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Edited Transcript of DGL.NZ earnings conference call or presentation 22-Aug-19 11:00pm GMT

Full Year 2019 Delegat Group Ltd Earnings Call

Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Delegat Group Ltd earnings conference call or presentation Thursday, August 22, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Anthony Freeman

Delegat Group Limited - MD & Executive Director

* Murray Annabell

Delegat Group Limited - CFO

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Conference Call Participants

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* Adrian Allbon

Deutsche Bank AG, Research Division - Research Analyst

* Carolyn Holmes;Shareclarity Limited;Head of Research

* James Bascand;Jarden;Vice President, Institutional Equities

* Natalie Tam

Aberdeen Standard Investments Australia Limited - Investment Manager

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Presentation

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Operator [1]

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Ladies and gentlemen, please standby. Good day and welcome to the Delegat Full Year Results Announcement 2019 Conference Call. At this time, I'd like to turn the conference over to Mr. Murray Annabell, Chief Financial Officer. Please go ahead, sir.

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Murray Annabell, Delegat Group Limited - CFO [2]

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Thanks very much, John. Good morning, everyone. Welcome to, as John said, our results announcements for 2019. As you obviously heard, we've got an operator assisting us with the call today. What we would like to do in terms of the role play for this call, which we should expect to conclude in about 45 minutes is for firstly, John Freeman, our Managing Director, to make some introductory comments. John will then pass back to myself to go over the year under review. Once we've gone through that, we will then open it up for a question-and-answer session. We will take questions from those that are here with us at our corporate office today. And then we will ask the operator to open up the line for any questions for those on the line who want to ask. If I could just ask, any questions being asked, at the conclusion, when you're satisfied to what you have been inquiring about, if you're able to say, thank you, that is all for me, then that's the queue for the operator to know to go to the next person.

So without further ado, let's pass over to John.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [3]

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All right. Good morning. Thank you, Murray. Welcome, everybody. It's always good to come together, and I appreciate the interest you take in the business. We're always happy to talk about the business and how the year has gone. It has been a good year. And I'll share some insights into the future as appropriate.

So what we'll do is we'll jump straight into Murray taking us through the presentation and the results, and the details that he'll provide as usual. And then I think the questions is probably the best place for me to come back in. Depending on the nature of the question, it will be either Murray or myself who can answer that. So Murray, should we get underway?

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Murray Annabell, Delegat Group Limited - CFO [4]

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Okay. Thanks very much. Well, hopefully, you have had an opportunity to print up the presentation that was released to the market this morning. I think in our opening remarks, we would like to open by saying this has been another fantastic result for the company. And for the first time, we have gone through that magical 3 million case milestone for case sales. So we're truly on that journey for building a Super Premium wine company. If we just put it down to -- we're selling something like 345 glasses a minute. So over the course of the next 45 minutes, we'll put away a few cases of sales.

So the result really is underpinned as always by our strength in our global sales coming through. So at 3,008,000 million cases, you can see that, that's up 272,000 cases or 10% on last year. That is, I think, for us, our record in terms of volume growth year-on-year. And it's pretty staggering but also eye-watering that 10% [nearly] or some markets more than their wholesales. So if we can keep that in perspective, it's a tremendous result.

On the back of that, we have achieved a record operating profit of $51.4 million, which beats our previous record, which was last year by some $6.5 million or 14%. So slightly higher than, I guess, the market consensus that we had been given guidance to during the course of the year.

A key metric for us, as always, is EBITDA, and that's just about to crack $100 million, which again is about 11% from the year before.

Cash flows from operations was not a record, still a tremendous result of $55.4 million. And what that is really showing is the company now is achieving cash from operations, which clearly is more than covering both our capital expenditure and our financing of -- to investors in terms of dividends and we will be in a situation where we will be retiring debt as we go forward. And we are definitely on track to, as we've given guidance which we've listed again, to deliver case sales of some 3.6 million over the next couple of years.

So if you go to Page 4 of your presentation, you know how we like to present [a picture] of sales broken down by our key regions. And I guess the standout, which was the same as the interim result was that the U.K., Ireland and Europe region is up a staggering 30%. We realized at the interim whether we thought that 30% at the 6 months would carry on. I guess we were taking a little bit of a cautious view on that, but you can see, obviously, it just flowed through. And that really is underpinned by the fact that we had a major listing with a U.K. independent coop at the start of the year. And we've gone from strength to strength on that. And that has secured us lifting sales as we go forward into the next few years.

