AVL’s profits up but predicts vintage yields will drop

01 March, 2019 by Andy Young

Australian Vintage Limited (AVL) CEO Neil McGuigan has said that the company’s “strategies are correct” after it posted its half year results, showing an increase in net profit after tax and revenue.

However, with this year’s vintage underway the company has said that the early indications are that the recent extreme heat and dry conditions “have negatively impacted yields across most grape growing regions”.

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AVL’s net profit after tax for the half year was $6.5m, up from $4.4m in the prior period. This result was driven by an eight per cent increase in revenue to $143.1m, with branded sales up 14 per cent.

Speaking about the first six months of the financial year, McGuigan said: “The ongoing improvement in our branded sales has contributed to the 46 per cent growth in our half year result, again reinforcing that our strategies are correct.

“The McGuigan brand continues to perform exceptionally well in the UK with sales up 16 per cent when compared to the prior period. McGuigan remains the third largest global wine brand in the UK.”

AVL’s three core brands performed well in the half, with sales of McGuigan, Tempus Two and Nepenthe all in growth: the McGuigan brand grew by 15 per cent, Tempus Two by four per cent and Nepenthe by three per cent, for a combined 14 per cent sales increase.

However, the company did also raise concerns about this year’s vintage, which appears to have been impacted by harsh weather conditions. As well as the heat and dry, October also saw frost occur in some AVL vineyards, and McGuigan said: “We are expecting that our vineyard yields will be at least 10 per cent below expectation.”

He added: “This will impact our SGARA (Self Generating and Regenerating Assets) income for this financial year. With regard to our wine supply base to meet our growing sales, we had already taken steps earlier in the year to ensure we have enough wine by entering into bulk wine supply contracts and through the long-term lease agreement on the 10,000 tonne Millewa vineyard.”

It was another successful six months for AVL in the domestic market, with Australian sales increasing by six per cent as bottled branded sales increased six per cent and cask sales rose two per cent. Sales of McGuigan increased by 13 per cent and the higher margin brand, Nepenthe, increased by 6 per cent. Tempus Two increased by 3 per cent on the back of promotional phasing with strong expectations following significant growth in the prior period.

Looking at the second half of the year, AVL said that the impact of the reduced yields “will significantly impact our second half result”. However, the company added that “assuming the GBP remains at around 0.55 and taking into account the uncertainty of vintage conditions, we expect our 2019 result to be up by five per cent to 15 per cent on the 2108 result”.