Australis Research Solutions
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Topic 7 Week 8 Costs of production Cost-cutting pays off for wine producer Palandri LEON GETTLER BEVERAGES REPORTER PALANDRI Wines has boosted pre-tax profit 83 per cent to $3.1 million in the year to June 2005 by slashing spending on promotion and production as part of an $11 million cost-cutting campaign. In its press release out yesterday, Palandri claimed the bigger profit was on the back of increased exports and a growing Australian market, with domestic sales up 15 per cent, sales in Britain, Australia’s biggest wine market, rising 82 per cent, and up 42 per cent in the US. Chief executive officer Darrell Jarvis said: “Palandri’s 2004-05 exports grew strongly to be 65 per cent of total sales, a good record for a company that only launched into export markets in 2001. We have continued to make considerable distribution gains within the large supermarket sector in the UK and Europe, with product also recently introduced to Switzerland and Germany.” However, the accounts show revenue for the WA producer, which listed on the London Stock Exchange’s Alternative Investment Market a year ago, fell $9.3 million to $25.97 million. Cash flow from operating activities suffered a $9 million turnaround, plummeting from $8.34 million to $600,000 in the red. The biggest spending cuts were in wine sales and marketing, with expenses slashed from $9 million to $3.57 million. Wine production costs were cut by more than $3.5 million to $4 million. Administration costs were reduced from $5.61 million to $4.32 million. All up, expenses from ordinary activities were reduced by $10.7 million, a 32 per cent cut. The accounts also show some financial restructuring, with $6.3 million of loans from the bank and one director being repaid and the bank providing an $11.97 million loan. In the area of related-party transactions, chief executive Darrell Jarvis has lent the company money. The accounts also show that Palandri paid $416,656 in consulting fees to a company that had Palandri’s finance director, Chris Brown, as a director and shareholder.
Foster’s first-half result included a strong result from its Carlton & United Beverages (CUB) division which offset a disappointing wine result, Goldman Sachs JBWere said in a research report. It retained its long-term “buy” recommendation based on Foster’s plans to cut wine production costs and increase distribution scale to accelerate earnings per share growth. “But our faith has been tested,” it said. Goldman Sachs JBWere lowered its fiscal 2006 net profit forecast for Foster’s by 1.6 percent to A$609.3 million ($451.3 million). Citigroup maintained its “hold” recommendation but upgraded its fiscal 2006 net profit forecast for Foster’s to A$621.2 million from A$603.8 million due to a stronger-than-expected performance from CUB. It raised its share price target to A$5.83 from A$5.62. “We remain cautious on the wine industry with tougher supply dynamics in Australia and California and rising customer power in Australia and the UK,” it said. UBS, which has a “neutral” rating on the stock, cut its forecast for Foster’s fiscal 2006 earnings by 3 percent to A$594 million and lowered its share price target to A$6.00 from A$6.25. Foster’s shares eased 1.5 percent to A$5.40 in late morning trade on Wednesday in a wider market up 0.2 percent. ($1=A$1.35). Reuters News 15 February 2002 It is now late-2003 and the facts of life seem to be slowly dawning on Matthew. He is starting to realise that his romantic dream of hand making beautiful wines at Duloc is just that, a dream. Matthew is beginning to realise that he has invested too much time, money and emotional energy at Duloc. He has long since resigned from Harry’s and he is starting to realise that his future, and that of his sister and his young family, depend on the commercial success, or otherwise, and not just the critical success of Duloc. He feels that he is constantly being forced to compromise his ideal, to trade quality for profits. He also feels that compromises are loss-loss situation. Nobody is happy with the outcome and that the outcome is unstable. But he is beginning to realise that he can be flexible. There are ways of reducing costs and increasing revenues and profits, without affecting the quality of the wine that he produces and without devaluing his reputation as a wine maker. Matthew’s objection to mechanical harvesting was the result of experiences with the early harvesters. They were really quite “brutal”. They spilt too many grapes and broke off too many leaves and stems, while leaving too many grapes on the vines, to wither or to be hand harvested. However, modern harvesters are much more gentle and much more efficient than they used to be. Not surprisingly, Matthew has been persuaded by Zoë to embrace mechanical harvesting. The capital costs might be quite high, but the labour savings will be massive. One machine with one operator can do the work of 100 hand pickers. Matthew’s views on mechanical harvesting have also been influence by changes to the labour market. Falling family sizes means that it is difficult to mobilise large amounts of “free” family labour at harvest time. While new off farm job opportunities in the Southern Vales are pushing up labour costs. Hand harvesting is not longer economics, except for people making hand crafted icon wines sell for $500 or more per bottle.
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