North America, clearly, a focused market, is growing again 7%. And we had signaled to you, the market, some time ago that 1 million case match in the U.S. was one of our aim-high aspirations, and we can advise that we had been able to achieve that in this 2019 result. So it continues to bode well for us going forward.

Currency. I think it's fair to say, currency has been more favorable than we were a year ago, but we've continued to see 2 of the currencies, sterling and Australian dollar, being both above senior averages, particularly the Australian dollar, something like 8% above what is the 10-year average. So that is the currency that is causing some drag on the earnings. However, on the plus side, the U.S. dollar effectively coming down now into the mid to lower range of the 60s. Obviously, it's giving us some opportunity to offset the sterling and Australian dollar.

Page 5. Really, our revenue has grown 9%. So 10% of that, obviously, is from the volume driver. So the value driver, slightly worse than a year ago. And that's probably more -- not that we had put a price reduction into any market. It's more the fact that with the U.K. region growing as much as it has, and we're talking to you that there is a lower selling price than there are others, it's having a bit of bringing down the average overall. So we're very comfortable that we are positioning in the market, still holding our price points and obviously, trying to take advantage of any currency movements that would help.

Page 7 is the one that I kind of like to take you to in terms of waterfall, which is still the key drivers to the profit improvement. And I guess you'll come on to, dare I say, [credit] accounting standard changes. But those first 2 bars, which says the margin impact and promotions are starting to get a lot more blue now by the fact that a lot more of promotion costs are actually going through in terms of a reduction in sales. But overall, clearly, as you would expect on a 270,000 case increase that we should have been driving profit improvement through that margin uplift. And that's what that shows. Currency has been favorable to the tune of $2 million. And then we've had some small overheads going, rolls, et cetera, around the world that effectively supports the waterfall being (inaudible) $1 million.

Fair value adjustments. There's been quite a lot of change there. This is the one why we continue to feel it's appropriate to distill the actual operating performance. So this year, as you know, through our guidance, the 2019 vintage was lighter. And so the requirement for you to report profit on that half, literally at the time of harvest is lower than what it was a year ago because of the lower yield impact.

What that does mean? And you would assume this from previous vintages, we're seeing either higher or lower. That's likely to have a drag on us in terms of a low or a higher cost of goods going to that vintage. And we're going to talk about that when we get to the outlook. But overall, where we had a profit uplift for recognition of the profit on the grapes last year, we've actually had a decline or had about an after-tax $7 million impact for that, and that's more than offset effectively the operating profit improvement.

And derivative, again, a bit of a mixed bag there. That's a combination of both interest rate swaps and currency derivatives, be options or forward exchange contracts. Last year, the interest rates swap position for the company was reasonably neutral, whereas in May, when the [reserve government] came out with -- effectively signaling that we were on an OCI cutting. The interest rate swaps that we've had took quite a hit to them. So overall, this result has had a $3.6 million adverse impact for interest rate swaps coming through that line, and that's really the key driver to the change then.

We're overlaying for you how that $47 million reported profit comes and probably then stand out as you can see the interest on the operating performance was flat. So that shows you the impact of the swap book coming through dragging the interest. And then on the flip side, currency derivatives are actually positive. So further improved the net FX from the operating performance. And the $7 million impact for recording of the harvest that comes through that margin impact [one].

Page 10, balance sheet. I mean the team, the company is continuing to invest in infrastructure assets here in New Zealand, Australia. We're continuing to develop our vineyards and complete extensions of the wineries to effectively take us forward to deal with expanding vintages as we go forward.

And Page 11, our debt profile shows that effectively, it had a really healthy $64 million retirement from cash from operations. We've invested more in our working capital. And we've been able to more than offset effectively what was the CapEx spend of about $32 million, which is what we've signaled and a dividend of $0.15 paid earlier in the year.

