Director's Review
Company Overview | Trading | Wine Quality | Vintage | Environment | Outlook | Changing of the Baton
Company Overview
The company recorded an after tax profit of $3.8M (2009: $5.7M) on sales revenue of $50.1M (2009: $51.6M).
The difficult trading conditions experienced in the previous year continued throughout the 2009/2010 reporting period with the global financial situation showing no real signs of righting itself. This uncertainty continues to impact on consumer confidence which in turn reduces sales volumes.
The persistent strength of the Australian Dollar against those of our trading partners had a significant impact on overall contribution. This can be seen with total branded sales down 5% in volume and 8% in value over that of the previous year. Difficult conditions are expected to continue over the medium term.
Trading
The Australian market environment continues to remain problematic, with our branded domestic sales 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. While politicians are up beat on how strong and well placed the Australian economy is, I am uncertain on this, as is it is not reflected in wine sales and many other industries are reporting slow trading and minimal growth.
PLW total branded export sales have been adversely affected by the poor global conditions and adverse exchange rates, with volume and value down, 3% and 9% respectively.
The Company’s largest export market remains Continental Europe with sales volume similar to that of our Australian market. Sales for the past twelve months were down 8% in volume and 17% in value. The Company has identified Germany, Switzerland and the Scandinavian markets as having strong growth potential over the coming years.
In the UK, where we operate a joint venture arrangement with Enotria WineCellars Ltd, trading has been very difficult. The UK remains the largest importer of wine in the world and understandably competition is fierce with many companies prepared to work on little or no margin just to get volume. As market conditions 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 relationship with Enotria remains strong as we strive to build a solid base for future sales and distribution success in the UK.
Despite the overall downturn of Australian wine sales in the United States market, PLW sales increased a healthy 17% in volume over that of the previous year. Revenue was down by 2% which we judge to be quite acceptable given the effect of the strong Australian Dollar. The Hess Collection Winery, one of our sister wineries, represents the Peter Lehmann brand across the US market and is now in the 6th year of doing so. I would like to congratulate their President Gary Bulger and his team for the excellent job they are doing. Along with the European countries previously mentioned, we see the United States as having major growth potential and intend to prioritise these markets accordingly.
Canada is the other market that has defied the downturn, with volume increasing a sizeable 24% and revenue by 9%. The Company now has excellent distributors across Canada and the hard work and positive relationships with them is now being positively reflected in the trading figures. Providing economic conditions do not deteriorate, further growth is expected over the next financial year.
The Asian and Middle East markets are also experiencing difficulties, with volume and revenue down 8% and 4% over that of the previous year. In January this year we appointed ASC Fine Wines to distribute our wines in mainland China. ASC Fine Wines already represents us in Hong Kong and we believe that their vast distribution network will see improved growth in this exciting emerging market.
Monitoring of our stock holding is a continuous process as we align holdings with bottled wine sales and sales forecasts. Wine surplus to our requirements is sold on the bulk wine spot market and despite an overall national wine surplus situation we saw a 34% increase in volume on sales of $3.9M, up 45% on that of the previous year.
Wine Quality
The company had another successful year performing well in national and international wine shows. In total PLW was awarded 10 trophies and 30 gold medals, along with many silver and bronze medals. In the recently released James Halliday 2011 Wine Companion the renowned wine journalist awarded 5 Stars to the company. This is his highest accolade. These awards reinforce PLW as a quality wine producer and the Barossa Valley as quality grape producing district. I would like to thank all of the winery team headed by Chief Winemaker Andrew Wigan for these consistent and outstanding achievements.
Vintage
Vintage commenced on 4 February and was completed on 26 March, apart from the Botrytis Semillon which we picked in the first week of May.
The vintage was preceded by good winter and spring rains, but an unusually hot period of weather in November affected flowering in some varieties resulting in particularly small crops of Grenache and Chardonnay. Overall, the crop levels were average, to just below average, but the quality is excellent.
The combination of a short burst of heat in late January/early February and a smaller crop caused a number of varieties to ripen at the same time, making 2010 a very compressed vintage.
However, the weather settled down and was warm and stable throughout February and March. The white wines show excellent colour and delicacy, with Riesling and Semillon as the early standouts. The reds show great colour and concentration with Shiraz appearing to be at the top of the pile. However, Cabernet Sauvignon, Grenache, Merlot and Tempranillo are not far behind. We feel 2010 is a vintage of very high quality.
The total crush was 10,477 tonnes (2009: 14,819) with 10,138 tonnes (2009: 10,982) made for our own use. 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 on 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.
Environment
We completed the relocation of the southern tankfarm to alongside the winery complex in 2009/10 and, 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.
The pipeline between PLW and nearby North Para Environment Control (NPEC) was completed in 2009/10. It provides the facility to pipe onsite treated winery wastewater for further processing at NPEC. The processed water is returned and is of sufficient quality to irrigate the lawns and gardens at Cellar Door and Old Redemption Cellars.
PLW signed on to the South Australia Wine Industry’s Sector Agreement with the state government. The purpose of the Sector Agreement is to monitor carbon emissions with the objective of collectively reducing emissions. PLW is using the Australian Wine Industry Carbon Calculator to determine its emissions for industry reporting.
Outlook
After two decades of growth and success the Australian wine industry is going through a painful restructuring process. The oversupply of grapes and excess wine inventory remain a challenge and, until this is rectified, Australia will struggle to assert itself as a producer of quality sought after wine.
The aftermath of the global crisis is still affecting countries as governments work to rein in deficits. The austerity measures required will make consumers wary of spending freely. It will probably take quite a number of years before trade returns to more normal levels.
Earlier this year majority shareholder Hess Family Estates decided a united front is the best strategy to meet the challenging times faced by the global wine industry. This will enable the four wineries Hess Collection (USA), Bodega Colomé (Argentina), Glen Carlou (South Africa) and Peter Lehmann Wines (Australia) to effectively distribute, sell and market our wines through the four key regions: The Americas, Europe & the United Kingdom, Asia and Australia. I am pleased to report that there are positive signs already emerging from this strategy.
Changing of the Baton
The greater involvement of Hess Family Estates resulted in the restructuring of the PLW Board. I would like pay tribute to Paul Young who stepped down as Chairman. Paul provided great stability in the years immediately following the takeover in 2003 and has always been a strong advocate for PLW. Fellow directors Kay Carey and Robert Edwards also resigned and I thank them both sincerely for their support over the years.
Martin Kronenberg became Chairman in March with fellow Hess Family Estates directors Donald Hess, Lee Williams and Eveline Saupper being appointed to the PLW Board. Stalwart Roger Wilson continues to provide his experience, wisdom and good humour to board discussions.
I am sure most of you would be aware that I have retired from the position of Managing Director. While it was far from an easy decision, I felt that after 20 years in that position it was time, as they say, to move on. I have not totally severed my ties with the Company and I am very pleased and excited to be retained on the Board in the position of Deputy Chairman. In that role, I believe I can make a strong and positive contribution to the Company and am looking forward to that.
I would like to take this opportunity to welcome Jeff Bond to the Company in the position of General Manager. Since Jeff started in mid July I have spent some time with him as he settles into his new position. As a board member I will be assisting and working with him to develop the business further.
In closing I would like to thank everyone in the Company. Over all of these years, together we have worked, laughed, played and sometimes cried … I am indebted to you all. There is no doubt that without you, we would not have achieved the great things we have.
Thank you for a marvellous journey.
