High Aussie dollar sours exports as Casella Wines suffers $30 million loss
Monday, January 14, 2013/
Casella Wines, the family-owned winery behind one of Australia’s most successful export wines, Yellow Tail, recorded its first ever loss as a result of the continuing strength of the Aussie dollar.
Casella Wines posted a $30 million loss in 2011-12, putting it in breach of its debt covenants with the National Australia Bank.
Managing director John Casella told SmartCompany part of the loss was a loan write-down, so the loss is not all trading loss.
“It’s a margin issue, so our volume of sales is actually increasing as normal except that if the dollar does not recede to a manageable level then you have to contemplate price rises, and we all know the danger of price rises,” Casella says.
NAB has given Casella Wines until January 30 to identify further cost cuts and other ways to improve its margins.
The Australian dollar is currently trading at $1.05 to the US dollar and Casella says if the dollar sat at anything below 90 cents to the US dollar it would be “manageable” but “in the mid-80s” is where Casella Wines would ideally like the dollar to be.
“The Australian dollar is 30% above where it should historically be, and half is our good fortune [with] the minerals [the mining industry boom] and so on and the other half is the misfortune of the US and Europe, and they have not been trading the way they should have,” he says.
Casella says the problem for exporters is the Australian dollar is not just strong against the weak US dollar; it is strong against other markets as well.
He is hoping the wine company’s move into the beer market will help protect it against the risk of currency fluctuations.
“We are reducing our dependence on our export income. It also has quick turnover, so not the stocking levels we have with the wine business, and at the same time we are looking at wherever we can minimise costs,” he says.
Warren Hogan, chief economist at ANZ, told SmartCompany there is little relief ahead for exporters as the bank expects the Australian dollar to sit around the level of $1.05 to the US dollar for the year.
“There are two broad forces that will influence the currency. Given our view the world economy will gradually improve throughout the year as the United States and Asia look better, there might not be as much capital inflow to Australia so that might help contain it a little,” he says.
“But working in the other direction will be stronger global growth and potentially we will see a switch back to more commodity spending, which usually supports the currency.”
Hogan predicts the Aussie dollar is likely to remain elevated throughout the year.
“It is unlikely it will fall below parity unless there is some unexpected turn of events,” he says.
Gavan Ord, business policy adviser at CPA Australia, said businesses can try to minimise their exposure to the high Australian dollar by using forward exchange contracts which can protect businesses from exchange rate movement by locking in an agreed exchange rate until an agreed date.
Businesses can also look to foreign currency options which enable a business to purchase or sell foreign currency under an agreement that allows for the right but not the obligation to undertake the transaction at an agreed future date.