Release Date: February 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Australian Vintage Ltd (ASX:AVG) has a strong management team with over 100 years of wine experience, which remained intact during the CEO's absence.
• The company is focused on restoring shareholder value through strategic execution and maintaining brand integrity.
• Australian Vintage Ltd (ASX:AVG) is leveraging its world-class processing facility in Mildura to achieve cost efficiencies.
• The company is expanding its geographical reach, particularly in Asia and North America, with promising meetings and partnerships.
• Innovative product launches, such as Pocovino, are generating significant interest and pre-orders, indicating potential for high returns.

Negative Points

• Australian Vintage Ltd (ASX:AVG) has faced a challenging 12 months with a significant decline in share price.
• The company is currently not cash positive, with a focus on achieving cash flow neutrality and positive cash flow in the future.
• There are concerns about the company's debt levels and the need for improved cash flow management.
• The market and shareholders remain skeptical about the company's ability to turn around its financial performance quickly.
• The company faces structural challenges within the wine industry, including high inflationary pressures and competition from other wine-producing regions.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with ASX:AVG.

Q: Can you provide some comfort to the market regarding the balance sheet and how you plan to achieve free cash flow, given the current negative cash flow and increasing debt? A: (CEO) We are not losing money, and our debt is consistent with the past five years. Our focus is on achieving positive cash flow to reduce debt further. Our assets are high quality, and we are leveraging them effectively. We are taking significant cost-out measures and driving innovation to improve cash flow. The full year will start to show results, and we are committed to delivering on our plans.

Q: What are the specific actions being taken to achieve cash flow neutrality and positive cash flow? A: (CFO) We traditionally have a cash outflow in the first half due to grower payments and working capital for Christmas sales. In the second half, we have fewer grower payments and higher revenue, leading to positive cash flow. We are also reducing grape costs, sea freight, and glass costs, and have exited high-cost vineyards. Our mix is changing to higher-margin products, giving us confidence in achieving cash flow neutrality and positive outcomes.

Q: Can you clarify the cost-out measures and their impact on the second half? A: (CFO) Last year, we implemented a $9 million cost-out program, which is translating into our books. We have exited high-cost leases and are renegotiating grape contracts. We anticipate taking out another $6 to $10 million in costs from the next vintage. Our focus is on practical, significant cost reductions rather than small, incremental changes.

Q: How do you plan to drive consolidation in the industry, given the current balance sheet constraints? A: (CEO) We are actively involved in consolidation plans and have been working on this for years. There are different ways to structure deals, and we are not rushing into anything until we get the basics right. We participated in the Treasury bid but did not put in a binding offer. Our focus is on growing the business and getting the share price up, rather than liquidating assets.

Q: What is the liquidation value of the business, and how do you plan to achieve consolidation? A: (CEO) Liquidation is not a consideration for us. Our job is to grow the business and get the share price up. We have many options and good things coming that will drive growth. We are focused on industry consolidation and have been architects of such plans. Our goal is to deliver growth and value to shareholders.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.