And finally, I guess in terms of our key ratios. Again, we have signaled in previous meetings that we have set a goal to return our return on capital to somewhere around 15%. We got down as low as 11%, 12% when we were investing heavily in non-earning assets like construction of wineries or via land acquisitions. So again, it's a good story to show that we are both retiring debt and returning our capital back into that range that we had indicated we want to do here.

Finally, the harvest, as we see it. The key point we want to really emphasize is it's been an exceptional quality harvest across all 3 of our regions. The fruit, it looks fantastic. And that, again, is a testament to how wine [has been key] but positioned ourselves well out there in the market with the quality of the wine that will come through in this vintage. And acknowledging, as I said in my opening statement, that the tonnes were down quite dramatically. So again, it shows the resilience, like the company's model, that we can continue to show effectively a sales growth trajectory despite effectively having a lighter vintage this year.

I guess my final concluding remark has been that there've been a couple of major developments in the -- unfortunately, in the accounting scene. 2 of them -- one of them, particularly is we've navigated through that's going to cause you, the analysts, the more challenges around more promotional costs have been restated as the net off against revenue. That's going to change your percentage of expenses, all of your data that you've done. The good news is that, that transition, with all the changes, has finally happened, right? And so we should have now comparable position going forward. But I acknowledge that that's obviously not particularly helpful. And in our notes, you will see what the full impact of the restatement of the prior year was. So we've got full transparency there.

The other one that's come about, which, for us, as a company, has had no impact. But now what was bad debt on receivable balances is the change in treatment that you need to look forward and predict any potential liability from some poor collections. So the company, we've had very good credit history profile, so -- which had no impact, but there's quite a heavy amount of disclosures that's come through the financials that you may see, and that's the reason for it.

And finally, the big one, though, is the leases standard. That was effective 1st of July 2019, so we're in the new regime now. This is my -- now my 35th year of my career, and I've been talking about this leases standard ever since I started. So we're finally at that point. Again, we have made it very transparent what the impact will be for us, the company. I don't plan on going to a lot of details here on the line, but I know many of you will need to get your head around what that means. It's fair to say, there's a material liability and exit that comes on to the books. And just for those uneducated, the leases standard basically sees all leases are now on balance sheet as opposed to just referenced by a note. And again, the way that we have dealt with the accounting treatment for you to appreciate that for more ways going forward. The note does go into quite a lot of detail on that, in note 1. So I would guide you to that. But overall, we see has a relatively immaterial impact on the P&L. That may not be the case for other companies that you have seen reports come out on. And again, we can talk offline around why that is for us.

So what I think I feel is that we covered off the year under review, hand back to John and he will make some remarks around the future.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [5]

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Okay. So probably the main thing to look at is that you can see in the presentation on Page 15, we talked a little bit about capital expenditure. It's much of what you're used to with us. We need to make sure we have the vineyard land in place to supply to our growth aspirations. And we do have a good program that's running well. We'll expect to be securing more land in New Zealand in the year ahead and continuing to develop. And so at least let you refer to what's there but the -- probably the main thing that's of interest is when you get to the volume projections. We are planning to get growth of 6% to 8% per year over the next 3 years. Obviously, you have to get through to 3,650,000 cases. So that's an increase of 650,000 cases on today. And that's a significant volume of wine by anybody's standards. Certainly, the percentages aren't double digits, but North America will continue to be a key driver of that growth. And we've seen the U.K., Ireland and Europe region be a bit of a surprise in terms of its growth rate recently. We're not expecting those percentages going forward of 30% growth for the region, but we do expect it to sustain the new level that it's running on for the most part. But a bigger proportion of our sales for the year ahead and through into FY '22. But ultimately, the United States is still the biggest engine for growth for us.

One of the pieces of research that we did is on premium wine consumers globally. And I think we touched on this briefly at the half year. I don't remember. But the -- to put it in perspective, if you look at Australia, there are about 3 million to 4 million premium wine consumers who purchase wine above a certain price level on a regular basis. In Canada, that would be similar, be around 4 million. In the U.K., it's sort of 6 million to 7 million, depending on how you slice the data. So then you get to the U.S., and it's over 40 million. So it's not just a large population, but they do have a large premium wine marketplace. And so we see there's tremendous upside opportunity there. That will continue to be a focus for us. And we don't break down the regions in the data, but you can be sure that continues to be a growth engine.

