Villa Maria vineyard predicts another loss

Villa Maria's grape supplier expects to post a third straight loss next year and is facing an uncertain future amid a deeper downturn in the wine sector than expected.

Terra Vitae Vineyards, which exclusively grows grapes for Villa Maria Estate, made a loss of $4.5 million, or 11 cents a share, in the 12 months through June after a loss of $3.1 million a year earlier.

Though both deficits were widened by a slump in the fair value of land and grape vines, the vineyard reported operating losses in each year and doesn't expect to return to the black until 2012.

That's left question marks over the company's status as a going concern, something the directors could only confirm half-heartedly in the annual report.

"The directors have considered the company's future position and have established that it can reasonably be considered a going concern," the report said in a note on its status.

"The operating loss before fair value adjustments is forecast to reduce further in 2011, with a profit being achieved from 2012."

Terra Vitae is looking to extend its $25.3 million banking facilities with Rabobank, and may have to sell assets or undertake a rights issue if it can't secure new funding.

As at June 30, the vineyard drew down some $24.8 million of the credit line, up from $22.6 million in 2009.

The gearing ratio, which measures net debt as a percentage of a company's equity, rose to 45 per cent from 38 per cent a year ago. The ratio was 31 per cent in 2008.

In the company's favour is its long-term supply contract with major shareholder Villa Maria that requires the winemaker to buy all grapes grown at the Hawke's Bay and Marlborough vineyards at market price.

The agreement lasts until 2028, and if Terra Vitae does fall over during the period, Villa Maria has first right to buy the land, and power of veto over other bidders.

Chairman Joe Ferraby said the operating loss came with global wine prices still under pressure from a glut of sauvignon blanc in 2008 and sagging demand in the UK and US, which were both hit hard by the global economic downturn.

This was compounded by land values coming under pressure, with unrealised movements having to be recognised in the bottom line under International Financial Reporting Standards rules.

"Property prices throughout New Zealand have been affected by the global financial events and vineyard values have been affected by these events, along with the current lack of profitability in the wine industry," he said.

Shareholders will miss out on a dividend payment for a second year.

The shares, which are listed on the Unlisted market, last traded at 45 cents in March.