McGuigan Simeon Wines Ltd says the Australian wine industry is showing signs of recovery and it is looking to earn a small profit this financial year.
The news sparked interest in the stock on a tough day for the wider market.
MGW shares jumped 17.5c or more than 15% to $1.3750.
Of course the "D" word wasn’t mentioned but the drought is the major influence in the improving fortunes of the wine industry.
MGW chairman, David Clarke said in a statement to the ASX yesterday that the company was placed to manage the current difficult market conditions and was experiencing an improvement in its margins.
"The industry is returning to balance," he said.
"As a result, the overhang of wine stocks is clearing and we are seeing improvement in margins at McGuigan Simeon."
Export sales of branded wine increased by 20% in the first quarter at the highest margin the group has achieved "in some time", Mr Clarke said.
"Additionally, we are capturing higher margins in Australia, although there is still very aggressive pricing from some winemakers, particularly at lower price points."
The company said it expected to report a "small profit" in the current financial year but "we will not see the full benefits from our strategies and from the industry returning to balance until 2009," Mr Clarke said in the statement.
"We still need to work through the 2008 vintage but McGuigan Simeon is trading profitably and we expect to generate a small profit in the current financial year."
Mr Clarke said although the group was estimating the 2008 vintage to come in between 800,000 and 1.3 million tonnes, the company’s view was that it would be closer to 1.1 million tonnes.
Other producers put it a touch higher, but it is a long way short of the huge vintages of 2005 and 2006 which flooded the markets with millions of litres of unwanted wine and forced wine companies like MGW to aggressively slash the amounts they paid for grapes from growers, even long term contract growers.
The MGW statement was issued ahead of next week’s AGM for the 2007 financial year.
"We have weathered a ‘perfect storm’, three large vintages causing record oversupply and then 2007 saw the lowest vintage for seven years, caused by drought, reduced water allocations, frosts and bushfires," Mr Clarke said.
"We have said in the past that we expect 2008 to be a very challenging year with the ongoing drought impacting grape availability and wine production. This is still the case, but, we are pleased with our progress and trading for the first quarter gives us confidence in our long term prospects."
"The industry is returning to balance. As a result the overhang of wine stocks is clearing and we are seeing improvement in margins at McGuigan Simeon," Mr Clarke said.
Because the 2007 and 2008 vintages will be cut by the drought (and fires, smoke and frosts for some of the 2007 crop) there’s every chance the 2009 harvest will be small again.
Fosters, the industry giant, has talked about importing cheap wine from offshore to supply its bulk wine needs within Australia (casks) and directing as much wine into higher margined bottled wines for the local and export markets.
McGuigan has developed a bulk wine market where it ships large quantities of red and white to bottling plants closer to foreign markets.
