Managing Director's Report
Company Overview | Australia Wine Industry | Trading | Wine Quality | Vintage | Environment | 2009 International Wine Challenge Award | 30 Years Old | Outlook
Company Overview
Peter Lehmann Wines Limited (PLW) recorded total revenue of $52.6M (2008 $61.8M) and an after tax profit of $5.7M (2008 $9.6M) for the year ended 30 June 2009.
The Company paid a fully franked interim dividend of 3.5 cents per share on 8 May 2009 and the directors have declared a fully franked final dividend of 4.8 cents per share payable on 6 November 2009.
Australian Wine Industry
The industry remains massively oversupplied with a national production potential in excess of 2M tonnes and a current sales requirement of around 1.5M tonnes. To bring the supply-to-sales ratio into some form of balance, approximately 35,000 hectares of vineyard needs to be removed.
Further compounding the oversupply situation is a huge increase in imports of New Zealand Sauvignon Blanc. These imports are having an extremely detrimental effect on the volume and value of all Australian produced white wines. The national oversupply situation is expected to put further downward pressure on grape prices, particularly white varieties, in most districts for the 2010 vintage.
Trading
Over the past year the Company experienced the most difficult trading conditions in its last fifteen years of operation. The global financial crisis created great uncertainty for trading as distributors and retailers sought to minimise stock levels whilst consumers reduced spending. Compared with the previous record year, total branded sales were down 19% in volume and 13% in value.
Trading was tough in Australia and our branded domestic sales were down 20% in volume and 16% in value compared with the previous year. Although the decline in sales is predominantly attributable to lower sales of the Peter Lehmann Semillon this decline seems to have slowed.
PLW total branded export sales were also adversely affected by the global downturn with volume and value down, 19% and 11% respectively.
Historically the overseas wine markets have been incredibly competitive and the troubled economic times has made it more so. Unfortunately customers require more advertising and promotional support which in turn affects profitability. These difficulties and the global oversupply of wine are not expected to ease in the short term or probably not even in the medium term future.
The various countries in continental Europe have collectively become the Company’s largest export market with sales volumes mirroring domestic sales volume. The year’s sales were down 8% and 6% in volume and value respectively compared with the previous twelve months sales. Germany and Switzerland were the strongest markets, with Sweden and the Netherlands also performing creditably.
In the UK, our joint venture with the large London based wholesaler Enotria Winecellars Ltd completed its second year of successful trading. While total sales volume has fallen over that of the previous year due to a strong downturn in sales to the supermarkets, our volumes in the on-trade increased by 50% which was very heartening. The on-trade segment comprises restaurants, hotels and clubs and we believe distribution in this segment is critical to the ongoing building and health of the brand.
Economic uncertainty in the United States saw sales volume fall 17% over that of the previous year, with revenue, which was held up by the favourable exchange rate, declining by only 1%. Our sister winery, the Hess Collection Winery, has represented PLW across this market since 2004. We believe that the good work that has been undertaken over the last 5 years places our brand in a sound position to capitalise on opportunities as the US economy improves over the next year and beyond.
The Canadian market stood up well and defied the downward trends of all other markets. Sales by volume and value mirrored that of the previous year. PLW has particularly good distribution in Western Canada and we are also starting to see further market growth in Ontario, Quebec and the smaller markets to the east. If we see an economic improvement over the next twelve months, PLW is well placed to move forward across all Canadian markets.
The economic slowdown also took its toll on the Asian, Middle East and other small overseas markets, with sales volume down 25% and value 28% over that of the previous year. It is expected that growth will recur in these markets once the global economic engine picks up momentum.
Wine, surplus to bottled wine requirements, is sold on the bulk wine market. With the Australian wine industry in a serious oversupply situation, particularly with white wine, the glut is pushing prices and demand to the lowest levels experienced over the last 15 years. PLW’s bulk wine sales were down 46% and 49% in volume and value respectively over that of the previous corresponding period. Sales of Semillon, Semillon/Chardonnay and Riesling have been decimated and this has necessitated a write down of a number of white wines from the 2008 vintage. The value written down is $992,000 and this impacted negatively on the year’s result. Other than this white wine surplus from 2008 vintage, the remaining stocks are in balance with our projected rate of sales.
Wine Quality
Over the past twelve months the Company performed extremely well in national and international wine shows wine shows being awarded 22 trophies and 44 gold medals, along with numerous silver and bronze medals. These awards were given to all wine styles and are positive testimony to PLW as a quality wine producer, the Barossa Valley as a quality grape producing district and the versatility and talent of the wine making team.
