ANNUAL REPORT YEAR ENDING 30 JUNE 2017

Transcription

1 ANNUAL REPORT YEAR ENDING 30 JUNE 2017

2 Directory Directors Chief Executive Officer Chief Winemaker and Viticultural Consultant... Viticulturalist and Associate Winemaker Share Registry... Registered Office... and Address for Service Banker Auditor Solicitor... A R Meehan, ONZM, Chairman A G Beech S R Tyler J D Auld P M Goodwin A M Johnson H G D McMaster Lawson Avery Limited Chartered Accountants 11 Cole Street PO Box 145 Masterton 5810 From 1 July 2017: Computershare Investor Services Ltd Level 2, 159 Hurstmere Road Takapuna, Auckland 0622 Lawson Avery Limited Chartered Accountants 11 Cole Street PO Box 145 Masterton 5810 ANZ Grant Thornton New Zealand Audit Partnership Morrison Kent 2

3 Contents Key Performance Indicators Directors and Chief Executive s Report Viticulture and Winemaking Report Independent Auditor s Report Statement of Comprehensive Income Statement of Changes in Equity Statement of Financial Position Statement of Cash Flows Notes to the Comparative Financial Review Statutory Information Contributors International Distributors

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5 key performance indicators june year end 2017 financials Comprehensive Income after Tax: $154k $36k budget 77% 2016 Sales: $4.6m 2% budget 2% 2016 Expenses: $1.1m 8% budget 7% 2016 sales Domestic Export 15,609 cases 15% 23,430 cases 18% $2.3m 8% $2.2m 7% 2017 vintage breakdown 466 Tonnes 31,049 cases 19% sales by market 30% NZ Negociants $1.41m 10% 13% UK $0.61m 6% 19% NZ Direct $0.87m 3% 4% Denmark $0.19m 121% 15% Australia $0.68m 18% 1% USA $0.04m 41% 2% Riesling 8T 622 cases 7% Pinot Gris 32T 2,226 cases 10% Chardonnay 48T 4,127 cases 33% Pinot Noir 155T 10,051 cases 48% Sauvignon Blanc 223T 17,980 cases 5

6 Directors and Chief Executive s Report 30 June 2017 Your Directors are pleased to present the annual report for Palliser Estate Wines of Martinborough Ltd, which includes the company s financial statements for the year ended 30 June FINANCIAL PERFORMANCE 2016/17 was the second year of a rebuilding phase and transformation journey for Palliser. It was a challenging year, but one in which we made significant progress in developing the foundations for improved long-term performance. While our comprehensive income after tax of $153,557 was a 77% increase on last year s, it was $77,464 below our target for this stage of our journey. It largely reflects a lower average case price on the back of increased sales to the UK and a decrease in sales to Negociants NZ. The UK continues to be our least profitable market due to the continual strengthening of the New Zealand dollar in the past 10+ years. Like other small producers, we can t implement pricing or currency strategies to hedge against this situation but nevertheless the UK remains an important market for us. We just need to accept the reality of trading volume for margin in this incredibly competitive business environment, where wine is very affordable. Pleasingly, expenses were well down on those of both the previous year and our budget. The most significant savings were made in the vineyard, thanks to the new focused team led by viticulturist Guy McMaster. SALES PERFORMANCE The wine market remains extremely competitive and price driven, with customers requiring deals and support in exchange for volume purchases. On top of this we have to compete with a continual stream of new labels, varieties and trends, including the natural wine movement. Against this backdrop we can report a solid year for sales, with 39,040 cases sold worldwide up slightly on the previous year and budget. Unfortunately though, our below-target average case price meant that our total revenue and gross profit margin were below target. Appointing Sandy Moore to the new role of Sales Manager at the beginning of 2016 was a positive step for the company, enabling us to take a focused, strategic approach to securing more business and more sales. Recognising that relationships are key to this growth, Sandy has nurtured our partnerships with Negociants NZ and Negociants Australia, and developed a strong 6

7 Directors and Chief Executive s Report relationship with Diva NZ that has led to new market opportunities, including in the USA and some smaller markets in Europe. Sandy has also developed a relationship with Intervine, an international wine management company for the travel industry, that we hope will pay dividends in the future. In other international developments: we ve dissolved our distributor relationship with Negociants USA, as they acknowledged they couldn t deliver on our expectations in this market. The agreement was amicable and has left us free to pursue other opportunities in this important market we re about to start a relationship with Total Wines in the USA (via Diva NZ), which is a retail chain with more than 130 stores nationwide. We re very optimistic that in the next one to three years we ll be able to grow this to 5,000 cases per annum of Estate wines, which will make a significant difference to profitability we ve appointed a new agent in China and developed opportunities in Canada and with Vinomofo in Australia and Etihad Airways. The markets that performed best in terms of case sales were the UK and Denmark, which unfortunately are the two markets with the lowest average case prices. This reflects the fact that Denmark is largely a Pencarrow market, and in the UK we re confronted with a weakened pound, aggressive pricing and market pressures, as explained previously. Domestically, the New Zealand market accounted for 40% of Palliser wines by volume and 49% by value in 2016/17. Negociants NZ had a poor year, 2,500 cases below the previous year in an environment of decreased retail sales, and our direct sales (which provide our best margin) were slightly down. However, the Cellar Door had another very strong year, up 57% owing to significant growth in visitor numbers and our improved Cellar Door experience. While it s been a mixed bag of results, we believe that the changes we ve made signal a positive future for Palliser. We just need to be patient: as with all good things, they ll take some time to reach their full potential. THE 2017 VINTAGE Our 2017 vintage was undoubtedly one of the most challenging on record, with unseasonable, continuous rainfall during the harvest period. Fortunately our vines were set up well and despite the weather the grapes were in good condition. 7

8 Directors and Chief Executive s Report However, while the resulting wines in cellar are showing great promise, yields were down 20% on long-term averages, with Chardonnay and Riesling the most affected. This meant we had to buy fruit from external growers to meet market demand, incurring additional purchase costs and therefore increasing our per-case production cost. Nationwide, the 2017 vintage was 396,000 tonnes, a 9% decrease on Of the total, Sauvignon Blanc accounted for 75% and the Marlborough region 79%. STAFF Under the new structure implemented at the beginning of 2016, we now have a small, focused and dedicated team who are enthused and excited about Palliser s direction. They re a key part of Palliser s future success and we thank them for their considerable effort in what has been a challenging growing season and year in general. CAPITAL EXPENDITURE We ve budgeted to spend $408,934 on capital items during 2017/18 (consistent with depreciation), compared with $317,279 in 2016/17. The significant items are: Cellar Door refurbishment phase 2 $65k Additional Pinot Noir fermenters for premium fruit $17k Destemmer for premium Pinot Noir fruit $77k Casks $49k Vineyard development $54k HEALTH AND SAFETY The Directors and Chief Executive of Palliser Estate Wines (as Officers under the Health and Safety at Work Act 2015) are committed to the health and safety of Palliser s employees, contractors and visitors. We ve successfully implemented procedures that enable us to meet our obligations under the Act, have a continual improvement and monitoring system in place, and can report on a great company-wide health and safety culture. There were no health and safety incidents in 2016/17. 8

9 Directors and Chief Executive s Report STRATEGIC DIRECTION AND OUTLOOK As outlined at the end of 2015, our strategy is to raise the value of our company, rather than its size. The Board has agreed to a four-year programme to increase our profitability and return 5% on assets, consistent with the top quartile of medium-sized producers in our industry. With case sales at 40,000-41,000, to achieve this we need to: Increase our average case price to more than $150 Reduce our cost of sales by 5% in line with industry benchmark figures. We believe we can achieve this target within the next four years, based on a 6% annual case price increase (achieved by annual price increases and changes in our market and/or product mix) and reductions in costs. This should result in our share price exceeding the Board s target in terms of market net asset value per share. To reach our goal, we aim to: Raise the quality of our wines, in particular our Estate range (which includes introducing organic viticulture) Raise the profile of our brand and wines through marketing/branding, packaging, communications, the Cellar Door experience and events. We ve already received excellent feedback on our rebranded Estate range and intend to rebrand the Pencarrow range during 2017/18 Develop new, profitable market relationships and opportunities in the USA and Canada, and increase our direct sales (through the Cellar Door, the Estate Club and online) Ensure that supply remains in balance with demand, with no need for discounting In response to market feedback, introduce new ultra-premium products, such as single-vineyard Pinot Noir and Chardonnay Further redevelop our Cellar Door and enhance the Cellar Door experience Further reduce our cost of sales. 9

