Record sales fail to stem losses

Jim Delegat, managing director of Delegat's Group, says the high NZ dollar affected overall profits. Photo / Richard Robinson

Wine company Delegat's Group reported a 17 per cent fall in full year operating net profit to $18.9 million as global sales reached record levels but revenue was affected by the value of the New Zealand dollar.

In the year to June 30, the company had record global sales of 1.95 million cases, and earned record sales revenue of $219.7 million, which was $3.1 million more than a year earlier.

The 2010 case price realisation of $112.70 was 10 per cent down on a year earlier.

Managing director Jim Delegat said the persistent higher value of the NZ dollar had a negative effect on the group's reported case price realisation and sales revenue.

The group's Oyster Bay brand was established as a leading super premium wine in this country, Australia, Britain and Ireland, and was gaining momentum in the United States and Canada, Mr Delegat said.

The company said operating expenses were 9 per cent higher than the year before to $81.5 million, thanks to more investment in sales and promotional programmes generating increased case sales, and higher recruitment.

Under international accounting rules, Delegat's bottom line profit was put at $177,000, but the company said its directors did not consider that figure provided adequate insight into underlying operational performance, mainly because of fair value adjustments that had to be reported on.

Fair value adjustments affecting the bottom line result included a $6.5 million writedown in vines, the recording of grapes at market value rather than costs incurred resulting in the expensing of $5.3 million of growing costs, and a $3.7 million loss in derivative instruments held to hedge foreign currency and interest rate exposures.

"The wine industry's supply imbalance led to lower grape prices in 2010, which influenced the value of vineyard assets and accordingly Delegat's recorded significant non-cash accounting adjustments in the year to account for lower values for land, vineyard improvements and biological assets," Mr Delegat said.

Tax changes also resulted in non-cash accounting adjustments of a negative $5.7 million.

When the fair value movement on biological assets was included in the top line, revenue was $215.8 million, down 6 per cent on a year earlier.

Delegat's said its directors considered the underlying operating performance and strong cash flows fully justified the maintenance of dividends, so a fully imputed payout of 8c a share would be made.

- NZPA