Drops in the Australian dollar have helped winemaker Australian Vintage, but it also faces fierce competition and a smaller crop, its chairman says.
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26 Nov 2014 - 3:05 PM  UPDATED 26 Nov 2014 - 3:36 PM

The company behind McGuigan wines expects challenging times ahead, due to fierce competition at home and overseas and higher prices because of a low vintage.

Australian Vintage chairman Ian Ferrier says margins should be improved by further falls in the Australian dollar, but the currency had not dropped as much as he expected.

"Competition remains fierce across the Australian and overseas markets," Mr Ferrier told the company's annual general meeting.

"The low 2014 vintage has resulted in a higher cost of wine which has, and will continue to impact margins in the short term."

Australian Vintage's brands include McGuigan, Miranda, Nepenthe and Tempus Two.

Mr Ferrier said the company's sales for the four months to the end of October 2014 were encouraging, with demand and growth stronger than last year.

But margins remained tight.

"We remain confident that our brands will continue to grow and that we can achieve sustainable sales growth," Mr Ferrier said.

"Subject to normal 2015 vineyard yields and forecast FX (foreign exchange rates), we expect our 2015 net profit (after tax and one-off items) to be slightly above the 2014 result."

Mr Ferrier said a recently-signed distribution agreement with COFCO Wine & Spirits in China, and Australia's free trade agreement with China which will see a phase-out of tariffs on wine imported into China, made Australian Vintage confident of long-term success there.

Enhancing the company's presence in China would require a lot of hard work, and progress was likely to be slow at the start, he said.

"For the medium to long term, we are very optimistic about the potential of the China market," Mr Ferrier said.

Australian Vintage also announced the sale of the Yaldara winery and brand for $15.5 million, which resulted in a profit of $5.4 million.

After the write-off of incentive payments made to overseas customers and legal costs associated with a vineyard lease dispute, Australian Vintage expects to reap $1.8 million from the Yaldara sale.

Australian Vintage booked a 49 per cent increase in net profit to $10.5 million in the 2013/14 financial year.

Shares in Australian Vintage were steady at 41 cents at 1523 AEDT.

AAP tsc/gfr