1. 1
Will McGregor
Student Number- 100636175
Assessment Task 3
Individual Report – Australian Vintage Ltd
Client Investment Advice
Due: Midnight 18th
October 2015

2. 2
Executive Summary
This report provides an analysis and evaluation of the historic and current financial position
of Australian Vintage Ltd. The business outline will explain the capabilities of Australian
Vintage Ltd. which range from vineyards, boutique and bulk wine production, packaging,
marketing and distribution and briefly touches on its exporting methods across the globe.
Analysis includes profitability trends using vertical analysis to show net profits continuing to
rise over a four year period. Current ratio analysis gives insight into the strong liquid
position Australian Vintage Ltd. sees itself which will see the business being able to manage
its short term liabilities. Gearing ratios are calculated which show a comfortable level of
gearing, mainly due to some recent capital raising through shares being issued while also
proving financial institutions are comfortable lending money to the company through the
borrowings that have recently been confirmed to continue.
The main sources of finance, being capital raising through an issue of shares and borrowings
are explained in the latter sections of the report. The major risk factors that Australian
Vintage Ltd. needs to monitor are the threats of global warming on vineyards, exchange rate
fluctuations and its ability to manage its finances due to seasonal and productions costs
fluctuating. The report will show how Australian Vintage Ltd. could minimise these risks
through a number of different strategies. Finally, recommendations will then be delivered
to my client to influence his decisions that Australian Vintage Ltd. is a strong company in a
sound financial position and one that should be invested in.

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Contents
Introduction 4
Australian Vintage Ltd – Business Outline and Strategy 4
Australian Vintage Ltd - Profitability trend and current situation 5
Australian Vintage Ltd - Liquidity trend and position 6
Australian Vintage Ltd - Financial gearing trend and its influence on future expansion
decisions 7
Australian Vintage Ltd – Sources of finance 7
Australian Vintage Ltd – Major risks and future management strategies to minimise these
risks 8
Global Warming 8
Exchange Rate Fluctuations 9
Financial Management 10
Australian Vintage Ltd – Final recommendations to client investment 10
Conclusion 11
References 12

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Introduction
This report will firstly explore Australian Vintage Ltd. as a business outlining the company’s
market and major business strategies. Profitability trends will be analysed and factors that
have contributed to the company’s current financial situation will be explained. The report
will continue by analysing liquidity trends and position, before going into further detail
around financial gearing and how this may influence future expansion of the business.
Identification and explanation of sources of finance used by Australian Vintage Ltd. will be
detailed while also looking into major risks that the company may face into the future. How
the company can manage that risk, as well as all of the above factors, will help determine
the purpose of this report; whether or not Australian Vintage Ltd. as a company is a smart
investment choice for my client.
Guidance will be given to my client to determine whether Australian Vintage Ltd. is a safe
and secure business that is worth investing in. Finally, the report will include a final
recommendation as to whether or not Australian Vintage Ltd. represents a sound
investment.
Australian Vintage Ltd – Business Outline and Strategy
Australian Vintage Ltd. is a leading Australian wine company (Australian Vintage Limited
2015). The business capabilities extends from vineyards, boutique and bulk wine
production, packaging, marketing and distribution and deals with large domestic and
international customers. As one of Australia’s largest vineyards, the company produces
wines and exports all over the world and has recently won multiple industry awards.
Contract processing, vineyard management, contract packaging and concentrate are other
extensive services and capabilities the business offers. (Australian Vintage Limited 2015)
Australian Vintage Ltd. crushes approximately 10% of Australia’s total annual production,
proving the company’s capabilities are extensive. The company’s vineyards branch across
South Eastern Australia and operates all year round from two state of the art wineries with
over 2,700 hectares under vine. (Australian Vintage Limited 2015).
Australian Vintage Ltd. Corporate strategy extends to ensuring the business practices are
environmentally sustainable through things such as recycling, water management, using
renewable energy sources and using digital technology instead of hard copies (Australian
Vintage Limited 2015).

