FLLYR: DGL: DGL - Full Year Results 2010

27 Aug 2010 8:31 am

DGL 27/08/2010 FLLYR

REL: 0830 HRS Delegat's Group Limited

FLLYR: DGL: DGL - Full Year Results 2010

DELEGAT'S GROUP LIMITED

Results for announcement to the market Reporting Period 12 months to 30 June 2010 Previous Reporting Period 12 months to 30 June 2009

Amount (000s) Percentage change Revenue from ordinary activities $215,810 (6%) Profit from ordinary activities after tax attributable to shareholders $177 (99%) Net profit attributable to shareholders $177 (99%)

Audit The financial statements attached to this report have been audited and are not subject to a qualification. A copy of the audit report applicable to the full financial statements is attached to this announcement.

Comments Refer to the Full Year Review appended.

Dividends The Directors have declared a final dividend of 8.0 cents per share. The dividend will be fully imputed and a supplementary dividend of 1.4 cents will be paid to overseas shareholders in accordance with Listing Rule 7.12.7. Cents per share Imputed Cents per share Final Dividend for the year ended 30 June 2010 8.0 cents 3.4286 cents

Record date 1 October 2010 Dividend Payment Date 15 October 2010

Net Tangible Assets per share Current Year Previous corresponding year Net Tangible Assets per share $1.52 $1.67

DELEGAT'S GROUP LIMITED

Results Announcement - 2010

Delegat's Group Limited (Delegat's) is pleased to present its operating and financial results for the year ending 30 June 2010.

Performance Highlights - Achieved record global sales of 1,950,000 cases. - Achieved record sales revenue of $219.7 million. - Maintained in-market case price realisation in foreign currency. - Generated record cash from operations of $48.2 million. - Reduced net debt by 7% to $129.2 million.

The Directors consider that the Group has performed admirably in challenging circumstances this year and reports an operating performance profit after tax of $18.9 million for the year, compared with February's market guidance of $19.4 million and $22.7 million in the previous year. Delegat's has recorded a number of one-off non-cash accounting adjustments, which have reduced the reported net profit after tax to $0.2 million.

The Directors are also of the view that the reported financial result needs to be analysed in greater detail for the Group's success to be recognised.

New operating performance measures The Group presents its financial statements in accordance with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), which were introduced in the 2008 financial year. The Directors are of the view that the results reported under NZ IFRS do not provide adequate insight into the Group's underlying operational performance, primarily due to a number of fair value adjustments that are required to be reported on.

To provide a better understanding of the operational performance, the Group will publish an Operating Performance report at each reporting date. This supplementary report eliminates from each line in the Statement of Financial Performance all fair value adjustments.

Also eliminated are the one-off non-cash accounting adjustments resulting from the impairment of assets and the one-off non-cash accounting adjustments required as a result of the Government announcing changes to company tax legislation in their 2010 Budget - these accounting adjustments are dealt with later in this announcement.

The Directors draw attention to the following three lines in particular:- - Operating EBIT, being Earnings before Interest, Tax and Fair Value Adjustments; - Operating NPAT, being Net Profit after Tax and Minority Interests, but before Fair Value Adjustments; and - Operating EBITDA, being Operating EBIT before Depreciation and Amortisation.

Operating performance Delegat's delivered record Sales Revenue of $219.7 million on record case sales of 1,950,000 in the year. Sales Revenue was up $1.3 million on the Group's February guidance and $3.1 million up on 2009, while case sales were up 23,000 on guidance and 212,000 on 2009. The 2010 case price realisation of $112.70 is in line with Group's February guidance; however, 10% lower than the $124.60 achieved in 2009.

Jim Delegat, Managing Director, said: "The Group continues to maintain its in-market foreign currency case price realisation across all markets. The persistent higher value of the New Zealand Dollar has negatively impacted the Group's reported Case Price Realisation and Sales Revenue."

Jim Delegat said: "The Group's Oyster Bay brand is established as a leading Super Premium wine brand in New Zealand, Australia, the United Kingdom and Ireland. The Oyster Bay brand is gaining momentum in the important growth markets of the United States and Canada. In the 2010 financial year the Group achieved sales volume growth of 76% in North America to 357,000 cases, which equates to 4.27 million bottles of wine."

The following market performance statistics demonstrate how Oyster Bay has gained momentum in the United States market.

Oyster Bay has now reached number 150 of all wine brands in the USA*. - Oyster Bay is the number 10 growth brand within the Top 150. - Oyster Bay is the number 4 growth brand over $10 within the Top 150. - Oyster Bay is the number 3 import growth brand within the Top 150. * Source AC Nielsen MAT 24 July 2010.

The Group's Operating Expenses before NZ IFRS adjustments is $81.5 million - marginally lower than the February guidance for the full year, while 9% higher than the prior year comparative. This increase is the result of greater investment in sales and promotional programs generating increased case sales, and higher recruitment. The Operating Expenses include a provision for doubtful debts of $1.6 million made in relation to a major UK retailer, which was placed in administration.

The Group's Operating EBIT of $33.4 million compares to the February guidance of $34.4 million and is $7.3 million lower than the prior year. Operating EBITDA of $43.7 million compares with $52.6 million in 2009.

Operating NPAT is $18.9 million for the year under review, which is $0.5 million below the February guidance and $3.8 million lower than the prior year.

