Australian Vintage Limited (AVL) has exited a long-term lease with Fresh Country Farm for the Millewa Vineyard, as it looks to accelerate its inventory reduction strategy.
The move comes after the wine business said in May that its was estimating a significant reduction in its wine intake with long-term grower contracts rolling off over the next three years.
AVL said at the time: “Our inventory position for the end of FY2025 is likely to be higher than the prior year’s balance. The higher inventory balance projection for FY2025 is a consequence of declining sales, too much wine intake and inventory build for Poco Vino and Lemsecco.
“As a result, our previous expectation of neutral normalised free cash flow for FY2025 is revised to be an outflow of approximately $13m for the full year. This projected result is an improvement of +$15 million on the prior year and +$20 million on FY23, on a like-for-like basis, showing the considerable progress the company is making.
“However, the result is disappointing, and we have doubled down our efforts on sales growth and inventory management for FY26.”
Millewa produces a majority of red varietals and AVL said that exiting the lease with the vineyard will provide the business with flexibility in its sourcing strategy and a key reduction of red varieties that are in excess of demand.
In its statement to the ASX about the lease, AVL said: “Removing these varietals from the supply chain provides a relative net cash flow benefit of $8m over the remaining lease term, taking into account a $2m exit fee and ongoing payments equivalent to the lease fees as part of the exit contract.”
AVL added: “The lease term was due to expire after the 2028 vintage however [AVL] proactively pursued the opportunity to exit early to support its flexible grape sourcing strategy and inventory reduction. It is a testament to the company’s strong partnership with Fresh Country Farms that we were able to work together to agree the terms of the exit.”