10 Directors and Chief Executive s Report DIVIDENDS AND SHARE LIQUIDITY Fully imputed dividends totalling 5 cents per share were paid this financial year, taking the total dividends paid since October 2012 to $3.3 million, or 80 cents per share. To address the issue of liquidity in our company, Palliser has joined the ShareMart platform operated by Computershare. Shareholders will have received their statements of shareholding and will be able to visit the platform online to see buy and sell quotes for Palliser Estate shares. In order to ensure full transparency, we ll ensure that shareholders can access all material information and financial forecasts via a link to our website. As stated earlier, the Board has a programme in place to ensure that, over time, Palliser s market capitalisation reflects the market valuation of its assets and brand goodwill. DIRECTORS In accordance with the company s constitution, Mr A G Beech retires by rotation and, being eligible, offers himself for re-election to the Board. OUR THANKS TO THE TEAM Once again, we thank all our loyal shareholders, our contract growers, our small, dedicated team and all the members of the Board. We look forward to seeing you at the AGM at 11am on Sunday 12 November For, and on behalf of, the Board Andrew Meehan ONZM Pip Goodwin Chairman Chief Executive 10

11 Viticulture and Winemaking Report for the Year ended 30 June 2017 Vintage 2017, one of the most challenging since our first in It all began at flowering, when climatic conditions gave us a moderately undersized crop and seasonal heat summations slightly below the national average (most other regions had above-average summations). Later, mid-summer s dry conditions and some healthy rainfall mid-february promised good things for grape quality, but downpours from then until harvest exposed the grape bunches to the risk of botrytis infection. It was with some relief that we started the harvest in late March with grapes in good condition but the weather wasn t done with us yet. In early April ex-tropical Cyclone Debbie delivered four days of rain, and with the prospect of ex-tropical Cyclone Cook hard on her heels, we harvested most of our grapes before 12 April. As a result we processed 466 tonnes, of which 396 (85%) came from our estate vineyards and 70 tonnes from growers. The yield from our own vineyards was down 20% on the 491 tonnes we d expect in an average year, resulting in reduced volumes in all varieties except Pinot Gris. Fortunately though, the crew in both the vineyard and the winery did a great job in harvesting the grapes in time to make wines with vibrancy and balance; a real reflection of the season. Vineyard developments Palliser has streamlined its operating model in the past year, reducing total vineyard expenses by 7.6% ($79,000) an impressive result given that in the same timeframe we increased our investment in fertiliser and canopy management in line with our aim of improving wine quality. Another exciting development started on 1 March 2017, when we began converting the Winery and Wharekauhau vineyards to organic management. The process takes three years to complete, so we hope to be able to bottle organic wine from our 2020 vintage. This commitment to organic winemaking has included producing our own seaweed fertiliser, using seaweed retrieved from the Wairarapa coast. 11

12 Viticulture and Winemaking Report 30 June 2017cont. At the vineyards themselves, we ve removed 1.4 hectares of Sauvignon Blanc vines from the Clouston vineyard post-harvest and are replanting it with Pinot Gris to meet the demand for this variety under our three labels. The Sauvignon Blanc was part of a six-hectare block that has a significant level of the insidious trunk disease; more of the block will require replanting in the next six years as it reaches the end of its commercial life. We ll also have an additional two hectares of Chardonnay in the Palliser vineyard producing this season, helping to meet the demand for this variety, and in the Pinnacles vineyard one hectare of riesling will produce its first crop in Winery developments In keeping with our philosophy of continual improvement and innovation, we ve invested in two key areas expertise and equipment. We ve continued to engage expert winemaking consultant and wine judge Olly Masters to further strengthen our winemaking team, and we re buying a destemmer for our Pinot Noir programme, which will deliver higher-quality grape samples, and hence wine, than our current 20-year-old equipment. We ll also buy two additional red wine fermenters for the smaller parcels of fruit from the Wharekauhau vineyard, as part of our plan to launch a premium single-vineyard wine. It s exciting times at Palliser! Allan Johnson Guy McMaster Chief Winemaker/Viticultural Consultant Viticulturalist/Associate Winemaker 12

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14 Independent Auditor s Report To the Shareholders of Palliser Estate Wines of Martinborough Limited Report on the Audit of the Grant Thornton New Zealand Audit Partnership L4, Grant Thornton House 152 Fanshawe Street PO Box 1961 Auckland 1140 Telephone +64 (0) Fax +64 (0) Opinion We have audited the financial statements of Palliser Estate Wines of Martinborough Limited (the Company ) on pages 17 to 50 which comprise the statement of financial position as at 30 June 2017, and the statement of comprehensive income, statement of changes equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 30 June 2017 and its financial performance and cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards issued by the New Zealand Accounting Standards Board. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our firm carries out other assignments for the Company in the area of other assurance services. The firm has no other interest in the Company. Other Information The Directors are responsible for the other information. The other information comprises the Key Performance Indicators, Directors and Chief Executive s Report, Viticulture and Winemaking Report, Comparative Financial Review, Statutory Information, Contributors and International Distributors but does not include the financial statements and our auditor s report thereon. 14

15 Independent Auditor s Report Our opinion on the financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this information, we are required to report that fact. We have nothing to report in this regard. Directors Responsibilities for the The directors are responsible on behalf of the Company for the preparation and fair presentation of these financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards issued by the New Zealand Accounting Standards Board, and for such internal control as those charged with governance determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, those charged with governance are responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the Audit of the Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of the auditor s responsibilities for the audit of the financial statements is located on the External Reporting Board s website at: 15

16 Independent Auditor s Report Restriction on use of our report This report is made solely to the Company s shareholders, as a body. Our audit work has been undertaken so that we might state to the Company s shareholders, as a body, those matters which we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s shareholders, as a body, for our audit work, for this report or for the opinion we have formed. Matters relating to the electronic presentation of the audited financial statements This audit report relates to the financial statements of Palliser Estate Wines of Martinborough Limited for the year ended 30 June 2017 included on Palliser Estate Wines of Martinborough Limited s website. The Company is responsible for the maintenance and integrity of the Company s website. We have not been engaged to report on the integrity of Company s website. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and related audit report for the year ended 30 June 2017 to confirm the information included in the audited financial statements presented on this website. Grant Thornton New Zealand Audit Partnership K Price Partner Auckland 27 September

17 Statement of Comprehensive Income 30 June 2017 This statement is to be read in conjunction with the notes on pages 24 to $ *restated $ Revenue 4,612,360 4,542,450 Cost of Sales 3,748,989 3,548,475 Gross Profit 863, ,975 Other Income (Note 3) 283, ,212 1,147,263 1,205,187 Less Expenses: Administration and Marketing 837, ,944 Finance Costs Other 177, ,378 Total Expenses (Note 4) 1,015,422 1,086,892 Profit Before Taxation 131, ,295 Income Tax Expense (Note 5) 72,768 31,366 Profit for the Year Attributable to Owners of the Company 59,073 86,929 Other Comprehensive income that may subsequently be classified to the Profit or Loss Revaluation Surplus 94,484 - Total Comprehensive Income for the Year Attributable to Owners of the Company 153,557 86,929 Earnings per share (cents) (Note 6) *certain amounts shown here do not correspond to the 2016 financial statements and reflect adjustment made, refer to Note 30 17

