By Andy Young
Australian Vintage Limited (AVL) has reported a full-year loss although its underlying profits and revenues did increase over the 2016 financial year.
The winemaker reported an underlying profit of $7.2m, but that turned to a $2m loss as AVL had costs associated with terminating its Del Rios vineyard lease. The company was also hit by a $1m currency exchange loss following the UK's Brexit vote in June, but chief executive Neil McGuigan (pictured) is still confident about the future direction of the company and its transition from a bulk wine producer to a quality branded bottled wine business.
Speaking after the results were published, McGuigan told TheShout: "It's been quite a good year, we are continuing to grow our brands in all the jurisdictions that we need to grow them in, although not a quickly as we would like in some. But all in all it is going pretty well. The Brexit thing caused us a bit of stress of course, but getting rid of some onerous contracts, continuing to build brands, making good wines, new SKUs, new opportunities, it is all going in the right direction, which is very pleasing."
Speaking about his key highlights of the year, McGuigan said: "The continuation of increasing our sales footprint in the UK and also in Australia. The relationships we have with supermarket chains around the world, I don't think have ever been better, but you have still got to be creative, you have still got to be innovative and you have got to be knocking on the door and we are doing that.
“So I think because of our positive, optimistic approach plus appropriate wine styles and at the right price point, that is why we are being embraced.”
AVL’s CFO Mike Noack added: “The other highlight from an operational point of view was getting out of the onerous Del Rios contract. We had to pay out around $5m to get out of that, but obviously the benefits will be much bigger than that.”
Noack added: “It’s not only that one, there are others that have dropped off that we considered onerous. And we think that in the next 12 months our grape costs will come down by around $9m. So the payback period [on a contract that was running until 2023] is pretty short.”
The company also reported strong growth in Asia and Canada and McGuigan told TheShout that these are real areas of focus for AVL in the coming years.
“Two years ago we used to handle Asia out of Australia, but we now have an office in Hong Kong and we have four people there now who handle China, Asia and the Pacific. That’s not enough, we could have three times that amount, but you have got make sure you get the right people because the culture in our business is very important. It is important to make sure that they are representing the brand in exactly the way that you want it represented.”
McGuigan added that over the next 12 months AVL will be focusing on “lots of smaller Asian countries where you can influence the style of wines going in and also you can be an Australian hero. So there lots of countries that we are not in and we are beavering away on that. It’s low-hanging fruit and not huge volume, but good for representation and a lot of these Asian countries are drinking more and more wine.”
The results also showed that AVL’s cashflow is improving, even allowing for the $5m cash payment the company had to make on the contract termination and Noack told TheShout “we expect that to grow in the future” and AVL also reinstated a dividend for the first time since 2014.
AVL also highlighted that over the last five years sales of its three key brands McGuigan, Tempus Two and Nepenthe have almost doubled, but McGuigan added: “We still think that we have got a long way to go and we will continue to push very, very hard. There are lots of new and innovative things that we will be doing with our brands and you have to watch this space for what we are going to be doing with Tempus Two because that’s a real sleeper and we think there is a huge opportunity with Tempus Two.”