De Bortoli takes $50m hit on stocks
Previously De Bortoli's stockmarket plays had been a wind in its sails, with profits from its stock trading eclipsing wine earnings in 2011, but a series of poor investment decisions, including a huge exposure to collapsed North Queensland mining giant Kagara, has shunted the Griffith-based wine group deep into the red.
Documents obtained by BusinessDay show De Bortoli generated $153.4 million in revenue last year, down from $165.9 million in the previous financial year.
A profit of $16.6 million in 2011 was transformed into a loss of $24.7 million for 2012 after slimmer export margins, due to the rising Australian dollar, and the accounting treatment of its shrinking equities holdings.
The company's annual report shows the value of its equities was written down to $20.8 million last year from $69.2 million in 2011.
But chief executive Darren De Bortoli said the biggest threat to his business - as well as other winemakers - was not the rising dollar, which was making exports uncompetitive, nor the power of the two leading supermarket chains, but the "rorting" of the WET tax rebate by small uneconomic growers who are flooding the market with cheap loss-making wine.
"It's now become a rort and reaching a crisis point," Mr De Bortoli said. "We are getting a proliferation of people applying for [wine producers] licences and they can then go out and buy grapes, contract made, contract bottled and effectively sell it to the retail market at cost and claim a 29 per cent rebate back from the government."
Under the generous WET system, originally designed to help smaller and regional wineries remain competitive, any winemaker with sales below $1.72 million can claim up to $500,000 a year in rebates, effectively making them exempt from tax.
Mr De Bortoli said this meant fly-by-night operators could undercut winemakers such as De Bortoli when it came to dealing with retailers, especially the supermarkets, offering them cheap at-cost wine to fill their private label offerings.
He said of the $250 million in rebates paid each year only $100 million was legitimate, and another $30 million was going to New Zealand growers due to free trade agreements.
"If someone asked what was the major issue facing the Australian wine industry at the moment, I would say the high Australian dollar and the duopoly in the retailers has now been gazumped - it's the WET tax rebate rort," he said.
Turning to the trading environment, Mr De Bortoli said China was the only region in growth for the winemaker with sales in Australia static and the group encountering sliding sales and profitability in Europe and North America.
Mr De Bortoli had been forced to cut prices in the US to maintain marketshare
"The dollar is causing enormous pressure, we had been expecting the dollar to drop ... but maybe it was foolish to to think that and the high dollar is here to stay."
Frequently Asked Questions about this Article…
De Bortoli posted a $24.7 million loss after export margins were squeezed by a stronger Australian dollar and the company wrote down the value of its equities investment portfolio by nearly $50 million. These factors turned a $16.6 million profit in 2011 into a loss in 2012.
According to the company’s annual report, revenue fell to $153.4 million from $165.9 million the prior year, and the value of its equities holdings was written down from $69.2 million in 2011 to $20.8 million in 2012.
De Bortoli’s prior gains from stockmarket trading had boosted earnings in earlier years, but a series of poor investment decisions — including heavy exposure to the collapsed miner Kagara — led to a large write‑down in the equities portfolio, contributing substantially to the reported loss.
The stronger Australian dollar reduced export margins, making Australian wine less competitive overseas. De Bortoli said the high dollar forced price cuts in markets such as the US to protect market share and contributed to sliding sales and profitability in Europe and North America.
The Wine Equalisation Tax (WET) rebate allows winemakers with sales below $1.72 million to claim up to $500,000 a year in rebates. De Bortoli’s chief executive said the system is being rorted by small, uneconomic operators who claim rebates while selling cheap at‑cost wine into retail channels, distorting competition and pressuring established producers.
The article notes about $250 million is paid annually in WET rebates; De Bortoli’s CEO said only $100 million of that is legitimate and another $30 million goes to New Zealand growers because of free trade agreements.
De Bortoli said China was the only region showing growth for the group. Sales in Australia were largely static while sales and profitability were sliding in Europe and North America, prompting price cuts in the US to maintain market share.
The company’s results highlight several sector risks relevant to investors: currency exposure (a high Australian dollar can hurt export margins), the impact of non‑core investments (equities write‑downs can swing profits), and policy/market distortions like the WET rebate that can create unfair pricing competition in retail channels.
Call 1300 880 160
Start a chat
Schedule a call
