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Delegat's posts 62 percent gain in annual profit as value of vineyards, grapes increase

Monday 26th August 2013

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Delegat's Group, the New Zealand winemaker which has been snapping up the distressed assets of rivals, posted a 62 percent gain in profit as it benefited from an increase in the value of its vineyards and grapes after a bigger grape harvest and higher prices.

Net income rose to $41.2 million in the year ended June 30 from $25.5 million the year earlier, Auckland-based Delegat's said in a statement. The value of the company's vineyards, grapes and financial derivatives rose $14.9 million, compared with a $100,000 writedown the year earlier.

Delegat's, which counts Oyster Bay among its brands, in the past year spent $73.7 million on Kaituna Vineyard in Marlborough, Matariki Vineyard in Hawkes Bay, Barossa Valley Estate in South Australia and additional plant and equipment to provide earnings growth in the coming years. It plans to spend a further $132 million over the next three years to support its sales growth plans, particularly in the key North American market.

"The group has made significant progress in building an internationally successful wine business over the last decade," chief executive Jim Delegat said in the statement. "The group is planning to grow sales from 1.95 million cases to 3.07 million cases over the next six years. This planned growth will be primarily driven by continuing to drive sales growth in North America and through development of the recently acquired Barossa Valley Estate brands."

In 2013, operating profit rose 3 percent to $26.3 million, including $1.9 million of one-time acquisition costs for Barossa. Last month, the company said operating profit would be in line with its February guidance of $27 million not including the acquisition costs.

Shares in Delegat's fell 3.6 percent to $4, crimping their gain this year to 41 percent.

The company's cash flow from operations declined 21 percent to $39.2 million as it invested in a higher 2013 harvest, which was 4 percent ahead of target yields and 42 percent above the 2012 vintage.

Delegat's drew down $41.8 million of additional borrowings to fund its increased capital investment during the year, taking total debt to $137.5 million. The company expects to fund its expansion over the next three years using a combination of retained earnings and debt.

Sales rose 3.6 percent to $229.7 million in the past year as a 5 percent gain in the number of cases sold offset adverse foreign exchange affects.

Delegat's expects North America will become its largest region by sales volume in the current financial year, overtaking Australia, New Zealand and the Asia Pacific region. North America will be the company's key growth region over the next six years, driven by sales in the US and Canada.

In the past year, North American sales volumes rose by 25 percent to 670,000 cases. North American sales volumes are expected to rise to 1.01 million cases by 2016 and to 1.39 cases by 2019, providing significant distribution scale benefits.

In the Australia, New Zealand and Asia Pacific region, sales volumes slipped 3 percent to 672,000 cases. Volumes are expected to decline 8 percent in the region in the current financial year because of weak economic conditions in Australia. Volumes are expected to return to growth in 2015 and 2016 and will be underpinned longer term by demand from Asia and from the Barossa acquisition. The group will open sales operations in China and Japan in the current financial year.

In the UK, Ireland and Europe, sales volumes weakened by 3 percent in the past year to 604,000 cases. Volumes are expected to be stable over the next three years with modest longer term growth, underpinned by price increases and the "super premium" Oyster Bay brand.

The company will pay a dividend of 10 cents a share on Oct. 11, up from 9 cents last year.

BusinessDesk.co.nz



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