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Australian Vintage Ltd - Profitability trend and current situation
Australian Vintage Ltd is currently in an excellent financial situation. During recent analysis
of Australian Vintage Ltd.’s income statement, a completed vertical analysis showed a
gradual increase in the business’ net profit over the four years of business operation. Figure
1.0 shows that net profit has increased in 2011 from $6.564 million to $10.544 million in
2014 (Duncan 2015).
Income Statement (in $000’s)
2011 % 2012 % 2013 % 2014 %
Net profit for the year $6,564 2.9% $7,067 3.1% $7,070 3.4% $10,544 4.9%
Figure 1.0 shows a 2% increase in net profit over the four years of business operation.
Australian Vintage Ltd.’s brand has continued to grow in overseas markets (Ferrier 2014). In
August, the company announced that it signed a long term strategic China wide agreement
with COFCO Wine and Spirits which would see the company export wine to the world’s most
populous country, projected to reach 1.39 billion people by the end of 2015. (Xinhua 2010)
According to Cook (2014), the key to exporting success is to have a long term commitment
by developing an export strategy. As Australian Vintage Ltd. has the long term strategy with
China, they have greatly enhanced the chances of long term financial stability. Ferrier
(2014) who is the Chairman of Australian Vintage Ltd. explained in his 2014 Chairman’s
report that the company has also increased its presence in the United Kingdom and Europe,
focusing on the major supermarkets. This has in turn increased sales and distribution in
Australia, New Zealand, Asia and North America markets with a world wine production
increase of 9% in 2013. (Ferrier 2014)
According to “Grape Growing in Australia” industry report (Tonkin 2015, p. 7) profit margins
have fallen over the past five years; due to an oversupply of grapes, falling domestic grape
prices and rising input costs. While other businesses have been forced to leave the industry
during the past five years, Australian Vintage Ltd. has continued to increase its net profit by
strategies such as increasing exportation overseas.

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Australian Vintage Ltd - Liquidity trend and position
The liquidity position of Australian Vintage Ltd. looks strong based on analysis using current
ratio. The current ratio assesses a business’ liquid assets against its short term liabilities to
determine whether the business can meet its short term financial commitments (Atrill et al
2015, p. 265). Generally speaking, an ideal ratio current ratio is 2:1. By looking at Figure
2.0, you can see that Australian Vintage Ltd. over the last four years has averaged a current
ratio of just over four (Duncan 2015). This shows that the company has four times the
amount of current assets than liabilities. In a company such as Australian Vintage Ltd. the
reason for having a large amounts of assets is that they could be holding stock. For
example, it may take a number of years for a particular vintage to mature and be able to
sell. One particular wine brand, McGuigan, has increased its sales by 46% over the last two
years, which may be one reason the business is liquid (Australian Vintage Limited 2015).
Another reason may be, that the current price of wine is weak and the company is waiting
for a price increase before sales commence.
Liquidity
Current ratio CA/CL (times eg 2011 4.12:1)
2011 2012 2013 2014
4.12 3.60 4.46 4.21
Figure 2.0 shows the business is liquid using current ratios
In 2011, the company sold one of its assets, Loxton Winery. In 2014, the company
announced the sale of another underutilised Yaldara winery for $15.5 million (Ferrier 2014,
p. 3). These sales helped the business to meet its short term obligations from its liquid
assets. A business may fail if it cannot meet its maturing obligations.

