v2 Report - Additional Information Supplement
NWC New Zealand Wine Company Limited
Press releases
|
The
New Zealand Wine Company Limited NWC 31
Aug, 2007, 10:46 GENERAL NWC
PERFORMANCE SHARE PLAN |
|
The
New Zealand Wine Company Limited ('NWC') established a Performance
Share Plan ('PSP') in December 2003 to improve longer-term earnings
performance and align the interests of the Company's two key
executives, Rob White, CEO, and David Pearce, Winemaker, with the
interests of shareholders. |
Chairman's report
CHAIRMAN'S REPORT 2007
THE PAST YEAR
The unexpectedly strong, and continually increasing, value of the $NZ
throughout the past financial year has turned what would have been a
record result into an average year for earnings with net tax paid profit
of $961,000 being 6.3% lower than 2006. Sales did achieve a record at
$10.716 million - an increase of 13.8% over 2006. Overall the
comprehensive income of $1.903 million - after independent revaluation
of the Company's fixed assets - was up by 12.9% on 2006 lifting the per
share asset backing from $2.31 to $2.46. It is disappointing that,
contrary to earlier bank forecasts, the strong dollar did erode margins
and result in earnings being lower than expected.
A pleasing aspect of the year is that sales volumes were right on target
with the growth strategy implemented by the Company in recent years. One
definite factor in sales growth has been the formal accreditation of
CarboNZero status for the winery in 2006. Details were presented to
shareholders at the 2006 AGM and are on the web site. Since
accreditation the importance of this has been seen with world wide
publicity at a time when the issues of global climate change and food
miles have become very real at an international level. While we can not,
and do not, claim to have "greened" our full supply chain, we
have been able to make our own operation, including freight to foreign
ports, a carbon neutral operation. Management is currently working upon
matters to expand such carbon neutrality further.
The outlook for this Company is still very sound, although strong
concern remains regarding what in my view is a very unrealistic value of
the New Zealand dollar. In the meantime strategies to mitigate, as best
we can, the current high values are being constantly looked at. I am
going to leave most of the commentary on the future to CEO Rob White for
his report. Suffice for me to say that good volumes of quality grapes
resulted from the 2007 harvest, new markets have been gained for the
Company's various wine brands and the future for the Company looks
strong. At some stage the current overvalued cycle of the $NZ will
change and the Company will be very well placed to prosper at that time.
A very talented and capable management team is ably led by an excellent
CEO in Rob White and the Company continues to produce quality products.
It will be good for the Company that some new people on the board will
provide fresh ideas and abilities to complement the remaining governance
team.
LOOKING BACK
This is my 18th and final year as a director (15 as chairman) and in
this the 20th year of the Company since its first harvest in 1988, I
trust that shareholders will indulge me in looking back over some of the
history that many current shareholders will not be aware of. To start
with I would like to present a few random historical notes and then list
a few extracts from various Company annual chairman's reports:
- The Company commenced (as Grove Mill Wine Company Ltd) in 1988. Its
first staff appointment was winemaker David Pearce (who has remained
loyal right through the Company's existence and remains one of the
strengths of this Company). The very first vintage was a few hundred
cases of Grove Mill Riesling with fruit from the vineyard of founding
shareholders Rex and Paula Brooke-Taylor.
- In the first two years the Company restaurant at Dodson St provided
the cash flow to establish the wine making side of the business with its
turnover in those years being greater than wine sales.
- In 1988 and 1989 no Sauvignon Blanc was made, the first being 1990
Grove Mill Sauvignon Blanc. This variety of course has now grown to be
the largest by far. Both 1989 Lansdowne Chardonnay and 1989 Blackbirch
Cabernet Sauvignon won gold medals. The first Sauvignon Blanc gold medal
was for 1992 Grove Mill Sauvignon Blanc and in between the 1991 Grove
Mill Riesling and 1991 Grove Mill Pinotage also won gold. A great start
for a new Company.
- The first export wines were shipped in 1992 when both Sauvignon Blanc
and Chardonnay were exported to the UK. Initial exports were around 8%
of total volume, compared with over 75% currently.
- In 1994 having outgrown the 200 tonne capacity of the Dodson St
Blenheim winery, the Company moved to its existing site - which has a
current capacity of around 3,000 tonnes.
- The Company has only had 4 chairmen in its history. The founding
chairman was Peter Croft, then Terry Gillan and Andrew Ritchie had short
terms until March 1992 since when I have had the honour of that
position.
