New Zealand Wine Co struggles to surface from wine glut

New Zealand Wine Co struggles to surface from wine glut

New Zealand Wine Co has breached a loan agreement with lenders as it struggles to surface from the country's wine glut.

An independent review of New Zealand Wine Co's business model, including its financial outlook, will determine whether bankers agree to continue lending money to the group. The firm said yesterday (27 June) that it will breach one of its three bank covenants "by a significant margin" for the fiscal year to the end of June.

The situation underlines disjointed supply and demand in New Zealand's wine industry.

New Zealand Wine Co (NZWC) said that its lenders have agreed to waive its covenant breach pending the independent review of its business. If not satisfied with the outcome, the lenders might seek a further ten days of talks with the firm. In a worst case scenario, banks could then call in their loans.

The relevant covenant is the ratio which EBITDA bears to interest costs and must not be less than 1.3 to one.

"NZWC and its bankers are focused on developing and implementing a recovery plan it has in place to turn around the current financial year operating loss," said the group.

"The oversupply of New Zealand wine has resulted in high levels of NZ bulk wine sales currently around 30% of total export sales volume," it said. "When coupled with a very strong NZD against the GBP and the USD, plus aggressive competition, NZWC revenues and margins available from branded wine sales have reduced."

Today, NZWC reported that its 2011 wine grape harvest has come in 26% higher than in the previous year, at 586 tonnes. The total harvest for New Zealand was 23% higher than in 2010, at 328,000 tonnes.

In a sign of the uneven state of the industry, while some companies continue to combat oversupply, others appear keen to boost stocks. "2011 will allow us to have some wine to sell," said the chair of trade body New Zealand Winegrowers, Stuart Smith.