Bitter taste for wine maker

There’s an element of “suck it and see” in how De Bortoli Wines is responding to the strong Australian dollar, managing director Darren De Bortoli says.

He’s glad that the dollar has recently dropped but concerned about the future. “If [a high dollar] is here to stay, God forbid,” he says.

With Britain and Europe as key export markets, De Bortoli says the strong dollar has “basically destroyed margins. In a few of the markets we have been operating at a loss.”

Despite the enormity of the scenario, De Bortoli has tried to make it work in his favour. The company bought packaging equipment using revenue in euros, totalling about $10 million (in equivalent Australian dollars), instead of converting those euros back to Australian dollars and losing out on the exchange rate.

In times when strong currency makes one market less desirable, companies can look for other export markets where the exchange rate is in their favour. However, De Bortoli is hesitant. “You can’t change focus; it is already there [in Europe and Britain]. You have to sustain the momentum in those markets,” he says. “I suppose Asia is the only market that comes to mind [as an alternative]. There’s been no special effort there as part of our overall push. I think we would seriously question where we are heading by the end of year.”

The company has already felt the brunt of a rising Australian dollar. Recent financial reports lodged with the Australian Securities and Investments Commission show the company posted a $1.6 million deficit in the 2009 financial year, blaming losses on investments and foreign exchange pressures. Although the company turned that into a $13.4 million profit in 2009-10, it noted that an improvement in share trading activities was its saving grace (the family has invested in junior mining companies).

De Bortoli points to global interest rate differentials (Australia at the higher end of the scale) as the main driver of the high dollar. “The problem is, I can’t see interest rates coming back, particularly with the minimum wage crisis and the carbon tax,” he says. “The way I see it, things are going to get very tight.”

De Bortoli is not in a position to raise prices, so must wear the smaller margins. “We probably need to be more bold [with pricing] but most of the industry is not in a position to do that,” he says.

He points to overproduction as exacerbating the industry’s woes. “We are in a worse position because of other dynamics beyond the exchange rate,” he says. “[In Australia] we may have missed a bullet with the GFC but our bullet is still to come.”

BRW

Comments (0)