Australian Vintage : AVL Half Year Report 31 December 2018

AUSTRALIAN VINTAGE LTD

HALF-YEAR REPORT

FOR THE HALF-YEAR ENDED

31 DECEMBER 2018

(ACN: 052 179 932 ASX REFERENCE: AVG)

RESULTS FOR ANNOUNCEMENT TO THE MARKET

PERCENTAGE

AMOUNT

REVENUE AND NET PROFIT/LOSS	CHANGE	$'000
%
Total operating revenue	up 8.1%	143,064
Net profit after tax	up 46.3%	6,486
Dividends (cents)	Amount per	Franked amount
security	per security
Interim dividend	-	-
Previous corresponding period	-	-
Other information	As at 31/12/18	As at 31/12/17
Net tangible asset per security	$0.77 per share	$0.73 per share

The directors of Australian Vintage Ltd submit herewith the financial report of Australian Vintage Ltd and it's subsidiaries for the half-year ended 31 December 2018. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

The names of the directors of the company during or since the end of the half-year are:

NAME

Richard H. Davis Neil McGuigan John D. Davies Naseema Sparks Peter Perrin Jiang Yuan

REVIEW OF OPERATIONS AND FUTURE DEVELOPMENTS

Key Points

• • Net Profit after tax $6.5 million compared to $4.4 million in the prior period

• • Revenue up 8% to $143.1 million with branded sales up 14%

• • Cash Flow from Operating Activities positive $10.9 million compared to $11.0 million in prior period

  The ongoing improvement in our branded sales has contributed to the 46% growth in our half year result, again reinforcing that our strategies are correct. The McGuigan brand continues to perform exceptionally well in the UK with sales up 16% when compared to the prior period. McGuigan remains the third largest global wine brand in the UK.

  The contribution from our UK/Europe operations increased by $1.7 million to $6.4 million due mainly to increased sales of the McGuigan brand and improved distribution and mix.

  Even though the UK remains our largest overseas market, we continue to have a strong focus on growing and strengthening our distribution channels in the key Australian market and overseas markets of Asia, United States and Canada. In the 6-month period to December 2018, sales into Asia have increased by 51%, reinforcing our long-term strategy for this region. Whilst the contribution from the Asian division remains relatively small when compared to other segments of our business, it is showing good growth. As we have previously stated, we remain confident that the long-term outlook for sales into Asia looks positive, but we must manage this growth appropriately in terms of pricing and depletions.

  Our three core brands continue to perform well with sales of McGuigan, Tempus Two and Nepenthe all in growth. For the half year, sales of these three core brands increased by 14% with the McGuigan brand growing by 15%, Tempus Two by 4% and Nepenthe by 3%.

  Our cash flow from operating activities continues to be significantly positive and for the half year it was $10.9 million, in line with 31 December 2017. Our capital spend for the half year was $10.9 million with a further $8.6 million planned for the remainder of this financial year.

  This year's vintage is underway and early indications are that the recent extreme heat and dry conditions have negatively impacted yields across most grape growing regions. Together with the frost that occurred on some of our vineyards in October last year, we are expecting that our vineyard yields will be at least 10% below expectation. This will impact our SGARA (Self Generating and Regenerating Assets) income for this financial year. With regard to our wine supply base to meet our growing sales, we had already taken steps earlier in the year to ensure we have enough wine by entering into bulk wine supply contracts and through the long-term lease agreement on the 10,000 tonne Millewa vineyard.

Sales

Revenue for the half year increased 8% or $10.7 million due to increased sales of our branded products in both the Australasia/North America and UK/Europe segments.

Australasia/North America packaged sales were up 10% on the prior period with bottled branded sales up 11% and cask sales up 2% -

Sales ($000)

6 months to December 2018	6 months to December 2017
Australia	42,795	40,236
Asia	7,948	5,278
New Zealand/North America	7,039	7,253
Australasia/North America	57,782	52,767

• • Australian sales increased by 6% with bottled branded sales up 8% and cask sales up 2%. Sales of McGuigan increased by 13% and the higher margin brand, Nepenthe, increased by 6%. Tempus Two increased by 3% on the back of promotional phasing with strong expectations following significant growth in the prior period.

