From Neil McGuigan
CEO’s Report — 2017

The 2017 financial year was another year of brand growth, sales consolidation in AVL’s traditional markets and the emergence of new opportunities in the USA and in China. Management is disappointed with the company’s FY17 profit result which was largely driven by the outcome of the Brexit vote in the UK. Despite this, cashflow due to our trading activities was encouragingly positive by $14 million.

AVL’s result was adversely affected by two issues during FY17.

1. Brexit

The weakening of the GBP against the Australian dollar continued to unfavourably affect our margins in the UK. However, management remains confident that our strategy for the UK is correct as we continue to drive the McGuigan brand in the independent sector. Over the last twelve months this has helped the McGuigan brand volume grow by 6% in the UK against a market that saw Australian exports to the UK decline by 10%. Other opportunities are also starting to emerge for Tempus Two and for some of our bespoke ranges. Interestingly, if the FY16 average exchange rate was mirrored in FY17 our profit would have been $7.6 million and cash flow would have been $18.7 million

2. Price Realisation

The success of the Black Label brand in Australian retail created great competition between chains which saw a decline in the selling price of our most important range. For the longterm health of the brand, management took a stance to decrease promotional support which resulted in a short term slowing of sales in Australia. Sales of Black Label are now back on track but at a more realistic selling price for wines of this quality.

At the same time management was resolving these issues two very positive developments occurred in the USA and China.

The signing of a distribution agreement with Palm Bay for the Tempus Two and McGuigan brands in the USA was a great outcome for the business. Palm Bay is a very large and well-respected national distributor in the USA. They have already launched the Tempus Two brand and after considerable label and product research they will be launching McGuigan “The Plan” in January 2018.

Plus, the signing of a second distribution agreement in China for all AVL’s brands (apart from McGuigan) was also a very exciting development during 2017. The distribution agreement with Vintage China was coupled with a 15% share placement at a 7.1% premium to market price.

We are confident that AVL can establish a significant second distribution channel in China through Vintage China.

The Company’s strategies articulated previously remain, those being:

  • Growing and strengthening our distribution channels in the China / Asia region, UK and North America.
  • Building branded sales and profitability both domestically and internationally. This includes creating appropriate new products for developing and emerging markets.
  • Reviewing and decreasing our cost base.

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.

This year we’ve continued to enhance our brands award winning credentials, with some outstanding performances across the board.

McGuigan Awards

  • In 2016 McGuigan received a total of 425 awards, including 27 Trophies; 73 Gold and 121 Silver medals.
  • McGuigan Wines is the only winery in the world to have been crowned International Winemaker of the Year four times by the prestigious International Wine & Spirits Competition in London, having achieved the feat in 2009, 2011 and 2012, and again in 2016.
  • Australian Winery of the Year, 2017 New York International Wine Competition. This USA award is incredibly timely for
    us considering the launch of “The Plan” in January 2018.

Tempus Two Awards

  • In 2016 Tempus Two received a total of 133 awards, including 6 Trophies; 14 Gold and 39 Silver medals.
  • Cairns Wine Show: Champion White of Show – Tempus Two Pewter Series Chardonnay Poppy’s Block 2015
  • Hunter Valley Wine Show: Best Rosé of Show Trophy – Tempus Two Copper Series Shiraz Rosé 2016

Nepenthe Awards

  • In 2016 Nepenthe received a total of 185 awards, including 3 Trophies; 15 Gold, and 35 Silver medals.
  • Sydney Royal Wine Show: Best Other White Varietal Trophy – Nepenthe Winemakers Selection Gruner Veltliner 2016.
  • Hong Kong IWSC: Best Chardonnay Trophy – Nepenthe Pinnacle Ithaca Chardonnay 2015
  • Australian Cool Climate Wine Show: Best Other Dry White Varieties and/or Blends Trophy – Nepenthe Winemakers Select Viognier 2015
  • Adelaide Hills Wine Show: Best Other White Varieties Trophy – Nepenthe Winemaker Select Arneis 2016

McGuigan Wines
This year we focussed on two above the line advertising campaigns around “Bring a McGuigan” and the crowning of McGuigan Wines as the International Winemaker of the Year for the fourth time.

Both campaigns were run in Australia and the UK and delivered the required ‘cut through’ to move the McGuigan brand awareness from 43% to 50% in Australia, and from 28% to 30% in the United Kingdom.

Tempus Two
Tempus Two has continued to build its positioning of “elegance with attitude” through high profile brand partnerships and sponsorships, namely Mercedes Benz Fashion Week; Portsea Polo and the Victorian Polo Season; and a partnership with internationally renowned design label Bec + Bridge.

The brand can now be found in the USA and in the United Kingdom through premium retailer Waitrose, and in China through our national distributor Vintage China.

Nepenthe Wines
Small batch boutique winery Nepenthe continued to hold true to the mantra of Nepenthe is the Adelaide Hills through an association with leading ‘foodie’ festival Taste Melbourne, as well as flying the flag for the region with several high-profile wine show trophies and wine writer reviews. After years of planning, the launch of the super-premium Nepenthe Apex range is well advanced and timed for May next year as chief winemaker James Evers continues to put his stamp on the brand.

Finally, your management team remains very confident that our strategies will deliver the business to an appropriate level of return in the future. However, we must remain patient and continue to drive the branded sales and at the same time control costs, innovate and develop new opportunities.

Rest assured we are committed to delivering on our plans and we remain optimistic about the long-term future of our company.

Our brands have continued to out perform the market.