annual financial benchmarking survey for the australian ...s3.amazonaws.com/zanran_storage/ ·...

Annual financial benchmarking survey for the Australianwine industry Vintage 2008Publication date 2009

A joint project between Deloitte and the Winemakers’ Federation of Australia

Annual financial benchmarking survey for the Australian wine industry Vintage 2008 1

Contents

The annual financial benchmarking survey 2

Executive summary 3

Section one: 2008 benchmarks

Project background and survey methodology 6

Survey results 7

Profitability summary 8

Key financial ratios 9

Income statement 11

Balance sheet 13

Distribution 15

Production 17

Inventory 18

Sales of wine (domestic/Australian only) 19

Section two: Best performers

Best performers 22

Methodology 22

Profitability summary 22

Key financial ratios 23

Balance sheet 24

Distribution 25

Sales of wine (domestic/Australian only) 26

Conclusion 27

About Winemakers’ Federation of Australia 27

About Deloitte’s Wine Industry Group 27

Feedback 27

2

The annual financialbenchmarking survey

In partnership with the Winemakers’ Federation of Australia, Deloitte conducts an annual financial benchmarking survey which provides the wine industry with data upon which to benchmark performance

We have conducted surveys and prepared benchmarking reports for ten consecutive years, conducting analyses of year on year trends. Note that tables have not been adjusted to correct minor rounding errors.

The results can assist winemakers to make more informed decisions about their relative strengths and weaknesses compared with others in the industry. The study also provides winemakers with an insight into the relative efficiency and financial performance of their business – information which is vital for those looking to attract venture capital, expand and sustain growth.


Executive summary

Welcome to the tenth annual financial benchmarking study of the Australian wine industry conducted by Deloitte in conjunction with the Winemakers’ Federation of Australia

Winery size (2008 revenue in $ millions)

$0–1m $1–5m $5–10m $10–20m $20m+

Key financial benchmark measures

Revenue per case $195.24 $154.53 $112.85 $76.98 $38.58

Cost per case $122.52 $79.66 $67.02 $50.28 $23.19

Gross margin per case $72.73 $74.87 $45.83 $26.70 $15.40

Debt to equity ratio 269% 77% 56% 58% 42%

This survey examines the financial performance of wineries located across Australia for the 2008 vintage. The survey is a profile of wineries across the size range and is an indicative profile rather than a statistically reliable analysis.

Survey results• $0–1m,$5–10mand$10–20mcategoriesproduce

negative to very low earnings before tax• $20m+categorycontinuestodeliverearnings

of around 20% of revenue•Apartfromthe$5–10mcategory,bulkwinesales

revenue has decreased compared to the prior year• Totalcostofgoodssoldhasincreasedcompared

to last year for the $0–1m, $5–10m and $10–20m categories

• Salesandmarketingexpenseshaveincreasedfromthe prior year for all categories other than the $0–1m category

•Despitethechallengingconditionsfacingthewine industry, the Best Performers section of this report highlights that some wineries are still able to achieve results and efficiencies comparable to those set out in the best practice Benchmarking Guides.

4

Deloitte perspectiveA near record grape crush in the 2008 vintage coupled with a strong Australian dollar exacerbated the difficulties that many Australian wineries have faced in recent years.

Neither drought nor a record heat wave during the vintage period in South Australia and Victoria appeared to have a significant negative impact on the national 2008 vintage yield, with the industry crushing 1.83 million tonnes of grapes. This has worsened existing oversupply issues as the wine industry finds it increasingly difficult to match demand with supply.

This oversupply situation has now reached a point whereby the Australian industry must take significant action to rectify the problem. If it does not then the viability of the industry in the medium to longer term could be seriously impacted. Not only does the excess supply deliver unsustainable returns to growers and wineries alike, it is also negatively impacting the image of Australian wine in export markets. Many Australian wine businesses have built up valuable export equity in their brands over the last 5–20 years only to see it being eroded by a flood of ‘no-name’ bulk wine exported at prices that are not sustainable in the long term.

There is no silver bullet solution to this problem as it requires the industry and in particular the major players, including the Federal Government, to work together to find a way through the turbulent white water rapids the industry is going through.

It appears that high unit costs from the low yielding 2007 vintage have adversely affected the profitability of many wineries as the white wines from 2007 reach the market. Although lower unit costs are expected from the higher yielding 2008 vintage, profitability is expected to remain low as the red wines from the 2007 vintage reach the market and further retailer consolidation continues to place downward pressure on retail prices. We are now seeing the prices in $/hectare for vineyards in premium areas such as Clare fall below $20,000 which is significantly less than 1–2 years ago*.

(*source – recent sales of Constellation Wines Clare Holdings)

As a result of ongoing turbulence in the wine industry, it is not surprising that a number of key industry players have commenced steps towards divestment of significant winery and vineyard assets. Merger and acquisition activity is expected to continue in the wine industry.


Section one: 2008 benchmarks

6

Survey methodologyThe survey methodology is consistent with previous Deloitte/Winemakers’ Federation of Australia (WFA) Annual financial benchmarking surveys. The survey was conducted between November 2008 and May 2009 based upon financial statements which cover the 2008 vintage. Note that financial statements issued in this period are likely to contain sales and costs of sales of wine from previous vintages. Vintage 2008 will be used throughout this report to refer to data collected from financial statements covering the period that contained the 2008 vintage crush.

The reporting of results for the 2008 vintage is consistent with the 2007 vintage survey where results are compared to the sustainable levels suggested by the Benchmarking Guides produced as part of the joint AWBC/WFA ‘Directions to 2025’ project (the ‘Benchmarking Guides’). The Benchmarking Guides, which were prepared by Deloitte Touche Tohmatsu, can be found at www.wineaustralia.com.au.