In terms of the profit outlook. You'll see in the presentation that what we're seeing for the year ahead is we're expecting the profit to be in line with what we had this year. And [whilst] we're expecting to grow, the profit will come through fairly similarly. 2 main reasons for that is firstly, that lighter yielding vintage that Murray referred to, it does have an impact on the cost of goods for this year. So that will have a margin impact. And the other factor is that on the sales promotion and marketing part of the business, we've been developing our strategies for consumer media and consumer engagement globally. And we haven't rolled those out quite as quickly as we expected to in FY '19. We have a strategy developing that we didn't feel it was ready to be deployed fully just yet. We do have activity that we expect to see that increasing in the year ahead and into the future on a sustained basis.

So hopefully, that provides enough guidance as a starting point. I think, Murray, would we push to questions from this point here?

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Murray Annabell, Delegat Group Limited - CFO [6]

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Yes. Yes.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [7]

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Yes. Okay. Thank you.

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Questions and Answers

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Murray Annabell, Delegat Group Limited - CFO [1]

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Thanks, John. So we've got 2 people here in the corporate office with us today. So what I will do is open up for questions here, and then we'll go to the operator when both those things have been resolved. Over to you, guys.

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Adrian Allbon, Deutsche Bank AG, Research Division - Research Analyst [2]

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Can you -- just on the '20 outlook, is it possible to sort of quantify, I guess, the delta between -- normally, we're expecting the profit to probably grow, yes, broadly in line with the volume back to in line with '19? I know you're sort of holding (inaudible) of how [big the component's] there?

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Murray Annabell, Delegat Group Limited - CFO [3]

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Yes. So our guidance for next year shows that we have grown quite as quickly. It's around 230,000 cases. If you took that 230,000 cases and we took a profit per case assumption from FY '19 of around $17, then you'd be saying that you would have also expected that to have grown by around $4 million. And what we're saying is effectively, the impact of the -- impact of cost of goods is around about $2.40 a case. So that's effectively exchanging one for the other. So effectively, the growth has been moderated by, I think, to be the cost of sales. On the flip side, we are positioning that currency will look slightly favorable. But as John said, we're also investing. So that investment is effectively what we are positioning at this point in time as well as reverting to effectively full headcount complement going forward. So we expect some overhead [down --] increase to be there around just assuming people will be in place for the full year.

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Adrian Allbon, Deutsche Bank AG, Research Division - Research Analyst [4]

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And just to add on to that, how -- I could see you've had your 3,200 sales target for '20 and you had an average harvest. What sort of inventory levels would you be sort of holding? According to the data here, it's [two short] harvests in terms of compelling Australia first, but what sort of buffers are on your '20?

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Murray Annabell, Delegat Group Limited - CFO [5]

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So you're right, Adrian. I mean the experience in Australia is harvest -- that experience for a couple of years or certainly for 4 or 5 years, lower yielding, whereas we haven't seen that on the New Zealand side. So we are back in territory where we've been before where we have got a few levers, which was really around our reviewing real estate whether we bring that forward. Because again, just to put it in context, we're doing over a couple of hundred thousand a month, right? So if we pull that by forward by a month, we kind of get sort of the numbers that you're talking about. But we know that we effectively got inventory to support us that's going to probably be a bit tighter. And then that will be positioned back on a normalized year. And we expect to manage that through and report on that as something different. But, yes.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [6]

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And within our business, if you look at the New Zealand industry is it'd be similar for us is the varieties that were affected the most in the last year were Chardonnay and Pinot Noir and it had to do with early season flowering and very bad weather. So we didn't get the fruits that we would normally expect to see. So those varieties are a much smaller component of the business. Sauvignon Blanc was in good shape. The other thing is, is that when you have a vintage that's lighter yielding, you usually have exceptional concentration in quality, and that just allows you to work a little bit harder in the winery. And so the end inventory position isn't always affected to the same degree as the raw [materials].

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Unidentified Analyst, [7]

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Can you -- in terms of the reinvestment and the brand and the marketing side of things, can you sort of give a little bit more color on sort of things that we should expect there, like, is it -- how many people or is it marketing campaigns?

