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Australian Vintage shifts to new strategy
Australian Vintage, the country’s third largest producer, has unveiled a new strategy designed to put the company on a more stable footing as it wrestles with Australia’s huge glut of wine and consumer moves away from commodity labels.
The company has had a troubled time, being left at the altar by the new owners of Accolade, who quit merger talks in favour of buying Pernod Ricard’s antipodean wine interests, and also firing its former CEO Craig Garvin for what it termed a serious error of misjudgement.
Having revamped its board, the McGuigan producer is targeting a free cash flow of +AU$20 million and a return on capital employed of +8% by the end of its financial year 2027.
“In an environment where the cost of doing business continues to increase, generating cash strengthens AVG’s balance sheet and competitive edge,” it said.
The strategy has two key features: increasing its stock in markets and categories where it is currently uncompetitive due to high discounting rates from competitors; and cutting fixed grape supply contracts and increasing its flexibility of grape sourcing.
“The market that Australian Vintage operates in is challenged by deep competitor discounting, with AVG identifying a number of revenue growth opportunities within those markets that it is currently not accessing,” the company said.
Australian Vintage has already sold off its Barossa Valley Lyndoch vineyard and prematurely cancelled its lease on the Balranald vineyard in the Riverina. These actions will “result in a reduction of tax losses and the associated deferred tax asset of AU$10 million.”
In association with the strategy announcement Australian Vintage told shareholders that its performance in the recently-completed financial year had improved.
When the final figures are released total revenue growth is expected to be 1% ahead of 2023 with double digit percentage increases to both its global no/low revenue and to its overall profits. It has also “maintained market share and grown North America by 28%”.
“Australian Vintage derives approximately two thirds of its revenue from export related markets. It has maintained and grown market share over the past few years, whilst delivering a strong premiumisation and innovation program, currently representing one third of its margin.”
In its statement Australian Vintage said its new three-year strategy and board restructuring marked its ongoing efforts at improvement after it was forced to raise AU$19.9m equity raising in June.
Following this, the value of Australian Vintage shares dropped to their lowest level since 2010. Today, they are AU$0.160, well under half April’s high of AU$0.435.
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