By Andrew Starke
The Australian wine industry is slowly moving to a balance between supply and demand although 2011 will see producers facing an extremely volatile market.
This is the view of Australian Vintage chairman Ian Ferrier, who told shareholders at the company’s recent AGM that ‘the worst may be behind us’ and that the outlook for next year was one of cautious optimism.
The producer of brands such as McGuigan, Miranda, Nepenthe, Passion Pop, Tempus Two and Yaldara had an improved 2010 financial year with underlying earnings before interest and tax increasing by 43 percent to $23.6 million and profit increasing by 89 percent to more than $8 million.
In January the company had its debt facility extended for a further two years with NAB formally agreeing to an August 2011 cut-off date.
“We are seeing the benefits of the decisions we made four years ago start to flow in the quality of our wines and in the cost base; in the recognition our wines are receiving internationally; in the increased number of cases that we are selling of our branded wines and in the positive financial results,” said Ferrier.
However the Australian Vintage board remains cautious and has taken a conservative approach to cash retention and not paid a dividend.
“We continue to review these issues with an aim of returning a dividend to shareholders as soon as prudent and practical,” said Ferrier.
“For the first time in many years we anticipate that the worst may be behind us and that the outlook for our company is one of cautious optimism.”
He said the most pressing of the difficult conditions that the local wine industry continues to face is the strong Australian dollar, which negatively impacted on export earnings over 2011.
Since July 2009 the Australian dollar has increased 23 percent against the US dollar and 26 percent against the pound – the company’s major export destination.
“We’ve continued to manage our export competitiveness but the currency movements we have seen in the past few months are a serious challenge for our marketing and sales forces,” said Ferrier.
“Overall in 2010 we sold less wine but we increased sales in high quality branded wines in export markets which is a major contributor to our 2010 performance and now represents almost half of our total sales.”
AVG shares were trading at 33 cents at midday today (Dec 17), well up from the 20 to 25 cent levels they were trading at for much of June and July.