Survey questionnaires were sent to approximately 2,200 wineries across Australia. Participants could choose to submit their feedback on-line or within a Microsoft Excel spreadsheet. All information provided by participants is treated confidentially. All results are reported in an aggregate form and the names of the individual participants are not disclosed.

In the current year information from listed entities has not been used due to the lack of detailed information provided in their annual accounts.

Where appropriate we have also commented on the results. However, this survey is not representative of the whole Australian wine industry. Due to the low response rate of wineries in the $10–20m and $20m+ segments the survey results from these segments may not be representative of the entire respective segments.

Care must therefore be taken when analysing the state of the industry based on the information reported in this study.

Winery segmentsGiven the significant variation in the size of the participating wineries, responding organisations have been placed into categories according to their total revenue. This has been done to allow for a more meaningful comparison of results.The categories, which are based on annualrevenue, are:• $0–1m• $1–5m• $5–10m• $10–20m• $20m+.

Project background and survey methodology


Survey results

The 2008 survey – Profitability summary


$0–1m $1–5m $5–10m $10–20m $20m+

Net case sales revenue 76.3% 81.9% 76.3% 89.4% 92.0%

Add:

Bulk wine sales 1.6% 2.4% 4.0% 5.9% 4.9%

Grape sales 7.2% 2.1% 1.8% 0.2% 0.0%

Merchandising revenue 1.8% 0.7% 0.4% 0.1% 0.0%

Contract winemaking revenue 2.5% 2.4% 4.4% 1.4% 0.3%

Other revenue (including restaurant/accommodation) 10.5% 10.5% 13.1% 3.1% 2.7%

Total revenue 100.0% 100.0% 100.0% 100.0% 100.0%

Total cost of goods sold 62.8% 51.5% 59.4% 65.3% 60.1%

Gross margin 37.2% 48.5% 40.6% 34.7% 39.9%

Less:

Selling costs 13.4% 14.2% 11.1% 12.9% 11.3%

General & administration costs 23.1% 28.6% 28.1% 20.0% 12.0%

Earnings before interest & tax 0.7% 5.7% 1.4% 1.8% 16.5%

Add:

Interest income 0.0% 0.5% 0.0% 0.0% 0.3%

Other non-operating income 0.0% 6.3% 4.8% 0.5% 0.2%

Less:

Interest expense -7.7% -4.2% -4.7% -5.1% -2.3%

Inventory write-downs -0.4% -0.1% -0.7% -3.6% -2.0%

Foreign exchange gain/loss 0.0% 0.0% 0.0% -1.1% 9.3%

Earnings before tax -7.4% 8.2% 0.8% -7.4% 22.1%

Note: Amounts in the above table represent relative percentages of ‘total revenue’.

General observationsThe 2008 survey results highlight that the average profitability of all wineries with revenues less than $20m was significantly below the earnings before tax (EBT) figure of 15% of revenue suggested for small and medium wineries in the Benchmarking Guides. Average profitability of wineries in the $20m+ category was greater than the sustainable EBT target of 10% of revenue suggested for large wineries, attributable in part to strong foreign exchange gains.

Revenues stated are exclusive of the Federal Government’s wine equalisation tax (WET) rebate. It is Deloitte’s view that the WET rebate should be included as ‘Other non-operating income’, i.e. beneath the gross margin line. However, it is suggested that many wine survey participants have in fact categorised their WET rebate as ‘Other revenue’.

The $1–5m segment had an average gross margin of 48.5% of revenue, comparable to the suggested sustainable level of 50% in the Benchmarking Guides. Wineries in all other categories had average gross margins that were below the suggested sustainable levels.

8

Average EBT for the $0–1, $1–5m, $5–10m and $10–20m winery categories were less than the sustainable 15% of revenue for small and medium wineries suggested in the Benchmarking Guides. This was mainly due to general and administration costs being higher than the 11% to 15% of revenue suggested in the Benchmarking Guides. The $0–1m category also had an interest expense of 7.7% of revenue compared to a target of 5% of revenue as recommended in the Benchmarking Guides.

Large wineries (those with revenues of $20m+) had average gross margins below the sustainable level suggested in the Benchmarking Guides of 45% of revenue. However, they were again able to record an average EBT above the 10% of revenue suggested in the Benchmarking Guides because their average selling costs were below the level suggested in the Benchmarking Guides of 17% of revenue.

-10%

-5%

0%

5%

10%

15%

20%

25%

Earnings before tax

$0–$1m $1–$5m $5–$10m $10–$20m $20m+

$0–1m categoryThe average EBT for the very small wineries was -7.4% of revenue. In our opinion, this can be largely attributed to the average gross margin for this category being 37.2% of revenue, significantly less than the sustainable level of 50% suggested in the Benchmarking Guides. General and administration costs of 23.1% of revenue and interest expense of 7.7% of revenue compared to a suggested level in the Benchmarking Guides of 15% and 5% of revenue respectively also contributed to this category not achieving the recommended EBT of 15%. Within this category, the majority of the participants recorded a loss in their financial year ending in 2008.

$1–5m categoryAn average EBT of 8.2% of revenue was achieved by wineries in this segment. However, this fell short of the sustainable level of 15% suggested in the Benchmarking Guides. This was primarily due to general and administration expenses being 28.6% of revenues, compared to a sustainable level of 15% suggested in the Benchmarking guides.

