Australian Vintage swings to full-year loss

The winemaker swung to an annual loss and flagged challenges ahead, after taking a steep Brexit hit.

The company also reiterated its commitment to the UK market despite the uncertainty stirred by the recent referendum. Picture: Sam Mooy.

Winemaker Australian Vintage has swung to a full-year loss, but met its revised guidance for underlying earnings.

The owner of the McGuigan, Tempus Two and Nepenthe brands recorded a net loss of $2 million owing to costs associated with the termination of a vineyard lease, while underlying profit edged up 1.4 per cent to $7.2m.

The company had originally hoped to deliver a 10-15 per cent advance in underlying earnings, but warned in July that a $1m currency exchange hit linked to the Brexit vote would wipe out growth.

The steady underlying earnings result came despite an $11.8m lift in revenue to $242.7m, headlined by strong growth at its three core brands.

“Over the last five years sales of AVL’s three key brands, McGuigan, Tempus Two and Nepenthe have almost doubled, as we continue to transition the business from a bulk wine producer to a quality branded bottled wine business,” Australian Vintage chief executive Neil McGuigan said.

“At the same time the contribution from our bulk and processing business in Australia and overseas declined by $14m due to market conditions.”

Mr McGuigan said the abolition of the Del Rios vineyard lease, which cost $9.2m, and the expiry of several “onerous contracts” would allow the group to report improved cash flow in fiscal 2017, although this would not be reflected in earnings until the following year.

The company also reiterated its commitment to the UK market despite the uncertainty stirred by the recent referendum into the region’s position in the EU.

“The year was shaping up to deliver a 16 per cent net profit growth (before one-off items) but the unexpected outcome of the Brexit vote in the UK unfortunately impacted our result by $1.1m after tax,” Mr McGuigan said.

“This has not changed our commitment to the UK and we are working with our retailer and distributor partners to recover lost margins caused by the weakening pound.”

The company’s chairman, Richard Davis, added the outlook for the coming year was challenging given the UK market remained “fragile” and was pressuring margins.

“Global conditions remain tough and with the recent impact of Brexit on the pound we continue to face challenges,” he said.

“We will continue to have short-term challenges as we transition the business from a bulk wine producer to a quality branded business, but we remain confident that the company will continue to grow in the medium to long term.”

Despite concerns on the outlook, Australian Vintage reinstated a dividend of 1.5c for the first time since 2014.

At 3.40pm (AEST), Australian Vintage shares pared gains to trade flat at 55c, after rising more than 3 per cent ahead of the afternoon earnings announcement.