18 Statement of Changes in Equity 30 June 2017 This statement is to be read in conjunction with the notes on pages 24 to 50. Share Retained Revaluation Total Capital Earnings Reserve Equity $ $ $ $ Balance 1 July ,421,614 8,786,632-15,208,246 Profit for the year *restated - 86,929-86,929 Other Comprehensive Income Total Comprehensive Income for the Year - 86,929-86,929 Transactions with Owners of the Company Dividends Paid - (417,324) - (417,324) Total Contributions by and Distributed to - (417,324) (417,324) Owners of the Company Share Capital paid Balance 30 June 2016 (Note 15) 6,421,614 8,456,237-14,877,851 Balance 1 July ,421,614 8,456,237-14,877,851 Profit for the year - 59,073-59,073 Other Comprehensive Income ,484 94,484 Total Comprehensive Income for the Year - 59,073 94, ,557 Transactions with Owners of the Company Dividends Paid (Note 26) - (209,043) - (209,043) Total Contributions by and Distributed to - (209,043) - (209,043) Owners of the Company Share Capital paid 29, ,543 Balance 30 June 2017 (Note 15) 6,451,157 8,306,267 94,484 14,851,908 *certain amounts shown here do not correspond to the 2016 financial statements and reflect adjustment made, refer to Note 30 18

19 Statement of Financial Position as at 30 June 2017 This statement is to be read in conjunction with the notes on pages 24 to $ *restated $ Current Assets Cash and Cash Equivalents 526,322 1,066,232 ANZ Bank Term Deposit 606,598 - GST Refund Due 1,100 - Tax Refund Due 18,571 4,841 Trade and Other Receivables (Note 7) 983, ,225 Forward Currency Contracts (Note 8) 2,447 16,125 Prepaid Expenses 4,000 5,078 Stock on Hand (Note 9) 3,679,405 3,882,276 5,821,449 5,883,777 Non Current Assets Trade and Other Receivables (Note 7) 22,163 22,954 Property, Plant and Equipment (Note 10) 10,909,330 10,871,550 Intangible Assets (Note 12) 86,902 45,110 Investments 6,791 6,791 11,025,186 10,946,405 Total Assets 16,846,635 16,830,182 Continued next page... 19

20 Statement of Financial Position as at This statement is to be read in conjunction with the notes on pages 24 to $ *restated $ Current Liabilities Trade and Other Payables (Note 13) 421, ,120 Tax Payment Due - - GST Payable - 9, , ,212 Non Current Liabilities Deferred Tax (Note 14) 1,572,751 1,528,119 Total Liabilities 1,994,727 1,952,331 Equity Share Capital (Note 15) 6,451,157 6,421,614 Retained Earnings 8,306,267 8,456,237 Revaluation Reserve 94,484 - Total Equity 14,851,908 14,877,851 Total Liabilities & Equity 16,846,635 16,830, Director Director A R Meehan S R Tyler The Board of Directors of Palliser Estate Wines of Martinborough Limited authorised these financial statements on 27 September *certain amounts shown here do not correspond to the 2016 financial statements and reflect adjustment made, refer to Note 30 20

21 Statement of Cashflows 30 June 2017 This statement is to be read in conjunction with the notes on pages 24 to $ $ Cash Flows From Operating Activities Cash was received from: Receipts from customers 4,557,198 4,454,712 Interest received 14,884 26,116 Sundry receipts 203, ,257 4,775,636 4,660,085 Cash was applied to: Payments to suppliers and employees (4,169,883) (4,163,074) Income tax paid (41,863) (56,268) Interest paid (11) (570) GST paid (2,541) (23,298) (4,214,298) (4,243,210) Net Cash from Operating Activities 561, ,875 Cash Flows From Investing Activities Cash was received from: Matured Term deposit - 600,000 Disposal of Property, Plant and Equipment 18,688 22,055 18, ,055 Cash was applied to: Purchases of Property, Plant and Equipment (247,631) (225,497) Purchases of Vines (41,643) (24,385) Purchases of intangible assets (42,681) - Purchases of term deposit (606,598) (600,000) (938,553) (849,882) Net Cash to Investing Activities (919,865) (227,827) Continued next page... 21

22 Statement of Cashflows This statement is to be read in conjunction with the notes on pages 24 to $ $ Cash Flows From Financing Activities Cash was received from: Employee loans repaid 27,660 15,438 Cash was applied to: Dividend paid (209,043) (417,324) Net Cash to Financing Activities (181,383) (401,886) Cash Deficit for the year (539,910) (212,838) Represented By: Opening cash and cash equivalents 1,066,232 1,279,070 Closing cash and cash equivalents 526,322 1,066,232 Movement for the year deficit (539,910) (212,838) 22

23 Statement of Cashflows This statement is to be read in conjunction with the notes on pages 24 to 50. Reconciliation of Surplus after Taxation to Cash Flow from Operating Activities $ $ Total Comprehensive Income for the Year 153,557 86,929 Plus Non-Cash Items Depreciation & Amortisation 318, ,305 Loss on disposal of Property, Plant & Equipment Capital Gain on sale (252) - Employee share based payments 2,363 - Employee Bonus shares 9,239 - Disposal of Vines 39,757 57,173 Change in Fair Value of Vines (123,778) 29, , ,018 Add/(Deduct) Movement in Working Capital (Increase)/Decrease in GST (10,192) (30,112) Decrease/(Increase) in prepaid expenses 1,078 11,903 (Increase)/Decrease in trade and other receivables (82,709) (55,186) Decrease/(Increase) in forward currency contracts 13,678 (16,125) Decrease/(Increase) in stock 202,871 29,568 (Decrease)/Increase in trade and other payables 6,856 (6,163) Increase/(Decrease) in provision for tax 30,904 (24,902) 162,486 (91,017) Less Items Classified As Investing Activities (Decrease)/Increase in prepaid vines (337) (4,278) (Increase)/Decrease in Investments - (225) Decrease/(Increase) in Property, Plant and Equipment payable 28 5,377 (309) 874 Net Cash from Operating Activities 561, ,875 23

24 Notes to the 30 June 2017 NOTE 1: STATEMENT OF ACCOUNTING POLICIES In these financial statements the reporting entity is Palliser Estate Wines of Martinborough Limited (the company ). The principal activity of the company is to produce and sell wines from grapes grown in New Zealand. The company is a limited liability company incorporated and domiciled in New Zealand. These financial statements were approved for issue by the Board of Directors on 27 September The entity s owners do not have the power to amend these financial statements once issued. These financial statements are presented in accordance with the Companies Act 1993 and comply with the Financial Markets Conduct Act The principal accounting policies adopted in the preparation of these financial statements are set out below. Basis of Preparation These financial statements are presented in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP). For the purposes of complying with NZ GAAP the company is a for-profit entity. The financial statements comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and other Financial Reporting Standards applicable to profit-oriented entities. They have been prepared in accordance with the Tier 1 for profit reporting requirements set out by the New Zealand Accounting Standards Board. They also comply with International Financial Reporting Standards (IFRS). These financial statements are rounded to the nearest dollar. Measurement Basis The measurement basis adopted in the preparation of these financial statements is historical cost, with the exception of the revaluation of vines and certain financial instruments as identified in the particular accounting policies below. Standards Issued that came into effect in the Current Year Amendments to NZ IAS 16 and NZ IAS 41 Agriculture: Bearer Plants Biological assets that meet the definition of bearer plants are no longer within the scope of NZ IAS41, instead NZ IAS 16 applies. The company has applied NZ IAS 16 for bearer plants (vines) using the revaluation model. Standards Issued but Not Yet Effective At the date of authorisation of these financial statements, certain new standards and amendments to and interpretations of existing standards had been issued that were not yet effective at the reporting date, and have not been applied in the preparation of these financial statements. Management anticipates that all of the pronouncements will be adopted, if applicable, in the accounting policies for the first period beginning after the effective date of the pronouncements. Information on new standards and interpretations that are expected to be relevant is included below: NZ IFRS 9 Financial Instruments (proposed effective date from 1 January 2018) The New Zealand Accounting Standards Board (NZASB) issued the final version of NZ IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces NZ IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of NZ IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. NZ IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Based on management s assessment to date, the standard is not expected to have significant impact on the company. NZ IFRS 15 Revenue from contracts with customers (effective from 1 January 2018) NZ IFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under NZ IFRS revenue is recognised 24

