Australian Vintage Ltd (AVG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 2020 Annual General Meeting of Australian Vintage Limited. My name is Richard Davis, Chairman of your Company, and I'm pleased to Chair today's meeting. This year's meeting is being held online by the Lumi platform, which allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of this meeting. And in addition, shareholders and proxies can ask questions and submit votes. The company secretary has just informed me that we have a quorum present. Accordingly, I declare the meeting to be opened. Before proceeding with the formal part of the meeting, on behalf of Australian Vintage, I would like to acknowledge the many traditional owners of the land on which we all are located today. For those of us here in the Australian Vintage office in Balmain in Sydney, these are the Gadigal and the Wangal peoples of the Eora Nation. We pay our respects to the elders past, present and emerging of all the traditional owners of all the lands we are on. I would now like to introduce you to our directors. Here with me in Sydney, I have Naseema Sparks, the non-Executive Director and Chairman of the People, Remuneration and Culture Committee; and Craig Garvin, Executive Director and Chief Executive Officer. Dialing in from Melbourne, we have John Davies, non-Executive Director and Chairman of the Audit Community; and dialing in from Beijing, we have the non-Executive Director, Jiang Yuan, who we know as Dixon. Joining from the Australian Vintage office in Adelaide is Peter Perrin, the non-Executive Director and Chairman of the Risk Committee; Mike Noack, Chief Financial Officer; and Alicia Morris, General Counsel and Company Secretary. Also in our Adelaide office is Mark Phillips from EY, our lead audit partner. Mark is available to answer questions from shareholders about the conduct of the audit and the preparation and content of the audit report. During today's meeting, shareholders can submit questions at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. At the same time, I will address any questions that were submitted by shareholders prior to the meeting. For complete transparency, questions will be answered in the order they are received. Please also note that your questions may be moderated or if we've received multiple questions on one topic, amalgamated together. We will answer as many questions as we can and close question time when all questions have been answered or I believe the time provided was adequate to provide reasonable opportunity for shareholders as a whole to ask questions. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new -- a polling icon will appear. Selecting this icon will bring up the list of resolutions and present you with voting options to cast your vote, simply select one of those options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do have, however, the ability to change your vote up until I declare the voting closed. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time, and I will give you warning before I move to close the voting. Now moving on to the AGM presentation. I would like to draw your attention to the standard disclaimer we issued before discussing the company's activities. Normally, my AGM presentation would cover the company's financial results, together with an overview of the industry, and finally, a comment on the outlook. The CEO's addressed focusing on brands, marketing initiatives, award and, of course, the odd video. With the changing of the guard, we decided we would change the format to give shareholders more visibility to our management team. Today, you will hear from our CEO, Craig Garvin, who will share more details about the company's financial performance. And key strategies going forward; followed by our CFO, Michael Noack, who will address our financial position. Followed by Jeff Howlett and Julian Dyer, who will cover the Australian and U.K. markets. At the completion of this, we will move to the formal proceedings, including responding to shareholders' questions. I am happy to report that the performance of our company continues to improve, with a growth in profits of 35% to $11 million in financial year '20. And as you will see later, we are forecasting for this momentum to continue with an expected strong growth in this financial year. Given the strong financial results in financial year '20, the company was pleased to declare a final dividend of $0.027 per share, up 35% on last year. This dividend was franked to 63%. Financial year ended June '20 has been a challenging year globally. The COVID-19 global pandemic has changed the lives of many of us with changed working conditions and the way we all live our lives. In Australia, we had the drought and bushfires, and these have significantly impacted many communities. All along, our priority has been the welfare and safety of our staff, customers and suppliers. Since the onset of COVID-19, the company has been able to safely operate in all aspects of business. AVL has maintained the production of all our world-class products and ensure that our business continuity plans were appropriate for the current circumstances. Importantly, other than some casuals at our cellar doors and some isolated instances, we have been able to retain all our workforce. COVID-19 has had a mixed impact on our business, with above-industry increased sales through the