Australian Vintage Ltd · ASX:AVG
Australian Vintage — H1 2009 Earnings Presentation
34 slides from Australian Vintage's earnings presentation, Feb 25, 2009
Slide 1: 2009 Half Year Result
For personal use only 2009 HALF YEAR RESULT 25 FEBRUARY 2009 1
Slide 2: Disclaimer
Disclaimer For personal use only The information in this presentation is general advice, given in good faith and derived from sources believed to be accurate at this date but no warranty of accuracy or reliability is given and no responsibility arising in any other way including by reason of neglige
Slide 3: Today's Agenda
Today’s Agenda For personal use only Overview Business Review and Outlook Questions 3
Slide 4: Top Line Results
Top Line Results • Disappointing operating profit For personal use only • Sales up across the business – Sales up 11% versus last year to $146.4 million – Domestic and export branded sales up – Grape costs, growth investment and competitive pressure impact margins • Operating and After Tax Profit –
Slide 5: Strategic Review and Direction
Strategic Review and Direction For personal use only • Validated AVL’s focus on brands, innovation and the need to maintain low cost position • Confirmed we moved ahead of market reducing capacity with sales of wineries, vineyards and exiting of grape purchase arrangements • The environment has chan
Slide 6: Business Review
For personal use only 6 BUSINESS REVIEW
Slide 7: Topics for Discussion
Topics for Discussion For personal use only 1. Market Overview 2. Half Year Results 3. Strategic Priorities 7
Slide 8: Uncertainty and pressure continues in Australian wine industry
Uncertainty and pressure continues in Australian wine industry For personal use only • Supply side – Large vintage in 2008 put Australia back into oversupply – New World wine countries continue their assault with NZ record vintage depressing Sauvignon Blanc prices – V09 to be down on V08 due to extr
Slide 9: Demand for Australian wine has slipped significantly
Demand for Australian wine has slipped significantly Total = 698ml Domestic Consumption of Australian Wine Year on Year Change For personal use only Down 77ml (Million Litres) in Australian Exports on Prior Year 440 0% UK USA Total 432.9 430 -2% -6% 425.8 -10% -10% -11% 420 -20% -18% -19% 410 Volume
Slide 10: AVL First Half Performance - Key Financials
AVL First Half Performance - - Key Financials $M 2007 2008 Change (%) For personal use only Net Sales Sales - Branded* 74.5 88.3 +18 +8% - Non Branded 49.8 50.5 +1 - Vineyard Income 7.4 7.6 +3 Total 131.7 146.4 +11 EBIT (before Significant Items) 10.4 5.7 -45 EBIT (after Significant Items) 6.7 (168.
Slide 11: Negative cashflow in challenging environment
Negative cashflow in challenging environment For personal use only • Operating cashflow $13.1 million below prior year. Two key drivers: – Gallo payment of $7.4 million delayed, majority received in January and February – Increased grape payments of $6 million due to larger vintage 08 versus vintage
Slide 12: First half sales confirm AVL's ability to drive top line
First half sales confirm AVL’s ability to drive top line AVL Change in Net Sales versus Prior Year For personal use only 15% 13% 11% 10% 6% 5% 4% N/A 0% AVL Aust AVL Aust AVL Total AVL Total -5% Aust Industry Aust Industry Export Export Export Export -2% -10% -11% -15% Volume Value Volume Value -18%
Slide 13: Consistent strong sales growth across whole Australian business
Consistent strong sales growth across whole Australian business For personal use only First Half Australian Packaged Sales Growth 43% 40% 20% 20% 13% 5% 0% Total AVL AVL Branded Brand Growth in * Aust Wine Sales Sales McGuigan Major Retailers Industry -2% -20% *Source WFA, Full Year 2008 volume chan
Slide 14: Solid Export branded sales growth is continuing
… and solid Export branded sales growth is continuing For personal use only 230% 216% Branded Net Sales Growth vs 80% Prior Year 1% UK Europe Asia USA Canada NZ Aust Industry -15% -25% -18% 14
Slide 15: AVL can return to sustainable profitability in 2009/2010
AVL can return to sustainable profitability in 2009/2010 For personal use only • The provision for onerous contracts will fix a major reason for our poor performance over the last three years • Plans are in place to further simplify business and align cash costs with accounting costs • AVL has prove
Slide 16: Four reasons for stock write-down have been addressed
Four reasons for stock write-down have been addressed (where possible) For personal use only DRIVER OF STOCK WRITEDOWN REMEDIAL GO FORWARD ACTION • Impact of onerous grape contracts from • Onerous contract provision will match 2007 and 2008 grape cost to market price • Lower vintage in 2007 led to h
Slide 17: Cash flow is highest priority
Cash flow is highest priority For personal use only • Reducing vineyard and grape cash costs and aligning grape intake to sales • Cut capital spend from run rate of $12 million to emergency capital only of $3 million • Further streamlining and reducing organisational costs • Drive top-line sales and
