2015 Annual Report
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2015 ANNUAL REPORT As a company so reliant on our environment and natural resources, we at Australian Vintage Limited are proud to produce our 2015 Annual Report on Carbon Neutral and 100% recycled paper. EcoStar is an environmentally responsible paper made carbon neutral (CN) and the fibre source has been independently certified by the Forest Stewardship Council (FSC). ecoStar is manufactured from 100% post consumer recycled paper in a process chlorine free environment under the ISO 14001 environmental management system which guarantees continuous improvement. Carbon Neutral: the carbon emissions of the manufacturing process for ecoStar include: Incoming deliveries – raw materials and wrapping; Premises – energy consumption on site, waste treatment and disposal; Energy of materials – raw materials; Outgoing deliveries – transportation of the finished product to Raleigh Paper warehouses have been measured and offset. Contents Board of Directors 2 Note 15: Other non-current financial assets 58 Chairman’s Report 4 Note 16: Biological assets 59 Chief Executive Officer’s Report 6 Note 17: Property, plant and equipment 59 Company Profile 8 Note 18: Goodwill 61 Corporate Governance Statement 11 Note 19: Other intangible assets 62 Shareholders’ Information 20 Note 20: Water licences 63 Directors’ Report 22 Note 21: Other non-current assets 63 Declaration of Independence 34 Note 22: Assets pledged as security 63 Independent Audit Report 35 Note 23: Current trade and other payables 63 Directors’ Declaration 36 Note 24: Current borrowings 63 Financial Report Note 25: Other current financial liabilities 64 Consolidated Statement of Profit or Loss Note 26: Current provisions 64 and Other Comprehensive Income 38 Note 27: Other current liabilities 64 Consolidated Statement of Financial Position 39 Note 28: Non-current borrowings 64 Consolidated Statement of Changes in Equity 40 Note 29: Non-current other financial liabilities 64 Consolidated Statement of Cash Flows 41 Note 30: Non-current provisions 64 Notes to the Financial Statements 42 Note 31: Provisions 65 Note 1: General Information 42 Note 32: Foreign currency balances 65 Note 2: Adoption of new and revised Accounting Note 33: Issued capital 66 Standards 42 Note 34: Reserves 67 Note 3: Summary of accounting policies 43 Note 35: Accumulated losses 67 Note 4: Critical accounting judgements and key sources of estimation uncertainty 52 Note 36: Earnings per share 67 Note 5: Profit / (Loss) from operations 53 Note 37: Dividends 68 Note 6: Income taxes 54 Note 38: Leases and other commitments 68 Note 7: Key management personnel compensation 56 Note 39: Contingent liabilities 69 Note 8: Executive share option plan 56 Note 40: Subsidiaries 69 Note 9: Remuneration of auditors 57 Note 41: Segment information 72 Note 10: Current trade and other receivables 57 Note 42: Related party transactions 73 Note 11: Current inventories 58 Note 43: Notes to the cash flow statement 76 Note 12: Other current assets 58 Note 44: Financial instruments 77 Note 13: Non-current trade and other receivables 58 Note 45: Events after the reporting period 84 Note 14: Non-current inventories 58 Note 46: Parent Entity Disclosures 84 2 BOARD OF DIRECTORS RICHARD H DAVIS NEIL A MCGUIGAN Chairman Chief Executive Officer Chairman of Monash IVF Group Limited and Neil was previously the General Manager Director (and previously CEO) of InvoCare of Production and Wine Supply at Australian Limited where he previously spent almost 20 Vintage Limited. He was appointed as a years growing and managing the business. director and as the CEO on 21 July 2010. Former accounting partner for a national Neil has over 27 years’ experience in the accounting firm. wine industry. He previously worked at the then privately owned Briar Ridge before leaving in 2000 to run Rothbury Estate and its satellites in the Upper Hunter, Cowra and Mudgee for the Foster’s Group. BOARD OF DIRECTORS 3 PERRY R GUNNER JOHN D DAVIES NASEEMA SPARKS Non-Executive Director Non-Executive Director Non-Executive Director Over 30 years’ experience in the Wine Fellow of the Institute of Chartered Currently Deputy Chairperson of Racing Industry. Former Chairman and Chief Accountants having worked for 36 years NSW and Director of Melbourne IT Limited, Executive Officer of Orlando Wyndham with Ernst & Young. John was elected PMP Limited, Grays e-Commerce Group Group Pty Limited. Chairman of Freedom to Ernst & Young’s Asia Pacific Board Ltd and AIG Australia. Former Chairperson Foods Group Limited and Deputy of Partners for a 6 year period until his of Deals Direct Group with extensive Chairman of A2 Corporation Limited (N.Z.). retirement in 2011. During his career he experience in marketing and digital Chairman of the Risk Committee. provided professional services to many of media after a successful career with M&C Australia’s leading wine companies and he Saatchi, one of Australia’s largest and most also owns a commercial vineyard in central successful advertising businesses. Naseema Victoria. Chairman of the Audit Committee. holds post graduate market and research qualifications and an MBA from Melbourne Business School. Chairman of the Remuneration and Nomination Committee. 