Discussion of Financial Results
Review of Operations
Vintage is fundamental to the business as it determines the quality and quantity of wine available for future sales in all markets.
Grape Intake – The Company sources 98% of the grapes from the independent growers with the balance being harvested from the Company’s own vineyards. The resultant wine from the “own use” is used for sale under the Peter Lehmann brand, for sale in bulk to other wineries and under buyers’ own brand labels. Seasonal conditions were ideal during the growing period and during harvest. Although the crop delivered was lower than average, the good quality fruit resulted in the production of excellent wines.
Contract Crushing – Work is actively sought from other wineries as a means of securing overhead recoveries. The harvesting times for grape growing districts and grape varieties differ and this allows PLW to spread the crushing activities over the vintage period. Over the years to 2009 PLW had a contract to crush grapes on behalf of a large Australian wine producer and this mutually satisfactory arrangement came to an end when the contract was not renewed. Quite simply the lower demand for Australian wines has resulted in excess winery capacity in the industry as well as an oversupply of grapes. The cessation of this contract reduced throughput substantially and this has been reflected in higher overhead costs per litre.
Vintage - Tonnes
|
Year |
Crushed - Own Use |
Crushed Contract |
Total Crushed |
|
1994 |
6,493 |
5,410 |
11,903 |
|
1995 |
4,991 |
5,031 |
10,022 |
|
1996 |
8,326 |
5,876 |
14,202 |
|
1997 |
7,309 |
5,211 |
12,520 |
|
1998 |
7,608 |
6,261 |
13,869 |
|
1999 |
7,760 |
6,422 |
14,182 |
|
2000 |
5,991 |
4,923 |
10,914 |
|
2001 |
10,157 |
5,214 |
15,371 |
|
2002 |
11,561 |
5,509 |
17,070 |
|
2003 |
9,506 |
4,796 |
14,302 |
|
2004 |
14,588 |
4,360 |
18,948 |
|
2005 |
17,308 |
3,771 |
21,079 |
|
2006 |
13,643 |
3,752 |
17,395 |
|
2007 |
8,021 |
3,634 |
11,655 |
|
2008 |
14,150 |
3,991 |
18,141 |
|
2009 |
10,992 |
3,837 |
14,829 |
|
2010 |
10,138 |
339 |
10,477 |
|
2011 |
11,000 |
380 |
11,380 |
|
2012 |
8,184 |
992 |
9,176 |
PLW Vineyards
The Company has three vineyards located in the Barossa Valley and a fourth located in the Clare Valley. Having vineyards under its own control provides PLW winemakers with flexibility in securing fruit grown under specific viticulture management regimes. The area planted is given in the table below.
Vineyard Hectares
|
Year |
Hectares Planted |
Year |
Hectares Planted |
|
1994 |
- |
2004 |
41 |
|
1995 |
18 |
2005 |
41 |
|
1996 |
18 |
2006 |
41 |
|
1997 |
36 |
2007 |
41 |
|
1998 |
36 |
2008 |
41 |
|
1999 |
57 |
2009 |
41 |
|
2000 |
57 |
2010 |
41 |
|
2001 |
57 |
2011 |
41 |
|
2002 |
71 |
2012 |
41 |
|
2003 |
71 |
Sales Revenue
PLW continually monitors stock holdings and aligns these with bottled wine sales and forecasts. Wine identified as being surplus to requirements is made available for sale on the spot market which has partially recovered from the low point experienced throughout the Australian wine industry. Export sales accounted for 44% (2011: 56%) of sales volume.
