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Winemaker Delegat says increased sales due to North American consumers trading up

27 Feb 2015

Consumers trading up to premium wine and an improved economy is behind a 19 percent boost in North American sales to 425,000 cases for New Zealand's largest listed wine company, Delegat Group.

The Auckland-based company confirmed record operating profit of $20.5 million for the six months ending Dec. 31, 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.

North America became the company's biggest market last year ahead of Australia and New Zealand and managing director Graeme Lord said there was a lot more growth potential in that market.

"The US premium wine market is growing in strength, so it's also a market growth dynamic with more US consumers attracted to premium wine, they're trading up to higher quality," Lord said.

Chardonnay remains the dominant varietal in North America but there was opportunity to make consumers more aware of sauvignon blanc and Delegat's Oyster Bay brand which has become the leading brand for the category in New York and Massachussets and southern California, he said.

Delegat posted a 45 percent 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 half year, 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. That compared to a profit of $17.8 million a year earlier.

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.

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. Lord said that reflected a delay in some planned vineyard plantings until next year because of either difficulty sourcing the right grapes or the land required.

He said things were on track for the development of the Marlborough and Hawke's Bay Vineries. The Marlborough expansion should 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. A total $34.9 million was invested in additional property, plant and equipment during the half-year.

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.

Lord said the 2015 harvest, due in three weeks, looks like it will be a quality vintage but the overall industry yields are likely to be down on the record 445,000 tonnes of grapes achieved last year, which was well up ahead of the 345,000 tonnes in 2013.

Delegat shares are trading unchanged at $4.60, up 21 percent this year.

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