• • Sales to Asia increased by 51% due to a significant increase in sales to our major distributor in China. McGuigan sales increased by 47% while Nepenthe and Tempus sales also increased but from a lower base.

• • New Zealand sales increased by 16% with all the growth coming from the McGuigan brand.

• • North American sales have decreased by 14% on the back of significant growth in prior periods.

UK/Europe sales were up 16% with packaged sales up 16% or $8.5 million and bulk sales up 6% from a very low base. McGuigan is now the second largest global wine in the UK by volume and continues to grow in supermarkets and convenience channels.

Australasia/North America bulk & processing sales decreased due to reduced lower margin bulk wine sales.

Sales By Segment

6 Months to 31/12/18 31/12/17 $000 $000

Change Variation $000 %

Australasia/North America Packaged	57,782	52,767	5,015	10
UK/Europe	62,487	53,929	8,558	16
Cellar Door	5,168	5,959	(791)	(13)
Australasia/North America bulk & processing	14,371	16,643	(2,272)	(14)
Vineyards	3,256	3,045	211	7
143,064	132,343	10,721	8
Split of UK/Europe revenue
UK/Europe Packaged	62,225	53,682	8,543	16
UK/Europe Bulk and Private Label	262	247	15	6

Note: Sales for the 6 months to December 2017 have been adjusted to comply with the new Revenue Recognition Accounting Standard - AASB15 (refer ASX half year accounts).

EBIT and Net Profit

Even allowing for increased wine costs from the 2017 and 2018 vintages, EBIT increased by $2.5 million or 27% to $11.8 million. The UK/Europe segment contributing 67% of the increased EBIT due to the ongoing improved sales mix through the expansion of the McGuigan Black Label brand and the added focus on growing our sales footprint in all channels. The GBP currency movement had no material impact on EBIT when compared to the prior period.

Australasia / North America Packaged EBIT increased by 3% due mainly to an 85% increase in the contribution from the Asian division. The Australian, NZ and North America divisions all achieved an EBIT slightly below last year due to higher marketing costs and higher wine costs -

EBIT ($000)

6 months to December 2018	6 months to December 2017
Australia	3,219	3,512
Asia	1,198	647
New Zealand/North America	843	938
Australasia/North America	5,260	5,097

Cellar Door EBIT reduced due to increased competition in the Hunter Valley region.

Australasia/North America bulk contribution increased due to decreased loss making bulk wine sales.

Vineyard EBIT increased by $0.6m due to the termination of an onerous vineyard lease after the 2018 vintage. However, SGARA (Self Generating and Regenerating Assets) income is still materially below expectation due to frost and the extreme weather conditions.

Finance costs were below last year due to lower average borrowing levels.

Profit

• Australasia / North America Packaged 5,260 5,097

• UK / Europe 6,366 4,669

• Cellar Door 810 1,010

• Australasia / North America bulk and processing (81) (386)Vineyards

  EBIT Finance costs Interest received Profit Before Tax Tax

  Net Profit (after tax)

  6 Months to
  31/12/18 31/12/17
  $'000 $'000	$'000
  163	3
  1,697	36
  (200)	(20)
  305	79
  583	53
  2,548	27
  824	28
  27	245
  3,399	53
  (1,346)	(68)
  2,053	46

  6,486

• (508) (1,091)

11,847 (2,076)

9,299 (2,900)

38 9,809 (3,323)

11 6,410 (1,977)

4,433

Financial Position

Operating cash flow of $10.9 million was basically in line with the December 2017 cash flow and the net debt increased slightly by $2.5 million compared to June 2018. Compared to December 2017, net debt decreased by $3.3 million.

The gearing ratio remains at a comfortable 27% (26% as at 30 June 2018).