In the recently released James Halliday 2010 Wine Companion the renowned wine journalist awarded 5 stars to the winery with 10 of our wines rated 95 points or higher. A further 10 wines were rated in the 90 to 94 points range.
Vintage
PLW commenced vintage on 30 January and this eclipsed the previous earliest start set in 2008 by one day. The lead up to harvest, whilst quite dry was relatively cool, apart from a burst of hot weather in late January and early February. Fortunately the weather then settled to warm days and cool nights allowing the vineyards to recover and the majority of the grapes to ripen slowly, producing wines with excellent colour and flavour. The total crush was 14,829 tonnes (2008: 18,141) and 10,992 tonnes (2008:14,150) for our own use.
It is an outstanding red wine year, with the wines exhibiting strong varietal characters accompanied by incredible depths of colour. Shiraz is the strongest we have seen since 1998 and many other varieties such as Grenache, Mourvedre and Tempranillo are also exceptional. We are very excited with the quality as the white wines are showing well, with Riesling and Semillon being the stand out varieties. All in all we believe that 2009 will be regarded as a vintage of great quality.
Environment
PLW has always taken the view that it will use its resources efficiently, minimise the effects of the winery operations on the environment and recycle materials where ever possible.
Along with these ongoing commitments the company made two major capital expenditure commitments in pursuit of sustainable environmental development. We commenced the relocation of the southern tankfarm to alongside the winery complex and expect to complete the project in early 2009/10. As well as providing substantial operational efficiencies the relocation will reduce the amount of water and electricity used in the movement of wine during the winemaking process.
We have installed a pipeline between PLW and the nearby North Para Environmental Control (NPEC) waste water treatment plant. The objective is to process treated winery wastewater further at NPEC, return it to PLW for irrigating the lawns and gardens at Cellar Door, Old Redemption Cellars and the corporate guest house. Further applications for use within the winery are also being investigated.
Recently PLW took steps to reduce the glass weight of our proprietary bottle used for the Peter Lehmann Art Series and Clancy’s ranges by nearly 15%. Also, we have embarked on a project for a significant weight reduction of the bottles used for our Weighbridge and Wildcard ranges which are exported predominantly to the UK and continental Europe. When the weight reductions for the Weighbridge/ Wildcard bottles and the Art Series/Clancy’s proprietary bottles are combined, we expect annual savings of 800 tonnes of glass and to be able to eliminate about 190 tonnes of carbon dioxide emissions from shipping and road transport.
More details on PLW activities and planned initiatives are contained in the environment section of the annual report.
2009 International Wine Challenge Award
On 2 September 2009 Peter Lehmann personally received a Lifetime Achievement Award at the prestigious 2009 International Wine Challenge Awards held in London. Peter was honored to accept the award for his great contribution to the Australian wine industry over the past 62 years. In 1947 Peter started work in the laboratory at Yalumba Wines and after 13 years moved to Saltram where he thought he would see out his winemaking career. However, the plight of the independent Barossa Valley growers supplying Saltrams saw him take on the challenge of setting up a new winery. No wonder he chose the Ace of Clubs, the gambler’s card, as his label. Congratulations to Peter from all the team at Peter Lehmann Wines.
30 Years Old
The excavation and building of the winery commenced in August 1979 and we are quietly pleased to be celebrating 30 years of operation. Engineer Mick Anderson and Chief Winemaker Andrew Wigan, who were both involved on the journey from the outset, are true stalwarts and continue working at PLW today.
Outlook
The Australian wine industry is facing a number of challenges. Not only is the global economic downturn dampening growth, there are a number of other issues which are putting the industry under extreme financial pressure - grape supply which requires structural changes in the vineyard sector, the allocation of water particularly in the Murray Darling basin, increasing competitiveness of other wine producing countries and volatile exchange rates. These issues have never presented themselves collectively before.
One cannot predict with any certainty how long it will take before the global downturn reverses itself and moves into recovery and the question may well be “will the world of trade be the same as it was, when it does?” Only time will answer that.
In these difficult times we have embarked on a program to contain costs but be ready for when economic conditions improve. We are keen to ensure that the workforce remains intact and for 2009/10 have instituted these employment measures - salaries frozen at the 2008/09 rates, an increase of 3% on 2008/09 rates approved for wage earners and no new positions to be established. As well, capital expenditure has been assessed to determine that the benefits of proceeding now outweigh the costs of deferment. We have deliberately decided to maintain the market visit regime to ensure the Peter Lehmann brand remains visible.
Above all it is imperative that we continue to produce quality wine and build on the close relationships that we have established around the world. Despite the many difficulties facing us, I believe PLW is well placed to meet these challenges over the next year and beyond.
I would like to thank all the staff and company directors for their hard work and dedication through these difficult times.
