Wine industry returns to profitability
Profitability is returning to the wine industry, although small winemakers may still be doing it tough.
Vintage 2013, the eighth benchmarking survey of the industry's finances by accounting firm Deloitte and NZ Winegrowers, says bigger may be better when it comes to making money from wine.
The survey shows that the largest winemakers - those with revenues of $10 million or more a year - produced pretax profits in double digits as a percentage of sales.
The smallest producers - those with annual revenues up to $1.5m - made average pretax losses equivalent to 4.4 per cent of sales.
Those with revenues between $1.5m and $5m almost broke even, with an average loss of 0.5 per cent of sales, and mid-sized winemakers, with sales of $5m to $10m a year, made an average profit of 9.8 per cent of sales.
Deloitte partner Paul Munro said that while a second successive year of increased profitability showed a sustained turnaround in the industry, the positive results clearly favoured the larger end of the market.
"Successful business models certainly exist within the smaller wineries, but the survey results appear to show that it is more difficult to generate acceptable returns at the smaller end of the market," he said.
The survey found that average revenue per case of wine sold ranged from $78.22 to $115.48, with revenue per case generally decreasing as the size of the wineries increased.
Debt-to-equity ratios had risen significantly compared with last year, with the smallest companies being heavily indebted, with an average ratio 84.9 per cent, and the largest companies having a debt-to-equity ratio of 46.9 per cent.
Deloitte said the higher debt levels compared with last year were mainly because of a change in the makeup of the survey participants, and that among last year's participants, average debt levels had declined in all bands except for the very smallest companies.
Munro said the widening gap between the profitability of the largest and smallest wineries could open the door to mergers and acquisitions, as well as increasing interest from wealthy overseas investors.
Wineries looking for partnerships should be careful about who they jumped into bed with.
"It would be prudent to select the [other] party carefully and ensure due diligence is undertaken," Munro said.
"Overseas investment can be useful, provided the investor's interests are aligned and they have a level of emotional engagement and skills to bring other than just money."
This story has been updated and corrected. 2012 figures were mistakenly used in the original version published.