Wine industry shows increased profitability in 2013
Financial benchmarking survey optimistic despite challenges for smaller wineries
The turnaround in the New Zealand wine industry has continued in 2013 on the back of improved profitability, especially for large wineries, according to the eighth annual financial benchmarking survey released today by Deloitte and New Zealand Winegrowers.
Vintage 2013 tracks the results of wineries accounting for almost half of the industry’s export sales revenue for the 2013 financial year. New participants provided data this year making for the most even spread across the revenue band categories in the survey’s history.
Deloitte partner Paul Munro says that while a second successive year of increased profitability across wineries in most revenue bands shows sustained turnaround in the industry, the positive results clearly favour 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,” says Mr Munro.
“Other key metrics in the survey, such as debt to equity ratios and decreased inventory levels, further support optimism in the industry,” adds Mr Munro.
2013 saw a record harvest of 345,000 tonnes of grapes, up significantly from the unusually low harvest in 2012. The large high quality harvest for the sector was welcomed by most industry participants after the small 2012 crop had brought some tension back into the supply/demand balance.
“Key learnings from recent tough times have helped the industry to cope with this year’s increased supply and the dynamic and ever changing world in which New Zealand wine producers operate,” says Mr Munro.
The most profitable revenue band in this year’s survey, with an average profit of 16%, was wineries earning more than $20m in revenue. This marks the return of this category to the highest level of profitability across all revenue bands following a slump last year, and is largely due to a significant decrease in selling costs.
Mr Munro says the 2013 survey indicates that profitability generally increases with the size of wineries, ranging from a loss of 4.4% for the smallest revenue bands to double digit profits for the largest categories.
The widening gap between small and large wineries opens the door for increased mergers and acquisitions, as well as interest in the industry from wealthy overseas investors.
“If a smaller winery is considering selling a stake or seeking additional external investment in an attempt to become more sustainable, it would be prudent to select the party carefully and ensure due diligence is undertaken. 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. As industry returns tend to be moderate and variable a “real” interest in wine is important as opposed to someone investing for purely financial returns,” says Mr Munro.
To read or download the full Vintage 2013 report, go to www.deloitte.com/nz/wine