25 Notes to the at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in NZ IFRS 15 provide a more structured approach to measuring and recognising revenue. Based on management s assessment to date, the standard is not expected to have significant impact on the company, but additional disclosure may be required. NZ IFRS 16 Leases (effective from 1 January 2019) This standard includes leases of all assets, with certain exceptions. The standard requires lessees to account for all leases under a single on-balance sheet model. Lessees recognise a liability to pay rentals with a corresponding asset, and recognise interest expense and depreciation separately. Based on management s assessment to date, the standard is not expected to have significant impact on the company, but additional disclosure may be required. Particular Accounting Policies The following particular accounting policies, which significantly affect the measurement of financial performance, financial position and cash flows have been applied. Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the company and the revenue and costs can be measured reliably. Dividends Recognition Dividends are recognised at the time the right to receive payment is established. Sales of Goods Sales shown in profit and loss within the Statement of Comprehensive Income are recognised when the significant risks and rewards of ownership have transferred to the buyer, and comprise the fair value of the consideration received for the sale of goods in the ordinary course of business. Interest Income Interest income is recognised as earned using the effective interest method. WET rebate The WET (wine equalisation tax) rebate is recognised in profit and loss within the Statement of Comprehensive Income when it is probable that the economic benefits will flow to the company and the revenue and costs can be measured reliably. Goods and Services Tax The Statement of Comprehensive Income and the Statement of Cash Flows have been prepared so that all components are stated exclusive of GST. All items in the Statement of Financial Position are stated net of GST, with the exception of receivables and payables, which include GST invoiced. Depreciation Depreciation is provided on Property, Plant and Equipment using the straight-line basis or diminishing-value basis, at rates sufficient to write them off over their expected useful lives. The expected useful lives are as follows: Buildings(straight line) Vineyard Equipment (straight line & diminishing value) Winery Equipment (straight line & diminishing value) Motor Vehicles(straight line) Office Equipment(straight line & diminishing value) years 2-17 years 2-34 years 4-8 years 2-18 years Depreciation is the difference between the cost and residual value of an asset. No depreciation is provided on land, vines or vine support structures as the residual value and cost is considered to be the same. The basis of depreciation represents the method that best reflects the decline in future economic service potential of the asset class. Foreign Currency Transactions The functional and presentation currency is New Zealand dollars (NZD). Foreign currency transactions are translated into NZD using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the 25

26 Notes to the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss within the Statement of Comprehensive Income. Foreign Exchange Contracts Foreign exchange contracts are initially recognised at fair value on the dates the contracts are entered into and are subsequently re-measured at fair value, as determined by the bank s mark-to-market measurement. Changes in the fair values of these derivative instruments are recognised immediately in profit or loss within the Statement of Comprehensive Income. Hedge accounting has not been applied for foreign exchange contracts. Capital Risk Management The company s objectives when managing capital are to safeguard the company s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Income Tax The income tax expense recognised in profit or loss within the Statement of Comprehensive Income is the estimated income tax payable in the current reporting period, adjusted for any differences between the estimated and actual income tax payable in prior periods. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of financial position. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax assets are realised or the deferred income tax liability is settled. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts without a right of set off are shown within borrowings in current liabilities in the Statement of Financial Position. Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost. The collectability of trade receivables is reviewed on an on-going basis. Receivables that are known to be uncollectible are written off. An allowance for doubtful receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in profit or loss within the Statement of Comprehensive Income. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses. The cost includes direct materials, labour, and production overheads. Grapes harvested are measured at fair value less estimated point-of-sale costs at point of harvest; this measure is used as the deemed cost. After harvest the grapes are treated as inventory. Unquoted Equity Investments Unquoted Equity Investments are carried at cost because their fair value cannot be reliably measured. An impairment loss is recognised if the present value of the estimated cash flows (discounted at the current market rate of return for a similar financial instrument) is lower than the assets carrying amount. 26

27 Notes to the Property, Plant and Equipment All property, plant and equipment (except bearer plants as discussed below) is shown at cost, less any accumulated depreciation and impairment losses. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost can be measured reliably. All other repair and maintenance expenditure is charged to profit or loss within the Statement of Comprehensive Income during the reporting period in which it is incurred. Bearer plants (vines) now falls with the scope of NZ IAS 16 Property, Plant and Equipment. The vines have been measured using the revaluation model. The vines have been revalued to fair value as determined by an independent valuer at the year of each reporting period shown. Where the revaluation results in an increase in the carrying amount, the increase is recognised in profit or loss within the Statement of Comprehensive Income to the extent that it reverses a revaluation decrease previously recognised in profit or loss. Where the revaluation results in a decrease in the carrying amount, the decrease is recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus. The grapes produced remain in the scope of NZ IAS 41 and are measured at fair value less costs to sell. Grapes are reclassified as inventory upon harvest. Intangible Assets Trademark protection represents the net cost of trademark protection. A trademark has unlimited life because it can be renewed in perpetuity. Trademark protection is reviewed annually for impairment or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purposes of impairment testing, trademark protection is allocated to cash-generating units. Any impairment is recognised as an expense in profit or loss within the Statement of Comprehensive Income. The website upgrade has a finite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost over the estimated useful life (four years). Impairment of other assets The carrying amount of the company s assets, other than inventories, is reviewed at each reporting date to determine whether there is any indication of impairment. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. Financial Assets The company classifies its financial assets in the following categories: loans and receivables, available-for-sale financial assets, and financial assets at fair value through profit or loss. The classification depends on the purposes for which the investments were acquired. Management determines the classification of its financial assets at the initial recognition and re-evaluates this designation at every reporting date. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and not intended to be sold for short-term profit. They are included in current assets, except for those with maturities later than 12 months after the reporting date, which are classified as non current assets. Accounts Receivable and cash balances held in short term deposits are classified as loans and receivables, because they are both accounted for on an amortised cost basis using the effective interest rate method, less any allowances for impairment. Impairment of Financial Assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance 27

28 Notes to the account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss, within the Statement of Comprehensive Income. Operating Leases Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Associated costs, such as maintenance and insurance, are expensed as incurred. Trade and Other Payables These amounts represent liabilities for goods and services provided to the company prior to the end of the reporting period that are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Employee Benefits Liabilities for wages and salaries, including non monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. The liability for employee entitlements is carried at the present value of the estimated future cash flows. Dividends Provision is made for the amount of any dividend declared on or before the end of the reporting period but not distributed at the reporting date. Dividend distributions to the company shareholders are recognised as a liability in the company s financial statements in the period in which the dividends are approved by the company s Directors. Segment Reporting Operating segments have been identified based on the information provided to the chief operating decision maker being the Chief Executive Officer. The company has only a single reporting segment (see note 16). Statement of Cash Flows The following are the definitions of the terms used in the Statement of Cash Flows. (a) Cash and cash equivalents are considered to be cash on hand and current accounts in banks. (b) Investing activities are those activities relating to the acquisition, holding and disposal of fixed assets and of investments. Investments can include securities not falling within the definition of cash. (c) Financing activities are those activities that result in changes to the size and composition of the capital structure of the company. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. (d) Operating activities include all transactions and other events that are not investing or financing activities. Changes in Accounting Policies The company has changed its accounting policy to comply with the Amendments to NZ IAS 16 and NZ IAS 41 Agriculture: Bearer Plants. This standard has retrospective impact in accordance with requirements of NZ IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, so the comparative year (30 June 2016) has been restated (see Note 30). There have been no other changes in accounting policies. All other policies have been applied on bases consistent with those used in the previous reporting period. 28

29 Notes to the NOTE 2: CRITICAL ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES These financial statements are prepared in accordance with NZ IFRS. There are a number of critical accounting treatments that include subjective judgements and estimates that may affect the reported assets and liabilities in the financial statements. Explanations of the judgements and estimates made by the company having the most significant effects on the amounts recognised in the financial statements are set out below. Fair Value of Vines The fair value of the vines has been established by an independent valuation. The fair value of the vineyard was determined under the principle of highest and best use at balance date. The fair value of land and other vineyard infrastructure is deducted from the fair value of the vineyard to determine the fair value of the grape vines. Fair Value of Agricultural Produce The Directors carried out an assessment of the fair value per tonne of grapes, which is based on the quality of the grapes produced by the company, with reference to market prices for each variety of grape. 29

