Delegat's first-half profit reaches a record before non-cash writedowns

Friday 24th February 2012

Winemaker Delegat's Group's first-half net profit fell 8 percent on non-cash writedowns while cost cutting and a lower interest bill pushed operating net profit to a record despite sales falling 10 percent.

Delegat's said net profit including the writedowns of its biological assets and hedging instruments for the six months ended December 31 fell to $14.7 million from $15.9 million in the same six months of 2010.

Before those writedowns, net profit rose 2 percent to $17.4 million as operating expenses fell 10 percent and interest costs fell 11.1 percent.

Sales fell to $119 million for the six months from $131.7 million in the year-earlier half as case sales dropped 9 percent to $1.02 billion and the price realised per case eased marginally to $116.40 from $116.93.

Geographically, the biggest fall in case sales was in Britain, Ireland and Europe, down 24 percent to 394,000 cases from 521,000 in the previous first half, reflecting the company's decision not to discount. New Zealand, Australian and Asia Pacific sales were also down 3 percent to 390,000 from 401,000.

By contrast, North American case sales rose 17 percent to 238,000 from 204,000 previously.

“The directors view the economic headwinds prevailing globally as challenging and that the continuing strength of the New Zealand dollar is of the greatest concern, the control of which is outside the business model,” said chairman Robert Wilton.

“Whilst the grape supply imbalance has negatively impacted some segments of the industry, the group continues to perform well through the strength of its super-premium Oyster Bay brand,” Wilton said.

The wine industry has been suffering from an over-supply of grapes since the 2008 harvest and Delegat's has previously said it expects this to continue for at least another two years.

“The directors have confidence in the resilience of the group's business model and its ability to deliver sustainable earnings in the future,” Wilton said.

He reiterated previous guidance that the company expects its full-year net profit before non-cash items will be between $20.5 million and $24 million.

Delegat's doesn't pay first-half dividends.

Delegat's shares closed yesterday at $2.30, just below its $2.35 year high reached earlier this month and well up from their 12 month low at $1.90 last September.

BusinessDesk.co.nz

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