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [8]

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It's less about people. And we do continue to see our staffing grow in North America, which is understandable given the way the sales growth and just we're of the opinion, you need to have a meaningful presence in the marketplace to really cut through what is a very cluttered and difficult to penetrate market. So that will continue to be held and grow a little bit. But the -- it's less about people, more about campaigns. I want to be careful saying campaigns because we haven't finalized decisions on -- you're not going to see huge billboards in California necessarily. We do channels a bit differently nowadays. We used to say outdoor, print and digital, and that's just not detailed enough for digital in the first place. Now we think of it more as owned, earned and paid. And when you get to paid, of course, you can get to all the different media formats maybe in print. So it's more to do with the consumer campaign. The other thing that's happening these days is with retailer consolidation, there's a greater expectation on connecting what you do in those consumer campaigns through to what happens in the retail environment. And so we're spending a large amount of time and investment in research. So we're accessing consumer data that we haven't had in the past. We're quite rich in sales data and market data, and we're well versed what to do with that, but we're adding a lot more on the shopper insights and consumer journey side. So you know [that's how we did as] a company that likes to really think deliberately, and we don't just race in. And we like to think of x millions of dollars and figure out to spend it. We don't come in with that approach. So it's too early to think exactly what it will manifest itself as. But we think that in this day and age, what you have to do is you have to make sure you've won the consumer and then you're winning those key accounts. And I would say, they're more connected than they used to be. So hopefully, that speaks a little bit clearer [to your point].

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Unidentified Analyst, [9]

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Okay. And then on the degree to which you have us moving forward, how do you think about it for all? Is it sort of dollars -- million make sure that you're going to have to spend or a percentage of sales? Or what's a good way for us to think about it?

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [10]

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It will be driven by, ultimately, probably invest as a percentage of sales, but we don't want to start there. Because if you start there, you end up with a dollar amount that you need to figure out how to spend, and that's not a great thing to get your marketing team. And the last 1/3 of that will be spent fully. We're a bit cynical about doing that approach as a starting point. However, what we look at is we'll look at the awareness and affinity levels and we research this every 2 years in all our markets. I think you probably know that. And we'll set targets for that. And then we'll think about our specific target consumer that we want to recruit. We have a good read on what the existing trade consumer looks like. And we have a sense of where we want to recruit after that population. So with that target consumer group, which is a subset of effectively millennials, is the simplest way to describe it for your purposes, but that's then carefully shaped within that. We need to understand exactly how frequently they need to have the right kind of communications in front of them to drive awareness, to drive affinity. And ultimately, we [call them purchase]. So that's what will drive the investment levels that we are [hoping]. And what we set out, I would expect us to have a plan [for us] 3 years rolling plan. So it will be a sustained investment level.

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Murray Annabell, Delegat Group Limited - CFO [11]

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Okay. [Go to the phone here]. Operator, can you just do a quick roll call on who's on the line and then, can you proceed to instructing the audience around how to ask questions?

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Operator [12]

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Absolutely. I'll give the roll call first. And then, audience, I will give the instructions if you would like to ask a question.

We do have Phoebe Tolentino from S&P Global; [Peter Martin] from FactSet; [Sam Jones from Max Solution]; Natalie Tam from Aberdeen; Hamish Hurley from BNZ; [Holden Rimmer from Harvard Asset Management]; James Walton from Forsyth Barr; Carolyn Holmes from Shareclarity; James Bascand from Jarden; Frances Sweetman from Milford Asset Management; Victoria Young from BusinessDesk; [Ron Schwartz], a private investor; [John Group], a private investor; Michael Aitken from BNZ; Carlie Eve from Mint Asset Management; and Adam Smith from Citi. (Operator Instructions)

We will go ahead and take our first question, and it's from Ms. Carolyn Holmes from Shareclarity.

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Carolyn Holmes;Shareclarity Limited;Head of Research, [13]

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I just want to come back to the outlook. And you talked about the cost of goods sold being higher because of the lower yields in the vintage. If you assume a normal vintage in the FY '21 year, would you expect your cost of goods sold ratio to go back to where it was in the prior period?