Sales Revenue by Volume
|
Year |
Bottled - Domestic |
Bottled - UK |
Bottled - Export excl UK |
Bulk - Current Vintage |
Bulk - Prior Vintages |
Total Revenue by Vol |
|
1994 |
16% |
15% |
4% |
44% |
21% |
100% |
|
1995 |
15% |
17% |
4% |
37% |
27% |
100% |
|
1996 |
15% |
18% |
5% |
44% |
18% |
100% |
|
1997 |
16% |
21% |
4% |
36% |
23% |
100% |
|
1998 |
21% |
33% |
5% |
27% |
14% |
100% |
|
1999 |
27% |
34% |
6% |
21% |
12% |
100% |
|
2000 |
36% |
33% |
11% |
8% |
12% |
100% |
|
2001 |
33% |
32% |
17% |
8% |
10% |
100% |
|
2002 |
37% |
28% |
17% |
10% |
8% |
100% |
|
2003 |
43% |
24% |
22% |
8% |
3% |
100% |
|
2004 |
37% |
25% |
26% |
7% |
5% |
100% |
|
2005 |
37% |
26% |
25% |
4% |
8% |
100% |
|
2006 |
32% |
27% |
29% |
5% |
7% |
100% |
|
2007 |
28% |
20% |
28% |
2% |
22% |
100% |
|
2008 |
29% |
19% |
33% |
6% |
13% |
100% |
|
2009 |
33% |
16% |
38% |
7% |
6% |
100% |
|
2010 |
32% |
13% |
38% |
5% |
12% |
100% |
|
2011 |
29% |
10% |
45% |
6% |
10% |
100% |
|
2012 |
30% |
5% |
38% |
5% |
22% |
100% |
Sales Revenue by Dollars
|
Year |
Bottled - Domestic |
Bottled - UK |
Bottled - Export excl UK |
Bulk - Current Vintage |
Bulk - Prior Vintages |
Contract Services |
Sales Revenue $000's |
|
1994 |
32% |
26% |
6% |
24% |
12% |
0% |
12,979 |
|
1995 |
31% |
33% |
7% |
18% |
11% |
0% |
13,662 |
|
1996 |
31% |
27% |
7% |
22% |
8% |
5% |
17,167 |
|
1997 |
31% |
30% |
8% |
16% |
11% |
4% |
22,113 |
|
1998 |
32% |
43% |
7% |
10% |
5% |
3% |
31,243 |
|
1999 |
39% |
39% |
9% |
7% |
3% |
3% |
35,146 |
|
2000 |
46% |
31% |
16% |
2% |
3% |
2% |
36,406 |
|
2001 |
38% |
31% |
24% |
2% |
2% |
3% |
41,696 |
|
2002 |
41% |
27% |
25% |
3% |
2% |
2% |
44,762 |
|
2003 |
43% |
23% |
29% |
2% |
1% |
2% |
46,091 |
|
2004 |
38% |
23% |
33% |
2% |
2% |
2% |
51,250 |
|
2005 |
37% |
24% |
32% |
1% |
4% |
2% |
55,543 |
|
2006 |
34% |
24% |
37% |
1% |
3% |
1% |
57,592 |
|
2007 |
31% |
21% |
39% |
1% |
7% |
1% |
63,487 |
|
2008 |
33% |
11% |
45% |
3% |
6% |
2% |
61,999 |
|
2009 |
34% |
8% |
51% |
2% |
3% |
2% |
52,598 |
|
2010 |
35% |
7% |
49% |
2% |
6% |
1% |
50,088 |
|
2011 |
31% |
6% |
54% |
3% |
5% |
1% |
45,634 |
|
2012 |
36% |
4% |
45% |
2% |
12% |
1% |
40,798 |
Branded domestic sales were up 13% in volume and 6% in value compared with the previous year. Over supply, continued market consolidation and the strong presence of New Zealand white wine are major factors negatively influencing the domestic scene.
PLW total branded export sales have also been adversely affected by the poor global conditions and adverse exchange rates, with volume and value down, 25% and 28% respectively. PLW exited the onerous joint venture arrangement in the UK during the second half of the year.
The Company’s largest export market remains a collective of countries in Continental Europe with sales of a similar volume to that in our Australian market. Sales for the past twelve months were down 20% in volume and 26% in value over that for the previous year. The revenue was adversely affected by the strengthening Australian dollar.
Bulk wine sales recovered from the slowdown experienced in the aftermath of the global financial crisis and PLW was able to quit surplus stock on the bulk wine spot market.
The Barossa district is highly regarded as a world class producer of top quality fruit and PLW has sufficient volumes of high quality wine available which will greatly assist in meeting future sales aspirations. The low volume national 2012 vintage assisted in decreasing stockholdings generally although supply remains ahead of demand.
Profitability – Management is cognisant of the need to balance volume growth aspirations with profitability targets. The stronger Australian dollar affected profitability with $78,000 of translation exchange rate losses being recorded compared with losses of $654,000 in the prior period.
The reporting of certain assets and liabilities at fair value at reporting date introduced more volatility into the measurement of profit. This principle applies to biological assets - grape vines and their crops, as well as financial derivatives such as interest rate swaps and forward exchange contracts.
