Constellation prunes its vineyards
GLOBAL drinks giant Constellation has elected to rip up 175 hectares of surplus grapevines in premium winegrowing regions after failing to arouse buyer interest.
The company, which owns the Hardys, Leasingham and Banrock Station brands, last August flagged the sale of three of its 10 Australian wineries along with 23 vineyards as part of a massive rationalisation program driven by soaring water prices and a downturn in export markets.
Almost 12 months later, only seven vineyards covering 583ha have been sold, with more than 1000ha of vines still on the block.
The biggest disposal has been the sale of 394ha in Western Australia's Mount Barker region to a consortium of investors led by Great Southern-based winemakers West Cape Howe.
Another 180ha of vines in north-western Victoria's Sunraysia irrigation zone has been sold to Constellation supplier Tony Mangan, while a 1.2ha site in South Australia's Reynella has been sold to property developer Devine.
However, since the sale announcement, Constellation has taken 175ha of vines in South Australia's premium Coonawarra, Padthaway and Clare Valley regions off the market, and will now pull their vines out of the ground.
"We haven't sold three vineyards that we thought we may have, so we're looking for ways we can continue to get ourselves as well-positioned as possible from a supply-and-demand position," a company spokeswoman said.
A series of record vintages has left Australian winemakers oversupplied with grapes at the same time as the global financial crisis and competition from rival producers in areas such as South America have led to 10 per cent falls in export volumes over each of the past two financial years.
The grapevines Constellation has marked for the mulcher were either poor producers or were for grape varieties in oversupply.
"Not only are we having vintages that are above what we need to satisfy demand, but stocks are also building, so there's no intention to replant those areas in the foreseeable future," the Constellation spokeswoman said. News of the vine-pull came as contract winemaker Neqtar was put up for sale after being placed in administration last month.
The winery, located in the Sunraysia irrigation area, has capacity to process a massive 35,000 tonnes of grapes per year and produces mainly bulk wine -- low-cost, unbranded and sold mainly under supermarket in-house branding.
The glut of unsold vineyards is less than encouraging for Foster's, which is currently trying to shift 7200ha of its wine property portfolio, of which 4000ha are planted to grapevines.
However, David Johnson, general manager of client services with rural property brokers Landmark, says he has potential buyers lined up for each of the 33 winery assets that Foster's has for sale.
The list includes the 500ha Lindemans vineyard in Padthaway, as well as the Baileys winery in Victoria's Glenrowan, which is to be sold with 140ha of vines.
The Kaiser Stuhl brand -- known in the 1960s as a market leader in Australian sparkling wine but since demoted to a cheap cask label -- is also for sale, as are the export-focused Black Opal table wine and Boronia Marsala fortified wine brands.
Mr Johnson said industry players as well as financial buyers had made inquiries about the sale process ahead of the July 22 deadline for expressions of interest, with final offers due by August 28.
"Existing vineyard operators see this as a timely opportunity to expand their operations -- it's the bottom of the cycle but they've got a longer-term view and they see this as a good entry point to pick up quality assets," he said.
However, listed players are likely to be absent from the sale process. Lion Nathan sold off its Smithbrook winery in Western Australia earlier this month and is expected to consider a sale of the rest of its winery assets once it has executed its merger with Japanese brewer Kirin; Australian Vintage has just completed its own consolidation program; and the loss-making Cockatoo Ridge is more concerned with improving the performance of existing assets.
Peter Evans, who is fielding inquiries at property agents Colliers from potential offshore buyers of the Foster's assets, said there was substantial interest among investors in Britain -- the biggest destination for Australian wine exports in volume terms.
Investors were also appearing from China, the fastest-growing export market over the 12 months to the end of June, with sales up by 84 per cent by volume.
Mr Evans said part of the buyer interest was likely due to a perception that Foster's would "meet the market" in order to execute a sale, rather than hold out for a more attractive price.
Foster's has declined to estimate how much the sale process will bring, but Macquarie analyst Greg Dring has estimated the vineyards could bring $197 million, a discount of almost 20 per cent to book value of $240m.