At mid year 2010 the Australian wine Industry is big on rumour but so very short on fact. Being the biggest fish in this regional pond Fosters is the company most prone to scandalous gossip. Chinese brewers want the beer sector Chinese brewers don’t want the beer sector. A Chinese company wants the Rosemount brand a Chinese company doesn’t want the Rosemount brand. Chinese companies are queuing up to acquire one sector or the other when Fosters split into two companies with separate listings on the Australian Stock Exchange; and so it continues.
Fosters aside there is also plenty of rumour surrounding Tasmanian based Tamar Ridge Wines. Current owner Gunns (timber) have announced they want to off-load non core assets. As wine is considered non-core then the assumption is it’s on the market. Naturally the Chinese head the list of rumoured interested buyers along with a host of Australian family owned wine companies. Not rating a mention on the rumour mill as interested buyers are the four biggest Australian players Fosters, Constellation Brands, Pernod Ricard and Australian Vintage.
For the second time Mudgee based Prince Hill Wines have entered into a sale agreement for their winery and adjoining vineyard. The price is set at $2.3 million with a $230,000 deposit taken. It’s some way short of the $5 million they were asking when they announced the first sale that didn’t eventuate. The buyer is CN 2000 Holdings Ltd. It’s not stated if, or how, CN 2000 is related to the wine industry – if at all. Rumour on the street is that it’s a Singaporean investor who wants wine made in that region which he can then export to China (isn’t it interesting how often China creeps into wine conversation nowadays?).
If there is ‘no smoke without fire’ then a fire must be raging somewhere and there must be ‘goings-on’ in the industry. How it all turns out will be fascinating to see.
When times were good in the wine industry it became popular for companies (especially listed) to enter into sell and lease back deals for vineyard land with an option of buying back after a10 year period. Stripping away the frills the corner stones were grapes fetching a certain price and exports continuing to rise along with the average price per litre exported. Keeping the maths simple grapes needed to fetch over $1000 a tonne and export price per litre needed to be over $4 and the volume continue to increase.
Challenger Wine Trust was the company most favoured for acquiring these assets and for a few years did very well. Times have changed in a recent announcement to the market Challenger laid the blame for there disappointing performance on, ‘wine stock oversupply, excess vineyard capacity and a strong Australian dollar.’ Although they own 3,686 hectares of Australian vineyards one didn’t get the impression they had any intention to remove any. They are also pleased that the 2010 vintage was down but didn’t make reference to their own contribution. Apparently oversupply is the fault of everyone else. The company also holds 627 hectares of vineyards in New Zealand that are leased back to Delegat's Wine Estate Limited. All is tied into Oyster Bay, and that is one company also having difficult times. Five years ago Challenger shares were trading around $1 in mid July they were changing hands at 17.5 cents.
The Wine Export Approval Report for the 12 months to the end of June is out and fascinating reading it is. It starts with this simple factual statement: ‘In the year ended June 2010, the volume of wine exports increased by 3.3 % to 775 million litres valued at $2.17 billion.’
A year ago the opening was: ‘In 2008-09, the volume of Australian wine exports increased 6% to 750 million litres. Value declined 10% to $2.43 billion on the back of an average price decline of 15% to $3.24 per litre.’
If you were to go back to the 08 report you’d see that the volume was 702 million with a value of $2.6 billion. In summary, over the last three years we’ve seen the volume go up by 73 million litres, but the money banked has reduced by $43 million. Giving the industry some slack, it’s a fact that there is more bulk wine being exported for overseas bottling and therefore the price per litre drops as it doesn’t include carton, bottle, label, cap/cork etc.
Also just released is the 2010 Winegrape Purchases: Price Dispersion Report. The authors (AWBC) claim, ‘Tonnages purchased and reported at the aggregate level are estimated to represent over 80 percent of the total purchases in 2010.’
Its depressing reading 29 percent of grapes were sold at $250 per tonne or below. As it costs more then that to produce grapes even from the most economical and best run vineyards need more be said about the state of the industry? Across the board the average price was $464 a tonne for red its $540 and white $382.