Australian Vintage declares loss, the future looks bright

Vintage year

Australian Vintage (AV) has declared its year-end results to June 30, 2016. Revenue was up, as was net profit after tax, but before one-off items. Unfortunately, the one-off item resulted in a $2 million loss. Debt has been a burden for years and still floats over $100 million, but it has been reduced by a couple of million. The basic figures:

  • Revenue increased $11.8 million to $242.7 million
  • Net profit after tax and pre-one-off items totalled $7.2 million ($7.1 million in 2015)
  • Net loss of $2.0 million after vineyard lease termination payment
  • Net debt $101.4 million, down from $103.6 million as at June 30, 2015
  • The existing banking facility has been extended to September 2019 (from September 2017)
  • Accumulated losses end of 2015 financial year: $151.58 million
  • Accumulated losses end of 2016 financial year: $153.55 million

Getting out of onerous grape supply contracts has been an issue for the company for many years. The folly was the exuberant confidence of previous directors, who were convinced the world was clambering for Australian wine and would pay any price to get it. The latest vineyard extraction was the termination of the lease of the Del Rios vineyard. AV has also divested itself of other onerous third-party grower contracts. Getting out of the Del Rios lease cost $13.15 million.

In the longer term this should reduce the average cost of grapes across the company. In the notes AV says:

“We expect to make grape savings of around $9 million to $10 million per annum. Due to the nature of our business, the improved cash flow will not impact our profit until 2018.”

The group is reducing its reliance on supplying a few large supermarkets or chains. In 2015 it had three major customers; this year it’s down to two that individually account for more than 10 per cent of annual sales. There is a “but”: the three in 2015 accounted for $62.7 million, but the two in 2016 accounted for $66.9 million.

The company owns 1897 acres of vineyards, no change from 2015 to 2016. From those it took 22,259 tonnes in 2016, up from 18,599 tonnes in 2015. The vineyards are primarily in the Sunraysia, Riverland and Adelaide Hills regions.

Current inventories total $145.22 million, down from $148.0 million in 2015. It may be a slow process but sales and profit up combined with inventories and debt down bodes well for the future. Add in the exit of onerous contracts plus the promise to increase presence in the North American and Chinese markets, and it’s looking very good indeed.

At the time of writing the share price was 53.5 cents, but it has seen a low of 30 and a high of 66 in the past 52 weeks.

Endeavouring to do better

Woolworths has announced its year-end results. Group CEO Brad Banducci is endeavouring to turn the business round and the Endeavour Drinks group is playing its part. Figures rounded:

  • Total group sales and other revenue: $58.28 billion
  • Net profit after tax but before significant Items: $2.56 billion
  • Loss from discontinued operations, after tax: $3.19 billion
  • Loss for the year: $2.35 billion

To quote Banducci:

“While we are seeing early signs of momentum, we are not underestimating the size of the task that lies ahead, especially given the highly competitive nature of the markets in which we operate. As we have consistently said, this is a three- to five-year journey.”

For the first time the group has separated out the Endeavour Drinks Group figures. The group consists of Dan Murphy’s, BWS, Langton’s, Cellarmasters and Summergate (China):

  • Total sales: $7.59 billion
  • Earnings before interest and tax (EBIT) $483.8 million, up 4.7 per cent on last year’s $469.49 million

The Australian Leisure and Hospitality Group (ALH) is 75 per cent Woolworths owned:

  • Total sales: $4.11 billion, up from $4.0 billion
  • Profit after tax: $122.8 million

Banducci has a tough road ahead. We avoided using the term rebuild as he may be sensitive to any mention of building, construction, or one brick at a time.

Consider your vote

It’s time for winegrape growers in the Murray-Darling and Swan Hill wine regions to consider how they vote.

They have a fortnight to determine whether regional industry bodies will continue to provide services.

That is, to vote on whether the grower-controlled Murray Valley Wine Grape Industry Development Committee (IDC) should serve another four-year term.

A majority vote in support of the IDC means both the IDC and Murray Valley Winegrowers (MVW) will continue to provide services to growers. Failure to appoint the IDC to another four-year term means MVW will lose its funding and be forced to close.

There are enough issues in the regions already without losing the considerable effort MVW puts in.

In these times a strong regional voice is needed. Vote with care.

Leave a Reply

Your email address will not be published. Required fields are marked *