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Australian Vintage Ltd - Financial gearing trend and its influence on
future expansion decisions
“Financial gearing occurs when a business is financed, at least in part, by contributions from
outside parties, typically borrowings” (Atrill et al 2015, p. 266). The gearing ratio for
Australian Vintage from 2011 until 2014 has been calculated and displayed in Figure 3.0 and
shows there has been a gradual increase in the percentage of gearing (Duncan 2015).
Gearing
Gearing ratio (NC Debt only/(Equity + NC Debt)
2011 2012 2013 2014
28.05% 36.88% 34.96% 41.52%
Figure 3.0 shows that the gearing of the company has steadily increased in a four year period.
Typically, the lower the gearing ratio, the less risk there is for shareholders to invest in the
company. Recent capital raising through issuing shares has reduced the gearing ratio to a
more comfortable level for Australian Vintage Ltd. (Ferrier 2014, p. 3). There has been no
negative impact on future expansion in the business which is evident by increasing their
markets to Asia. The company’s lenders are also satisfied with the gearing ratio percentages
as they have continually financed the company over the last four years. A confirmed three
year borrowing facility has been finalised (Ferrier 2014, p. 3) in 2014, proving that the bank
has faith in the company’s long term financial position.
Benefits to shareholders come from tax deductibility of interest on borrowings as interest
rates on borrowings are generally low when compared to the returns the business can earn
(Atrill et el 2015, p. 268). The banks can see that profitability trends continue to rise for
Australian Vintage Ltd. which is why they are comfortable loaning more money as a source
of finance for the business.
Australian Vintage Ltd – Sources of finance
There are a number sources of finance that Australian Vintage Ltd. could use to help
improve its current financial situation. It is important to note that there are both internal
and external sources of finance (Atrill et al. 2015, p. 470). Internal sources of finance do not
require the agreement of anyone other than the directors and managers of the business
whereas external sources of finance may require compliance from potential shareholders
(Atrill et al. 2015, p. 470).
A major source of external financing that Australian Vintage Ltd. used in 2013 was capital
raising. In 2013, the company successfully completed a capital raising for $40 million with
good institutional and retail support (Ferrier 2014, p. 3). This capital was raised by issuing

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shares which further reduced debt in the company. This resulted in the company’s gearing
decreasing from 59% in June 2013, to 39% in June 2014 (Ferrier 2014, p. 3). The capital
raised by Australian Vintage Ltd was used to reduce debt while also retaining cash. Issuing
shares can come in the form of ordinary shares, which can be a valuable source of financing
due to potentially avoiding paying a dividend (Atrill et al. 2015, p. 473).
Another external source of financing that Australian Vintage Ltd. uses is borrowings.
Negotiations have concluded with the company’s banker and it has now been confirmed a
new three year borrowing facility has been finalised (Ferrier 2014, p. 3). This proves that
the bank has faith in the company’s long term financial position. Just like other companies,
Australian Vintage Ltd. rely on borrowings to finance future operations and now have this
guarantee. Reviewing the 2012, 2013 and 2014 annual reports of Australian Vintage Ltd, it
is evident that the companies banking facilities have continued to offer finance.
Other sources of finance that Australian Vintage Ltd. could use would be to retain earnings.
The company has recently paid a dividend of 2.2 cents (ASX Limited 2015) but may want to
consider not distributing funds to shareholders to increase its own funds (Atrill et al 2015, p.
471). This strategy is adopted by most companies.
One key source of finance that Australian Vintage Ltd. could use is reduced inventory levels.
A winery business of this size is always going to have large amounts of its assets in the form
of inventory. By reducing the amount of stock on hand, or a particular vintage release,
funds may become available to use for other purposes. Funds may be tied up and cannot be
used for more profit gains (Atrill et al 2015, p. 471) if stock is held too long and cannot be
sold.
Australian Vintage Ltd – Major risks and future management
strategies to minimise these risks
Global Warming
One major risk to that Australian Vintage Ltd. may face in the long term is the gradual rise in
temperature, commonly known as global warming. Gaidos (2010) believes that before the
end of the century, Western Australian’s famous wine regions known for its cabernet
sauvignon or shiraz as researchers found the acidity and concentration of a compound that
gives red wine its colour could drop below thresholds to maintain high-quality wine. Global
warming may also increase extreme weather events such as heat waves and hailstorms
which can shut down photosynthesis and damage grapes respectively. (Gaidos 2010). A
possible strategy to counter this long term global warming effect is to purchase land and
vineyards in areas less effected by climate change, therefore minimising the risk and
increasing the life of Australian Vintage Ltd. as a business.