NZ IFRS Fair Value adjustments In accordance with NZ IFRS Delegat's are required to account for certain of their assets at fair value rather than their historic cost. All movements in fair value are required to be recorded in the Income Statement and the Group records adjustments in respect of four significant items at each reporting date:- - Biological Assets (Vines) have been written down by $6.5 million in 2010, whereas in 2009 they were written up by $1.6 million. The impairment is in line with the industry; - Biological Produce (Grapes) has been recorded in Inventories at market value rather than costs incurred, resulting in the expensing of $5.3 million of growing costs in 2010 compared with the write up (or reduction in costs) in 2009 of $0.6 million. The Group in February forecast a write down of $1.3 million for the year, based on their best estimate of market prices for grapes and harvest yields at the time; - Oyster Bay Marlborough Vineyards Ltd's (OBMVL) gross profit contributed a benefit of $1.2 million in 2010, compared with a benefit of $3.8 million in 2009 reflecting the lower grape prices in 2010. The Group in February forecast the benefit in 2010 to be $1.6 million; and - Derivative Instruments held to hedge the Group's foreign currency and interest rate exposures are recorded at fair value resulting in a loss of $3.7 million in 2010, compared with a gain in 2009 of $3.7 million. In addition the Group makes some minor adjustments in respect of share based payments and release of the provision in respect of the 2006 and 2007 harvests/vintages, which were recorded with the introduction of NZ IFRS in 2008.

In aggregate, and after deducting taxation and minority interests, the impact of fair value adjustments in 2010 amounted to a negative $7.9 million.

One-off non-cash accounting adjustments - Impairment of Assets The subsidiary OBMVL, recorded an impairment charge of $9.9 million at balance date against the carrying value of their Land and Vineyard Improvements. The lower grape prices in 2010, resulting from the wine industry's ongoing supply imbalance, led to this impairment charge. The carrying value of Land after the impairment charge remains above original cost.

As a consequence of the impairment of the tangible vineyard assets in OBMVL, the Group is required to record an impairment charge of $1.0 million for the Goodwill recognised in relation to the subsidiary. The Goodwill was recognised at the time Delegat's increased its ownership interest in OBMVL to 50.1%.

The Group's Board understands that OBMVL are receiving professional advice in respect to recapitalisation options and, as the majority shareholder, is in discussions with OBMVL.

- Government Tax changes The New Zealand Government in May 2010 announced changes to tax legislation which have resulted in non-cash accounting adjustments that have a material impact on Net Profit After Tax for the year under review. The change with the largest impact is the removal of the depreciation allowance on buildings for tax purposes, which results in a negative non-cash tax adjustment of $6.5 million in 2010. The other material change is the reduction in the corporate tax rate to 28% from 2012, which gives rise to positive non-cash tax adjustment of $1.0 million. After adjusting for minority interests the net impact on the Group is a negative $5.7 million adjustment to Net Profit After Tax.

Looking forward, the net cash impact of these two changes in tax is estimated to be $0.2 million per annum benefit to the Group. The estimate is based on the current level of taxable income for the Group and the tax depreciation allowance claimed on existing buildings.

Reported Accounting Performance After taking into account all of the fair value adjustments under NZ IFRS and the non-cash accounting adjustments resulting from the impairments of assets and changes to tax legislation, the Group's reported audited financial performance for 2010 is as follows:- - Earnings before Interest and Tax is $19.3 million, excluding impairment charges; - Earnings before Interest, Tax, Depreciation and Amortisation is $29.6 million, excluding impairment charges; and - Net Profit after Tax is $0.2 million.

Jim Delegat said: "The wine industry's supply imbalance led to lower grape prices in 2010, which influenced the value of vineyard assets and accordingly Delegat's recorded significant non-cash accounting adjustments in the year to account for lower values for land, vineyard improvements and biological assets. The fair value adjustment in relation to biological produce is also influenced by lower grape prices, the benefits of which will be reflected in a higher gross margin in subsequent years."

Cash Flow The Group generated record cash from operations of $48.2 million in the year under review, which is an increase of 13% on the prior year. A total of $28.8 million was invested in additional fixed assets and processing infrastructure during the period, while $8.5 million was distributed to shareholders in dividends and $8.7 million reduction in the Group's financing facilities.

Financial Position and Funding Delegat's has Net Debt of $129.2 million as at 30 June 2010 compared with $139.1 million in 2009 - a decrease of 7%. The Group has again successfully renewed its existing bank facilities, bringing the average maturity of the facilities to 2.5 years. The renewal confirms the strong relationship between the Company and its banker, Westpac.

2010 Harvest The New Zealand wine industry harvested a total of 266,000 tonnes, which is a decrease of 7% on the previous year. This is a favourable outcome with regard to the industry's supply position. Ideal growing conditions throughout the 2010 growing season in the Marlborough and Hawke's Bay regions delivered fruit of very high quality.

"Delegat's 2010 harvest of 21,945 tonnes was 10% below the previous year and positions the Group well with regard to inventories for the forthcoming financial year," Jim Delegat said.

Dividends The Directors are of the view that the underlying operating performance and strong cash flows fully justify the maintenance of dividends. Accordingly, the Directors are pleased to advise they have approved a fully imputed dividend payout of 8 cents per share. The dividend will be paid on 15 October 2010 to Shareholders on record at 1 October 2010.

ENDS

For further information please contact: Jim Delegat Managing Director

Andre Gaylard Chief Financial Officer

Delegat's Group Limited Telephone +64 9 359 7300 End CA:00198939 For:DGL Type:FLLYR Time:2010-08-27:08:31:04

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