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Wine lake sinks Delegat's share price as major write-downs loom

Friday 26th February 2010

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Delegat's Group is forecasting a 30%-to-40% cut in full-year earnings as it prepares to write down the value of vineyards and their "biological assets" as wine industry oversupply sinks grape prices.  

Shares of Delegat's sank 13.5% to $2.30 on volume of more than 37,000 shares. While export sales and revenues rose strongly for the six months to December 31, net income slipped 12% to $13.8 million, the company said today. Revenue rose 6% increase to $134.9 million, though this was offset by the impact of a strong New Zealand dollar on export earnings. The company took a $1.6 million charge against its foreign currency translation reserve for the half.

However, the larger impact in the immediate future is the oversupply of grapes in New Zealand.  Write-downs on the fair value of vineyard land and vines were expected to have "a fairly significant negative impact on reported performance", the company said in a statement to the NZX. 

Directors now forecast a 2010 profit that is 30% to 40% lower than the previous year's $30.0 million net profit, placing the forecast outcome for the year in a range of $18 million to $21 million, although the unrealised nature of the impacts means directors remain confident they can maintain final dividends at around current levels.  As was the case last year, Delegat's declared no interim dividend.

The total value of property, plant, equipment and biological assets on the Delegat's balance sheet at half-year end was $232.6 million, up from $217.1 million at the last financial year-end.

In the period under review, Delegat's grew global case sales to 1,135,000, up 20% on the previous corresponding period, and full year global case sales are forecast to be up 11% on the previous full year, at 1,927,000 cases.

Among reasons for the weaker first-half profit performance was a 16% increase in ongoing sales and promotional costs to $40.2 million and a "significant doubtful debt in respect of a major United Kingdon retailer, which was placed into administration".

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