30 Notes to the NOTE 3: OTHER INCOME $ $ Interest 19,722 26,116 WET rebate 202, ,848 Foreign exchange loss (26,731) (20,715) Sales (loss)/gain Overseas currency 9,907 (22,311) Revaluation of Vines 29,294 - Other 49,013 39,274 Total other income 283, ,212 NOTE 4: EXPENSES $ $ Expenses include the following; Revaluation of Vines - 29,294 Disposal of Vines 39,757 57,173 Loss on disposal of Property, Plant and Equipment Depreciation Motor vehicles 8,549 3,829 Vineyard equipment 104, ,830 Grape harvesting equipment 30,482 30,482 Winery equipment 123, ,431 Vineyard development Office equipment 9,485 10,743 Buildings 59,296 58,536 Total depreciation 335, ,981 Directors fees 52,573 61,104 Interest Auditor s remuneration Audit services 21,256 21,258 Other assurance services* 1,550 1,500 *Other assurance services being the Share Registry Audit. Employee salary and wages paid during the year totalled $1,414,708 (2016:$1,344,709). 30

31 Notes to the NOTE 5: TAXATION $ $ The taxation provision has been calculated as follows: Profit before taxation 131, ,295 Taxation on profits for the year@28% ( %) 36,915 33,122 Expenses not deductible 35,853 (1,756) Taxation charge as per the Statement of Comprehensive Income 72,768 31,366 Represented by: Current income tax 28,136 33,678 Deferred income tax 44,632 (2,312) 72,768 31,366 The deferred tax charge in the Statement of Comprehensive Income comprises the following temporary differences: WET rebate 4,855 (273) Revaluation of vines 25,390 (7,941) Depreciation & Amortisation 12,781 (7,900) Revaluation of stock (1,591) 3,732 Audit fee accrual (294) (5,474) Bonus accrual 9,616 7,322 Annual leave accrual (6,125) 8,222 Total temporary differences 44,632 (2,312) 31

32 Notes to the NOTE 6: EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares during the reporting period. No financial instruments have been issued by the company that would dilute the shares currently on issue $ $ Total Comprehensive Income 153,557 86,929 Weighted average number of ordinary shares 4,193,720 4,188,778 Earnings per share (Basic=Diluted) cents NOTE 7: TRADE AND OTHER RECEIVABLES Trade receivables 758, ,372 Receivables from related parties - 1,442 Employee loans 11,407 20,335 Other receivables 213, ,076 Current trade and other receivables 983, ,225 Non-current portion of employee loans 22,163 22,954 1,005, ,179 Neither past due nor impaired 973, ,175 Past due but not impaired* 31,378 4 Individually impaired - - 1,005, ,179 *Past due debtors 0-30 days 30, days 1,187 - Greater than 60 days ,

33 Notes to the NOTE 8: FORWARD CURRENCY CONTRACTS $ $ Unrealised gains on forward contracts 2,447 16,125 The fair value is measured by the ANZ bank s determination of the 30 June mark-to-market values. The company has contracts to buy USD 8,400 ( ,740), GBP nil ( ,170) and AUD 279,200 ( ,687). NOTE 9: STOCK ON HAND $ $ Stock on hand comprises: Finished stock 1,309,120 1,367,679 Bulk wine 2,289,688 2,464,081 Dry stock 80,597 50,516 Inventories recognised as an expense during the year amounted to $2,748,500 (2016:$2,593,047). 3,679,405 3,882,276 NOTE 10: PROPERTY, PLANT AND EQUIPMENT $ $ Land 2,637,992 2,618,631 Buildings 1,586,544 1,608,726 Winemaking equipment 417, ,007 Vineyard development 2,241,955 2,242,000 Grape harvesting equipment 226, ,004 Vineyard equipment 430, ,256 Vehicles 27,566 36,115 Vines 3,315,000 3,189,000 Office and cellar sales equipment 26,163 18,811 Total 10,909,330 10,871,550 33

34 Notes to the NOTE 10: PROPERTY, PLANT AND EQUIPMENT, cont. 30 June 2017 Winemaking Vineyard Grape Harvesting Land Buildings Equipment Development Equipment $ $ $ $ $ Opening cost 2,618,631 2,494,786 3,014,328 2,272, ,611 Opening accumulated revaluation Opening accumulated depreciation - (886,060) (2,568,321) (30,669) (101,607) Opening net book value 2,618,631 1,608, ,007 2,242, ,004 Additions 19,361 37,114 94, Revaluation this year Net disposal - - (276) - - Depreciation - (59,296) (123,108) (45) (30,482) Closing net book value 2,637,992 1,586, ,055 2,241, ,522 Closing cost 2,637,992 2,531,900 2,951,049 2,272, ,611 Closing accumulated revaluation Closing accumulated depreciation - (945,356) (2,533,994) (30,714) (132,089) Closing net book value 2,637,992 1,586, ,055 2,241, , June 2016 Winemaking Vineyard Grape Harvesting Land Buildings Equipment Development Equipment $ $ $ $ $ Opening cost 2,617,091 2,494,786 3,069,058 2,242, ,611 Opening accumulated depreciation - (827,524) (2,560,704) (30,539) (71,125) Opening net book value 2,617,091 1,667, ,354 2,211, ,486 Additions 1,540-77,311 30,404 - Revaluation this year Net disposal - - (1,227) - - Depreciation - (58,536) (138,431) (130) (30,482) Closing net book value 2,618,631 1,608, ,007 2,242, ,004 Closing cost 2,618,631 2,494,786 3,014,328 2,272, ,611 Closing accumulated revaluation Closing accumulated depreciation - (886,060) (2,568,321) (30,669) (101,607) Closing net book value 2,618,631 1,608, ,007 2,242, ,004 34

35 Notes to the NOTE 10: PROPERTY, PLANT AND EQUIPMENT, cont. 30 June 2017 Vineyard Vines Office & Cellar Equipment Vehicle Equipment Sales Equipment Total $ $ $ $ $ Opening cost 2,360, ,089 3,218, ,668 16,643,899 Opening accumulated revaluation - - (29,294) - (29,294) Opening accumulated depreciation (1,905,567) (73,974) - (176,857) (5,743,055) Opening net book value 455,256 36,115 3,189,000 18,811 10,871,550 Additions 79,859-41,979 16, ,582 Revaluation this year , ,778 Net disposal (142) - (39,757) - (40,175) Depreciation (104,440) (8,549) - (9,485) (335,405) Closing net book value 430,533 27,566 3,315,000 26,163 10,909,330 Closing cost 2,439, ,089 3,220, ,076 16,727,597 Closing accumulated revaluation ,484-94,484 Closing accumulated depreciation (2,009,162) (82,523) - (178,913) (5,912,751) Closing net book value 430,533 27,566 3,315,000 26,163 10,909, June 2016 Vineyard Vines Office & Cellar Equipment Vehicle Equipment Sales Equipment Total $ $ $ $ $ Opening cost 2,369,038 71,557 3,217, ,755 16,633,823 Opening accumulated depreciation (1,842,364) (70,145) - (166,514) (5,568,915) Opening net book value 526,674 1,412 3,217,662 27,241 11,064,908 Additions 40,565 38,532 57,805 2, ,787 Revaluation this year - - (29,294) - (29,294) Net disposal (153) - (57,173) (317) (58,870) Depreciation (111,830) (3,829) - (10,743) (353,981) Closing net book value 455,256 36,115 3,189,000 18,811 10,871,550 Closing cost 2,360, ,089 3,218, ,668 16,643,899 Closing accumulated revaluation - - (29,294) - (29,294) Closing accumulated depreciation (1,905,567) (73,974) - (176,857) (5,743,055) Closing net book value 455,256 36,115 3,189,000 18,811 10,871,550 35

