Winemaker Australian Vintage expects profit to grow now it has terminated the lease of the Del Rios vineyard in Victoria.
The owner of the McGuigan, Tempus Two, Nepenthe, Miranda and Passion Pop brands says onerous grape contracts and vineyard leases have been its biggest issue over the last 10 years.
The early termination of the Del Rios lease at Kenley in Victoria at the end of 2015 is expected to cut the company's annual grape payments by up to $6 million.
Other grape contracts will expire over the next three years, saving a further $5 million in both 2017 and 2018, and $6.9 million thereafter.
"These ongoing savings will significantly improve our cash flow, reduce our debt and in due course, will also improve our profit result based on current sales and margins," chief executive Neil McGuigan said on Wednesday.
Australian Vintage reported a loss of $6 million for the six months ended December 31, after incurring $9.7 million in costs and writedowns associated with the termination of the Del Rios lease.
Underlying profit, which excludes one-off items in the comparative periods, rose 80 per cent to $3.6 million as Australian Vintage generated higher branded sales in the United Kingdom and Europe, Australasia and North America.
Sales of McGuigan, Tempus Two and Nepenthe rose 26 per cent and accounted for 65 per cent of the group's total sales.
Branded bottle sales now make up 82 per cent of total sales, up from 32 per cent 10 years ago.
Australian Vintage now has two wineries, compared to nine a decade ago.
"Our strategy to focus on growing our export business, increasing sales of our brands and a focus on cost control has seen this company evolve from a bulk wine producer to a branded wine business," Mr McGuigan said.
Yields from the latest vintage were up in some regions and down in others, but the quality looked very good, he said.
Global industry conditions remain challenging, but the lower Australian dollar and recently signed free trade agreements were helping the local sector, Mr McGuigan added.
Australian Vintage still expects to post full year underlying profit growth of between 10 and 15 per cent.
Its shares gained one cent to 42.5 cents.
VINEYARD LEASE EXIT WEIGHS ON AUSTRALIAN VINTAGE
* Net loss of $6m, down from $4.4m profit
* Revenue up 6.6pct to $129.8m
* No interim dividend, unchanged
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