- Since my first board meeting in early 1990 there have been relatively
few directors over the years - being (apart from myself) Peter Croft,
Gerald Hope, Terry Gillan, Andrew Ritchie, Gidon Blumenfeld, Maurice
McQuillan, Merve Wisheart, John Milne, Alton Jamieson and Jane Hunter.
With some sadness, but fond memories, I record that Gidon, Peter and
Merve have passed away.
- The Company has also not had a large list of General Managers/CEO's.
The first general manager was Gerald Hope, followed by David Pearce,
until rapid expansion in 1993/94 made it impossible to hold dual roles
of chief winemaker and general manager. Since then Richard Anyon and
Peter McAtamney held the position until the present incumbent Rob White.
- Upon formation the Company had 20 shareholders with 375,000 shares
issued. Today those totals are 401 and 8,668,332 respectively.
Some extracts from early Annual Reports:
1991 "The reputation of our wines, and our winemaker, continues to
grow with the winning of two trophies at the 1990 Air New Zealand show
and a gold medal at the 1991 Easter show. There is no doubt that winning
medals sells wines"
1992 "The first export container is leaving New Zealand on 5th
September 1992"
1993 "The Company paid its first dividend in March 1993" and
"Directors and management have maintained their emphasis on total
quality in everything the Company does"
1994 "In the future we will look back on 1993/94 as the year Grove
Mill completed its coming of age and it will be regarded as the
foundation stone of success for the Company in future years"
1996 "This year we have established a new export outlet through UK
Foodmarket Giant - J. Sainsbury & Sons plc"
1997 "I must again point out that the major reason for Grove Mill's
continued success is the consistent quality of the wines it produces,
with National trophies won last year for both red and white wines"
1998 "It will be important for the Company to secure ongoing
certainty of supply of grapes. To that end we are looking into a number
of lease or joint venture arrangements to have a higher percentage of
intake from Company controlled vineyards"
2000 "The adoption of the new constitution at the 1999 AGM has
enabled shares to be listed with Share Mart, and following the share
split and rights issue in late 1999, share trading has been more
conveniently possible" (Subsequently the Company listed on the NZAX
in November 2003).
DIVIDEND
Prior to the dollar strengthening, the board had every intention of an
increased final dividend, however as a result of the effect of the high
dollar the board will maintain the dividend at the same total rate of 7
cents as for 2006. A final dividend of 4 cents per share fully imputed
will be paid on 21 September 2007. Shareholders can expect growth in
dividends as and when earnings grow in future years.
FINALLY
I have had the privilege of being close to the cutting edge of the New
Zealand Wine Industry for the past 20 years - and I have thoroughly
enjoyed that involvement. It is interesting to note that the single most
important concept that was true 20 years ago is even truer today - being
that the future of our industry is predicated very much on continuation
of the production of very high quality products. It is absolutely
essential that the highest possible quality integrity of wines with any
of the words "New Zealand" or "Marlborough" on the
label must always be maintained.
Despite continued and at times lengthy discussions of individual
proposals regarding growth by merger/acquisition, the Company has not
considered that any such proposals or opportunities looked at to date
would add value for shareholders, and will at this stage be continuing
along its path of internal growth.
I retire as Chairman, and as a Director, in the comfort and knowledge
that the Company is in a sound position, has quality wines, strong
brands, good distribution channels, and most importantly a talented
management team to take it forward. I do retire in some disappointment
that we have not yet delivered a return on shareholders investments that
we, the board, would consider as satisfactory. There is no doubt that
plans, subject to factors outside of control such as the $NZ, are for
that to change very much over the course of the current 5 year plan. Due
to the effect on earnings of the exchange rate the board have resolved
to offer to extend the PSP incentive plan as per note 8 of this report.
The reason for this extension is to give the key staff under the plan
the opportunity to grow earnings by an increased total rate necessary to
trigger the benefit under the plan at a later date. This will in turn
give shareholders the potential benefit of the growth in earnings to a
higher figure than the original plan allowed for. The Board is also
planning to introduce a PSP for a wider management group.
I wish to thank all of my fellow directors and management I have served
with over the years, and to make particular mention, with thanks, of
Jane Hunter who retired from the board on June 30th 2007. I also extend
to my current fellow directors along with the new members of the board,
all the very best for the future of this very good Company.
Mark Peters
Chairman
31 July 2007.
Director's Report
CEO
REPORT 2007
The Chairman has pointed out the impact the high New Zealand Dollar has
had on earnings which hindered an otherwise strong underlying company
performance.
