Australian Vintage Group’s premiumisation strategy is gathering momentum, with the company’s reported net profit after tax surging 29% in its financial results for the half year ended 31 December 2022.

Net profit after tax was $12.9 million. Australian Vintage Chief Executive, Craig Garvin said Tempus Two, Nepenthe and the Barossa Valley Wine Company increased by 2%, 22% and 4% respectively.

McGuigan declined by 11%, which Garvin said was in line with post-COVID-19 declines and the company’s expectations.

“Total revenue of $137.1 million has remained consistent with the revenue achieved last year,” Garvin said.

“Our pillar brand contribution to revenue at 77% is consistent with the prior year. As announced previously, gross margin is being impacted by high inflationary pressures, notably sea freight, delivering a margin of 29%. Normalising for inflationary pressures and gross margin would have been 35%.”

Garvin said innovation in the no-and-low wine category was continuing to reap benefits, with a new range of Not Guilty zero-alcohol drinks is about to hit the global stage in the second half. He said customers were very excited about the range, especially in the UK, with an ABV tax imminent in the market.

UK market share grows

Australian Vintage reported that despite industry-wide supply chain issues post-Brexit, the UK continued to grow market share by 2 percentage points. The company maintained its leadership in the no-and-low category, where it grew market share by 44 percentage points. McGuigan Zero continues to be the number one alcohol free still wine brand in the UK.

Ireland delivered a “stand-out performance for McGuigan” with growth in overall market share of 19 percentage points.

AVG said Canada continued to be a “growth market” its brands, with growth of 9 percentage points over the prior period.

The booming brands in Australia

Profit in Australia for Australian Vintage was driven by Nepenthe (+21%), Tempus Two (+4%) and Barossa Valley Wine Company (+2%), offsetting a decline in McGuigan of -25%.

The direct-to-consumer (DTC) division, which was impacted by COVID-19-related closures in the prior year, delivered growth of +25%.

AVG said the upgrade of the iconic Adelaide Hills Nepenthe cellar door was nearing completion and expected to be finalised by the end of March 2023.

Severe floods throughout the Murray region on the back of extensive and prolific rainfall across the east coast mean estimates across the region suggest yields will be impacted by 30-50% over the prior year.

AVG said the upside was the lower yields would rebalance wine over supply and maintain higher prices for the growers.

Positive signs in China

AVG said there were some encouraging signs in China with a potential easing of trade restrictions.

“AVG have adopted a be-ready position and are actively working with COFCO, our importer, to pursue potential opportunities when trade re-commences,” Garvin said.

AVG had a continued focus on core markets of Taiwan, Malaysia and Singapore, with increases seen in Tempus Two (+79%) and Barossa Valley Wine Company (+44%), offsetting declines in McGuigan of -31%.

Garvin also told the Australian Financial Review last month that India holds huge promise for Australian Vintage. He believes India, with a population of more than 1.4 billion and growing middle and wealthy classes, will be a $290 million export market for Australian wine within five years.

AVG’s outlook

Garvin said softer trading conditions were expected to continue, driven by hyper-inflation, ongoing interest rate increases, aggressive Australian export behaviour arising from red wine surplus and an increase competition in the no-and-low segments in Australia.