Profits on rise for wine industry

Kiwi wineries' profitability has continued to rebound after the oversupply of 2008-09 and the crushed earnings caused by an industry with too many grapes and too much debt.

The seventh annual Deloitte 2012 Vintage New Zealand Wine Benchmarking Survey, released today, shows most wine companies reported an increase in profits as a proportion of revenue for this year's vintage.

The industry must now deal with constrained production until at least 2016, New Zealand Winegrowers said.

NZ Winegrowers chief executive Philip Gregan said the report showed improving profitability on the back of a more balanced supply-demand situation.

A stocktake of Kiwi vineyards showed little increase in producing vines between now and 2016, meaning grape production was fixed apart from seasonal fluctuations, he said.

"The industry is now in the process of managing shortage."

He hoped growers, wineries and banks remembered the lessons learnt from the 2008-09 oversupply ensuring there was not another explosion of vineyards.

New Zealand wine had come through the past four years in "pretty good shape" and the trends shown in the Deloitte report were promising, he said.

The report shows increased profitability for wineries, but average returns on equity were still lower than the 12 to 20 per cent band that most investors would be comfortable with, Deloitte associate director Tim Burnside said.

Wineries with revenue between $10 million and $20m were the most profitable, taking an average profit of 17 per cent of total revenue.

Deloitte sponsoring partner Paul Munro said the sector needed to remain focused on growing export value rather than volume, and warned those looking at planting new vineyards not to upset the delicate scales of grape supply.

"Such investments need to be carefully assessed to ensure they are strongly market-led and there is no repeat of the supply-demand imbalance seen in recent years."

Brent Marris, of Marisco Vineyards in Marlborough, said the burgeoning lack of grapes was foremost in his mind.

"A lot of people in the industry have had a shock from how quickly we've gone from an oversupply to a shortage."

Bulk wine sold out of Marlborough had jumped from about $2.50 a litre last year to about $5.50 this year, which showed the tightening supply.

His company's revenue had grown to between $10m and $20m during the past vintage and he was confident in the industry.

Lessons learnt the hard way through the recession and oversupply had made the industry stronger and more competitive, he said.

Dayne Sherwood, of Sherwood Estates in Waipara, said there was definitely a shortage of grapes and it had happened much more quickly than he had expected.

He hoped to grow both the winery and vineyard, which turns over between $5m and $10m, but banks were still cagey about the industry.

"We'd like to grow . . . it's not quite as easy talking to your bank as it was four to five years ago," he said.

The high exchange rate was still squeezing export margins, he said, and although most Kiwi wineries had been able to increase prices overseas, it was not a complete offset. Fairfax NZ

The Marlborough Express