Australian Vintage reveals strategy for getting profit back on track

Australian Vintage has announced its FY23 results, with its final dividend due to net profit after tax falling by 77% to $4 million.

Australian Vintage said that while revenue was in line with the prior year at $258.6 million, it had been one the toughest external operating environments in decades.

The value of wine exports from Australia declining 10%, Europe and North America recording declines of 15% and 14% respectively, and China tariffs and inflationary pressures in the UK resulting in a profound impact on the sale of Australian wine.

“Oversupply of grapes from the prolific 2021 and 2022 vintages coupled with shrinking export markets has seen unsustainable grape sourcing and marketplace pricing behaviour from key competitors,” the company said.

“Vintage 2023 will be remembered as one of the most challenging for decades. A long, cool, wet spring and summer resulted in significantly reduced yields, with an overall crush of only 1.3 million tonnes, one of the worst vintages in decades.”

Update on Australian Vintage strategic review

The company said its strategic review, announced in early July and being conducted by Evans & Partners, was continuing and had found there was too much processing capacity and grape supply in the industry, with the recommendation that rationalisation was required in the cheaper wine segment.

“Whilst a strategic transaction is not required to support future profitability, Australian Vintage have appointed
Evans & Partners to examine opportunities, in the interests of maximising shareholder returns,” the company said.

“The fundamentals of Australian Vintage’s business are well placed for the future. Continuing to invest in brands, innovation and people to premiumise the portfolio and improve mix to higher margin products, driven by consumer needs, is crucial.”

The company said action was being taken to offset continuing hyper-inflationary pressures through removing $9 million in annualised costs out of the business.

“AVG is on track for FY24 with 90% of the actions underpinning those savings implemented.”

Among the pathways being explored for Australian Vintage enhancing profit were working closely with existing Chinese partnerships in anticipation of the China wine market reopening in the next 12 months.

Australian Vintage said it also saw the Middle East and India as “significant business opportunities” for Australia with a strategic partner appointed to establish new business in both markets.

“This combined with China reopening, rest of Asia double digit growth and a strong innovation pipeline are encouraging for the future,” the company said.

Chief Executive Craig Garvin said: “Our strategic plan is working. The relentless pursuit to drive our pillar brands, innovate and expand geographically has shored up our platform for future growth. FY23 saw us absorb significant inflationary costs and realign our business to be a lower cost producer.

“This sets us up well for FY24 and beyond. We have continued to invest in our brands and innovation. Our people remain our number one priority with engagement, safety and diversity improvements versus prior year.

“Given the trading environment, I am very encouraged we have been able to maintain revenue in line with the prior year of $258.6 million, as we continue to improve our mix of higher margin business. As cost reductions occur, I am very confident in our future performance.

“We are the global leaders in no-and-low, reflected through substantial increases in product ranging and increased
market share and supported by our world leading technology. Innovation now represents 15% of our total margin, which did not exist three years ago. When the growth in premiumisation is added, margin contribution now represents 35% of our business.”

UK, Europe and Americas

With the UK/ Europe market contributing 49% to revenue, Australian Vintage said this market was one of significant focus, especially with the introduction of the UK duties tax in August.

“This duties tax provides opportunities for suppliers with a lower alcohol by volume (ABV) by lowering the duties tax payable by retailers,” Australian Vintage said.

“Through AVG’s leadership in the no-and-low category the Company has achieved significant ranging of new products setting up FY24 well. In the no-and-low category AVG have grown market share by 34 points.”

Australia and New Zealand

Australian Vintage said there had been strong competition in Australia in all categories, however, despite this competition Australia had grown share by 1 percentage point.

“Growth was driven by premiumisation and innovation, where the Australian market has seen overall value segment reductions post COVID-19, reinforcing the importance of premiumisation and innovation. AVG is one of the only producers to
take price,” the company said.

Australian Vintage said it was pleased with how its new spirits range was performing.

“The Tempus Two Shiraz Gin is already recognised as one of the best global gins, winning double gold in the San Francisco World Spirits Competitions, double gold in the Singapore World Spirits Competition, and the Masters Medal at the 2023 Gin Masters Awards,” the company said.

A number of collaborations had also been launched including: Sevenly by Sarah Jessica Parker, The Butchers Cellar, and Johnny, Vince & Sam’s Vino by Sooshi Mango.

“Sooshi Mango has been awarded the Best Brand Activation of the Year at the Endeavour Group Supplier of the Year Awards,” the company said.

“This innovation is strategically important in the move towards a more diverse and higher margin business, led by consumer needs. These new revenue streams will continue to grow margin and contribution over the coming few years. Australia is the test market for these products, however the intention is for them to become global.”

Australian Vintage profit prospects in China

Australian Vintage said the premiumisation opportunities identified through Asia’s strategic market reset offered excellent profit prospects and has enabled growth by 14 points.

“AVG is being proactive, ahead of the anticipated China opening, with multiple market visits over the last six months and working closely with strong partners,” the company said.

“The reopening will deliver significant upside to the strategic plan.”

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