Vintage 2014: Profitability rises across all NZ winery sizes

The turnaround in the New Zealand wine industry has continued this year with improved profitability across wineries of all sizes, according to the ninth annual financial benchmarking survey released by Deloitte and New Zealand Winegrowers.

Vintage 2014 tracks the financial results of wineries accounting for more than 40% of the industry's export revenue for the 2014 financial year and shows a trend of increasing profitability that has been building for the past four years.

The wine industry has an estimated annual turnover of some $2 billion, with $1.3 billion of that in export earnings.

Deloitte partner Peter Felstead says for the first time since 2007 every category has been profitable before tax, ranging from 3.3% returns to 17.6%. That's despite the high dollar, which is ranked by survey respondents as the biggest issue they face.

"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," he says.

There was another record harvest of 445,000 tonnes of grapes, up 29% on the record 2013 vintage of 345,000 tonnes. But this didn't lead to any significant increase in winery inventory levels this year.

The industry seems to have learnt from its past experiences with oversupply and has been able to sell increased production without having large volumes remain on hand, Mr Felstead says.

Profitability has increased with size. The most profitable revenue band in this year's survey is the larger wineries with more than $20 million in revenue whose average profit was 17.6% of sales.

This was followed by the $10-20 million category at 13.7%, the $5 - $10 million category at 7.2%, and the $1.5-5 million and $0-1.5 million categories at 3.3% each.

In general, the survey shows larger wineries can achieve economies of scale while it's harder to generate acceptable returns at the smaller end of the market, Mr Felstead says.

Previous surveys have mentioned that a gross margin of 50% is generally regarded as necessary for a winery business to be sustainable but this year's survey results show this traditional measure may now be closer to 40%, which if overhead levels are managed well, is likely to return a net profit of 10% or more.

The highest gross margin of 45.7% this year was in the $10-20 million category.

The other two most important industry issues respondents listed was marketing product overseas and excise and other levies.

(BusinessDesk)