$5–10m categoryIn 2008, this category of wineries recorded an average EBT of 0.8% of revenue. Average gross margins for 2008 of 40.6% of revenue were less than the sustainable level of 50% suggested in the Benchmarking Guides. Furthermore, average general and administration costs of 28.1% of revenue are somewhat higher than the suggested sustainable level of 11%. In our view, these were the main causes of EBT being less than the recommended 15% of revenue.

$10–20m categoryAverage gross margins for 2008 of 34.7% of revenue were considerably less than the sustainable level of 50% of revenue suggested in the Benchmarking Guides. In addition, at 20% of revenue, average general and administration costs were significantly higher than the suggested sustainable level of 11%. Consequently, average EBT for this segment was -7.4% of revenue, well below the sustainable level of 15% suggested in the Benchmarking Guides. Within this category, 60% of the participants recorded a loss in their financial year ending in 2008.

$20m+ categoryThe average EBT for wineries with sales in excess of $20m was 22.1% of revenue, considerablyhigher than the sustainable level of 10% of revenue suggested in the Benchmarking Guides. This was partially due to selling costs being below the level suggested in the Benchmarking Guides. In addition, an average foreign exchange gain of 9.3% of revenue added to the EBT results for wineries in this category. This was potentially driven by wineries holding favourable foreign exchange contracts during a period when the Australian dollar was performing strongly against other currencies, most noticeably the US dollar. This is not necessarily sustainable given recent currency volatility.

The 2008 survey – Profitability summary


Key financial ratios


$0–1m $1–5m $5–10m $10–20m $20m+

Revenues and expenses per case

Revenue per case $195.24 $154.53 $112.85 $76.98 $38.58

Gross margin per case $72.73 $74.87 $45.83 $26.70 $15.40

Profit per case -$14.36 $12.69 $0.91 -$5.73 $8.52

Advertising spend per case $3.72 $3.32 $0.73 $1.40 $1.10

Overhead per case $38.17 $10.86 $10.06 $6.12 $2.30

Packaging cost per case $10.64 $17.00 $11.70 $12.81 $6.28

Solvency ratios

Current ratio 105% 258% 215% 231% 246%

Debt to equity ratio 269% 77% 56% 58% 42%

Debt to total tangible assets 64% 40% 33% 31% 25%

Efficiency ratios

Inventory turnover 0.58 0.63 0.71 0.69 0.81

Fixed asset turnover 0.46 0.93 0.54 0.85 1.29

Asset turnover 0.29 0.43 0.35 0.42 0.61

Profitability ratios

EBIT margin (average) 0.7% 5.7% 1.4% 1.8% 16.5%

EBIT to assets (average) 0.2% 2.4% 0.5% 0.8% 10.1%

EBT to equity (average) -9.2% 7.2% 0.5% -6.0% 22.8%

EBT to net case sales (average) -9.6% 10.0% 1.1% -8.3% 24.0%

Note: Please refer to commentary on page 10 when review overhead per case figures.

Revenue per caseIn 2008, the average revenue per case for wineries in the $0–1m category was more than five times that of wineries in the $20m+ category. In our experience revenue per case for smaller wineries tends to be higher because the sales mix of larger wineries has a higher proportion of high volume products.

Gross margin per caseGross margin per case for $20m+ wineries is significantly less than that of smaller wineries.Generally, larger wineries generate a lower gross margin but have higher sales volumes.

Profit per caseProfit per case is consistent with the profit to revenue percentage. Survey results over the past few years support the view that the wine market has evolved and has become increasingly more volume rather than price driven.

Advertising spend per caseIn 2008, the average advertising spend per case was higher for all wineries with revenues less than $20m compared to 2007 results (wineries in the $20m+ category recorded a decrease in average advertising spend per case). Advertising spend per case in the current year was between the range of $0.73 to $3.72 a case compared to a range of $0.37 to $2.63 a case in the previous survey.

Overhead per caseIn 2008, overhead per case rose in the $0–1m, $5–10m and $10–20m categories. The cause of these increases is most likely due to the absorption of fixed overheads resulting from the low volumes of grapes processed in the 2007 vintage.

10

Packaging cost per caseIn our experience packaging costs per case tend to be smaller for large wineries. Purchases of large quantities of packaging items often reduce the unit cost of packaging. The packaging cost per case for wineries in the $0-1m range would appear to be low based on previous survey data. This may be due to the misallocation of costs between overhead and packaging. The Benchmarking Guides suggest that packaging costs typically vary between $10 (basic wines) and $24 (luxury wines) per case.

Current ratioAll wineries hold high levels of current inventories and traditionally have high current receivables and low current creditors and debt. This ratio has a significant impact on cash flow and the need for debt, as costs often have to be paid well in advance of receiving the proceeds from the sale of wine. The survey requires wineries to include all inventory as a current asset for ease of comparison.

Debt to equityIn our opinion, this ratio fluctuates depending on winery size. It is generally assumed that large wineries are able to carry higher levels of debt. However, in 2008 the average debt to equity ratio for small wineries exceeded that of larger wineries.

Debt to total tangible assetsMost banks’ preferred loan to security ratios tend to fall within the range of 35–55%. In 2008 the average debt to total tangible assets ratio for wineries in the $1–5m category was outside of this range. The average debt to total tangible assets ratio for wineries in the $20m+ category was well below this range and we believe this is largely due to their access to capital through equity markets.

Inventory turnoverThis ratio measures the approximate number of times inventory is ‘turned-over’ in a year. In our opinion a high yielding 2008 vintage following a low yielding 2007 vintage resulted in decreased inventory turnover rates as inventory accumulated.

Fixed asset turnoverWhile fixed asset turnover in the wine industry is particularly low, these ratios are consistent with 2007 results, indicating fixed asset usage was of a similar efficiency in 2008.

