Australian Vintage reported a net loss after tax of $2.0 million at the end of June including the $9.2 million associated costs of the vineyard lease termination. Nevertheless, the company experienced 20 per cent growth in its key brands and growth in branded and packaged wine exports, and Davis provided shareholders with a strong company outlook in its 2016 Annual Report.
"During the year the company made a strategic decision to terminate an onerous long-term lease on a substantial vineyard. Despite the termination costs of $9.2 million after tax, the future benefits of exiting this lease, including an expected saving of $5 million per annum in grape costs, far outweigh the termination costs. In addition, we expect further saving to flow from the expiration of a number of onerous third-party grape contracts following vintage 2016 which will add approximately $4.0 to $5.0 million in grape cost savings," Davis said.
David said that global conditions remain tough and that the company expects to continue to face challenges over the short-term following the impact of Brexit on the GBP.
"Since Brexit the GBP has moved unfavourably by 13 per cent which will put pressure on our UK margins. Assuming no price adjustment, for the next 12 months a 1 pence movement in the GBP impacts the company's net profit after tax by approximately $0.3 million," Davis said.
Davis said that the company is looking at strategies to minimise the impact of Brexit, but anticipates that they will take some time to implement.
Davis explained, "We remain confident that the company is well placed to continue to be a major force in the UK. Whilst the UK will be a challenge we continue to grow our business in China and we are close to forming a long-term relationship with a major distributor in the US."
The company is also expected to face some short-term challenges as it continues to transition over to a branded wine business, but Davis said that this was critical to the business' continued success.
In Australia specifically, Chief Executive Officer, Neil McGuigan, said the business had experienced great branded sales growth, but that there was still more opportunity to unlock growth in the supermarket channels and on-premise.
"We have added a number of new staff members to bolster our resources to service new sales channels with major supermarkets that have not been serviced before, plus, our on-premise division has widened its scope to include the duty-free area," McGuigan said.
Growing and strengthening distribution channels and building branded sales in Australia and globally remain imperative strategies to the company according to McGuigan.
"The next few years show robust sales, marketing and advertising campaigns to continue to drive the branded business. This is the correct strategy and we will never waiver from this direction."
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