36 Notes to the NOTE 11: BIOLOGICAL ASSETS $ $ Carrying amount of Vines if cost model had been used 2,882,453 3,050,277 Number of vines owned 187, ,447 Tonnes of grapes crushed own vineyards The fair value of grapes harvested at point of harvest has been determined by the Board and management with reference to market prices and consideration of the quality of the harvested grapes. The fair value less estimated point-of-sale costs of grapes harvested during the period, determined at point of harvest, is $1,077,255 (2016 $1,193,771). The fair value of the vines has been established by an independent valuation at 30 June The valuation from Logan Stone Ltd was carried out by Boyd A Gross, B Agr (Rural Val), Dip Bus Std, FNIV, FPINZ and reviewed by Jay Sorensen, B Appl Sc (Rural Val) Agr Bus, MPINZ, ANZIV. Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arm s-length transaction. It is Logan Stone Ltd s view that there is an active market for vines as part of a vineyard unit. The fair value of land and other vineyard infrastructure is deducted from the value of the vineyard, to determine the fair value of the grape vines. 36

37 Notes to the NOTE 12: INTANGIBLE ASSETS The original website has been written off, during the year. 30 June 2017 Trademark Protection Website Total $ $ $ Opening cost 45,110 73, ,223 Opening accumulated amortisation - (73,113) (73,113) Opening net book value 45,110-45,110 Additions - 42,681 42,681 Net disposals Amortisation - (889) (889) Closing net book value 45,110 41,792 86,902 Closing cost 45,110 42,681 87,791 Closing accumulated amortisation - (889) (889) Closing net book value 45,110 41,792 86, June 2016 Opening cost 45,110 73, ,223 Opening accumulated amortisation - (73,113) (73,113) Opening net book value 45,110-45,110 Additions Net disposals Amortisation Closing net book value 45,110-45,110 Closing cost 45,110 73, ,223 Closing accumulated amortisation - (73,113) (73,113) Closing net book value 45,110-45,110 37

38 Notes to the NOTE 13: TRADE AND OTHER PAYABLES $ $ Trade creditors 259, ,044 Related party payables 41,589 69,790 Other payables 120, , , ,120 NOTE 14: DEFERRED TAX $ $ Opening balance 1,528,119 1,530,431 Temporary differences for period 44,632 (2,312) Closing balance 1,572,751 1,528,119 The deferred tax closing balance comprises the following temporary differences: WET rebate 58,356 53,501 Depreciation & Amortisation 710, ,110 Revaluation of stock 3,165 4,756 Audit fee accrual (5,768) (5,474) Revaluation of vines 832, ,910 Bonus accrual (4,528) (14,144) Annual leave accrual (21,665) (15,540) Closing balance 1,572,751 1,528,119 38

39 Notes to the NOTE 15: SHARE CAPITAL number $ $ Opening share capital 4,188,778 4,188,778 6,421,614 6,421,614 Share capital issued 9,090-29,543 - Closing share capital 4,197,868 4,188,778 6,451,157 6,421,614 All the shares above are of an identical class. Dividend entitlements are attached on a proportionate basis to the extent to which the shares have been paid. All ordinary shares rank equally, with one vote attached to each fully paid ordinary share. None of the above shares are held by the company. The only shares issued during the year have been to staff. The share value at grant date was $3.25. The discount in price of these shares to fair value at date of issue has been included in profit and loss within the Statement of Comprehensive Income to reflect the value of the staff services provided. The fair value of the shares was determined by the sale price of the shares traded at or near date of issue. 39

40 Notes to the NOTE 16: SEGMENTAL REPORTING Palliser Estate Wines of Martinborough Limited operates as a single reportable segment, its business being to produce and sell wines from grapes grown in New Zealand. All the company s costs and assets are managed at a company wide level. Revenue from external customers has been identified on the basis of the customers geographical locations $ $ New Zealand 2,450,775 2,526,255 Australia 681, ,650 United Kingdom 614, ,039 Denmark 190,486 86,136 Hong Kong 118, ,662 Dubai 89,513 - Korea 67,103 61,429 Japan 54,793 24,612 United States America 43,612 73,717 Other 301, ,950 Total 4,612,360 4,542,450 All non-current assets are located in New Zealand. Revenues from transactions with single external customers that amounted to 10% or more of revenue $ $ Customer A 2,061,582 2,490,958 Customer B 614, ,699 NOTE 17: IMPUTATION CREDIT ACCOUNT $ $ Imputation credits available for distribution to shareholders as at 30 June. Amount available as at 1 July 2,891,284 2,999,833 Net movement during the reporting period (40,652) (108,549) Amount available as at 30 June 2,850,632 2,891,284 40

41 Notes to the NOTE 18: FINANCIAL INSTRUMENTS 2017 Loans and Receivables Available for Sale (amortised cost) (cost) Total $ $ $ Cash and cash equivalents 526, ,322 ANZ Bank term deposit 606, ,598 Forward exchange contracts 2,447-2,447 Trade and other receivables 1,005,169-1,005,169 Investments - 6,791 6,791 Total Financial Assets 2,140,536 6,791 2,147,327 Fair value through Financial Liabilities Profit or Loss at Amortised Cost Total $ $ $ Trade and other payables - 292, ,993 Total Financial Liabilities - 292, , Loans and Receivables Available for Sale (amortised cost) (cost) Total $ $ $ Cash and cash equivalents 1,066,232-1,066,232 Forward exchange contracts 16,125-16,125 Trade and other receivables 932, ,179 Investments - 6,791 6,791 Total Financial Assets 2,014,536 6,791 2,021,327 Fair value through Financial Liabilities Profit or Loss at Amortised Cost Total $ $ $ Trade and other payables - 415, ,120 Total Financial Liabilities - 415, ,120 41

42 Notes to the The following table presents financial assets and liabilities measured at fair value in the Statement of Financial Position in accordance with the fair value hierarchy. This hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair values of the financial assets and liabilities. The fair value hierarchy has the following levels: -Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities; -Level 2: Inputs other than quoted prices included within level 1 that are observable for asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and -Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy as follows: 2017 Level 1 Level 2 Level 3 $ $ $ Property Plant and Equipment Vines - 3,315,000 - Net Fair Value - 3,315, Level 1 Level 2 Level 3 $ $ $ Property Plant and Equipment Vines - 3,189,000 - Net Fair Value - 3,189,000 - Vines are included in Level 2 as the fair value is not quoted on an active market but is determined by an independent valuation using valuation techniques which use inputs based on prices or inputs which are indirectly derived from market observable prices. The independent valuation carried out by LoganStone is based on the market transactions that occurred in the Wairarapa for vineyard properties, transactions of other land uses and other winegrowing areas have also been taken into consideration, with adjustments reflecting the location, standard of improvements, plantings, mixed age of plants and productive capacities. 42

43 Notes to the a) Nature of activities and management policies with respect to financial instruments. Credit Risk In the normal course of business, the company incurs credit risk from trade receivables, transactions with financial institutions and employee loans. The company does not require collateral or security to support financial instruments. The company does not expect the non-performance of any obligations at the reporting date. The maximum credit risk is the carrying value of the financial asset. Foreign Exchange Risk Forward exchange contracts are entered into to manage foreign exchange risk on future sales receipts as a result of adverse foreign exchange fluctuations. The company is not using hedge accounting for any contracts outstanding at the reporting date. Liquidity Risk Liquidity risk is the risk arising from the company not being able to meet its obligations. The company manages its liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and matching profiles of financial liabilities. The table below summarises the company s exposure to foreign currency exchange rate risk as at period end. Included in the table are the company s financial instruments at carrying amounts, categorised by currency Total NZD AUD GBP EURO USD $ $ $ $ $ $ Cash and cash equivalents 526, ,820 17, ,782 7,158 20,422 ANZ Bank term deposit 606, , Forward exchange contracts 2,447-1, Trade and other receivables 1,005, , ,687 81,941 8,209 11,466 Investments 6,791 6, Total Financial Assets 2,147,327 1,338, , ,723 15,367 32,352 Trade and other payables 292, ,213 12, Total Financial Liabilities 292, ,213 12, Net Financial Position 1,854,334 1,057, , ,493 15,367 32,352 43