0.0

0.3

0.6

0.9

1.2

1.5

Fixed asset turnover

$0–$1m $1–$5m $5–$10m $10–$20m $20m+

Profitability ratiosProfitability has been discussed previously in the report on page seven.

Deloitte perspectiveTo obtain an accurate gross margin per case figure full absorption costing should be adopted to more clearly reflect the true costs of wine production and provide more accurate information on which to base sales decisions. Full absorption costing requires all costs associated with the manufacture of inventory to be capitalised into the cost of inventory.

For further details please refer to the Benchmarking Guides.

The EBT to Equity ratio indicates that the larger wineries have a stronger focus on return on equity.

The EBT to Net Case Sales ratio is an indicator of profitability. Case sales form a significant proportion of most wineries’ profitable sales, particularly given the low, and often negative, returns on bulk wine sales.


Income statement


$0–1m $1–5m $5–10m $10–20m $20m+

Revenue and gross margin

Gross case sales 40.0% 64.9% 68.4% 85.5% 98.7%

Plus:

Cellar door sales 36.6% 17.3% 9.0% 5.8% 0.9%

Less:

Returns and cash discounts 0.2% 0.2% 1.0% 1.9% 7.6%

Net case sales revenue 76.3% 81.9% 76.3% 89.4% 92.0%

Plus:

Bulk wine sales 1.6% 2.4% 4.0% 5.9% 4.9%

Grape sales 7.2% 2.1% 1.8% 0.2% 0.0%

Merchandising revenue 1.8% 0.7% 0.4% 0.1% 0.0%

Contract winemaking revenue 2.5% 2.4% 4.4% 1.4% 0.3%

Other revenue (including WET rebate) 10.5% 10.5% 13.1% 3.1% 2.7%

Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0%

Less cost of goods sold:

Grapes 13.8% 11.9% 16.1% 23.3% 7.5%

Bulk wine 7.2% 5.2% 4.2% 1.4% 22.7%

Barrel amortisation/oak chips 2.5% 1.9% 2.2% 3.4% 0.7%

Packaging 5.5% 11.0% 10.4% 16.6% 16.3%

Direct and indirect labour 12.9% 6.6% 5.9% 6.3% 4.4%

Overheads 19.6% 7.0% 8.9% 7.9% 6.0%

Cost of goods– other 1.4% 7.9% 11.7% 6.3% 2.6%

Total cost of goods sold 62.8% 51.5% 59.4% 65.3% 60.1%

Gross margin 37.2% 48.5% 40.6% 34.7% 39.9%

Sales and marketing expenses

Compensation sales expenses

Sales and marketing salaries 2.8% 5.7% 3.4% 6.3% 3.2%

Cellar door salaries 5.0% 3.4% 3.6% 1.4% 0.3%

Other sales expenses

Advertising 1.9% 2.1% 0.6% 1.8% 2.9%

Promotions 2.9% 1.5% 2.0% 2.2% 4.3%

Travel and entertainment 0.9% 1.5% 1.5% 1.2% 0.7%

Total other sales expenses 5.7% 5.1% 4.2% 5.2% 7.8%

Total sales and marketing expenses 13.4% 14.2% 11.1% 12.9% 11.3%

12


$0–1m $1–5m $5–10m $10–20m $20m+

General & administration expenses

Other expenses 0.2% 5.1% 2.7% 3.2% 1.4%

Finance/accounting/legal/professional 2.4% 5.7% 2.2% 6.7% 2.2%

Distribution 3.7% 3.3% 5.6% 4.7% 5.3%

Other general & administration expenses 13.5% 12.0% 16.4% 5.1% 2.2%

Occupancy/utilities 3.3% 2.5% 1.2% 0.4% 0.9%

Total general & administration expenses 23.1% 28.6% 28.1% 20.0% 12.0%

EBIT 0.7% 5.7% 1.4% 1.8% 16.5%

Interest Income 0.0% 0.5% 0.0% 0.0% 0.3%

Interest expense -7.7% -4.2% -4.7% -5.1% -2.3%

Other non-operating income 0.0% 6.3% 4.8% 0.5% 0.2%

Foreign exchange gain/loss 0.0% 0.0% 0.0% -1.1% 9.3%

Inventory write-downs -0.4% -0.1% -0.7% -3.6% -2.0%

Income (loss) before tax -7.4% 8.2% 0.8% -7.4% 22.1%

Note: Amounts in the above table represent relative percentages of ‘total revenue’.