4 RICHARD DAVIS | CHAIRMAN’S REPORT Dear Shareholder I am pleased to report that Australian Vintage increased branded sales and reduced debt for the year ended 30 June 2015. However, as foreshadowed in our May 2015 Vintage and Trading Update release, net profit after tax was down 11% to $9.4 million. The lower net profit was due to the lower than expected SGARA profit. In the year ended 30 June 2015, the Company’s net profit after tax declined to $9.4 million, representing an 11% decrease in comparison to the 2014 result. Revenue was up 7.5% to $230.9 million. The business continues to focus on reducing its cost base while running its core assets hard, and at the same time improving the reputation and value of its brands and wines. During the year the Company finalized the sale of the underutilized Yaldara winery for $15.5 million. This sale represents another important step toward giving effect to the Company’s strategy to be the lowest cost premium wine maker. The performance of our brands continues to impress with ongoing growth in our three key brands, McGuigan, Tempus Two and Nepenthe. Total sales of these three brands have increased by 43% over the last 3 years. Over the same period we have reduced our reliance on bulk wine sales and processing to the extent that our branded sales now represent 72% of total sales compared to 62% in 2012. By comparison, ten years ago our branded sales represented only 35% of total sales. This is a significant and positive shift in our business. The Company’s business has evolved into a respected branded wine business with a very clear focus on quality and growing branded sales. The 2015 vintage crush was 113,771 tonnes compared to 124,215 tonnes in 2014. When compared to the previous year, the volume of third party contract processing tonnes was down by 24,916 tonnes, due to the expiry of a long term contract processing agreement. This was partially offset by the increased volumes (14,472 tonnes) processed from leased vineyards and third party growers. Overall the average cost of wine made from grapes sourced from the 2015 vintage is significantly less than the wine made from the 2014 vintage. Sales and Margins During the year we increased our presence in the UK / Europe segment by expanding our customer base to include all major supermarkets and major banner groups in the independent channel. The benefits of this expanded base are shown in the 12% increase in UK / Europe sales. Partially offsetting the increased branded sales was reduced sales and contribution from the Australasia / North America Bulk and Processing Segment. This decline was due to the expiry of a long term processing agreement. Our emphasis of growing branded business and growing export has resulted in increased sales and contribution in the Australian, UK, New Zealand and North American markets. The high cost of the 2014 vintage has negatively impacted the Company’s 2014/15 margin by $6.2 million. The high 2014 vintage cost will also negatively impact our results for the first half of 2015/16. The lower Australian dollar has provided a benefit of $5.2 million compared to the previous year. However, this benefit did not flow through to improved margin due to the higher cost of the 2014 vintage and margin pressure from UK supermarkets. During the year the Company had a number of one off items that impacted net profit. The profit on the sale of Yaldara was partially offset by the write off of customer incentives and legal costs associated with a vineyard dispute. Financial Position Cash flow from operating activities improved by $5.7 million due mainly to increased branded sales. The gearing ratio (net debt to total equity) is at a comfortable 36% with a secure banking facility in place until October 2017. After the 2016 vintage the Company has a number of significant onerous and above market priced grape supply contracts that expire. The intention is to replace these contracts as they expire with grape supply contracts reflecting market price. Whilst the accounting benefit of this change will take some time, the cash benefit will flow through immediately. Based on contracts that expire from 2016 to 2018 and using average weighted 2015 grape prices, the expected cash flow benefit after the 2018 vintage is $6.9 million per annum. RICHARD DAVIS | CHAIRMAN’S REPORT 5 Global Markets The International Organisation of Vine and Wine (OIV) recently estimated that global production fell 7% in 2014 to 27.0 billion litres. Whilst there will continue to be periods when global wine production will exceed consumption, the Company believes that the long term trend is likely to be a more balanced global production and consumption.