44 Notes to the 2016 Total NZD AUD GBP EURO USD $ $ $ $ $ $ Cash and cash equivalents 1,066, ,453 5, ,251 9,178 28,349 Forward exchange contracts 16,125-5,659 9, Trade and other receivables 932, , ,725 72,071-32,028 Investments 6,791 6, Total Financial Assets 2,021,327 1,139, , ,836 9,178 61,329 Trade and other payables 415, ,533 10, Total Financial Liabilities 415, ,533 10, Net Financial Position 1,606, , , ,836 9,178 61,329 Price Risk Palliser is exposed to price risk as a result of the competitive market steering the selling price of wine. If sales prices were to fall by 5% or increase by 5% then this would have the following impact: $ $ Actual Revenue 4,612,360 4,542,450 5% Decrease 4,381,742 4,315,328 5% Increase 4,842,978 4,769,573 b) Fair Values The estimated fair values of the company s financial assets and liabilities approximate their carrying values. NOTE 19: RISK MANAGEMENT STRATEGIES RELATED TO AGRICULTURE ACTIVITY Frost protection is provided on all vineyards to protect against the risk of crop loss or damage due to frosts. An established programme is run to reduce and mitigate the effects of diseases, weeds and other pests on the health and production of the vines. 44

45 Notes to the NOTE 20: RISK SENSITIVITY The table below summarises the pre-tax sensitivity of financial assets and liabilities to changes in the key risk variable, being currency risk. This details movement in profit or loss within the Statement of Comprehensive Income given a 10% shift in the NZD against all currencies held. The 10% sensitivity rate used represents management s assessment of the reasonably possible change in foreign exchange rates Carrying Amount Currency Risk $ -10% 10% Cash and cash equivalents 526,322 20,611 (16,864) ANZ Bank term deposit 606, Forward exchange contracts 2,447 31,405 (30,145) Trade and other receivables 1,005,169 70,232 (57,463) Investments 6, Total Financial Assets 2,147, ,248 (104,472) Trade and other payables 292,993 1,420 (1,162) Total Financial Liabilities 292,993 1,420 (1,162) Net Financial Position 1,854, ,828 (103,310) 2016 Carrying Amount Currency Risk $ -10% 10% Cash and cash equivalents 1,066,232 26,975 (22,071) Forward exchange contracts 16,125 30,885 (54,588) Trade and other receivables 932,179 70,227 (57,458) Investments 6, Total Financial Assets 2,021, ,087 (134,117) Trade and other payables 415,120 1,176 (962) Total Financial Liabilities 415,120 1,176 (962) Net Financial Position 1,606, ,911 (133,155) 45

46 Notes to the NOTE 21: MATURITY ANALYSIS The table below analyses the company s financial liabilities into relevant maturity groupings based on the remaining period from the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due equals their carrying values as the impact of discounting is not significant less than greater than 6 months 6-12 months 12 months $ $ $ Trade and other payables 292, Total Financial Liabilities 292, less than greater than 6 months 6-12 months 12 months $ $ $ Trade and other payables 414, Total Financial Liabilities 414, NOTE 22: RELATED PARTY TRANSACTIONS The company purchased fuel, road user charges, vehicle maintenance and other minor purchases from Martinborough Automotive Limited, of which Ms P M Goodwin s partner is related. These transactions amount to $4,438 (2016: $7,049). The company was provided with accounting, consultancy and share registry services during the year by the accounting firm of Lawson Avery Limited of which Mr A G Beech is a director. These transactions amount to $82,473 for the year (2016: $82,689). During the year the company reimbursed Mr J D Auld accommodation and travel expenses of $2,402 (2016:2,874). 46

47 Notes to the $ $ Trade and other receivables include: Key management personnel Other related parties - 1,226 Trade and other payables include: Key mananement personnel 34,419 57,348 Other related parties 7,170 12,442 Key Management Compensation Short-term employee benefits 351, ,699 NOTE 23: COMMITMENTS There were no commitments for capital expenditure at the reporting date (2016: Nil). NOTE 24: OPERATING LEASES A lease commitment exists for the photocopier and Eftpos payment services $ $ Less than a year 5,039 2,454 Between one and five years 7,033 6,464 More than five years - - Total 12,072 8,918 Total operating lease payments recognised as an expense 4,648 2,622 47

48 Notes to the NOTE 25: CONTINGENT LIABILITIES AND CONTINGENT ASSETS No contingent liabilities or contingent assets are known to exist at the reporting date (2016: Nil). NOTE 26: DIVIDEND A dividend on ordinary shares of 5 cents per share was paid on 18 November 2016 to shareholders on the share register on 11 November NOTE 27: BANK SECURITIES The ANZ Bank holds the following securities: -First charge registered mortgage over 12.24ha -General Security Agreement (priority amount $1,800,000) -Specific Security Agreement over plant & equipment. The company is not subject to the maintenance of any external financial covenants. NOTE 28: EVENTS AFTER REPORTING DATE On 18 August 2017, the Directors resolved to pay a fully imputed Dividend of 5 cents per share on 19th September NOTE 29: MANAGING CAPITAL Management s objective is to ensure the company continues as a going concern and to maintain optimal returns to shareholders and benefits for other stakeholders. The company aims to maintain a capital structure which provides flexibility to enable future growth. 48

49 Notes to the NOTE 30: ADJUSTMENTS REQUIRED FOR CHANGE IN ACCOUNTING POLICY FOR BEARER PLANTS (a) Reconciliation of Statement of Financial Position as at 30 June 2016 Accounting for Bearer Plants Previous 2016 Effects of Change Restated 2016 $ $ Current Assets Cash and Cash Equivalents 1,066,232-1,066,232 Tax Refund Due 4,841-4,841 Trade and Other Receivables 909, ,225 Forward Currency Contracts 16,125-16,125 Prepaid Expenses 5,078-5,078 Stock on Hand 3,882,276-3,882,276 5,883,777-5,883,777 Non Current Assets Trade and Other Receivables 22,954-22,954 Property, Plant and Equipment 7,711,692 3,159,858 10,871,550 Biological Assets -Vines 3,189,000 (3,189,000) - Intangible Assets 45,110-45,110 Investments 6,791-6,791 10,975,547 (29,142) 10,946,405 Total Assets 16,859,324 (29,142) 16,830,182 Current Liabilities Trade and Other Payables 415, ,120 Tax Payment Due GST Payable 9,092-9, , ,212 Non Current Liabilities Deferred Tax 1,536,279 (8,160) 1,528,119 Total Liabilities 1,960,491 (8,160) 1,952,331 Equity Share Capital 6,421,614-6,421,614 Retained Earnings 8,477,219 (20,982) 8,456,237 Total Equity 14,898,833 (20,982) 14,877,851 Total Liabilities & Equity 16,859,324 (29,142) 16,830,182 49

50 Notes to the (b) Reconciliation of Statement of Comprehnesive Income for Year Ended 30 June 2016 Previous 2016 Effects of Change Restated 2016 $ $ Revenue 4,542,450-4,542,450 Cost of Sales 3,548,475-3,548,475 Gross Profit 993, ,975 Other Income 211, ,212 Total Revenue 1,205,187-1,205,187 Less Expenses: Administration and Marketing 854, ,944 Finance Costs Other 202,236 29, ,378 Total Expenses 1,057,750 29,142 1,086,892 Profit Before Taxation 147,437 (29,142) 118,295 Income Tax Expense 39,526 (8,160) 31,366 Profit for the Year 107,911 (20,982) 86,929 Other Comprehensive Income - - Total Comprehensive Income for the Year 107,911 (20,982) 86,929 Earnings per share (cents) Under the Amendments to NZ IAS 16 and NZ IAS 41 Agriculture: Bearer Plants, vines meet the definition of bearer plants, so have been reclassified under Property, Plant and Equipment. The amendments apply retrospectively so the 2016 figures are restated as above. Vine establishment costs in 2016 have been reclassified from development expenditure to cost of vines as under NZ IAS 16 Property, Plant and Equipment, bearer plants are accounted for in the same way as self-constructed items of property, plant and equipment before they are in location and condition necessary to be capable of operating in the manner intended by management. 50

