McGuigan wines maker will pull back at discounting, but it will come at a cost

Struggling winemaker Australian Vintage’s move away from steep discounting that is plaguing the sector will see it write down the value of inventory.

The makers of McGuigan wines will turn away from steep discounting and promotions.

Struggling winemaker Australian Vintage, which this year ejected its CEO and lost out on a merger with wine giant Accolade Wines, will pivot from heavy discounting that is currently plaguing the global wine sector but at the cost of at least $41m in impairments as it writes down the value of inventory and switches its grape supply deals.

The new strategy announced on Monday by the company whose wines include McGuigan and Tempus Two comes as it faced a clean out of its board, who followed the former chief executive Craig Garvin out the door after a shareholder revolt, and new directors seek to drive better returns from its strong export arm by pulling back from discounts and promotions.

The company, with a market capitalisation of just $53m following a 55 per cent collapse in its share price since January, said it will stop discounting some key brands, despite heavy price competition in the wine market.

Australian Vintage said it was doing well in overseas export markets, where it derives around two thirds of revenue, but this has been impacted by heavy discounting by competitors. Australian Vintage would now invest in these markets by not discounting its key brands, leading to the impairment charges.

“The market that Australian Vintage operates in is challenged by deep competitor discounting, with Australian Vintage identifying a number of revenue growth opportunities within those markets that it is currently not accessing.”

That brave decision - which could significantly impact sales given cost of living pressures across its key markets - will trigger a $36m impairment of its wine inventory with a new grape supply strategy to lead to a further $5m impairment. This would also result in a reduction of tax losses and the associated deferred tax asset of $10m.

The winemaker said it had decided to adopt a new strategy to lift free cash flow over the next three years, targeting now a cash flow of more than $20m per annum by the end of fiscal 2027 and a return on capital employed of more than 8 per cent.

The fresh round of impairments add to the $38m goodwill that was announced at the time of its heavily dilutive capital raising in June.

In a trading update on Monday, Australian Vintage said for fiscal 2024 it had hit revenue of $261m, up 1 per cent while underlying profit rose 29 per cent to $5m.