By Andrew Starke
Producing wine in Australia is ‘fundamentally an attractive business’ despite significant challengers in the sector and the prospect of a difficult 2011 vintage.
This is the view of Australian Vintage (AVG) chairman Ian Ferrier who said the business had continued to strengthen despite ongoing pressure on the industry.
The wine supplier expects to lift underlying earnings for the full 2010/11 financial year despite recording a net profit of $5.8 million for the first half, down 41.1 percent on the prior corresponding period.
“We believe that the market will remain volatile and exchange rates will continue to impact the momentum we have in our export markets,” said Ferrier.
“The economic conditions in the UK, in particular, will make future sales and margin growth challenging.”
Ferrier said AVG’s restructured asset base and focus on branded sales was driving performance.
“We will continue to respond to the industry and to the market conditions from our current position of very flexible, low cost operations and growing brand strength,” he said.
McGuigan, Miranda and Tempus Two are amongst AVG's brands.
While the 2011 vintage is expected to be difficult this should at least reduce excess stock.
“We have seen wine stocks move slowly toward balance and we anticipate that 2011 may further reduce excess stock,” said Ferrier.
“We will update the market on vintage conditions around May as production levels become clearer.”
He also noted the recent corporate activity within the wine sector and in particular the recent acquisition by Champ Private Equity of the majority of Constellation Brands' Australian and European operations, which comes only a few months after other Private Equity interest in Treasury Wine Estates.
AVG was itself involved in merger talks with Constellation last year.
“We see this interest from financial investors in the wine sector as a positive sign,” said Ferrier.
“It demonstrates a level of conviction that wine is fundamentally an attractive business and that Australian wine producers are well placed to participate in medium term upside from an improving global wine cycle and structural growth driven by the increasing popularity of Australian wine in exciting growth markets such as Asia and in particular China.”
Shares in Australian Vintage were trading at 34 cents at midday today (Feb 9), slightly up on last week’s levels.