major retail chains, whereas we have had reduced sales in our cellar door and on-premise business. As of today, it is only the U.K. operations that are affected following the second shutdown. Notwithstanding this, sales remain strong in that market. In addition to COVID, the company in financial '20 had to endure a change in leadership with the appointment of Craig Garvin; frost, although not as bad as that experience in 2018; fires in the Adelaide Hills; the ongoing Brexit drama; and more recently, the challenging trade relations with China. Through the outstanding effort of all our staff, we continue to operate and improve our business. The company recognizes the good management of our social, environmental and governance responsibility is integral to our future growth and prosperity. It is not only important to underpin the reputation and competitive appeal of our brands, but also to evolve our culture with contemporary values. The success of this company is underpinned by being sustainable in everything we do. Our strategies and activities include the planned development of a climate change policy, which will regularly monitor performance against set objectives. Adhering to product quality and safety standards, a certification to continue to produce exceptional quality wines; good corporate governance and transparency; AVL complies with the ASX corporate governance principles and recommendations, which set out recommended corporate governance practices for ASX-listed entities; effective risk management through the establishment of the risk management committee, which reviews the risk management policy at least annually. This policy provides guidance on the management risk in AVL and enforces our commitment to the management of risk to reduce uncertainty in the company's financial performance. Minimizing any adverse impacts on AVL's operation and products on the environment through compliance with environmental regulations, reducing and/or optimizing resource use, waste reduction and monitoring environmental risk. And finally and importantly, monitoring water available to use and the conservation through improved practices in our vineyards and wineries and investment in innovation and technology. For the year ended September '20, Australian export sales increased by 4% to $3 billion, and volume decreased by 0.4% to 771 million liters. The average value of exports increased by 4% to $3.89 per liter. Export growth was particularly strong in the July to September '20 quarter, where the value of exports increased by 23% compared to the same period in '19. There was growth in most price points but the export growth was particularly strong at the low and high ends. This is consistent with the trends around the world since COVID, with the growth in premium wine continuing, but also resurgent in commercial and value wines. China remains the largest market for wine sales, and third, by volume. The U.K. remains the largest market by volume. The total estimated crush for 2020 was 1.52 million tonnes, 12% below the '19 harvest and 13% below the 10-year average of 1.75 million tonnes. It was the smallest crop since 2007. A smaller crop was anticipated due to the dry conditions compounded by the bush fires as well as isolated frosts, hail and flood events. Yields in the inland region such as the Riverland were less affected than the other regions due to the availability of water. Yields in the inland region were down 4%, while the remaining regions were down 34%. With the tightening of supply in Australia, together with a low vintage, we have seen grade prices across all regions increase by 5%. With Riverland red increasing by 15% to $685 per tonne. In terms of what this company's upcoming vintage is looking like, I can report that the recent weather has been kind and our vintages are looking the best they have for some time. Whilst we have had some price on a couple of our vineyards, the recently purchased frost fence have worked well and prevented any substantial crop loss. Water availability has improved in the inland region. And as a result, the cost of water has reduced. So at this stage, we are looking at a good year from our vineyards, which will ensure good utilization of our wineries and reduce the need to purchase bulk wine in the future years. As you would be aware, the Chinese Ministry of Commerce is undergoing an anti-dumping and countervailing duty investigation into Australian wine exports into China. Whilst AVL's business into China is less than 2% of our total sales, it is concerning to the Australian wine industry. AVL remains committed to the China market with the support from our China-based distribution partners. AVL has fully cooperated with the investigation, and we remain confident that diplomacy by both governments will ultimately prevail, allowing Australian Vintage Limited to trade freely to what is or will be the world's biggest market. On behalf of the Board, I would like to thank the people of Australian Vintage, led by Craig, for delivering a result that was 35% up on last year, while demonstrating resilience in a highly competitive, challenging market. We are proud of our staff who are committed to delivering against a long-term strategy. I will now hand over to Craig Garvin to provide a more detailed breakdown of the business performance over the last financial year, and our priority and focus for '21 and beyond.