51 Notes to the Comparative Financial Review for the Years Ending 30 June $ 000 $ 000 $ 000 $ 000 $ 000 Income Statement Data Total Sales Revenue 4,612 4,542 4,707 4,155 4,341 Surplus from Operations 1,147 1,205 1,416 1,448 1,722 Taxation Net Surplus/(Deficit) for the Year Earnings per Share (cents) Dividends per Share (cents) Statement of Financial Position Data Current Assets 5,822 5,884 6,054 6,130 7,131 Current Liabilities Working Capital Ratio Non-Current Assets 11,025 10,946 11,163 11,421 11,108 Total Assets 16,847 16,830 17,217 17,551 18,239 Non-Current Liabilities 1,573 1,528 1,531 1,556 1,503 Total Liabilities 1,995 1,952 2,009 1,865 1,832 Total Shareholder s Equity 14,852 14,878 15,208 15,686 16,407 Net Surplus/(Deficit) % of Shareholder s Equity 1.04% 0.58% 0.97% 1.77% 2.52% Shareholder s Equity % of Total Assets 88.16% 88.40% 88.33% 89.37% 89.96% Number of Shares at year end 4,197,868 4,188,778 4,188,778 4,188,778 4,176,778 51

52 Statutory Information 30 June CHANGES IN CAPITAL During the year, as allowed by the constitution, shares were issued to the following staff:, G McMaster 2,000, S Moore 2,000, I Moffat 1,000, and A Perry 1,000, The share are to be paid by equal instalments over 120 months. In addition during the year G McMaster was issued and paid for 3,090 shares. 2. DIVIDEND A dividend on ordinary shares of 5 cents per share was paid on 18 November 2016 to shareholders on the share register on 11 November A supplementary dividend of $ per share was also paid on this date to non-resident shareholders to satisfy the non-resident withholding tax that was withheld from the dividend paid to non-resident shareholders. 3. DIRECTORS In accordance with the company s constitution, Mr A G Beech retires by rotation and, being eligible, offers himself for re-election to the Board. 4. AUDITOR In accordance with Section 200 of the Companies Act 1993, the auditor, Grant Thornton, continues in office. 5. INTERESTS REGISTER Transactions Various related party transactions were conducted during the year as more particularly described in Note 22 on page 46 and 47 of the annual report. The company has Directors and Officers Liability Insurance. Loans to Directors There were no loans by the company to Directors. 52

53 Statutory Information 30 June DIRECTORS REMUNERATION The shareholders approved Directors fees of $63,000 per annum to be divided amongst the Directors. During the year the Board of Directors approved the following remuneration for the Directors of the Company: A R Meehan 17,500 17,500 A G Beech 11,375 11,375 S R Tyler 11,375 11,375 J D Auld 11,375 11,375 R D Riddiford 948 9, EMPLOYEES REMUNERATION Remuneration and other benefits of $100,000 or more received by employees in their capacity as employees were as follows: No. of Employees $100,000-$120,000 2 $160,000-$180,000 1 $180,000-$200, SHAREHOLDING BREAKDOWN Shareholding Number of Total Shares Held % of Share Capital as at 30 June 2017 Shareholders 1-9, , % 10,000-49, , % 50,000-99, , % 100, , ,269, % 209 4,197, % 53

54 Statutory Information 30 June DIRECTORS SHAREHOLDING Shares held at 30 June 2017 (including beneficial interests): A G Beech 14,000 shares fully paid A R Meehan 16,190 shares fully paid S R Tyler 5,000 shares fully paid J D Auld 5,000 shares fully paid CONTRIBUTORS (MANAGEMENT TEAM AS AT 30 JUNE 2017) Carla Burns Pip Goodwin Allan Johnson Lesley Just Guy McMaster Sandy Moore Anna Perry 54

55 International Distributors AUSTRALIA CHINA HONG KONG MAURITIUS SINGAPORE THAILAND Negociants Australia 205 Grote St Adelaide South Australia 5000 Australia Tel BERMUDA Bristol Cellar Limited 16 Wellbottom Southampton WK 01 Bermuda Tel: BRAZIL Premium Importacao Exportacao E Comercio Ltda Rua Palmira 423 Serra Belo Horizonte MG Brazil Tel premiumwines@uol.com.br CANADA Family Wine Merchants 1469 Pelham Rd St. Catharines, On Canada Tel: pspeck@fwmcanada.com Pavoa Imports Pavoa Impotrs Ltd 204 Mt Alderson Cres W Lethbridge Alberta, Canada pavaoimportsltd@telus.net Watson s Wine Cellar (Shanghai) Company Limited 1B&1D Shop, Building 3# Huangpu Dist. Shanghai China Tel: ElaineW@asw.com.hk Ramko (Guangzhou)Ltd 6th Floor of D3 Building, Linghui Chuangzhan Business Centre, No. 38 Hui Cai Road, Dongpu, Tianhe District, Guangzhou, China Tel: ext DENMARK Laudrup Vin & Gastronomi Mileparken 13 DK 2740 Skovlunde Denmark Tel: christian@winepartners.dk FIJI Victoria Wine & Spirits 219 Victoria Parade, Suva Fiji Tel: info@victoriawines.com.fj GERMANY Vinabonus GmbH Simmedenweg Kassel Germany Tel: Watson s Wine Cellar 10/F., Watson House, 1-5 Wo Liu Hang Road Fo Tan, New Territories Hong Kong Tel: info@watsonswine.com IRELAND WineOnline Unit 4b Santry Hall Industrial Estate Dublin Ireland Tel: will@wineonline.ie ITALY Gaja Via Torino, Barbaresco Italy Tel: carla.forzano@gaja.com JAPAN Village Cellars 6-5 Ueno Uwada Himi Toyama Japan Tel: wine@village-cellars.co.jp KOREA Les Vins De Maeil 6F, Samhwan Bldg, 98-5, Woonidong, Chongro-gu, Seoul, Korea Tel: marffice@maeil.com Natureland Products Ltd Vikas Building 7th Mile Triolet Solitude, Mauritius Tel: / vikash@natureland.org MALAYSIA Premiere Wines 5, Persiaran Syed Putra 3, Taman Persiaran Desa, Kuala Lumpur, Malaysia. Tel: chongpakhong@hotmail.com NEW ZEALAND Negociants NZ Ltd 2D, 95 Ascot Avenue Remuera Auckland 1051 Tel: negnnz@negociants.com DIVA New Zealand Level Ponsonby Road Ponsonby New Zealand Telephone : jwoods@diva-nz. comrarotonga The Bond Liquor Store Rarotonga, Cook Islands Tel: Richard Barton richard@thebond.co.ck The Cellar Door Pte Ltd 8A Admiralty Street # Food Xchange 1 Singapore Tel: info@e-cellardoor.com SPAIN Meddiss Multinacional Europea de Distribucion SI Guadarrama Nave 26 Poligono La Encinilla Moralzarzal (Madrid) Spain Tel: contacta@meddissl.com SWITZERLAND Barossa Weinhandels AG Dorfstrasse 40 CH 8596 Scherzingen Switzerland Tel: info@barossa.ch TAIWAN CellarV Winery Co. Ltd No. 19 Aly.28, Ln.372 Zhongxiao E. Rd Xin Yi Dis Taipei City 110 Tawian (ROC) sam.duann@rock.co.tw Bangkok Beer and Beverages Co.Ltd 193/54 Lake Rajada Complex, 14th floor Rajadapisek Rd. Klong Toey, Bangkok Thailand Tel: ron@bbbfb.com UNITED KINGDOM Justerini & Brooks 61 St James St London SW1A 1LZ England, United Kingdom Tel: justorders@justerinis.com UNITED STATES Negociants USA, Inc. 477 Devlin Road, # 101 Napa, CA USA Tel: negusa@negociants.com VINOMOFO Bobbie Dry Level 2/6 Palmer Parade, Cremorne VIC 3121 Australia Tel: bobbie@vinomofo.com 55

56 Palliser Estate Wines of Martinborough Ltd PO Box 121, Martinborough 5741 T: F: E: palliser@palliser.co.nz 56