Bumper harvest for Australian Vintage leaves a profitable aftertaste

Bumper harvest for Australian Vintage leaves a profitable aftertaste

The company behind wine brands from McGuigan to Passion Pop is expecting a bumper profit off the back of an increased grape yield.

Adelaide-based Australian Vintage (ASX: AVG) today reports it has crushed 101,400 tonnes of grapes from the 2020 vintage compared to 83,000 tonnes last year.

As a result, the company is expecting its profits to rise by between 25 per cent and 30 per cent at the end of FY20.

The announcement is a welcome change of tone from the wine grower that was impacted by Adelaide Hills bushfires at the beginning of the year.

In January, Australian Vintage reported its 30-hectare vineyard in Charleston, east of Adelaide and near Lobethal, was hit by the Cudlee Creek bushfire.

At the time the company estimated it would lose about half the crop from the Charleston vineyard, or 200 tonnes.

The actual outcome of bushfires in SA was much worse than anticipated, with Australian Vintage having to reject 4,300 tonnes because of bushfire smoke taint.

"This year's total crush of 101,400 tonnes is very pleasing taking into account the fires in the Adelaide Hills, the early frost event in one of our vineyards and the fact that we had to reject 4,300 tonnes due to smoke taint," says Australian Vintage CEO Craig Garvin.

Overall grape yields from owned and leased vineyards was up 29 per cent on 2019.

While yields from the company's premium regions was in line with last year's result the crop was actually down 50 per cent on expectations.

These results set the company up well for next year during which the industry expects yields to be down by half.

"The great work of our operations staff over the last year ensured that AVL outperformed the market in a very tough drought environment," says Garvin.

"The early indications are that the Australian total vintage will be down on last year, with estimates indicating that some regions will be down by as much as 50 per cent on average.

In terms of sales, the company is outperforming the rest of the market in terms of exports to the United Kingdom.

Sales in the UK are up for Australian Vintage against an industry trend showing Australian wine sales to the country are declining by 10 per cent.

In Australia sales have performed well and are up five per cent to the end of March.

Success in Australia and the UK is not mirrored by its exports to Asia and North America.

While sales are "well down" on last year in North America at the end of March the company says it expects to return to growth in the remainder of the financial year.

Sales in Asia for the following six to 12 months are expected to be flat, but the company insists its long-term Asia business is well placed for growth.

"The forecast growth for FY20 is underpinned by the growth in SGARA and the favourable exchange rates," says Garvin.

"The favourable performance in Australia and UK is expected to mitigate the higher cost of the 2019 vintage and the below expected performance in Asia, North America and our cellar doors."

Shares in Australian Vintage are up 11.54 per cent to $0.44 per share at 3:07PM AEST.

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