Foley Family Wines warns of challenging year ahead after earthquake damage

Foley Family Wines (FFW), which operates through brands including Vavasour and Martinborough Vineyard, has warned investors of a challenging period ahead, partly as a result of the Kaikoura earthquake.

The quake caused significant damage to storage tanks at the Grove Mill winery in Marlborough, with some bulk wine lost. There was a small amount of damage to vineyards, with minimal damage to finished goods and buildings.

Last week, the company said it was clear the damage would be more than its insurance excess of $1 million, although it has the resources to cover the extra cost.

In slides shown to shareholders at its annual meeting in Wellington, FFW said that its aim was to be back up and running for next year's vintage. However, the challenges are not just limited to recovery from the earthquake.

Case sales for the six months to the end of December are expected to be down about 15% from the year earlier, mainly due to Australian and New Zealand markets. The slide suggests the second six months will see " a significant improvement due to the work being undertaken."

The collapse in the value of the pound after Britain voted to leave the European Union is also having an impact, with the price per litre of wine in New Zealand dollars from the important British market falling 30.7% in the bottled sector to $6.08, from $8.78 in August 2016. In Australia, the price per litre in NZ dollars fell 9.5%, but in the US it dropped just 3.6%.

Foley Family Wines also warned there were bumper Marlborough yields in this year's vintage, up 39% on 2015, with a substantial amount of cheaper, bulk wine on the market. The company is strong and will navigate the current headwinds, shareholders were told, with continued opportunities for growth in the United States.

The business is majority owned by US billionaire Bill Foley, but listed on the NZAX. Shares were unchanged at $1.50 and have risen 3.45% since the start of the year.

The company said the quake had affected several tanks at its Grove Mill winery in the Wairau Valley near Renwick, although buildings and finished wine stocks were relatively undamaged.

"The company is working through the process with its insurers and the claim is in its preliminary stages," it said. "However, it is clear the cost of the damage will exceed the insurance excess for earthquake claims of about $1m. The company has the resources available to cover its insurance excess."

(BusinessDesk)