A measure of trading profitability EBIT expressed as a percentage of sales. The outcome is determined by the mix of revenue activities and their respective margins as well as PLW’s ability to contain costs and expenses. The 2004 EBIT % has been calculated exclusive of the takeover costs in order to compare the performance with prior years.
|
Year |
EBIT as % of Sales Revenue |
Year |
EBIT as % of Sales Revenue |
|
1994 |
17% |
2004 |
19% |
|
1995 |
16% |
2005 |
20% |
|
1996 |
19% |
2006 |
19% |
|
1997 |
20% |
2007 |
16% |
|
1998 |
18% |
2008 |
24% |
|
1999 |
21% |
2009 |
19% |
|
2000 |
23% |
2010 |
13% |
|
2001 |
23% |
2011 |
6% |
|
2002 |
24% |
2012 |
1% |
|
2003 |
20% |
After tax profit and earnings per share are other indicators of profitability. The 2004 result was affected adversely by the takeover costs.
|
Year |
After Tax Profit $000's |
Basic Earnings per Share cents |
No of Shares at Balance Date 000's |
|
1994 |
1,352 |
7.1c |
18,930 |
|
1995 |
1,296 |
6.8c |
18,930 |
|
1996 |
1,807 |
9.4c |
19,170 |
|
1997 |
2,589 |
11.9c |
25,371 |
|
1998 |
3,464 |
12.2c |
30,946 |
|
1999 |
4,475 |
13.9c |
33,235 |
|
2000 |
5,009 |
15.1c |
33,260 |
|
2001 |
6,195 |
18.1c |
34,147 |
|
2002 |
6,915 |
19.0c |
36,359 |
|
2003 |
5,419 |
14.5c |
37,311 |
|
2004 |
3,830 |
10.1c |
37,969 |
|
2005 |
6,317 |
16.6c |
37,969 |
|
2006 |
5,748 |
15.1c |
37,969 |
|
2007 |
5,975 |
15.7c |
37,969 |
|
2008 |
9,604 |
25.3c |
37,969 |
|
2009 |
5,736 |
15.1c |
37,969 |
|
2010 |
3,795 |
10.0c |
37,969 |
|
2011 |
1,006 |
5.5c |
37,969 |
|
2012 |
(520) |
(1.4c) |
37,969 |
Another measure of profitability is the return on shareholders’ equity. This is measured as the after tax profit (ATP) expressed as a percentage of shareholders’ equity. The 2004 return on shareholders’ equity was affected by the takeover costs.
Return on Equity
|
Year |
ATP as a % of Equity |
Year |
ATP as a % of Equity |
|
1994 |
14% |
2004 |
7% |
|
1995 |
13% |
2005 |
12% |
|
1996 |
16% |
2006 |
10% |
|
1997 |
17% |
2007 |
10% |
|
1998 |
17% |
2008 |
14% |
|
1999 |
16% |
2009 |
9% |
|
2000 |
17% |
2010 |
6% |
|
2001 |
18% |
2011 |
1% |
|
2002 |
16% |
2012 |
(1%) |
|
2003 |
11% |
Review of Financial Condition
Capital Investment and Structure
Contributed equity remained constant at $30.6M with the use of debt facilities increasing from $15.5M at 30 June 2011 to $16.9M at 30 June 2012.
At 30 June 2012 gearing (interest bearing debt as a percentage of capital employed) was 25% (2011: 23%). Interest cover (the number of times operating profit before interest and tax is greater than the total interest charge) was 0.4 times (2011: 2.2 times). The rate is below the financial covenant level. The bank did not waive its rights and the Company continues its negotiations to maintain its bank facility. In the interim the parent company has provided a standby letter of credit and a letter of continuing financial support.
The nature of the industry requires the maturation of red and fortified wines beyond a 12 month period. The lower 2012 grape crop volume was countered by the slowdown in sales and as a result the value of inventory holdings at 30 June 2012 of $50.8M is 2% higher than the 2010 level of $49.9M. The Group is aware of the need to balance the volumes of wines held for future sales.
Capital projects and working capital requirements have been funded by funds generated by operating activities.
In the year ended 30 June 2012 the Company recorded a loss and a future tax benefit instead of a tax expense. In the prior year the Company recorded an effective tax rate of 29.8% o the operating profit before tax which compared with the company tax rate of 30%.
The Company has determined not to declare a dividend. This determination is in keeping with the board’s policy of dividends moving broadly in line with underlying earnings per share.
