Foley Wines sees significant lift in operating earnings

Wednesday 27th February 2019

Foley Wines reported a significant lift in operating earnings as sales continued to improve and the company is upbeat about the full year.

The company said first-half net profit was $1.67 million more than five fold, while its operating earnings jumped 146 percent to $2.39 million. Profit in the prior period had been hit by $66 million of impairment of inventory while the six months to December saw a $30 million gain.

Bottled sales revenue lifted 14 percent to $21.1 million. Export cases shipped lifted 47 percent in the period.

“It’s satisfying to have delivered on our promises; the purchase of Mt Difficulty, entering into a long term strategic partnership with Lion, and moving to the NZX main board," said chief executive Mark Turnbull.

Foley Wines agreed the purchase of Central Otago-based Mt Difficulty in November 2017 as part of a strategy to increase returns by building scale, reducing costs and getting more from its premium brands. The original $55 million sale price was reduced to $52 million in exchange for Foley investing up to $3 million to expand Mt Difficulty’s cellar door operation and restaurant. The purchase was completed on Jan. 3.

At the time of due diligence, it was estimated that Mt Difficulty would generate earnings before interest, tax, depreciation and amortisation in the range of $5 million to $6 million. "While some time has elapsed since this work was completed, we do not have any reason to think that this isn’t achievable for the year ended 30 June 2020," it said.

As a result of the completion of the Mt Difficulty deal, Lion had agreed to enter a strategic partnership with Foley from Oct. 1, 2018, with Lion taking 3.7 percent stake.

The initial period of the partnership is 10 years which "enables us to work together to formulate a long term strategy of building our brands in New Zealand." it said.

Looking ahead, Foley Wines said its wineries are empty going into harvest with no holdover wines as a result of strong sales. "This means we have the ability to maximise the winery capacity, which will have a positive impact on cost of goods."

It said its teams in all regions are expecting high-quality future at volumes which will allow it to fill its wineries. "While there are some reports of concerns in the industry regarding a lack of water having a bearing on yields, we are in a good position in terms of water management," it said.

"In terms of earnings guidance, we have already achieved 87 percent of the full year underlying earnings of the previous year of $2.752 million. On this basis we are working hard to achieve approximately $5 million of operating earnings in the full year, inclusive of all costs associated with the Mt Difficulty transaction," it said.

The shares rose 3.2 percent to $1.60, and are up 8.8 percent so far this year.

(BusinessDesk)

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