Delegat’s Group is one of New Zealand’s largest wine makers producing around 2m cases per year. The group is focussed on producing branded, “super premium” wines from New Zealand’s leading wine regions. 75% of the groups output is Sauvignon Blanc, with Chardonnay, Merlot, Pinot Noir and sparkling wines comprising the rest. The flagship brand is Oyster Bay. Around 90% of produce is sold into export markets, notably the UK, Australia and increasingly the US where realised price points are higher.
Delegat’s reported a solid 2011 result with net profit after tax up 10% on the prior year. Its strategy of focusing sales on growth markets such as North America, whilst protecting brand value by holding price points, has resulted in strong volume growth.
The group achieved record case sales of nearly 2m cases and despite significant currency headwinds, Delegat’s was able to lift its price realisation from $112.7 to $116.72 a case, an increase of 4% over the prior year due to favourable mix and pricing. The group was able to raise prices in the UK and Ireland despite difficult economic conditions.
Net cash flow from operations remains robust at NZD39m and net debt fell by NZD8m to NZD121m, with all major ratios improving.
The group had previously announced a shift in strategy identifying markets as either “value growth markets” such as the UK and Ireland or “growth markets”, being North America, Australia, NZ and Asia Pacific. In the value growth markets the focus is on improving profitability, rather than increasing sales volume. Local currency prices have been raised in these markets, with a slight decline in volumes. A reduction in promotional spend, which together with price increases should boost underlying profitability. In the growth markets the focus is on building sales volumes at around or better than current case price realisation.
Management has provided detailed information with regards to the outlook and guided to the top end of its previous earnings guidance range due to stronger growth expectations in North America.
Delegat’share price is trading at a large discount to other listed wine companies such as Australia’s Treasury Wine Estate Limited. Currently the company’s share price is around $2.16 and the future outlook is positive.
Mark Warminger
Disclosure of interest: Milford is a shareholder of Delegat’s through our Funds