Australian Vintage hit by Brexit vote

Australian Vintage has warned of a “fragile” UK market after seeing AU$1m profit wiped out by the impact of the Brexit vote.

Australian Vintage’s CEO Neil McGuigan

The company said the “dramatic” decline in Sterling following the Brexit vote has cost the company around AU$1.1m of profits after tax with an “unrealised foreign exchange loss of AU$1.5 million being booked” at 30 June.

Prior to the AU$1.5 million adjustment, the UK was on track to record a AU$0.5 million increase in contribution, chief executive Neil McGuigan said – but he confirmed the change did not lessen the company’s commitment to the key UK market.

Read more:

“We are working with our retailer and distributor partners to recover lost margins caused by the weakening GBP,” he said.

Chairman Richard Davis warned the UK market was likely to remain “fragile” and would impact global markets. “We do not expect any change in conditions in the next 12 months. In 2017 we will face ongoing margin pressure in the UK and as a result we are looking at various strategies to minimize the impact of the Brexit, but they will take some time to implement.”

But he said the company was confident it was “well placed to continue to be a major force in the UK”.

Sales in the UK and Europe in the 12 months to 30 June rose 5% to AU$102.5m, from 98m last year, the company’s results showed, with sales of packaged wines (up 13%) helping to offset falling bulk wine sales, which were down by 77% from AU$6.8m to AU$2.1m.

Other impacts

However Brexit wasn’t the only event impacting sales after the Australian wine producer saw losses spiral by 121% on the back of exiting a vineyard lease,

Losses for the year to 30 June 2016 rose 121% to – AU$1.9m the company has reported, largely stemming from a one-off payment of AU$13.148m on the termination of its Del Rios vineyard lease.

However it said that the termination of this and other “onerous” contracts was likely to result in “significant” AU$9-10m savings in future grape costs, which were likely to kick in by 2018.

It also pointed to cash flow from operating activities before the payment which rose AU$9.3m to AU$11.4m and is expected to improve further in 2017. Branded sales of its key brands, McGuigan, Tempus Two and Nepenthe, also rose 20%, helping boost revenue by around 5%.

Chief executive Neil McGuigan noted sales of these three brands had almost doubled in the last five years as it moved from bulk to branded wine sales. “At the same time the contribution from our bulk and processing business in Australia and overseas declined by AU$14 million due to market conditions.”

Export Markets

Other markets including Asia and Canada were increasingly important, he said and there was a strong focus on growing and strengthening its distribution channels in overseas markets.

“Over the last five years branded sales into Asia have grown by 89% and branded sales into Canada have grown by 128%. We expect this trend to continue,” he said.