Slide 18: Strategic review confirmed drive for production simplification
Strategic review confirmed drive for production simplification, creating flexibility and being innovative is correct 2005/06 2009/10 For personal use only Vineyard & 3rd Party Growers • Total tonnes 232KT • Total tonnes 130KT Wineries and • Tower Estate Winery investment Production • Hunter Estate 5
Slide 19: Innovation has been and remains a priority
Innovation has been and remains a priority For personal use only • 18 months ago AVL established Global Innovation Division – Separate and independent team – Latitude on development • Products are now emerging – Billyrock Station cans – Nine Below – Innovative alternative beverage products to be lau
Slide 20: Billyrock cans continue to grow
Billyrock cans continue to grow For personal use only • Sales into Canada (national distribution), Asia and Europe • USA sales to commence in June 09 • Total sales to date to +$2m, from zero 12 months ago 20
Slide 21: For personal use only
Low G.I. Low Insulin Response Low Calorie Low Alcohol Resveratrol Enhanced ...Anti Aging
Slide 22: New beverage concepts are well progressed with mid year launch anticipated
New beverage concepts are well progressed with mid year launch anticipated For personal use only • Using existing assets and inputs, innovation division identified opportunity for alternate beverages 18 months ago • Significant concept and product development • Preliminary customer research complete
Slide 23: In summary
In summary For personal use only • Provision of $128m after-tax disappointing • But above system sales growth vindicates strategy • Significant organisational urgency around improving cash flow - - Initiatives identified which will generate an incremental $25m over next 12 months • AVL continues to
Slide 24: AVL will return to profitability in 2009/10
AVL will return to profitability in 2009/10 For personal use only • AVL targeting small operating profit, pre significant items in 2008/09 • Although many challenges exist, AVL expects to improve its profit in 2009/10 24
Slide 25: Questions
For personal use only 25 QUESTIONS
Slide 26: Back Up
For personal use only 26 BACK UP
Slide 27: Australian Grape Harvest (Tonnes '000s)
Australian Grape Harvest (Tonnes ‘000s) For personal use only 2000 2000 Forecast Premium/Dry 1500 1500 Land growth Tonnes 740 42% +220KT 520 1000 1000 Irrigated growth 6% 500 500 930 880 +50KT 0 0 2003 2004 2005 2006 2007 2008 2007 2008 Source: Australian Wine and Brandy Sources: ABARE as WFA does n
Slide 28: AVL Segment Profitability
AVL Segment Profitability For personal use only Results Results Change $’000 2007 2008 vs PY Branded wine division 7,019 3,827 (3,192) Private Label wine division 204 427 223 Bulk wine and processing 687 (115) 802 Vineyards 1,454 1,598 144 Unallocated* (8,531) (180,589) (172,058) Total 833 (174,852)
Slide 29: First Half Branded Sales
For personal use only First Half Branded Sales Case Sales (‘000) Dollar Sales ($’000) % % 2007/08 2008/09 2007/08 2008/09 Change Change Total Export Branded 967 1,055 +9 41,429 53,537 +29* Australian Branded 955 912 -4.5 33,114 34,773 +5 Total 1,922 1,967 +2 74,543 88,310 +18** *Including rebates Ex
Slide 30: Expense Reconciliation
Expense Reconciliation For personal use only CATEGORY CHANGE VS KEY DRIVERS PRIOR YEAR Distribution +$0.7m • Case volume up 7% +12% • Fuel and general transport cost rises drove remainder of increase Sales & Marketing +$1.2m • Additional staff in UK and USA: +$0.4m +10% • Investment in branded adver
Slide 31: Additional Information – EBIT to December 2008
Additional Information – EBIT to 31 December 2008 For personal use only 2007 2008 $’000 $’000 Profit for the Period 643 (127,779) Adjust for: Tax (benefit) / Cost 190 (47,073) Finance Cost 6,207 6,460 Interest Revenue (385) (422) EBIT (after Significant Items) 6,655 (168,814) Significant Items 3,741
Slide 32: Cash flow from operating activities
Cash flow from operating activities For personal use only $M 2007 2008 Change Receipts from customers 158.7 150.6 (8.1) Payments to suppliers and employees (141.3) (154.9) (13.6) Interest and other finance costs (5.9) (4.9) 1.0 Income tax (paid) / refunded 2.2 - (2.2) Total (before water and one-off
Slide 33: Provisions were driven by industry oversupply and review of asset values
Provisions were driven by industry oversupply and review of asset values For personal use only Pre-Tax Writedown ($m) Revaluation of biological assets 9.5 Revaluation of property, plant and equipment 3.0 Impairment of goodwill and other intangibles 12.5 Provision for onerous contracts 76.6 Inventory
Slide 34: Nine Below a unique concept
Nine Below a unique concept Market & Category Position For personal use only • A contemporary brand, vogue in imagery specifically designed to convey its purpose-built wine style and “point of difference” – low GI, calorie and alcohol wine – yet full flavoured Brand Strategy • Not just another low a