Balance sheet


$0–1m $1–5m $5–10m $10–20m $20m+

Assets

Current assets

Cash 1.8% 1.4% 0.4% 0.4% 0.3%

Receivables 2.8% 9.2% 7.5% 8.8% 18.7%

Inventories 32.2% 34.7% 29.1% 39.7% 45.2%

Other current assets 4.3% 5.3% 2.2% 2.8% 1.0%

Total current assets 41.1% 50.6% 39.2% 51.7% 65.2%

Non-current assets

Land 14.8% 14.8% 11.4% 4.7% 3.3%

Vineyards 16.1% 8.2% 21.7% 14.5% 2.3%

Buildings and improvements 17.3% 8.9% 11.8% 10.4% 5.6%

Plant and equipment (including leased assets) 10.0% 12.1% 13.7% 16.3% 22.1%

Total net fixed assets 58.1% 44.0% 58.6% 45.9% 33.4%

Intangible assets 0.5% 1.6% 1.9% 0.3% 1.0%

Investments 0.0% 3.8% 0.3% 1.0% 0.0%

Deferred tax 0.2% 0.0% 0.0% 1.0% 0.5%

Total assets 100.0% 100.0% 100.0% 100.0% 100.0%

Liabilities and equity

Current liabilities

Notes payable and bank debt 25.5% 8.3% 8.2% 10.4% 7.7%

Provisions 1.9% 1.0% 0.9% 1.5% 1.4%

Trade payables and accruals 6.5% 9.6% 6.3% 8.9% 11.8%

Total current liabilities 33.9% 18.8% 15.4% 20.8% 20.9%

Non-current liabilities

Long term debt 38.0% 29.3% 23.7% 19.8% 17.1%

Non-current provisions 0.0% 0.8% 0.1% 4.6% 0.2%

Deferred tax liabilities 0.0% 0.2% 0.2% 1.6% 2.8%

Other long term liabilities 4.5% 2.2% 3.2% 1.1% 0.0%

Total non-current liabilities 42.5% 32.5% 27.2% 27.2% 20.0%

Total liabilities 76.4% 51.3% 42.6% 47.9% 41.0%

Equity 23.6% 48.7% 57.4% 52.1% 59.0%

Total liabilities and equity 100.0% 100.0% 100.0% 100.0% 100.0%

Note: Amounts in the above table represent relative percentages of ‘total assets’.

14

CommentaryIn our opinion the above table shows the following trends:•Allwineriesstillholdsignificantinventorylevels• Fixedassetsasaproportionoftotalassetsis

generally higher for smaller wineries•Allwineriesbelow$20minrevenuestillhave

significant debt• Themajorityofdebtfundingisclassifiedaslong

term. Many smaller wineries do not have their financial statements audited, so potentially the current/non-current split of their debt facilities is not presented in accordance with accounting standards and may need some reclassification.

• Therelativelylowequitypositionofwineriesin the $0–1m category suggests their vulnerability to current industry and economic conditions.

Deloitte insight:The current economic environment will probably result in many of the recorded asset values for both winery plant and equipment and vineyards being reduced in the 2009 financial year and subsequent years as businesses conclude there is material impairment of these assets. This will also place further significant pressure on financial lending covenants resulting in many wine businesses having to carefully evaluate their going concern and solvency positions.


Distribution


$0–1m $1–5m $5–10m $10–20m $20m+

Wholesale/distribution % 34.8% 43.9% 42.9% 33.5% 13.2%

Retail % 23.2% 5.9% 3.5% 3.9% 10.8%

Mail order % 5.2% 8.2% 1.7% 0.6% 0.0%

Website/on-line % 0.5% 0.6% 0.0% 0.7% 0.0%

Export % 8.8% 31.8% 47.3% 59.9% 75.9%

Cellar door % 27.5% 9.5% 4.5% 1.4% 0.1%

Total % 100.0% 100.0% 100.0% 100.0% 100.0%

ExportThe export market is significant for all wineries and ranges from 8.8% for $0–1m wineries, to 75.9% for $20m+ wineries. In our opinion export plays a key role in achieving sales growth. We should note, however, that if the current trend of unsustainably cheap Australian bulk wine is continued to be exported then this may have a medium to longer term impact on the consumer’s view on the value of Australian wine in those export markets.

Cellar doorAs expected, small wineries ($0–1m) sell the highest proportion (27.5% of sales) through cellar door. For larger wineries, while the cellar door is a small sales channel, in our opinion it is still considered important for brand promotion.

Mail orderThis channel is significant for smaller Australian wineries but declines as a proportion of total sales for wineries in the larger sales categories.

Website/onlineThis sales channel has not proven to be successful for wineries in this survey as sales through this channel are very low.

Primary distribution channels $0–1m

Wholesale/distribution

Retail

Mail order

Website/on-line

Export

Cellar door



Retail

Mail order

Website/on-line

Export

Cellar door

44%

6%8%1%

32%

9%



Retail

Mail order

Website/on-line

Export

Cellar door

43%

3%2%

47%

5%



Retail

Mail order

Website/on-line

Export

Cellar door

34%

4%1%

1%

60%

1%

Primary distribution channels $20+m


Retail

Mail order

Website/on-line

Export

Cellar door

11%

76%

13%

35%

23%5%

1%

9%

27%

16



Retail

Mail order

Website/on-line

Export

Cellar door



Retail

Mail order

Website/on-line

Export

Cellar door

44%

6%8%1%

32%

9%



Retail

Mail order

Website/on-line

Export

Cellar door

43%

3%2%

47%

5%



Retail

Mail order

Website/on-line

Export

Cellar door

34%

4%1%

1%

60%

1%

Primary distribution channels $20+m


Retail

Mail order

Website/on-line

Export

Cellar door

11%

76%

13%

35%

23%5%

1%

9%

27%

RetailSales through the retail channel are difficult with margins constantly under pressure.

Wholesale (distributor)This continues to be a significant sales channel for all wineries.

Deloitte insight: Deloitte’s on-line business believes there is significant risk to the wine industry if it does not embrace the future of online business strategies. As more and more Gen X and Gen Y consumers reach a stage of considering wine it will be those businesses who can connect with a strong online offering who will win the battle for their dollars.


Deloitte perspectiveLarger wineries tend to own premium/strategic vineyards. Additionally, larger wineries contract purchase a higher proportion of grapes. In 2008 the tonnes contract processed for others has increased for all categories other than in the $1–5m segment which remained relatively static. This increase in contract processing activity is expected due to the high yielding 2008 vintage following much lower yields in the 2007 vintage.

The cost of grapes per tonne is generally lowest for the wineries in the larger winery categories. The larger wineries are able to negotiate more competitive prices through stronger bargaining power and they also tend to purchase a higher proportion of fruit destined for their cask and popular premium wine products.