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Murray Annabell, Delegat Group Limited - CFO [14]

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Yes. This is Murray. Just noting, as John said, that there will be a longer lag for some of our varietals having a longer maturation in early stage. But given Sauvignon Blanc is selling through pretty much in a year after harvest, we would absolutely expect a restoring of cost of goods on a more normalized basis going forward.

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Carolyn Holmes;Shareclarity Limited;Head of Research, [15]

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Yes. And sorry, just in terms of the realized prices that you're getting per case, you talked about in the last year that the value was down about 1% with FX being a positive and the mix being a negative. So what's going to happen in the current year in terms of the realized prices that you're seeing? Obviously, the Aussie market looks a bit tricky, but are you seeing some kind of growth coming through in the realized prices in local currency terms in the other market?

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [16]

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At this point in time, what we will see will be the influencing of varietals such as Pinot Noir Barossa Valley Estate, which do have a high selling price than probably our white wines. So you'll see a bit of a product mix change there as that volume switches. But -- and then it's very much influenced by country mix. We do see that the growth carrying on in North America will be positive in terms of our realization from that part of the world. So we are expecting that for a year away, currency obviously will be what it will be. There should be a favorable uplift but not materially different probably than what we're seeing now -- not significantly different, sorry.

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Carolyn Holmes;Shareclarity Limited;Head of Research, [17]

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Okay. So the guidance this year really comes down to the cost of goods sold, the GP margin. It's not a combination of cost of goods sold or the GP margin and also lower realized case prices?

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Murray Annabell, Delegat Group Limited - CFO [18]

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I'd say it's very much being influenced by the impact of the yields. But we also -- as John said, we are investing in some of our consumer advertising. And so it's not solely yield-driven, but it's predominantly being influenced, the share buyback.

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Carolyn Holmes;Shareclarity Limited;Head of Research, [19]

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Yes. Yes. And I think I was reading into it that obviously now that the sales are net of marketing and sales initiatives that you could actually see a little bit of softness coming through in those realized case prices.

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Murray Annabell, Delegat Group Limited - CFO [20]

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We could. We could. Yes.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [21]

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Depend on the accounting treatment at the time.

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Murray Annabell, Delegat Group Limited - CFO [22]

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Yes, that's right. Yes.

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Operator [23]

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And our next question comes from Natalie Tam from Aberdeen.

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Natalie Tam, Aberdeen Standard Investments Australia Limited - Investment Manager [24]

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I just had a question on North America and whether you've seen any impact from the U.S.-China trade war because we've heard from other buyers that the trade war has meant more supply of wines that was slated for Chinese export. Have you seen any impact from that, or does that not affect your categories?

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [25]

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Okay. Thanks, Natalie. I'll speak to that. The simple answer is no, it hasn't impacted us. The big trends that's been working well for us is the increase of imported wine consumption in the U.S. generally; but more specifically, white wine and premium white wine. And New Zealand has been very much the leader in that regard. So that trend is continuing. We feel very comfortable with how that's been going.

A lot of people are talking about the trade war and whether it's driving an issue. But from a wine point of view, the U.S. doesn't really export an awful lot of its own wine anyway. Most of it is consumed domestically, and it is a vast market. And if you look at something like premium Cabernet Sauvignon, for example, with over 14 million cases a year just within the United States, and the vast majority of that is domestic products. So if they've been exporting a bit to China, then that gets interrupted. It's not suddenly flooding the market in the States with their own wine. There's a small impact to that, but it's certainly not interrupting the categories we operate in.

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Operator [26]

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(Operator Instructions) Our next question comes from James Bascand from Jarden.

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James Bascand;Jarden;Vice President, Institutional Equities, [27]

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A couple of questions from me. Just thinking about the next 3 years of case sales growth, sort of 600,000 cases expected in there incremental, are there market opportunities you might be looking at? I know you obviously haven't provided any split of markets this time around. Are we looking outside of the U.S., U.K., and ANZ for growth opportunities? And I know you haven't really talked about the Barossa Valley brand and any success there, so whether there's any additional markets you're targeting with that brand as well.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [28]

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Well, I mean we think of the markets that you're probably hinting at, China's on everybody's list. And certainly with the Australian wine industry, they'll talk about China quite a lot. I think what's important there is that we understand where the growth is coming from for the Australian wine industry. And for the most part, it's been in more popular price lines, a little bit lower price bracket where we operate; and then in the luxury segment, the luxury brands out of Australia have a good position in China. So we have a presence in China. It's very small for us at the moment. We're of a view that as the market develops in that middle Super Premium price tier, we want to be really well positioned for it. But that segment of the market has not developed as far as it will need to for China to become the next big growth story for us. So we see it as a long burn. It's probably the easiest way to say that. And we do have a footprint. We have a Tmall flagship store of our own. It performs very, very well. And we did have growth in China that was significant in percentages but very, very small in cases, which is why it doesn't really feature in our financials. But we don't see that being a driver over the next 3 years.

