Dez 21

Large portion“ of French industry faces bankruptcy

Tag: Allgemeinessigi.hiss @ 15:17

An exclusive analysis by Cees can Casteren – A significant part of France’s wine industry is teetering on bankruptcy, according to The Financial Wine Ratings, a new report from Rabobank. The problem is not confined to France: wine players around the globe, from Italy and Spain to New Zealand are struggling to meet adequate margins to finance the investments that are instrumental in preserving their future.

Many companies, especially in France and Italy, seem to survive solely due to a positive cash flow. „As long as the cash flow is positive, many of these companies can go on as most of their assets have been largely written off,“ says Arend Heijbroek, Rabobank’s wine industry specialist. „Although a positive cash flow for the time being can be sufficient for the owners to cover family expenses, it is not enough to be able to finance investments required to increase quality and improve marketing for a large proportion of the midsized and smaller companies.“

Heijbroek says this is particularly visible in the brand building segment (competing round five euro consumer price), which has a very poor financial performance. The real challenge in France and Italy thus seems to be underinvestment. And many of these small to medium French and Italian wineries indeed are typified by a very low level of depreciation and amortisation (if any). Heijbroek: „They are milking the assets till the last drop and thus eating into future earning capabilities.“

As a result many companies will and already are losing attraction as acquisition targets, both for next generations as well as third parties. And with the financial crisis a grim reality, the outlook for many of these companies is therefore not favourable, to say the least. According to Heijbroek „a large portion“ of France’s wineries maybe affected, virtually rendering a significant segment of the industry long term financially bankrupt.

In the meantime, Spain, tipped to become the world’s largest wine exporter in a few years, has its own share of problems. „The overriding observation is that the Spanish industry is burdened by far with the highest inventory, receivables and fixed assets than elsewhere in Europe,“ explained Maria Castroviejo of Rabobank’s Food & Agribusiness Research and Advisory (FAR). „Spain is heading to a next phase of its life cycle, with greater emphasis on the creation of value rather than volume.“

The report also concludes that profitability in the New World is down due to significant investments the past years to increase quality and volume, igniting the present high debt and low revenue to fixed asset ratio, since full contribution of such investments is yet to come. For instance super-premium focused New Zealand is being challenged by high debt and high fixed assets due to its recent investments in expansion. However, when these investments will eventually bear fruit (a process which may take a little longer than anticipated given the current market circumstances), the New World will gradually see an improvement in their profitability. Wineries in the US continue to benefit from a growing domestic market, both in volume and migrating towards higher priced wines, while Australia faces the dilemma of the necessity to reduce debt in order to raise capital for further investments while the current margins remain low and hardly allow for it.

Rabobank, one of the few banks still with a triple A rating by Standard & Poor’s and Dominian Bond Rating Service, specialises in Food & Agribusiness. It recently co-organised the Madrid International Wine Conference, together with the Espiñola del Vino (FEV) and Observatorio Español del Mercado del Vino (OEMV).

Rabobank’s report ‘The Financial Wine Ratings‘ is a benchmark analysis by segment and country and will be explored in much more depth by Cees van Casteren in the April issue of Meininger’s Wine Business International.

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