LA Private

Bourse Discourse: AVG, RFG, EHL

News snippets during Thursday’s ASX trading session from three companies at the smaller end of the local industrials sector.


Small listed wine group Australian Vintage (ASX:AVG), has joined its much larger rival Treasury Wine Estates in reporting difficult trading conditions and the need for intense cost-cutting.

TWE revealed its problems in Australia and the US earlier this month and promised action, cost cuts and other changes with the August release of its 2022-23 annual results.

Australian Vintage yesterday revealed a $9 million write down and a decision to suspend its final dividend (previously, 3.4c a share in November, 2022).

Thanks to what it termed ‘challenging conditions,’ the company said it was concentrating on cost cutting (because of an inability to pass on cost pressures as higher prices for its wines).

It said net debt is expected to finish between $52 million and $57 million at June 30, down from net debt of $75 million a year ago. That will remain a focus heading into 2023-24.

The company made it clear it has survived the mix of cost pressures, the difficult market conditions and then the flooding and heavy rain which chopped the size of its harvest by 20%.

AVG’s CEO, Craig Garvin said the company remains “confident in our strategic plan and are highly enthused by the performance of our innovative and premium brands.”

“We continue to gain market share across all key geographies despite the tough trading environment. We are making proactive decisions today to both improve our financial performance as well as our ability to operate with agility to our strategic plan.”

As part of that plan, the company made clear the balance sheet was a priority over dividends as it concentrates in costs and profit ‘maximisation’.

“As expected, the trading environment through FY23 has been challenging with the Company absorbing ~$26m of hyper-inflationary costs over the past two years and being limited in its ability to pass on these costs given the impact of market discounting at the top-line.

“While a material portion of these hyper-inflation costs (e.g. freight costs) receded during the financial year, a portion continue to adversely affect the cost base.

“Despite these challenges, AVG has continued to win market share across all its key geographies ensuring stability in its revenue line through FY23.

“Importantly, the Company has continued to see growth in its innovation and premium brands, which has offset declines in the value segment (declining in line with the overall wine market). For FY23, our pillar brand revenue contribution is expected to be in-line with the 78% contribution achieved in FY22.

“The much-reported adverse weather events and flooding in early 2023 resulted in a vintage intake amounting to 80k tonnes versus last year’s vintage of 102k tonnes (~20% decline).

“The magnitude of the decline in throughput and lower than anticipated vintage necessitated a non- cash winery production fixed cost write off amounting to ~$9 million. This will impact FY23 results and benefit cost of goods sold in future years.

“In one of the toughest vintages in Australia in many years, AVG has outperformed the overall industry decline of 40%.

AVG said it was looking at June 30 revenues in the range of $255 – 260 million which would be line ball with 2022’s $260.1 million.

Underlying EBITDAS (that’s accounting for the regenerating assets in winemaking – vines and grapes) of ~$26 – 28 million, down sharply from 2022’s $45.7 million.

Reported EBITDAS of ~$34 – 36 million, versus FY22A reported EBITDAS of $43.7 million.

AVG said that it expects underlying EBITDAS and NPATS to improve into FY24 from expected FY23 performance, and EBITDAS to be directionally in line with FY22. AVG also expects net debt to reduce from current levels to those prior to the capital return in 2021. Further guidance to be provided with year-end results.

AVG also confirmed “it currently has significant headroom under its debt facility, and the Company is currently in active discussions with NAB to further extend its term beyond September 2024.

“However, given the current environment, AVG is taking proactive steps (as outlined) to both reduce the quantum of net debt as well as implied leverage multiples.”

In other words no dividends for a while.

The shares slipped 2.1% to 45 cents.


Meanwhile, is redemption near for disgraced fast food franchise group Retail Food Group (ASX:RFG) as it transitions to a new management structure and starts talking about growth?

Yes, seems to be the cautious answer to that question.

The company, which suffered some heavy blows when found to have abused and rorted many of its franchisees, has survived with the support of its banks and some shareholders.

Thursday saw a new management structure announced with the appointment of Matthew Marshall as CEO from July 1 and the extension of Executive Chair Peter George’s employment for another two years.

“Matt will drive the realisation of growth opportunities and sustainable value creation for the Company’s stakeholders,” Mr George said in a statement to the ASX.

“Matt is promoted from his current position as Head of Retail where he has been responsible for driving strong operational outcomes in difficult retail environments, including through the Covid-19 pandemic. Matt has an extensive knowledge of all aspects of the Company’s business and has played a vital role in implementing our franchisee first and customer centric values and strategy.

“Further details on the outlook and strategy will be presented alongside FY23 results in August.

The company said Mr George will continue in an Executive Chairman role for a further 2 years “during which he will focus on specific strategic growth projects as well as mentoring and supporting Matt to ensure a successful and orderly succession. Mr George noted the time was right to implement an orderly succession process.”

“The heavy lifting in terms of the turnaround has been accomplished. We have a stable earnings base and a stronger balance sheet which, together with the resolution of legacy regulatory issues in December 2022, provides a firm platform to pursue growth opportunities”, Mr George said.

“Supported by a strong and experienced management team bolstered by the recent appointment of new CFO Rob Shore, the Board is in no doubt that Matt possesses the skills and energy necessary to assume broader responsibility for our growth strategy whilst engaging with key stakeholders including Franchise Partners, employees and the financial and investor communities”, Mr George said.

In Thursday’s statement, RFG maintained its 2022-23 underlying EBITDA guidance range of $26 to $29 million but given the recent slowdown in activity, the company says the result will be closer to the bottom of the range.

“Trading conditions have eased in recent weeks and are showing the effects of an increasingly challenging and dynamic retail environment.

“Year to Date domestic network sales have grown 8.5% to $478m in FY23 versus PCP. In the second half, domestic network sales growth has moderated to 2.2% in the 21 week period, due to macroeconomic factors.

“The impact on trading conditions of successive interest rate rises, together with general inflationary pressures, has become more apparent in H2. We expect these factors will continue to influence the domestic trading environment for the foreseeable future.”

The company said the “turnaround phase now at a conclusion shifting to a growth focus in FY24 leveraging a stronger balance sheet. We are confident in the resilience of our brands, their broad customer appeal and opportunities for growth in FY24.”

The shares rose 4% to 5.2 cents.


A flat pre-June 30 trading update came from heavy equipment group, Emeco Holdings (ASX:EHL), which told a Perth investment conference on Thursday it had narrowed the 2022-23 guidance for its key metric operating EBITDA to a range not that much different to the actual result in 2021-22.

Emeco supplies the mining and construction sectors with a mix of equipment types, carries out maintenance, repairs and builds to order.

It told the investment conference and the ASX on Thursday that it was now looking for a pre-everything (EBITDA) result in the range of $248 million to $252 million, almost on par with the $250 million a year ago.

The 2022 result was a little down on guidance for that year of $245 million to $260 million, so in effect EHL will have had two years of marking time.

That’s despite what it described as a solid trading experience.

“Demand for our equipment and services has driven strong half on half earnings growth,” the company said in the presentation and update

“New and expansion projects secured during the period will drive strong momentum going into FY24” and “Revenue mix continues to evolve as we increase the number of fully maintained projects, adding tenure to the portfolio, creating value for our customers and differentiating our capability from our competitors>”

The company said it also saw strong demand for its workshop services as well and a solid turnaround in other businesses.

Overall, directors said the company saw a “solid H2 margin performance, with focus on repricing, equipment deployment and business improvement, to mitigate cost inflation (labour and parts).”

Capital spending will end up at the lower end of the forecast range of $155 million to $160 million.

EHL shares jumped 4.5% to 68 cents.