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Doctor Leanne Webb, who is a former viticulturist and now researcher believes more
damage to vineyards occurs where water is unavailable, grapevine rows were planted in a
north- south direction and bunches were exposed to the sun’s radiation. (Wine industry
working towards climate change adaptation 2009). Strategies to counter can include the
purchase of water or large tanks to store this water. Looking into the 2014 Annual Report,
the balance sheet shows the company has spent over $8 million on water licences to ensure
a more than adequate supply of water (Australian Vintage 2015). Planting vines in an east-
west direction and growing vines with a large leaf cover to protect grapes will not allow as
much sun damage on the grapes. An alternative to this is to develop portable shade covers
to alter the climate grapes are grown under which a strategy is employed by many
vineyards. The company board also monitors risk management and strategies are in place
to ensure improvements continue in this area. Systems to manage and identify risk are in
place and include financial and non-financial, such as environmental and investment risk
(Australian Vintage 2015). An insurance policy to in relation to global warming would be a
good way to ensure investors of any possible risk.
Exchange Rate Fluctuations
Another major risk to Australian Vintage Ltd. needs to constantly monitor is the fluctuating
Australian dollar (AUD). The reason for this, is that the AUD price can effect export trading
of wine across the world. In the years 1999 to 2002, the Australian dollar exchange rate
hovered around 57.6 cents. During this period, our wine export volume growth to the USA
averaged 31.6% per annum. If we compare that to the US market from 2005 to 2007, when
the Australian dollar exchange rate averaged 78.7 cents, the wine export volume growth
averaged only 3.5% per annum (Scott 2008, p. 63).
Currently, in 2015 the AUD sits at 73.24US cents (Dollar higher as Wall St gains 2015), which
is very similar to the rate from 2005 to 2007 when export trading was very challenging. For
Australian Vintage Ltd. to counter this risk, a strategy which has been employed is to lock
away a long term strategic China wide distribution agreement with COFCO Wine and Spirits.
Having a distribution footprint in China give the Australian Vintage Ltd. a fantastic platform
to build brand equity in this market space. Throughout China, COFCO has a substantial
distribution footprint, allowing wines to reach consumers all over the country (Ferrier 2014).
Australian Vintage Ltd. could also look into increasing their domestic markets further, which
grew by 25% in 2014 to ensure that sales continued to grow for particular brands (Ferrier
2004).

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Financial Management
Overall, the wine industry in general has to constantly monitor working capital and their
cash flow management. The reason for this, is that seasonal costs for companies such as
Australian Vintage Ltd. which include pruning, harvesting and processing can be quite
substantial and to cover these costs require cash in bank. Recent production costs shown
an average of $357 per tonne of grapes (Keys 2014, p. 11). This may prove why the 2014
vintage was down 19% last year to 124,000 tonnes (Ferrier, 2014) which is a reduction in the
amount of wine produced by Australian Vintage Ltd. The current production cost per litre
for Australian Vintage Ltd. remains higher which is a strategy that have employed to
minimise the risk of minimal cash flow. Other strategies the company could employ to
minimise cash flow risk may be the issuing of shares to improve capital, the selling off of an
underutilised vineyard or further borrowings from the bank. All strategies that the company
has employed recently to ensure strong financial management.
Australian Vintage Ltd – Final recommendations to client investment
Through a thorough financial investigation of Australian Vintage Ltd. the company has
continued to increase its net profit since 2011 to over $10.5 million. This profit is set to
continue to rise with a long term strategic China wide agreement now in place which will
see wine exported to China while still increasing its presence throughout the United
Kingdom and Europe. With an industry oversupply of grapes becoming a major issue
(Tonkin 2015, p. 5), having long term contracts in place ensures sales and distribution will
continue into the future.
Australian Vintage Ltd. is also quite liquid allowing short term financial commitments to be
met, minimising the risk that current liabilities become too difficult to manage. Recent
capital raising through an issue of shares has reduced the financial gearing to a comfortable
39% (Ferrier 2014, p. 3) currently. Financial institutions continue to support the company,
confirming a three year lending facility has been recently finalised, further securing the
financial stability of the business.
Having multiple sources of finance is important for a company like Australian Vintage Ltd.
The main sources come from capital raising through issuing shares and borrowings from
financial institutions. Other sources include the possibility on not paying out a dividend and
retaining the earnings as well as reducing inventory levels through sales of stock. A very
important factor that decreases the risk of investing in the company is the fact that the
business has many different capabilities. From vineyards, boutique and bulk wine
production and packaging to marketing and distribution, there are a number of areas that
will produce an income for the business.
Strategies are also in place, constantly monitored at board level, to minimise the financial
risk involved in the business. These strategies are frequently monitored and the company is
always seeking improvement in risk management.

