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. A heatwave in November 2009 affected the flower set and consequently the 2010 harvest was lower than usual. 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 last 16 years 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 at its expiry. 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 |
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 |
- |
2003 |
71 |
|
1995 |
18 |
2004 |
41 |
|
1996 |
18 |
2005 |
41 |
|
1997 |
36 |
2006 |
41 |
|
1998 |
36 |
2007 |
41 |
|
1999 |
57 |
2008 |
41 |
|
2000 |
57 |
2009 |
41 |
|
2001 |
57 |
2010 |
41 |
|
2002 |
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 51% (2009: 54%) 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% |
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 |
Branded domestic sales were down 9% in volume and 7% 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, 3% and 9% respectively. As market conditions in the UK deteriorated further we decided not be involved, but rather, protect the brand name and to concentrate further on the on- premise segment (restaurants, clubs and hotels) of the market supplemented with profitable sales to the off- premise segment (supermarket trade).
The Company’s largest export market remains a collective of countries in Continental Europe with sales of a similar volume to that of our Australian market. Sales for the past twelve months were down 8% in volume and 17% in value over that for the corresponding period of the previous year.
Bulk wine sales recovered from the slowdown experienced in the aftermath of the global financial crisis but remain subdued as the Australian wine industry remains in an oversupply position.
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 outlook for the national 2011 vintage is quite uncertain as the industry in undergoing structural change to bring supply back into balance with demand.
Profitability – Management is cognisant of the need to balance volume growth aspirations with profitability targets. Funds for advertising and promotional support provided to gain access to retail shelf space are monitored carefully to avoid the trap of pursuing profitless volume.
The stronger Australian dollar affected profitability with $471,000 of exchanges losses being recorded compared with exchange gains of $1,016,000 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% |
2003 |
20% |
|
1995 |
16% |
2004 |
19% |
|
1996 |
19% |
2005 |
20% |
|
1997 |
20% |
2006 |
19% |
|
1998 |
18% |
2007 |
16% |
|
1999 |
21% |
2008 |
24% |
|
2000 |
23% |
2009 |
19% |
|
2001 |
23% |
2010 |
13% |
|
2002 |
24% |
|
|
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 |
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% |
2003 |
11% |
|
1995 |
13% |
2004 |
7% |
|
1996 |
16% |
2005 |
12% |
|
1997 |
17% |
2006 |
10% |
|
1998 |
17% |
2007 |
10% |
|
1999 |
16% |
2008 |
14% |
|
2000 |
17% |
2009 |
9% |
|
2001 |
18% |
2010 |
6% |
|
2002 |
16% |
|
|
Review of Financial Condition
Capital Investment and Structure
Contributed equity remained constant at $30.6M with the use of debt facilities decreasing from $20.1M at 30 June 2009 to $18.8M at 30 June 2010.
At 30 June 2010 gearing (interest bearing debt as a percentage of capital employed) was 27% (2009: 30%). Interest cover (the number of times operating profit before interest and tax is greater than the total interest charge) remained at 6 times. This rate is comfortably ahead of the financial covenant level.
The nature of the industry requires the maturation of red and fortified wines beyond a 12 month period. The lower 2010 grape crop volume has offset the slowdown in sales and as a result the value of inventory holdings at 30 June 2010 of $48.3 is 3% lower than the 2009 level of $49.2M. 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. The relocation of the southern tankfarm to alongside the winery complex has been completed.
Company tax for the Group of $1.4M at an effective rate of 27.5% has been provided on the operating profit before tax and compares with the company tax rate of 30%. The Company claimed an investment allowance from the Australian Government’s stimulus package.
The Company has declared a final dividend of 4.8 cents per share. It is in keeping with the board’s policy of dividends moving broadly in line with underlying earnings per share.
