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Adelaide Hills wine brand surge helps drive Australian Vintage profit

Business

Publicly listed wine company Australian Vintage Limited has reported a 25 per cent fall in its half year profit to $10 million despite soaring sales of its Adelaide Hills brand Nepenthe.

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The Adelaide-headquartered company, which also produces major brands in NSW, said additional costs in the six months to the end of December associated with logistics, COVID restrictions and the temporary closure of cellar doors impacted its half-year result by $4.2 million after tax.

Overall wine sales were down 7 per cent to $138 million for the six months to December 31 compared with the same period in 2020, which benefited from a retail wine buying boom in the UK and Australia.

Sales of Australian Vintage’s pillar brands Nepenthe, McGuigan, Barossa Valley Wine Company and Tempus Two were down 1 per cent but overall gross margin was up.

This was due to sales increases of its higher-margin brands Nepenthe (up 30 per cent) and Tempus Two (up 20 per cent).

Australian Vintage chief executive Craig Garvin said it was always going to be difficult to improve on the surging $13.2 million profit it achieved in the second half of 2020.

However, he said the increased costs were the main obstacle to the company growing its profits in the period.

“Without these incremental costs, our NPAT for the first half period would have been a record $14.2 million, up 7 per cent on the prior period,” he said.

“The continued improvement of our sales has seen our total gross margin improve from 31 per cent to 34 per cent even after allowing for the additional logistic costs.”

The company also invested an additional $1.7 million in marketing compared with the previous year but expects these costs to reduce by about $1 million in the second half.

Sales to the UK, Europe and Americas were down 12 per cent to $69.5 million while Australia and New Zealand revenue was down 2 per cent to $64.8 million.

AVG grew sales to Asia by 10 per cent to $3.6 million.

During the six-month period, sales of Nepenthe were up 30 per cent and Tempus Two up 20 per cent but revenue from its biggest brand, McGuigan, decreased by 4 per cent.

However, the McGuigan Zero range has continued its success and is now the biggest selling non-alcoholic wine sold in the UK.

“Innovation is an important contributor to the ongoing growth of AVG and over the last six months we have been developing a drinks business which will utilise the alcohol that is extracted from the McGuigan Zero product,” Garvin said.

“We are well progressed in developing a range of products from this drinks business which will be on the shelves this calendar year.”

AVG is forecasting a full-year net profit after tax of $17million to $18 million subject to no material change in foreign currency exchange rates, no further economic deterioration due to COVID-19 and a normal vintage.

AVG has a market capitalisation of about $180 million with its shares trading at $0.73 at 11am this morning.

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