Marlborough 2021 Vintage Impact
“Cash is King” February 2022
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“Revenue is vanity, profit is sanity, but cash is king.” This expression highlights the importance of cashflow management, often the domain of the business owner, CEO, or CFO. How it is managed has a broad reach within a business, impacting capital projects, short-term revenue targets, and overheads costs. We are in the final quarter of the two-year cycle for 2021 Sauvignon Blanc. In general, this begins in July 2020 with pruning and ends in May 2022 when the last orders are dispatched. This last part of this 2021 vintage cycle is unique due to the low yield, robust global demand, and low inventory cover from previous vintages. The approach is to take a macro view of the Marlborough 2021 vintage: create insight into how it will impact cashflow management in 2022, specifically January to June 2022.
Summary and key insights 1.
By June 2022 we forecast the MAT global sales volume (NZ Wine) at 289 ml; a decline of 45 ml (13%) for the financial year. This reflects the supply constraint impact from the Marlborough 2021 vintage (21% or 74,000 tonnes below the previous vintage). Note: MAT = Moving Annual Total.
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This is expected to adversely impact export markets between December 2021 to June 2022. Export volume is forecast to decline by 42 ml, which is a 30% volume decline (same period last year) equating to lower export revenue of $NZ 296 m.
3.
Market mix and packaging type trends have significantly changed in the last 6 months which is aligned to the release of the 2021 vintage. Packaged wine exports to the USA and Canada have grown 39% and 20% respectively in July to November 2021. In contrast the key UK and AU markets are in decline as is unpackaged wine exports.
4.
The ability of winegrower businesses to generate cash from operations will be a short-term challenge in 2022. The combination of the lower export receipts, low inventory cover, a higher yielding 2022 vintage, and inflationary pressure on operating costs will need to be managed carefully. Debt facilities will need to be well positioned if net cash outflows from operations arise.
5.
Key relationships and communication with customers, growers, harvest contractors, supply-chain partners, banks, and shareholders will be important to manage this short-term challenge.
6.
Our latest 2022 vintage forecast from Marlborough is on the higher side of our scenarios, at 338,000 tonnes. This includes all grape varieties from 29,400 planted hectares. It assumes an average 11.5 tonnes per planted hectare. Marlborough 2021 Vintage Impact Post-harvest Update “Cash is King”
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Global sales trends and forecasts The full impact of the 2021 vintage yield from Marlborough will occur in the January to June 2022 period.
Setting the scene: last year 269k tonnes were harvested from Marlborough. This was 21% or 74,000 tonnes below the previous vintage. The adverse impact of lower supply is a 45 ml forecasted decline in global wine sales of NZ wine. Primarily impacting export markets (42 ml decline) with the remainder in the domestic market (3 ml decline). Exports represent 85% of NZ wine volume sold globally. Sauvignon Blanc represents 86% of total NZ wine export volumes. The chart below illustrates the monthly (MTD) and moving annual total (MAT) trends of NZ wine export volumes. Current position (November 2021): despite global supply chain challenges, the current MAT export volume is 283 ml, 7% below last year or 0.6% (1.6 ml) below the June 2021 MAT 285 ml. Traditionally, a new vintage of Sauvignon Blanc commences shipping ex NZ from June the same year of vintage. This illustrates recent export demand has been robust as customers manage their in-market depletions and stock levels. The forecast: As supply is constrained, the full impact of the 42 ml forecasted export decline is predicted in December 2021 to June 2022, which will result in a 30% volume decline (to the same period last year) and equates to lower export revenue of $NZ 296m. Refer to the red MTD bars and MAT trend line in the chart below. NZ Wine: Export Sales Trends
Actual
Forecast
Source: New Zealand Winegrowers export market reports
Marlborough 2021 Vintage Impact Post-harvest Update “Cash is King”
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Significant changes in market and packaging type trends The gap between packaged and non-packaged export volume began to widen in May 2021. The 2021 vintage supply constraint has accentuated the gap due to growth in packaged export volume (since July 2021) combined with a continuation in the declining non-packaged trend. It is forecast that this gap will continue to widen. Actual
Forecast
The export market mix has changed since July 2021. The timing of this recent trend illustrates a significant increase of the 2021 vintage shipped to the USA and Canada in the packaged format. The AU, UK, and Other export markets are in decline, a trend that correlates with the non-packaging decline trend. Actual
Source: all the data above was sourced from New Zealand Winegrowers NZ Wine Export reports Marlborough 2021 Vintage Impact Post-harvest Update “Cash is King”
Forecast
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Cashflow is king in 2022 Cashflow management in the wine industry has always been a balance between generating net cash inflows from operations to fund debt obligations and capital investments, which enables growth opportunities for future earnings. The ability of winegrower businesses to generate cash from operations will be a shortterm challenge in 2022. Between December 2021 to June 2022, the wine industry will be adversely impacted by a forecasted decline in export receipts of $NZ 296m (a 30% decline on last year). Higher payments to suppliers and employees will also place pressure on cashflow from operations with inflationary pressure on harvest costs, grape prices, excise and general operating costs.
A higher yielding 2022 Marlborough vintage (forecasted at 338 k tonnes) will accentuate this challenge on cashflow, particularly when it relates to the timing of grower grape payments and harvest costs. Debt facilities will need to be well positioned to fund current operations and the future investment in property, plant, and equipment. If there is a net outflow of cash from operations, it may require the sale of assets to fund short-term debt facilities to achieve agreed debt ratios. The last time the wine industry faced this cashflow challenge was in 2012 and 2015 where both vintages had lower yields from the previous vintage. However, based on global sales volumes the NZ wine industry is now 24% larger than in 2016. 2022 Forecast
Marlborough 2021 Vintage Impact Post-harvest Update “Cash is King”
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We provide specialist wine industry services, advice, and insights to improve your business performance.
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