. If supply was not carefully matched with global demand exporters could find that they were unable to obtain premium prices needed to remain profitable.
A reduced vintage in 2010 had gone some way to alleviating problems caused by the previous two years, but predictions that the 2011 harvest could exceed 300,000 tonnes threatened to add to the industry's woes, said Mr Munro.
"Future supply must be matched to global demand, otherwise a cheapening of our wines in key international markets could occur," he said.
Large scale wineries (with revenue over $20 million) continued to be the most profitable with an average profit before tax of 7.8 percent, while the smallest wineries (revenue under $1 million) were suffering the most with an average loss of 31.9 percent.
For the smaller wineries, this translated to a loss of around $50 per case.
Significant cost-cutting appeared to have bottomed out in 2010, and profitability had inevitably taken a hit, Mr Munro said.
Problems with high debt levels needed needs to be addressed in the year ahead, with all categories within the industry experiencing increasing debt, Mr Munro said.
"This is particularly concerning given the downward trend in land values and the fact that banks are increasingly anxious about land as security for outstanding debts," he added.
"Banks and shareholders need to work together to examine the options and agree a plan to allow all stakeholders to move forward in a co-ordinated way".
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