NZ: New Zealand Wine Co may seek buyer as FY losses deepen
- Full-year net losses widen by 75% to NZD3.3m (US$2.7m)
- Net sales drop by 14.5% to NZD11.2m
- Losses before interest, impairment and tax hit NZD991m, versus profits of NZD771m a year earlier
- Group may be forced to seek buyer as auditors warn over future
New Zealand Wine Co may be forced to seek a buyer or a merger after lower sales and charges related to surplus wine stocks dragged the group deeper into the red for its latest fiscal year.
Fresh investment or a merger with another wine company are two options currently being weighed by New Zealand Wine Co and its financial adviser, PricewaterhouseCoopers. "The board agrees with the bank that new equity needs to be introduced," said the firm in its annual report, published late last week.
The group said that it may seek "a strong cornerstone shareholder", or it could try to raise investment via a discounted rights issue to existing shareholders. News of the equity raising plan came as the group's auditors issued an "emphasis of matter" on the company's accounts, highlighting their concerns about its ability to continue as a going concern.
New Zealand Wine Co's plight feeds into a growing trend for consolidation on New Zealand's wine industry, which continues to grapple with overproduction and a strong NZ dollar. For the 12 months to the end of June, the company reported that net losses deepened by 75% on the previous year, to NZD3.3m (US$2.7m).
Net sales fell by 14.5% to NZD11.2m, dragging the firm to losses before interest, impairment and tax of NZD991m, versus profits of NZD771m a year earlier. Gross margins are not sustainable, the group warned, if pressure from exchange rates remains the same. It gave no guidance for the year ahead.
In addition to the equity raising options, New Zealand Wine Co is currently working with its bank lenders to devise a three-year restructuring plan. On 30 June, the firm reported that its banks had agreed to waive the breach of a financial covenant in return for an independent review of the group's business model. That review is not yet complete, said the group in its results statement.
Peter Scutts has been tasked with steering New Zealand Wine Co through the crisis, having become group CEO in early July. At the same time, previous CEO Rob White resigned to take up a new CEO position in Auckland.
Scutts' experience working in Australia's wine industry could prove valuable as New Zealand Wine Co seeks to establish a stronger presence in the country. "We see Australia as a major opportunity to deliver sustainable margins and have made significant progress in growing our volume in this market," said the group.
In the UK and US, however, the situation is much tougher. The company said that its position in the UK "needs constant review" and that it may withdraw volumes there if exchange rate does not improve over the next 12 months. The group's UK distributor is PLB, while it also supplies own-label wine to J Sainsbury.
In the US, New Zealand Wine Co's California-based distribution business, Lineage Imports, is also making losses and the group is seeking outside investment. New Zealand Wine Co owns 66% of Lineage, which it set up during its last financial year. It reported a NZD0.64m impairment charge on the distributor for the 12-month period.
To read the company's annual report, click here.
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