Thank you, Richard, and welcome to all our shareholders joining us today. Before I provide some insight on the F '20 results, I'd like to share some of my thoughts on the company. As you're all aware, I've now been with the business for 12 months. And during that time, I have concluded that this company has great operational capability, makes world-class wine and has great brands. Above all, a great Board and leadership through the management team. The passion and focus of this business is outstanding. And going forward, my aim is to build on these wonderful brands that we have by continuing to improve our mix of business by market, focusing on our portfolio of brands and increasing our consumer investment to maintain the recent sales growth momentum. Despite the challenges faced during the year, Australian Vintage Limited was able to report a 35% improvement in profit. In the year ended 30 June '20, net profit after tax improved to $11 million. This all was achieved even after taking into account higher costs from the 2019 vintage of $2.3 million; higher water costs and fire, $2.9 million; cellar door closures of $0.7 million; and restructure costs of $0.8 million. This result demonstrates that the business improvement achieved in difficult conditions, and it gives us confidence in terms of future performance. Earnings per share improved by 35% to $0.038 per share, and the return on capital employed or ROCE improved by 18% to 5.1% before the impact of new accounting standards. We're well advanced in our plans to become a consumer-led portfolio business. And as such, it's pleasing that we're able to grow our brand of 8% over the prior year. 3 of our 4 pillar brands actually grew double-digit in a very challenging global market. During the second half of the year, AVL continued customer growth and was ahead of its competition. This again reflects our consumer focus and brand activation. The performance of our operations has been particularly pleasing and a real strength. Despite the industry suffering declines in grape production across the total Australian wine sector, we have been able to improve our yields. This, combined with our excellent assets sets the company out well when combined with our focused portfolio approach for the future. Our Asian and North American markets have been underperforming, and not as consumer-focused as we would like. A complete review of the leadership group and strategy has been done, and we have made the necessary changes. The Board and management team have worked very closely together on our strategic plan, and we're confident of our ability to deliver future growth. Now moving forward into our performance by segment. Australia and North America, as I mentioned, did decline by $2.4 million to a $5.5 million result. Whilst the Australian division pleasingly contributed an increase of 18%. Australia performed well with our Asian and North American divisions, reporting a combined decline in contribution. Our Australian business performed above expectation and showed improved profit performance over last year. Pleasingly, all of our pillar brands grew, which reinforced our strategic intent of a portfolio of brands. Sales of McGuigan brand grew 3% and Tempus Two grew by 42%. Despite on-premise sales declining during COVID, the Australian business delivered an EBIT of $4.9 million or $0.7 million up on prior year. This combination of consumer focus with retail our partners, innovation and strong cost control all contributed to a positive result in very challenging circumstances. New Zealand EBIT was down $0.2 million due to COVID closure, but a very positive result given the shutdown. Recent months have shown significant growth over the prior year. As a result of COVID-19 and the new management of our key Chinese distributor focusing on reduced working capital, Asia sales were significantly down 40%, resulting in a decline of $1.9 million. The company does not expect significant sales to mainland China in the near future due to the potential of a tariff, as discussed. The company has addressed its marketplace strategy in North America and expect, in the long-term, improvement in sales following a disappointing decline of 18%. North America EBIT contribution was down $1 million. U.K. and Europe reported 6% EBIT growth to $11.9 million. The U.K. performance was exceptional with sales volumes up against the industry trend during the financial year that showed total Australian wine sales volumes to the U.K. decline by 2%. In the U.K., the McGuigan brand increased by 13% with an improved mix of sales, volume and targeted marketing. Sales of our higher-priced McGuigan brand and Reserve ranges increased by 23%. The Tempus Two brand also performed very well in the U.K., with sales up 34% from a low base. We will continue to invest in the U.K. market with increased marketing spend planned for '21 and a strong Tempus Two campaign seeing the introduction of new ranging in major retail.

