Winemaker profitability dented by supply chain and Covid challenges

Delegat managing director Steven Carden said the company's growth was an excellent result, but the industry faced uncertainty from the pandemic and supply chain disruptions. Photo / Mark Mitchell

Listed winemakers Delegat Group and Foley Wines both reported weaker profitability in the June year as economic headwinds and global shipping delays continued to bite.

Delegat posted an 11 per cent decline in its operating profit – which strips out the impacts of grape harvest and revaluations – to $58.1 million from $65.2m in the prior year. Net profit rose 2 per cent to $63m.

However, Delegat's operating revenue increased 7 per cent to $325.4m on a 6 per cent increase in global case sales to 3.36m.

Smaller producer Foley Wines reported an operating profit decline of 3 per cent to $7.8m from $8m the year prior. Its net profit rose 60 per cent to $6.2m due to an unrealised value gain on harvested grapes of $2.4m compared with last year's loss of $1.7m.

Foley's revenue from bottled sales was up nearly 3 per cent at $54.7m, despite case sales being down 7 per cent to 525,000.

Congestion

Both the wine companies rely on export returns and commented on how congestion in global supply chains, as well as Covid-19, had impacted sales.

Delegat managing director Steven Carden said in the company's annual report that global case sales would have been higher had it not been for the difficulty getting products to market because of ongoing global port congestion and constrained shipping line capacity.

However, he described the company's growth as an "excellent" result and a testament to the strength of Delegat's brands, the relationships it had with its distributor partners and the effectiveness of its global sales time.

He said, as was the case last year, that the ongoing Covid-19 pandemic continued to have a tangible impact on market conditions.

Foley Wines chief executive Mark Turnbull said the company experienced considerable disruption from Covid-19 including its ongoing impact on hospitality, shipping and logistics, labour shortages and the risk of illness and isolation during harvest.

Harvest

Both companies reported considerable increases in their 2022 harvest totals after an unusually small harvest in 2021 mainly due to weather events.

Foley's harvest increased 65 per cent to 9,203 tonnes across its Marlborough, Martinborough and Central Otago wineries as harvest levels return to normal yield levels after adverse weather conditions affected the prior vintage.

Meanwhile, Delegat's harvest increased 20 per cent to 44,861 tonnes. Carden said the 2022 harvest delivered "exceptional quality fruit" across all three of its wine regions.

"Whilst the Marlborough and Hawke's Bay growing season experienced above average rainfall the vintage outcome has delivered excellent quality wines," he said.

Year ahead

Carden said the company continued to operate in an environment of elevated uncertainty arising from the ongoing global pandemic and supply chain disruptions.

Delegat planned to grow sales by 21 per cent to just over 4m cases over the next three years. The primary driver would be its Oyster Bay brand sales in North America.

In the 2023 financial year, it wanted to grow sales by 9 per cent to 3.67m cases. Delegat was forecasting operating profit to be in the range of $60m to $64m driven by the increased case sales.

"The group will continue to closely monitor and manage the potential impact of ongoing supply chain disruption including port congestion and shipping line capacity constraints," Carden said.

Turnbull said Foley's directors believed the company's premiumisation strategy – selling more wine at higher price points – continued to be the critical success factor in "very uncertain" times.

He said there were clearly headwinds in the economy with high inflation in many global markets and extremely high fuel prices that flowed through every component of Foley's supply chain.

"Notwithstanding these headwinds, the company believes it is well placed to continue to build on the platform set."

Turnbull said the company continued to seek out new opportunities both in New Zealand and around the world.

Foley Wines declared a dividend of 4 cents per share. Meanwhile, Delegat declared a dividend of 20 cents per share.

-By Riley Kennedy