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Winemaker Delegat posts 45% drop in 1H profit despite rising sales

Delegat Group, New Zealand's largest listed wine company, has posted a 45 per cent drop in first-half profit, mainly caused by a $10.7 million writedown of its vines and grapes and losses on derivative instruments used to limit its foreign currency exposure.

Net profit was $9.77 million for the six months ending Dec. 31, which included fair value adjustments of $3.1 million for its vines, $7.5 million for its grapes, and $4.3 million for derivative instruments, the Auckland-based company said in a statement. that compared to a profit of $17.8 million a year earlier.

Delegat confirmed record operating profit of $20.5 million, up 2 percent from $20.2 million in the previous corresponding period, following a 4 percent rise in global case sales to 1.13 million.

Sales revenue gained $4.4 million to $125.6 million on the prior period, offset the impact of foreign exchange rate changes which resulted in a 1 percent drop in case price realisation of $111.3, compared with the $111.9 achieved last year, the company said.

In-market case price realisations were being maintained in each of the major markets, it said.

North America became the company's biggest market last year, and global case sales to the US and Canada were up 19 percent to 425,000. Much of the anticipated sales growth in the next five years is expected to come from the North American market which is projected to lift 86 percent by 2019 and the development of the Barossa Valley Estate brand.

Delegat has pared back its planned big jump in capital spending this year, which is aimed at driving earnings growth, down $10 million to $76 million.

A total $34.9 million was invested in additional property, plant and equipment during the half-year, including the development of the Marlborough and Hawke's Bay Vineries, and various vineyard developments in Marlborough, Hawke's Bay and the Barossa Valley. The Marlborough expansion is on track to be completed for this year's harvest while building framework is underway for the 10,000 tonne capacity winery at Hawke's Bay which is due for completion for the 2016 harvest.

The group distributed $11.1 million to shareholders in dividends during the half-year. Additional borrowings of $30 million were drawn down to fund the increased capital investment during the six months, with net debt sitting at $179.4 million, up 17 per cent on the previous corresponding period.

The directors say the group is on target to achieve global case sales for the full year of 2.2 million, up 9 per cent on last year and to achieve operating net profit after tax of $34 million, also up 9 per cent.

The winemaker has said it plans to set up a toehold in China next year as part of its long-term goal of boosting sales by 52 percent within the next five years.

The shares last traded at $4.60, up 21 percent this year.