KEY POINTS:
The New Zealand Wine Company has warned that if the dollar remains at "unsustainable" levels it will be hard pressed to match last year's profits, let alone those forecast for 2007.
Although the company posted a 7.2 per cent increase in half-yearly net profits in January, chairman Mark
Peters yesterday said that with the New Zealand dollar reaching a post-float high of US74.93c this week, its forecast 2007 result of $1.6 million was now beyond reach, and it would struggle to hit the $1.026 million achieved in 2006.
"[The board and management of NZWC are] doing everything we possibly can in terms of putting some product into areas that doesn't require US dollars," Peters said.
The NZAX-listed company, whose brands include Grove Mill, Sanctuary, Redcliffe and Frog Haven wine, exports around 60 per cent of its total sales, with about 60 per cent of that - 45,000 to 50,000 cases - going to the US.
Peters indicated in January that the high dollar might prevent the company meeting its 2007 forecast, but held out hope for the second half, saying that with sales meeting budgeted levels, it was positive for the full-year result. Now, the company would struggle to meet the 2006 net profit of $1.026 million, he said.
"This is a real pity given our record sales volume this year and the excellent work our management team has done to grow distribution through our export markets."
He said NZWC had boosted its exports strongly in accordance with the Government's Export Year 2007 initiative, but was frustrated to find operating margins steadily deteriorating due to a factor outside the company's control and appealed to the Government to take some action.
"Listen, we've done our bit - so how about you do your bit and work in with the Reserve Bank and sort out the issues that are keeping this dollar at a level which is unsustainable."
He said the wine industry was hurting, unlike the dairy sector, which was enjoying record commodity prices.
"I'm afraid that not everybody is exporting dairy products. Wine products are pretty much set at price points around the major markets in the world and those price points don't move." NZWC was, however, still profitable, he said.
"But the point is when you look at return on equity the current exchange rate is making that very difficult to be a return that is satisfactory."
Jim Delegat, managing director of Delegats, New Zealand's third-largest wine exporter, agreed the currency situation for wine exports was "very serious" but said that the "tide comes in and the tide goes out" when it came to foreign exchange risks.
However, he said the US dollar had a "profound influence on profitability".
Wine warning
* The New Zealand Wine Company says despite strong export growth it will struggle to match 2006 net profit of $1m with kiwi worth US74.4c.
* The wine exporter says its profit forecast for 2007 of $1.6m - based on 2006 bank estimates kiwi would be worth US56c - is beyond reach.
* It is moving as much wine as it can into non-US dollar markets and calling for Government action on the high exchange rate.
