De Bortoli wines, one of Australia's largest family-owned wine groups, has slumped to a $24.7 million full-year loss after export sales were crunched by the strengthening dollar and the value of its equities investment portfolio sank by nearly $50 million.
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."