The bulk wine cost per litre is generally lower for wineries in the larger categories as they acquire a higher proportion and volume of commercial wine.

Production


$0–1m $1–5m $5–10m $10–20m $20m+

Crush (tonnes)

Own grapes 72.0% 22.9% 42.0% 69.9% 7.6%

Grapes Purchased 16.6% 30.8% 29.0% 20.4% 90.8%

Contract Processed 11.4% 46.2% 29.1% 9.8% 1.7%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

Grape and bulk wine supply

Cost of grapes per tonne $1,259 $1,269 $1,631 $972 $897

Cost of bulk wine per litre $1.79 $3.31 $3.71 $2.53 $1.96

$0

$200

$400

$1,200

$1,000

$800

$600

$1,400

$1,600

$1,800

$0

$0.50

$1.00

$2.50

$2.00

$1.50

$3.00

$3.50

$4.00

Cost of grapes and wine

$0–$1m $1–$5m $5–$10m $10–$20m $20m+

Gra

pe c

ost

per

tonn

e

Cost of grapes per tonneCost of bulk wine per litre

18

Inventory


$0–1m $1–5m $5–10m $10–20m $20m+

Inventory (litres)

Red

Maturing in oak/wood 117,700 1,829,770 1,871,746 3,079,470 2,627,225

Bottles/packaged 18,177 303,624 216,281 768,346 1,109,408

Other 2,000 88,186 458,485 433,811 2,589,282

Bulk wine 153,950 3,473,250 6,059,936 8,272,358 134,115,596

Total litres 291,827 5,694,830 8,606,448 12,553,985 140,441,511

White

Maturing in oak/wood 12,313 169,334 340,577 178,075 250,959

Bottles/packaged 5,541 111,653 131,574 384,643 847,080

Other 0 75,746 173,546 242,931 2,620,029

Bulk wine 109,096 1,268,711 2,829,283 5,447,280 119,616,329

Total litres 126,950 1,625,444 3,474,980 6,252,929 123,334,397

Other

Maturing in oak/wood 7,972 611,415 5,625 0 0

Bottles/packaged 1,065 33,001 2,484,689 0 16,640

Other 52,215 412,476 3,523,092 1,026,556 11,081,917

Bulk wine 800 583,712 590,554 53,073 17,825,377

Total litres 62,052 1,640,604 6,603,960 1,079,629 28,923,934

‘Other’ represents fortified wine and sparkling wine base.

Red wine, which is generally matured for a longer period than white wine, makes up the largest part of inventory for all wineries.

Significant portions of wine are being held as bulk, with the wineries in the $20m+ category holding 272m litres of bulk wine.

Smaller wineries hold a higher proportion of red wine in barrels. 40% of red wine is held in barrels for the $0–1m category, but only 2% for the $20m+ category.


Sales of wine(domestic/Australian only)


$0–1m $1–5m $5–10m $10–20m $20m+

Cask 0.3% 0.6% 0.0% 0.0% 14.6%

<$7 bottle 4.0% 3.9% 0.1% 0.0% 10.9%

$7–10 bottle 6.9% 7.3% 3.2% 7.2% 51.5%

$10–$15 bottle 17.1% 12.9% 35.5% 16.1% 10.4%

$15–$20 bottle 40.8% 31.2% 32.7% 45.9% 9.5%

$20–$50 bottle 30.9% 38.7% 26.2% 30.0% 2.8%

$50+ bottle 0.0% 5.4% 2.3% 0.8% 0.3%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

The table above shows that all wineries have a significant presence in the $15–20 a bottle price segments. The larger wineries with revenues in excess of $20m have a spread of wine sales across all price brackets, with 25.5% of wine (by volume) sold for less than $7 per item.

The $20–50 a bottle price bracket is significant for all wineries with revenue of $20m or below, especially the $1–5m category, at 38.7% of their sales.


Section two: Best performers

22

Best performers

MethodologyThe best performers represent the top quartile of wineries for the $0–1m, $1–5m and $5–10m categories based upon their profitability as a proportion of sales.

Profitability summaryThe best performing wineries in the $0–1m and $1–5m categories achieved average gross margins in excess of the suggested 50% of revenue suggested in the Benchmarking Guides, and earnings before tax of around 20% of revenue.

The $5–10m category had an average gross margin of 45.6% and achieved earnings before tax of 12.7% of revenue.


$0–1m $1–5m $5–10m

Net case sales revenue 70.3% 87.6% 86.3%

Add:

Bulk wine sales 0.0% 0.9% 0.1%

Grape sales 0.0% 0.0% 4.9%

Merchandising revenue 3.7% 0.9% 0.3%

Contract winemaking revenue 5.1% 0.1% 4.3%

Other revenue (including restaurant/accommodation) 20.9% 10.5% 4.1%

Total revenue 100.0% 100.0% 100.0%

Total cost of goods sold 48.3% 46.3% 54.4%

Gross margin 51.7% 53.7% 45.6%

Less:

Selling costs 14.7% 11.2% 10.2%

General & administration costs 8.1% 27.6% 23.4%

Earnings before interest & tax 28.9% 14.9% 12.0%

Add:

Interest income 0.0% 0.9% 0.1%

Other non-operating income 0.0% 5.3% 6.4%

Less:

Interest expense 7.8% 2.2% 5.5%

Inventory write-downs 0.0% 0.0% 0.2%

Foreign exchange gain/loss 0.0% 0.0% 0.0%

Earnings before tax 21.1% 18.9% 12.7%



$0–1m $1–5m $5–10m

Net case sales revenue 70.3% 87.6% 86.3%

Add:

Bulk wine sales 0.0% 0.9% 0.1%

Grape sales 0.0% 0.0% 4.9%

Merchandising revenue 3.7% 0.9% 0.3%

Contract winemaking revenue 5.1% 0.1% 4.3%

Other revenue (including restaurant/accommodation) 20.9% 10.5% 4.1%

Total revenue 100.0% 100.0% 100.0%

Total cost of goods sold 48.3% 46.3% 54.4%

Gross margin 51.7% 53.7% 45.6%

Less:

Selling costs 14.7% 11.2% 10.2%

General & administration costs 8.1% 27.6% 23.4%

Earnings before interest & tax 28.9% 14.9% 12.0%

Add:

Interest income 0.0% 0.9% 0.1%

Other non-operating income 0.0% 5.3% 6.4%

Less:

Interest expense 7.8% 2.2% 5.5%

Inventory write-downs 0.0% 0.0% 0.2%

Foreign exchange gain/loss 0.0% 0.0% 0.0%

Earnings before tax 21.1% 18.9% 12.7%

Key financial ratios


$0–1m $1–5m $5–10m

Revenues and expenses per case

Revenue per case $466.89 $176.69 $106.65

Gross margin per case $241.60 $94.93 $48.68

Profit per case $98.63 $33.42 $13.59

Advertising spend per case $8.35 $1.24 $0.54

Overhead per case $45.65 $3.71 $5.81

Packaging cost per case $37.58 $16.72 $19.98

Solvency ratios

Current ratio 108% 542% 365%

Debt to equity ratio 69% 22% 17%

Debt to total tangible assets 34% 16% 15%

Efficiency ratios

Inventory turnover 0.31 0.73 0.61

Fixed asset turnover 0.54 1.04 0.29

Asset turnover 0.33 0.49 0.22

Profitability ratios

EBIT margin (average) 28.9% 14.9% 12.0%

EBIT to assets (average) 9.6% 7.3% 2.6%

EBT to equity (average) 14.0% 12.5% 3.4%

EBT to net case sales (average) 30.0% 21.6% 14.8%

Gross margin and profit per case for the best performing wineries were greater than the average of wineries across all categories.

Overhead per case was particularly high in the $0–1m category at $45.65 a case. Again this suggests that wineries within this category are incorrectly accounting for overheads related to the production of wine. Therefore wineries maybe making pricing decisions on their wine based on incomplete data. Please refer to the ‘Direction Ready Reckoner’ and ‘Benchmarking Guides’ at www.wineaustralia.com.au for further help in obtaining accurate winery costing.

24

Balance sheet


$0-$1m $1-$5m $5-$10m

Assets

Current assets

Cash 1.0% 4.6% 0.0%

Receivables 2.4% 7.4% 5.1%

Inventories 50.9% 31.4% 19.3%

Other current assets 1.8% 15.2% 3.2%

Total current assets 56.1% 58.6% 27.6%

Non-current assets

Land 10.5% 19.5% 11.9%

Vineyards 12.7% 4.3% 33.4%

Buildings and improvements 8.0% 6.0% 11.4%

Plant and equipment (including leased assets) 12.6% 10.5% 12.4%

Total net fixed assets 43.8% 40.4% 69.1%

Intangible assets 0.1% 1.0% 2.9%

Investments 0.0% 0.1% 0.4%

Deferred tax 0.0% 0.0% 0.0%

Total assets 100.0% 100.0% 100.0%

Liabilities and equity

Current liabilities

Notes payable and bank debt 28.7% 1.4% 2.9%

Provisions 2.9% 2.4% 0.7%

Trade payables and accruals 3.9% 5.8% 2.4%

Total current liabilities 35.5% 9.5% 6.1%

Non-current liabilities

Long term debt 5.7% 14.8% 11.4%

Non-current provisions 0.0% 0.5% 0.0%

Deferred tax liabilities 0.0% 0.9% 0.0%

Other long term liabilities 9.0% 0.0% 0.0%

Total non-current liabilities 14.7% 16.3% 11.4%

Total liabilities 50.2% 25.8% 17.5%

Equity 49.8% 74.2% 82.5%

Total liabilities and equity 100.0% 100.0% 100.0%

The best performing wineries in both the $1–5m and $5–10m categories had lower notes payable and bank debt than that of average wineries.

Inventory levels of the best performing wineries in the $1–5m and $5–10m categories were lower than that of average wineries, suggesting in our opinion they were not holding surplus inventory from previous vintages.


Distribution


$0–1m $1–5m $5–10m

Wholesale/distribution % 85.0% 38.0% 30.3%

Retail % 8.4% 3.6% 1.5%

Mail order % 2.6% 14.9% 2.7%

Website/on-line % 0.4% 0.4% 0.0%

Export % 0.0% 30.2% 63.0%

Cellar door % 3.6% 13.0% 2.5%

Total % 100.0% 100.0% 100.0%



Retail

Mail order

Website/on-line

Export

Cellar door



Retail

Mail order

Website/on-line

Export

Cellar door

38%

4%

15%0%

30%

13%



Retail

Mail order

Website/on-line

Export

Cellar door

30%

1%

3%

63%

3%

85%8%

3%0% 4%

ExportThe export market is significant for best performers in the $5–10m category accounting for 63.0% of sales. However, wineries in the $0–1m category have focused on domestic sales with export accounting for none of their sales.

Cellar doorSurprisingly, the best performing small wineries ($0–1m) sell less than 4% through cellar door. We would suggest cellar door sales are historically higher in this category (20-50% of sales). Wholesale (distributor)This continues to be a significant sales channel for all best performers, ranging from 30.3% for $5–10m wineries, to 85.0% for $0–1m wineries.

