DGL - Delegats Wines

[Ferg]

Delegats was established in 1947 and own vineyards in NZ & Australia.  They harvest & purchase grapes to make wine that is sold locally & internationally.  Their biggest brands are Oyster Bay & Barossa Valley Estate, and their largest market is the USA.

The strategic goal of DGL is to build a leading global super premium wine company.  From what I understand, the categories in the wine industry are organised by retail price and they go from 'value' (aka cheap plonk) -> popular -> premium -> super premium -> ultra premium -> luxury -> super luxury and icon (which sounds like a misnomer to me).  So that puts 'super premium' into context.  Delegats have won numerous awards with their wines.

The main metric in the wine industry is 'cases' which refers to a box (or case) of 12 x 750ml bottles, which is 9 litres.  A breakdown of fiscal 2024 case sales into Delegats' main markets: USA/Canada 48%, Europe/UK/Ireland 33%, NZ/Oz/Asia/Pacific 19%.  So there is exposure to foreign exchange movements as an exporter.

EPS has a 15 year CAGR of 6.9% p.a. which is made up of 3.6% CAGR in sales per share, and 3.2% CAGR in NPAT as a % of sales.

Unfortunately IFRS makes a right meal of the reported NPAT for grape growers, so I use the historical cost values, and not IFRS adjusted values.  IFRS requires Delegats to revalue grape stocks to market value at year end which ignores the historical cost element of what it costs to grow and process them, and ignores the fact Delegats is not in the market of selling grapes - they sell wine.  The IFRS adjustments result in distortions to the reported profits but Delegats provide a useful reconciliation and full transparency on the IFRS junk.  Delegats refer to their underlying profit as 'operating profit'.  I have provided a summary of differences below.

Investor information can be found here: https://www.delegat.com/investor-information

Recent developments: there was a poor harvest in 2024 which resulted in a negative pre-tax $24m IFRS adjustment for grape valuations, plus the removal of building depreciation also negatively impacted reported NPAT by $13m.  Hence the reason reported NPAT at $31m in fiscal 2024 was down ~50% versus fiscal 2023.  Operating profit was $59.7m (2023 was $59.3m) and DGL have provided operating profit guidance of $55-$60m for FY25.

A history of their sales, NPAT as a % of sales, and EPS:

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Following is a reconciliation of reported NPAT with 'operating profit'.  IMO this shows the mess that IFRS does to some businesses:

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And in the words of Andrew Wiles, I think I'll stop here.

[Red Baron]

Nice vork Verg

This......

Unfortunately IFRS makes a right meal of the reported NPAT for grape growers, so I use the historical cost values, and not IFRS adjusted values.  IFRS requires Delegats to revalue grape stocks to market value at year end which ignores the historical cost element of what it costs to grow and process them, and ignores the fact Delegat]s is not in the market of selling grapes - they sell wine.

At vhat point in ze production process do 'grapes' turn into 'vine', under IFRS?   Eez it vhen they are crushed?

RB

[Ferg]

Nice vork Verg

This......

At vhat point in ze production process do 'grapes' turn into 'vine', under IFRS?   Eez it vhen they are crushed?

Thanks S-Dog.

Interesting question.

In short, the wine making process involves growing & harvesting (at which time they are grapes), then crushing/pressing, fermentation & clarification (during which time it is 'work in progress') and then aging (when it is WIP and/or bulk wine) and then bottling (when it becomes wine stock).  IFRS may have an opinion on each stage prior to bottling given there are known market prices for grapes and bulk wine.

Keep in mind wine makers capitalise all cost pertaining to a harvest (from growing to bottling) as work in progress so they know their actual costs to within a cent per litre.  Then along comes IFRS which says "yeah but if you sold the grapes and/or bulk wine on the open market then it is worth x", which is clearly nuts as evidenced by the swings in profit per the graph I posted.  Delegats is not in the business of selling grapes, nor I imagine selling bulk wine.

[Ferg]

A couple of extra graphs.

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And this graph is a thing of beauty .... no capital raises making demands of shareholders:

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