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Yellow Tail’s Casella in emergency talks with lender

Casella Wines, best known for its Yellow Tail brand, is in emergency talks with its lender as it reports its first loss in over 20 years.

One of Australia’s largest wine exporters, Casella Wines made a loss of AUD$30m in the last financial year, to 30 June 2012, down from a profit of AUD$43.5m a year earlier.

Casella is responsible for producing one in five of every Australian bottle exported abroad. It counts on the US for three quarters of its sales.

The company blames the loss on the strengthened Australian dollar against the US dollar. Yellow Tail’s selling point is its sub-US$7 price tag, which, with the increased price of labour and grapes, is no longer profitable.

‘There’s no volume issue,’ said chief executive John Casella. ‘It’s all about the exchange rate. The currency is having serious implications for a lot of Australian manufacturers.’

However it seems it’s the lower end of the market that is struggling the most.

‘At the price point Yellow Tail is selling at, the currency changes have a huge effect,’ Barossa winemaker Charles Melton, who exports around 40% of his wines, told Decanter.com.

‘Our top end wines in the UK have gone up from about £26 to £29. A customer who can afford to pay that for a bottle won’t raise an eyebrow for an extra £3. But our rosé, which was retailing for £9.99 has gone up to £15. That’s much more noticeable and we’re seeing the affect of that sales-wise. The lower the original retail price, the more difficult it becomes.’

Australian journalist Max Allen summarised the situation to Decanter.com: ‘Duh! So you specialised in selling cheap wine and now you can’t make any money out of it…no surprise there.’

Casella’s debt has risen by 40% in the past year from AUD$98.9m to AUD$138.7m.

‘Provided we have the support of our financiers, we can make little or no money for a year or two,’ said Casella. ‘I’m hopeful the dollar is overvalued and we can return to some normality.’

Casella’s lender, the National Australia Bank, has extended the company’s deadline to 30th January. If the loan fails to be secured, Casella stated that it will have to start selling of some off its assets, including its vineyards.

The company is developing a beer partnership with Coca-Cola Amatil and also have plans to introduce a range of premium wines sourced from a new vineyard in the Barossa Valley.

Written by Christina Pickard in Perth

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