Mail order & website/onlineThese channels have traditionally not been significant for best performing Australian wineries. However, best performing wineries in the $1–5m segment recorded over 15% of their total sales in this category.

RetailSales through the retail channel are low for the $1–5m and $5–10m categories, even for thebest performers, most likely as retail margins are generally lower and constantly under pressure.

26

Sales of wine(domestic/Australia only)


$0–1m $1–5m $5–10m

Cask 2.2% 0.5% 0.0%

<$7 bottle 0.0% 0.0% 0.0%

$7–$10 bottle 0.7% 0.5% 2.0%

$10–$15 bottle 19.1% 3.1% 30.2%

$15–$20 bottle 7.5% 40.3% 39.4%

$20–$50 bottle 70.5% 44.0% 25.3%

$50+ bottle 0.0% 11.5% 3.1%

Total 100.0% 100.0% 100.0%

Best performing wineries in both the $0–1m and $1–5m categories sell over 75% of their wine in Australia between $15 and $50 per bottle. Best performing wineries in the $5–10m category sell around 65% of their wine in this price range.


The financial performance of wineries in the 2008 year reflects the continuation of difficult trading conditions, particularly for small wineries. The average earnings before tax for wineries in the $0–1m, $5–10m and $10–20m categories were low to negative.

However, although trading conditions remain difficult, wineries in the $20m+ category have again performed strongly with an average EBT of 22.1% of revenue, helped by temporary foreign exchange gains.

About Winemakers’ Federation of AustraliaThe Winemakers’ Federation of Australia Incorporated (WFA) is the national peak body for the Wine Industry, with voluntary membership representing more than 95% of the wine produced in Australia.

WFA tackles a wide range of issues facing the Australian wine industry and delivers highly relevant services to secure an environment in which the industry can grow and succeed. WFA represents the industry’s interests on national and international issues including taxation, trade access, vine health, education and training, research and development, environment, health/social responsibility, wine tourism, technical, packaging, industry outlook and political relations.

Where opportunities and threats to the industry are identified, WFA responds with a vigorous and highly professional series of activities and uses its well developed network, reaching all spheres of information and influence, to remedy the situation on behalf of the industry.

Conclusion

About Deloitte’s Wine Industry GroupDeloitte’s Wine Industry Group is composed of professionals from Deloitte member firms who have a wealth of experience in working with winemakers to facilitate growth and profitability. We have a dedicated Industry Group which focuses on the wine industry. We are one of the few firms in Australia able to provide fully integrated corporate reorganisation services, corporate advisory, due diligence and consulting services.

Qualified professionals from the Wine Industry Group have contributed significantly to the Australian wine industry in the last decade from the strategic industry level by creating the Ready Reckoner and Benchmarking Guides for the AWBC/WFA ‘Directions to 2025’. Our drive is to assist wineries in creating a sustainable wine business at the individual winery level, such as by building forecast models for wineries to see and understand the impacts of the ever changing climatic and trading conditions, or by acting as trusted advisers to small wineries where we can impart our extensive accounting and wine industry knowledge to aid them in this tough arena.

The Deloitte wine industry group is supported by an extensive national and international network of expertise and knowledge.

As an example of our work we encourage you to use the Ready Reckoner created by Deloitte for the WFA/AWBC ‘Directions to 2025’ project. To find this, go to www.wineaustralia.com/australia/ and click on the Directions ‘Ready Reckoner’.

For more information, please visit Deloitte’s web site at www.deloitte.com.au

FeedbackPlease email any feedback or suggested improvements to the survey at [email protected]

28

You can contact the following people within:

Winemakers’ Federation of AustraliaPaul van der LeeManager Economics & PolicyWinemakers’ Federation of AustraliaTel: +61 (0) 8 8222 [email protected]

Susan BellManager Research & AnalysisWinemakers’ Federation of AustraliaTel: +61 (0) 8 8222 [email protected]

You can contact the following people within:

Deloitte’s Wine Industry GroupStephen HarveyPartnerDeloitteAssurance and Advisory, AdelaideTel: +61 (0) 8 8407 [email protected]

Tom RogersClient ManagerDeloitteCorporate Finance, AdelaideTel: +61 (0) 8 8407 [email protected]

Contact us

Contact us Deloitte11 Waymouth StreetAdelaide, South AustraliaAustralia

Tel: +61 (0) 8 8407 7000Fax: +61 (0) 8 8407 7001www.deloitte.com.au

General information only This publication is provided as general information only and does not consider your specific objectives, situation or needs. You should not rely on the information in this publication or disclose it or refer to it in any document. We accept no duty of care or liability to you or anyone else regarding this publication and we are not responsible to you or anyone else for any loss suffered in connection with the use of this publication or any of its content.

About Deloitte Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in 140 countries, Deloitte brings world class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte’s 165,000 professionals are committed to becoming the standard of excellence.

Deloitte’s professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte’s professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities.

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see .www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.

About Deloitte Australia In Australia, Deloitte has 12 offices and over 4,500 people and provides audit, tax, consulting, and financial advisory services to public and private clients across the country. Known as an employer of choice for innovative human resources programs, we are committed to helping our clients and our people excel. Deloitte’s professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities. For more information, please visit Deloitte’s web site at www.deloitte.com.au.

Liability limited by a scheme approved under Professional Standards Legislation.

Designed and produced by Aqua Media, AM_Mel_11/09_039125

© Deloitte Touche Tohmatsu, November 2009. All rights reserved.

annual financial benchmarking survey for the australian ...s3.amazonaws.com/zanran_storage/ ·...

Documents