Grape grower reviews structure

Sandy Maier. Photo / Supplied

Listed grape grower Oyster Bay Marlborough Vineyards is reviewing its capital structure after two years of lower grape prices, says chairman Sandy Maier.

Oyster Bay said it had completed negotiations with Delegat's Wine Estate on grape prices for the 2010 harvest and that total revenue received was down 28 per cent on the previous year at $8.3 million, resulting in a forecast end-of-year operating loss after tax of about $900,000 before adjustment.

Oyster Bay said it had commissioned investment bank First NZ Capital to advise it on the most efficient and effective capital structure.

"It's really a question of saying now that prices have come off for two years, should we be carrying this much debt, should we raise more equity, what is the whole range of possibilities that we might do to accommodate our capital structure to the commercial reality?" Maier said.

The grape harvest in 2008 soared 39 per cent to 285,000 tonnes, resulting in about 27 million litres of over-supply after years of shortage, helping drive erosion in wine, grape and land prices.

Oyster Bay said given the supply imbalance affecting the sector any fair value write-down could be material and it was waiting for a report from its valuers.

"We won't know until we get the valuation, there's a valuation done every year, but we're simply saying that because there was a loss and because Marlborough as a whole has probably handed in a loss, or close to a loss, it means that land prices and the value of vines is likely to be down and that we have to just watch this space," Maier said.

Oyster Bay tried to keep its cost structures under control and watch its capital structure, he said.

"But the major driver is grape prices, grape prices and grape prices. [There has been] an excess of supply over demand for the last two years. I'd like to think the end of that is somewhere in sight but whether it's next year or two years who knows."

Total production for the year was 5652 tonnes, which was down 9 per cent on the previous year but closely in line with the planned volume.

The company still thought growing grapes for premium wine was a great business long term, Maier said.

"The agriculture sector is a long-term business and we've got that long-term supply contract with one of the outstanding brands in New Zealand," he said. "So we're as comfortable as we can be."

The company has a contract with its 50.1 per cent shareholder Delegat's Wine Estate to buy all its grape production.

The average grape price for Oyster Bay was $1469 a tonne across all varieties and the independent directors certified to NZX that they considered the prices to be commercially fair to minority shareholders.

Oyster Bay's directors were seeking bank covenant waivers.

"I'm happy that everybody's looking at it in a long-term and productive spirit."

Oyster Bay shares closed steady at $1.70 yesterday.