Falling grape prices squeeze Oyster Bay

Oyster Bay Marlborough Vineyard is expecting to report a loss this year off the back of dropping grape prices, forcing it to seek a waiver for potentially failing to meet its banking covenants.

The listed grape grower, which supplies exclusively to its majority shareholder Delegat's Wine Estate, made the announcement yesterday, just a day after the Securities Commission filed civil proceeding against Nuplex Industries for allegedly failing to make similar disclosure – the first continuous disclosure case brought by the commission.

Yesterday, Oyster Bay chairman Sandy Maier said the announcement was not prompted by the commission's increased scrutiny of disclosure rules. "We are aware of that [the Nuplex case] but had a general understanding of our duties before any of that," he said.

Oyster Bay was in the middle of negotiations with Delegat's over prices for the 2010 harvest but based on current low grape prices and harvest volumes there was "hard evidence" the company would report a loss for the full financial year.

"With the industry in a state of unbalance this comes as no surprise or shock for us."

The announcement comes after it was reported that spot prices for sauvignon blanc grapes are at a record low, in some cases as low as $550 per tonne.

Oyster Bay netted $11.5 million from Delegat's for its 2009 harvest, a 27 per cent drop on the previous year. In the year ended June 30, 2009, it reported an after-tax profit of $1.54m, down from $2.18m the previous year. Oyster Bay's last financial results show secured long-term borrowing of $15.77m.

Mr Maier would not speculate on the expected price for the 2010 harvest other than to say he expected the company to make a loss.

He would not comment on the impact of Oyster Bay breaching its banking covenants but expected to reach some arrangement with its lender.

Oyster Bay had an advantage over some other growers of a long-term grape purchase arrangement with Delegat's, which provided more certainty for the company.

Delegat's reported a net profit for the six months to December 31 of $13.8m, 12 per cent less than the $15.7m profit for the same period the previous year.

Oyster Bay would make more announcements when appropriate, Mr Maier said.