Two years of ‘hyper-inflationary costs’

Australian Vintage Ltd says it is cutting costs in the face of a “challenging” trading environment including rising inflation.

It is also looking to sell assets that are surplus to operational requirements.

The company says it has absorbed $26 million of “hyper-inflationary costs” over the past two years and been limited in its ability to pass on these costs given the “impact of discounting at the top-line”.

“Despite growth in market share by AVG across its key geographies, the overall business environment however remains a challenge, with inflationary pressures across core geographies in the UK and Australia persisting,” AVG says in a market update.

“Consumption trends in the value segment face pressure and whilst AVG has taken some price over FY23, it has been insufficient to offset inflationary pressures, and the ability to take further price is impacted by broader market competition.”

The vintage intake for 2023 was down 20 percent to 80,000 tonnes because of the weather.

“In one of the toughest vintages in Australia for many years, AVG has outperformed the overall industry decline of 40 percent,” the update says.

AVG is implementing a number of operational and financial initiatives including:

• Removing $9 million of costs out of the business to offset ongoing inflationary pressures including continued focus on freight costs; supply contract negotiations to reduce COGS; and other efficiencies;

• Continuing to review potential for further asset sales that are surplus to operational
requirements;

• Maintaining disciplined marketing and capital spend to support innovation and premium
brands as per the Strategic Plan;

• Selectively expanding in growth regions for all the pillar brands beyond core markets;

• Reviewing the M&A growth strategy and commit to not undertaking any debt-funded
acquisitions in the near term; and

• Suspending any potential final dividend for FY23 until Net Debt/EBITDAS, on a pre AASB16
basis, is below two times.

Photo: The new Nepenthe cellar door in the Adelaide Hills owned by Australian Vintage Ltd.