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Strong dollar and market volatility pressure Australian wineries in 2007

Volatile market conditions during the 2007 vintage and a relatively strong Australian dollar resulted in Australian wineries facing difficult times, according to the 2008 Annual Financial Wine Benchmarking Survey Report, released yesterday by Deloitte and the Winemakers’ Federation of Australia.

The study examines the financial performance of wineries located across Australia for the 2007 financial year, and is based on individual financial results and information provided by wineries to Deloitte.

Deloitte Partner and leader of the Deloitte Wine Industry Group, Mr Stephen Harvey said, the low yielding 2007 vintage placed pressure on the industry due to the expected rise in overhead costs per litre produced that were associated with the low yielding vintage.

“During 2007, wineries experienced volatile market conditions, due mainly to climatic conditions which resulted in lower levels of supply. However, improved weather conditions in early 2008 increased production to a higher level for the industry overall,” Mr Harvey said.

“Wineries with revenues greater than $20m responded well to 2007 market conditions and recorded earnings just below 20% of revenue, while wineries with revenues less than $1m continued to record low earnings before tax. However, the small wineries reported gross margin increases of almost 20% which was a substantial improvement on the previous year.”

Mr Stephen Strachan, Chief Executive of the Winemakers’ Federation of Australia, said financial performance activities such as the Deloitte survey are integral to creating a sustainable future for our industry.

“Many wineries, both small and large, have benefitted from the individual business advice provided by Deloitte in response to financial data submitted,” Mr Strachan said.

“In an increasingly competitive domestic and international market environment, such exercises are invaluable for demonstrating paths to greater profitability and business growth.”

Significant findings of the 2007 Annual Financial Benchmarking Survey were:

$0-$1m wineries

Wineries in this group fought back from an average Earning before Tax (EBT) of -18.6% of revenue in 2006 to an EBT of 1.9% attributable to gross margin increasing by 17.9%

$1m — $5m wineries

Reporting gross margins of 35%, the lowest of all categories in the survey, wineries within this group recorded a sharp decline in EBT to -8.7% in 2007, compared to -0.7% in 2006. Overall, this group performed least profitably of all categories in the survey.

$5m — $10m wineries

This group recorded an EBT of 9.8% of revenue, compared to 12.2% in 2006. The drop can be attributed to an increase in general administration cost from 22% to 23.4%.

$10m — $20m wineries

The average EBT for the $10–20m wineries was 7.4% compared to 10% of revenue in 2006. This category has the highest gross margin of 47.4%, however average EBT was brought down because selling and general administration costs increased.

$20m+ wineries

Wineries with revenue in excess of $20m have had positive EBT growth, up from 17.3% in 2006 to 18.8% in 2007, driven by an increase in average gross margin of 2.5% over to prior year, to 39% gross margin.

Best Performers

Wineries termed “Best Performers” are those in the top quartile of their category based on profit. The best performers in the $0–1m category had an average gross margin of 75.2%, resulting in EBT of 49.7%. Meanwhile, those in the $1–5m category had an average gross income of 36.4%, but achieved EBT of 24.7% through reported low selling costs of 6.6% and additional “other income” of 8.3%.

Domestic wine sales

During 2007, it was noticeable that wineries in the $10–20m category the proportion of bottles sold within the $20–50 retail price bracket increased substantially to 58%. This is also an important price bracket for all wineries below $20 million, with only the 20m+ category recording the majority of their sales value below $10 a bottle.

NB: See our media releases and research at www.deloitte.com.au

Refer to the “Direction Ready Reckoner” and “Sustainable Benchmarking Guides” at www.wineaustralia.com.au for further help in obtaining accurate winery costing.

For further information:

Mr Stephen Harvey

Leader, Deloitte Wine Industry Group

Partner, Assurance & Advisory

Mob: 0414 407 204

Tel: + 61 (0) 8 8407 7204

Penny Boothman

Director, Communications, Winemakers’ Federation of Australia

Mob: 0419 833 107

Tel: + 61 (0) 8 8222 9255

Manon Nolan

Director of Marketing


Mob: 0404 469 400

Tel: +61 (0) 8 8407 7131

Jane Kneebone

Media and Communications


Mob: 0416 148 845

Tel: +61 (0) 3 9208 7389

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