Sacred Hill Vineyards was forced to split its businesses and seek a buyer for its Hawke’s Bay operations after discovering a material overstatement of value of its inventory, which it used to back more than $50 million of bank debt.

The award-winning winemaker found itself relying on its bank’s good graces as it contended with a poor vintage, strong kiwi dollar, and poor financial performance. It planned to sell its Hawke’s Bay operations to reduce debt.

A buyer was lined up last year but that conditional deal fell through, and multiple missed payments prompted Westpac to tip the company into receivership in May, according to the first receiver’s report on Sacred Hill Vineyards by BDO’s Rees Logan and Andrew McKay.

The receivers undertook an urgent assessment of the winemaker’s books when they were appointed, and decided keeping it running and selling it as a going concern was the best chance of extracting money for the creditors owed $98.6m in total.

“Inventory has continued to be sold in the ordinary course of business to ensure sufficient cashflow for ongoing trading,” the receivers wrote.

“We are currently in the process of selling the company’s business and assets through a formal confidential sales process.”

No more patience

Westpac was owed $52.4m at the time of appointment across the group of Sacred Hill companies that are all in receivership, having been a long-term lender to the winemaker. That debt shot up from $36m in the June 2018 financial year, which came just before Sacred Hill sold three vineyards to a MyFarm syndicate for $7.5m and leased back the land.

The winemaker’s inventory was valued at $44.1m as at June 30, 2018, down from $51.5m a year earlier.

Sacred Hill also owes another $6.4m to secured creditors including UDC Finance, PGG Wrightson and De Lage Landen, $4.2m to Customs, and $35.6m to unsecured creditors. Of the unsecured debt, $25.2m was from related parties.

The receivers said it is too early to say whether there will be any funds left for unsecured creditors after the sale.

The sale comes at a tricky time for winemakers. Not only is it competing with the much larger Villa Maria being on market, but Delegat Group yesterday warned of a weaker operating profit for the June 2022 financial year.

Delegat said its operating profit rose 6% to $64.6m, even as its global case sales were lower than a year earlier and it missed forecasts due to congested trade channels.

The NZX-listed company said it expects operating profit of between $57m and $61m in the 2022 year due to a lower yielding vintage and higher grape prices pushing up the cost per case, unfavourable exchange rate movements, more expensive freight, and continuing covid-19 restrictions.