Wine industry shows continuing increased profitability
2014 financial benchmarking survey supports industry-wide optimism
The turnaround in the New Zealand wine industry has continued in 2014 on the back of improved profitability across wineries of all sizes, according to the ninth annual financial benchmarking survey released today by Deloitte and New Zealand Winegrowers.
Vintage 2014 tracks the financial results of wineries accounting for over 40% of the industry’s export sales revenue for the 2014 financial year. Survey respondents have been categorised into bands according to revenue to assist comparison within the industry.
Deloitte partner Peter Felstead says that for the first time since 2007, every category showed profitability before tax, ranging from 3.3% to 17.6%.
“This year’s results continue a trend of increasing profitability that we have seen for the last four years and shows that the turnaround is increasingly sustainable,” says Mr Felstead.
“The survey results underpin a renewed optimism in the wine industry after a period of supply imbalances, high external debt levels, the global financial crisis and impacts of bulk wine sales.”
2014 saw another record harvest of 445,000 tonnes of grapes; up significantly from the record 2013 vintage of 345,000 tonnes.
“Fortunately, the industry seems to have learned from its past experiences with oversupply and has been able to deal with this increase by being able to realise revenue out of the excess and avoiding having large volumes remain on hand,” says Mr Felstead.
The most profitable revenue band in this year’s survey, with an average profit of 17.6%, was wineries earning more than $20m in revenue. This was followed by the $10-20m category at 13.7%, the $5-10m category at 7.2%, the $1.5-5m and $0-1.5m categories at 3.3% each.
“In general, the survey results show that profitability increases with size. Larger wineries can achieve economies of scale while reporting the lowest proportional general and administrative costs. 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,” says Mr Felstead.
Other key metrics in the survey, such as healthy debt to equity ratios and acceptable inventory levels despite two years of record harvests, further support optimism in the industry.
It is estimated that the wine industry has an annual turnover of approximately $2 billion with $1.33 billion of this coming from export earnings. The importance of exports to the industry is a trend that has been noted in prior surveys and is again prominent in Vintage 2014. Consistent with this, exchange rates continue to be the number one issue facing the industry as reported by respondents.
In addition to “exchange rates,” “marketing product overseas” and “excise and other levies” are also considered to be important issues by survey participants. These three issues have persisted as the top issues faced by the industry.