Other places we've been looking, we do have more business now in places like Russia than we've had in the past, but again, the raw volumes on that are relatively small. That said, it's an interesting market. It's -- it can be viewed as a good, stable platform for growth than markets like that. They're highly aspirational, and they're very brand-centric and driven, so that actually plays well into what we tend to do with our brands and the positioning. And -- but over the next 3 years, the bulk of the growth that you're seeing would come primarily from markets that we're -- that we've already been focusing.

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James Bascand;Jarden;Vice President, Institutional Equities, [29]

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Okay. And just maybe secondly, from a potentially aspirational growth opportunity, you've obviously got Marlborough Sauvignon Blanc, Barossa Valley. Is there any look to push into further product set or your global supply access? I know it's been talked about before, but not sort of in a material way.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [30]

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Yes. Look, it is something that we think about from time to time. And we're very conscious that anything we did, it would need to complement the business. But part of Delegat's success is being focused. And so for the next 3 years, everything you see is based on the business as you know it. But the possibility of further growth through either acquisition or developing something in another country, it's not something that we're opposed to. We just need to make sure it's an opportunity that has the right category fundamentals and that we can really perform well in the Super Premium price tier because we intend to stay directly within that segment. We're not interested in producing less expensive wine or trying to be in the sort of -- the niche $40, $50 wines. We think exactly where we are is where the best opportunity is globally. So possibly, it's probably the shortest answer to that, but there's nothing in the works at the moment that we need to look at.

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James Bascand;Jarden;Vice President, Institutional Equities, [31]

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Okay. And just one final question. Obviously, there's some CapEx earmarked for New Zealand acquisitions in fiscal '20. Can you just talk to perhaps the regions or, obviously, the Marlborough and Hawke’s Bay, but in particular, where the opportunities are? And are they getting any more challenging from a pricing perspective or a competitor's perspective to take a useful bare land at this stage?

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Murray Annabell, Delegat Group Limited - CFO [32]

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Well, yes. You -- you're absolutely right. It's getting more challenging finding certainly alluvial soils and close to [the bids] in Marlborough. So I don't think the landscape has changed there. However, there still remain some opportunities. And so we can confirm that we are continuing to secure Marlborough land at reasonable places, if I can put it that way. So price -- land prices are definitely on the increase. But certainly, again, we've been strategic in our pricing around acquisitions because we obviously need to ensure that we're mindful of what that could be in terms of investment costs going forward.

Hawke’s Bay though continues to be really probably the bigger opportunity for us. And as you know, we purchased that very large dairy farm some years ago, and we are on our journey into planting that with Pinot grape, which is an exciting opportunity. So we're probably nearly 50% of the way through on that. And so a lot of the investment you're seeing is really around the further developments there. And obviously, that then flows onto the winery capacity for the Hawke’s Bay to be able to take that fruit ultimately through the winery. So those are the key ones at this stage and always looking. But you know our business model, we like to look at contiguous kind of opportunities rather than looking to a different region because it may secure or unlock some slightly favorable pricing on land. That's probably not our business model.

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Operator [33]

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Ladies and gentlemen, that is the last of our questions on the phone.

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Murray Annabell, Delegat Group Limited - CFO [34]

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All right. Well, we are always available for follow-up questions. But thank you for your interest, and we'll bring the call to an end and wish you all a good day.

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John Anthony Freeman, Delegat Group Limited - MD & Executive Director [35]

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Thanks very much, everybody.

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Operator [36]

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Ladies and gentlemen, that does conclude our call today. We do appreciate your participation. At this time, you may disconnect. Have a great day.