Bad news or rather, bad news confirmed about the impact of the drought on the 2007 wine harvest and the listed companies with an involvement in the industry.
McGuigan Simeon Wines, a major independent producer, says its 2007 wine crush will be down 33 per cent on last year to 158,000 tonnes and that this will result in the company reporting a loss for the year to June.
MGW said in a statement on Friday that the decline was in line with Australian Wine and Brandy Corporation industry estimates.
"While we have made solid progress particularly in the UK and Asia, it's been another tough year for the industry and for McGuigan Simeon Wines," chief executive officer Dane Hudson said in a statement to the ASX.
The Australian Wine and Brandy Corporation has predicted the 2007 national wine crush will be 1.3 million tonnes, 32 per cent down on the 2006 year due to a combination of drought, frost and bushfires.
"I suspect the shortfall will be higher when final vintage numbers are released," Mr Hudson said in the statement.
"A 30 per cent lower crush cuts all the way through our business and means we are now looking at a $4 to $6 million loss for the 2006/2007 year."
"This is the smallest vintage in Australia since 2000," he said. "We felt the impact not only from our own vineyards but through lower returns from customers on older wine making contracts with fixed processing charges.
"Another factor is that we have been withholding some bulk wine sales due to the risk of a lower 2008 vintage driven by the continuing drought."
Mr Hudson said the company has to be more efficient and as a result has decided to invest significant capital to increase the efficiency of the Buronga Hill Winery, to generate further production and overhead savings.
It is also looking at its options for selling Loxton Winery, or filling it with more stable contract wine making agreements.
"Simply put, we do not need all the capacity that this winery offers," he said.
The company's 15,000 tonne Griffith winery is also for sale again following the 2005 purchaser's inability to complete. (Troubled rival, Evans and Tate has sold its MIA winery to lower costs and raise cash in a restructure.)
"We are well positioned to outperform as balance returns to the market. We are already seeing positive signs such as:
" The majority of our brands have grown in value terms over the last quarter; mix is shifting to higher priced and higher margin brands; strong sales growth from our new distributors in the UK and Ireland; bulk wine and branded product prices moving up because of the low 2007 vintage and a predicted low 2008 vintage
"One of the highest quality vintages in 10 years has resulted in a substantial cut back in oversupply and our strategy remains unchanged. We are expecting positive cash flow and EBIT for the June 07 year and we continue to look at acquiring strong brands.
"Our new UK distribution arrangements with Waverley TBS are providing solid branded growth in the UK independent trade. We have now finalised the purchase of the Nepenthe business and together with our brand development work we are strengthening our market position across the range.
"On top of that, our chief operational officer, Neil McGuigan, reports that the quality of fruit is exceptional and the 2007 vintage will be of very good quality," Mr Hudson said.
MGW shares fell 1c on the news on Friday to $2.44, well under the 52 week high of $3.90 recorded a few months ago when MGW was on every broker's lists to be 'hugged' by a private equity player.
If they were, nothing came of it.
But it would seem we should be watching Fosters. It appears to be doing better in US wine trade but has yet to provide an update on the impact of the drought and the miserable 2007 harvest on its overall business outlook. And yet it rose 13c in Friday's strong market to $6.49.
Lion Nathan seems to have done better in its brewing operations in the six months to March than Fosters did in its beer business in Australia, especially in the December quarter.
Much of the chat about takeover and foreign interest in FGL seems to have faded in recent months.
