Australian Vintage’s strategic adjustments for 2009

As the result of a strategic review, Australian Vintage has announced impairments estimated to be around AU$120m after tax. It has cited dramatic shifts in valuations across all aspects of the wine industry as the major reason for this adjustment.

The "impairment" will take into account "the cost of grape purchases, stock value adjustments and existing asset values and intangibles which have been completely reviewed and in some cases reduced."

Chief executive Dane Hudson explained: "With the ongoing challenges in the Australian wine industry, the global economic slowdown and price pressure from overseas customers, we began a comprehensive review of our brands, strategies, costs and assets to position the company for the new reality in the market."

The company’s review should be completed by the end of this month, but according to Hudson it is already apparent that adjustments need to be made for the year ahead. "Overall, Australia’s wine production exceeds wine sales by about 30% and so our grape supply contracts and prices needed to be adjusted," he continued. "Stock valuations are also impacted and with an industry wide 11% fall in export volumes in 2008 and Australian domestic consumption down 5%, we took the decision to reduce the value of some of our stock."

General manager for the UK and Europe Paul Schaafsma (pictured) said: "There are three main points we need to look at, assets, current stocks and future contracts. We’re at a point where we need to write down the value of assets to make them marketable, and our thinking needs to be, how can we be more efficient?"

Schaafsma stated that the company is looking at the length of time that some of its contracts cover, and potentially getting out of them. "The price locked in three years ago isn’t what it should be today," he continued. "The short term plan concerns what do we need to do now? What prices are required, and what do we need to do to still make money at those prices? In the longer term, appropriate grape sourcing is important, as well as having some contracts that are sustainable."

However, despite the impairments, Australian Vintage also revealed  some good news. "There has been fantastic branded growth," said Schaafsma. "McGuigan sales are up 10% on last year in the UK, which is remarkable in this market. We are working closely with our supermarket suppliers and making the business appropriate for the environment that we’re trading in, and relevant in terms of market price and what our customers want."

The final phase of the strategic review will explore product rationalisation, market opportunities and business structure. Australian Vintage will provide full details of the review outcome, sales and financial performance and its market development initiatives at the end of the month.

Alexis Hercules, 04.02.09