Dollar Impact
With over 75% of case sales derived from export the relative strength of
the New Zealand dollar is an integral component in managing our financial
performance. When the already record sales revenue is expressed in
constant dollars (versus last year) it would represent a 18% increase in
net revenue. In June last year we presented to the market a projection for
our year ending June 2007 indicating revenue growth to $11 million and a
net profit after tax of $1.6 million based on published trading bank
foreign exchange projections at the time. If we apply those projections to
our actual sales our revenue and net profit after tax targets would have
been met. The fact of a high New Zealand dollar remains and we continue to
work hard to manage the business accordingly.
Brand Development
The adoption of our environmental sustainable positioning for the company
has brought earlier and more significant benefits than first envisaged.
The release of Al Gores' 'Inconvenient Truth' and the 'Stern Report' were
far from inconvenient for us coming just weeks after the winery achieved
CarboNZero? accreditation. The benefits of our various environmental
programmes outlined in the 'Environmental Sustainability' section of this
annual report are significant. The media coverage for the company and our
brands has been extensive ranging from national television coverage
through various consumer and trade press to several high profile speaking
engagements undertaken by Dave Pearce and myself. In managing down our
carbon emissions we are also managing down our costs. The most dramatic
example is with electricity usage where in completing the 2007 vintage we
used less electricity than in 2006 despite processing an additional 600
tonnes. The response from our customers particularly in the UK has been
immediate and has seen us secure listings in Tesco and a major housebrand
contract with Sainsburys. The full impact will be felt with our 2007 wines
which will all carry CarboNZero? branding. We have no doubt that our
environmental sustainability programmes make good business sense as well
as being socially responsible. We still have many challenges as we address
environmental issues across the entire supply chain but we have made a
strong start.
In order to meet our customer and consumer expectations we must continue
to produce great wines within a competitive cost structure. With continued
investment in our winery and the development of two new vineyards and the
skill and dedication of our winemaking and viticulture teams we are
achieving this and the 2007 wines are looking like being some of the best
wines we have produced.
Distribution
Our distribution partners have welcomed the opportunity to market our
wines which have a real point of difference delivering quality at
realistic prices while offering environmental integrity. All markets have
shown good growth with Palm Bay in the USA leading the way pushing it to
our biggest volume market with 49% growth. This was helped by the
expansion of the Redcliffe brand which we produce under contract along
with the continued development of Grove Mill.
The UK is likely to retake the No 1 position next year building on 27%
growth this year as we expand our relationship with Sainsbury and Paragon
Vintners anticipate further significant growth for Grove Mill across a
broad range of customers both on and off premise.
We have increased sales in Australia by 200% this year thanks to the
efforts of The Wine Company and West Coast Wine Cellars. A particular
strength has been the launch of Frog Haven through the Dan Murphy's chain.
One of our biggest challenges has been in the domestic market with an
unsettled distribution position for Grove Mill over recent years. This has
been addressed through the appointment of Independent Liquor to handle the
distribution for both Grove Mill and Sanctuary. Despite a small decline in
volume this year we are targeting a much stronger domestic performance in
the coming 12 months.
Outlook
The year ending June 2008 will provide a number of challenges on top of
the high New Zealand dollar. Last year was the final year of the Delegats
processing agreement and while we are quickly building our own volumes to
replace this in the coming year we not only lose the income from the
agreement but face funding the significant increase in working capital as
we take on our own fruit to replace the lost volume. The high price of
contract fruit which is at odds with the lower export returns the industry
faces has been compounded by the relatively low yields and frosts from
2007 and while quality is good and overall volumes are sufficient to meet
our demand the grape input cost remains high.
We, together with the industry as a whole, need to face the challenges of
a high New Zealand dollar, over-valued land and grape prices and the
introduction of NZ IFRS accounting standards. If the New Zealand dollar
does not quickly reverse its upward trend the business models and
structures for both wineries and grape growers will have to change. The
New Zealand Wine Company is in a good position to weather the current
adverse external factors. We remain in a healthy financial position and
extremely well placed to take advantage of the predicted return to long
term average foreign exchange rates.
Finally I would like to thank all the management, staff and Directors for
their efforts and support this year. I would like to make special
reference to the retiring Director Jane Hunter, whose industry knowledge
and insights have been invaluable during her time on the Board. This will
be our Chairman Mark Peters final AGM in September after 15 years of
outstanding contribution to the Company. I would like to personally thank
Mark for all the advice and support he has provided me in my role as CEO.
Rob White
CEO
31 July 2007.
