AVG – Australian Vintage
Australian Vintage (ASX: AVG) has joined its much larger rival Treasury Wine Estates in reporting difficult trading conditions and the need for intense cost-cutting.
TWE revealed its problems in Australia and the US earlier this month and promised action, cost cuts and other changes with the August release of its 2022-23 annual results.
Australian Vintage yesterday revealed a $9 million write down and a decision to suspend its final dividend – previously, 3.4c a share in Nov 2022.
Thanks to what it termed ‘challenging conditions,’ the company said it was concentrating on cost cutting (because of an inability to pass on cost pressures as higher prices for its wines).
It said net debt is expected to finish between $52 million and $57 million at June 30, down from net debt of $75 million a year ago. That will remain a focus heading into 2023-24.
The company made it clear it has survived the mix of cost pressures, the difficult market conditions and then the flooding and heavy rain which chopped the size of its harvest by 20%.
AVG’s CEO, Craig Garvin said the company remains “confident in our strategic plan and are highly enthused by the performance of our innovative and premium brands.”
“We continue to gain market share across all key geographies despite the tough trading environment. We are making proactive decisions today to both improve our financial performance as well as our ability to operate with agility to our strategic plan.”
As part of that plan, the company made clear the balance sheet was a priority over dividends as it concentrates in costs and profit ‘maximisation’.
“As expected, the trading environment through FY23 has been challenging with the Company absorbing ~$26m of hyper-inflationary costs over the past two years and being limited in its ability to pass on these costs given the impact of market discounting at the top-line.
“While a material portion of these hyper-inflation costs (e.g. freight costs) receded during the financial year, a portion continue to adversely affect the cost base.
“Despite these challenges, AVG has continued to win market share across all its key geographies ensuring stability in its revenue line through FY23.
“Importantly, the Company has continued growth in its innovation and premium brands, which has offset declines in the value segment (declining in line with the overall wine market). For FY23, our pillar brand revenue contribution is expected to be in-line with the 78% contribution achieved in FY22.
“The much-reported adverse weather events and flooding in early 2023 resulted in a vintage intake amounting to 80k tonnes versus last year’s vintage of 102k tonnes (~20% decline).
“The magnitude of the decline in throughput and lower than anticipated vintage necessitated a non- cash winery production fixed cost write off amounting to ~$9 million. This will impact FY23 results and benefit cost of goods sold in future years.
“In one of the toughest vintages in Australia in many years, AVG has outperformed the overall industry decline of 40%.”
- AVG said it was looking at June 30 revenues in the range of $255 – 260 million which would be line ball with 2022’s $260.1 million.
- Underlying EBITDAS (that’s accounting for the regenerating assets in winemaking – vines and grapes) of ~$26 – 28 million, down sharply from 2022’s $45.7 million.
- Reported EBITDAS of ~$34 – 36 million, versus FY22A reported EBITDAS of $43.7 million.
AVG said that it expects underlying EBITDAS and NPATS to improve into FY24 from expected FY23 performance, and EBITDAS to be directionally in line with FY22. AVG also expects net debt to reduce from current levels to those prior to the capital return in 2021. Further guidance to be provided with year-end results.
AVG also confirmed “it currently has significant headroom under its debt facility, and the Company is currently in active discussions with NAB to further extend its term beyond September 2024.
“However, given the current environment, AVG is taking proactive steps (as outlined) to both reduce the quantum of net debt as well as implied leverage multiples.”
In other words no dividends for a while.