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Research conducted on the ASX website confirms the current share price of Australian
Vintage Ltd. as at 15th October 2015 is 0.375 (ASX Limited 2015). Since 2010, the share price
of this company has remained very constant with a slight increase over the last month.
The most recent dividend paid was 2.2 cents per share and is the fourth consecutive year a
dividend has been paid (Ferrier 2014, p. 3). When comparing that to similar industry
businesses, Treasury Wines Estate which produces 165,488 tonnes has a share price of
6.570 and paid a recent dividend of 8 cents per share (ASX Limited 2015). Although
Treasury Wines Estate seems financially stable at present, the company has only been listed
for four years. Comparing this to Australian Vintage Ltd. which has a proven record over a
sustained period, I would be cautious investing in Treasury Wines Estate. Share buying
potential would also be greater with Australian Vintage Ltd. as the price per share is
considerably less.
Clearly, there is always risk when investing in a company, but given the points above in
relation to Australian Vintage Ltd. I see no reason why my client should not consider
investing in the company. The company’s future looks assured and is in a very healthy
position financially. The directors are looking to roll over after a three year term which is
always a good sign in business and with the diverse range of incomes streams, Australian
Vintage Ltd. is a company that should be invested in.
Conclusion
It can be seen that Australian Vintage Ltd. is a sound business with many capabilities and
strategies to manage these. The company continues to show a net profit, against the
industry trend, is liquid and has a comfortable gearing ratio. Financial lenders are
supportive with a recent lending facility locked away and a number of sources of finance
strengthening the business. The report has proven that Australian Vintage Ltd. is a
successful multi-facet company with risk management strategies in place to ensure
continued success to investors long into the future.

12. 12
References
Atrill, P., McLaney, E. and Harvey, D. (2014) Accounting: An Introduction. 6th ed. Australia:
Pearson Education Australia.
AVG Australian Vintage LTD, ASX Limited, viewed 16 October 2015,
<http://www.asx.com.au/asx/research/company.do#!/AVG>
Australian Vintage Ltd 2015, Our Company, viewed 28 September 2015,
<http://www.australianvintage.com.au/>
Cook, P 2014, ‘Growing overseas markets ripe for Iowa exporters’, Corridor Business Journal,
vol. 16-22, pp. 12-20.
Duncan, E 2015, ‘Australian Vintage 2012 Annual Report’, HS2-ACC60004 Accounting and
Financial Decision Making, Learning materials on Blackboard, Swinburne University of
Technology, 1 September, viewed 5 October 2015.
Duncan, E 2015, ‘Australian Vintage 2013 Annual Report’, HS2-ACC60004 Accounting and
Financial Decision Making, Learning materials on Blackboard, Swinburne University of
Technology, 1 September, viewed 5 October 2015.
Duncan, E 2015, ‘Australian Vintage 2014 Annual Report’, HS2-ACC60004 Accounting and
Financial Decision Making, Learning materials on Blackboard, Swinburne University of
Technology, 1 September, viewed 5 October 2015.
Ferrier, I 2014, Chairman’s Report, viewed 28 September 2015,
<http://www.australianvintage.com.au/investors/the-year-in-review/chairmans-report/>
Gaidos, S 2014 ‘Grape Expectations’, Health Source-Consumer Edition, vol. 185, no. 4, pp.
20-24.
Keys, T 2013, ‘Banking on the wine industry- defining the lending environment between
banks and wineries’, Wine & Viticulture Journal, vol. 6-10, pp. 11-15.

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News Limited Copyright, Dollar higher as Wall st gains, views 2 October 2015,
<http://www.news.com.au/finance/markets/dollar-higher-as-wall-st-gains/story-fn6t6wad-
1227565537939>
Scott, J 2008, ‘Exchange rate woes – high Australian dollar continues to challenge wine
exporters’, Australian & New Zealand Wine Industry Journal, vol. 16-23, pp. 63-64.
The University of Melbourne 2009, Wine industry working towards climate change
adaptation, viewed 1 October 2015, <http://newsroom.melbourne.edu/news/n-64>
Tonkin, B 2015, Grape Growing in Australia, IBISWorld, A0131
Xinhua 2010, China’s population to near 1.4 billion by 2015, viewed 1 October 2015,
<http://www.chinadaily.com.cn/china/2010-07/04/content_10055250.htm>