We're just going to have a hand over back to me, I'm Richard Davis, Craig's just struggling at the moment. So cellar door reported a 75% EBIT decline to $200,000. With cellar doors closed for part of the year, sales declined by 16% to $7.9 million, but it is to be expected during COVID-19. During the lockdown period, we refurbished our McGuigan cellar door, and you can see pictures of the refreshed McGuigan cellar door in this year's annual report. Asia, North America and processing EBIT improved by $1.1 million, due mainly to increased contract processing of grapes. Vineyard segment EBIT improved by $3 million due to the improved 2020 vintage. Against last year's total, yield was up 25% or 10,200 tonnes, and it is an outstanding result. This demonstrates our core competency of vintage management. Over the last 3 years, the company has invested heavily in various capital projects, including $11 million on new packaging line and various long-term investments in winemaking, including a $9 million premium winery at our Buronga winery facility. These investments have contributed to the improved efficiency in our production facility and set up a solid base from which to grow. The strategic intent of our business will see significant investment and focus on our key pillar brands, McGuigan, Tempus Two, Nepenthe and the Barossa Valley Wine Company. Innovation remains a key strategy to the success of this company. And recently, we introduced McGuigan Zero, which is a nonalcoholic line. Due to the technology we have, the quality of this nonalcoholic product is exceptional and is reflected in the fact that it is now the leading nonalcoholic drink in one of the large supermarkets. Putting the consumer at the heart of everything we do, we'll see marketing and advertising expenditure increased by 20% in '21, as we deploy a more targeted approach to brand marketing in our various key markets. To support this, we will be investing in our cellar doors, digital technology and people talent development as we move towards world-class consumer engagement. Over the next 6 months, we'll see a major redevelopment of our Nepenthe cellar door in the Adelaide Hills. The operational capability of the business is a core strength and the wine we make is world-class. As we drive branded growth across our key markets and create a consumer-driven business, we will ensure our customer partnerships globally are developed to ensure we leverage the capital investment made. The last 9 months have been challenging, however, our business has performed very strongly, which gives us confidence moving forward. The changes we have put in place are starting to deliver solid results. We believe that we have put in place the right structural changes and strategy to ensure continued improvement. The future looks promising, based on the recent growth of our key brands. We will continue to improve our mix of business by market, focus on our portfolio of brands and increase consumer investment to maintain the recent sales growth momentum. With China representing less than 2% of our total forecast for '21, we do not see the recently announced investigation into antidumping and countervailing duty, materially impacting our '21 earnings. Sustainability is fundamental to our -- to AVL as we strive to be world-class in water management, renewables and our carbon footprint. As a key step forward, our major wine processing facility in Australia is powered by 100% renewable energy sources, including an on-site solar farm. AVL has now adopted a much more in-depth data-rich culture, measurement of staff engagement, consumer brand awareness, customer partnership health and balance scored approach, are all examples of managing, focusing on driving world-class performance and sustainability. Continuous improvement is at the core of our culture, and financial year '20 has seen our company improve its results significant. Brand performance, staff engagement, safety and customer satisfaction have all seen year-on-year improvement as part of our balanced score card approach. Our values have worked collaboratively with integrity, innovative and courageous, nimble and responsive and empowered with accountable, are the key to our strategic success, and it's great to see them being lived every day. The future looks promising based on the recent growth of our key brands. We have challenges in Asia and North America, but believe that our strategies are now in place to achieve long-term growth in these markets. Our improved sales momentum and contribution mix continues with a very positive start to financial '21. The improved 2020 vintage resulted in increased throughput our Buronga Hill winery, which, together with improved packaging efficiencies at our Merbein facility. Will result in a $3 million reduction in our financial '21 costs when compared with '20. For the first quarter of '21, our total sales were up 20% against last year. In Australia and the U.K., we continued to see strong performance through the retail channels, where our 4 key brands have grown by 27%. Together with improved production efficiencies generated from the 2020 vintage, our net profit after tax for the first quarter is up significantly. For the full year and based on current exchange rates, a normal vintage, no further deterioration in the various economies due to COVID and no unfavorable impact from Brexit, we are expecting our net profit after tax to be in the range of $18 million to $20 million. This reflects an improvement of between 67% and 85% on last year. On the back of this improved forecast '21, operating and cash flows will improve, and together with a forecast decline in '21 capital spend and bulk wine purchases, we should see a significant improvement in our free cash flow. I will now hand over to Mike Noack, our CFO, who will provide further details on our financial position, including cash flow and return on capital employed.

Thank you, Richard, and Craig, and hello to all our shareholders. What I will cover this afternoon are 3 key metrics that show how our business has improved over the last 5 years. They are cash flow from operating activities, total net borrowings and return on capital employed. As you can see from the slide, our reported cash flow from operating activities has improved from $6.5 million in FY '16 to $22.3 million in FY '20. Whilst the FY operating cash flow was lower than the previous year due to the higher-than-expected level of bulk wine purchases, the general trend indicates that we have consistently achieved well over $20 million in operating cash flow in the last 3 years. For this coming year, we expect the operating cash flow to be above $30 million due to improved business performance and ongoing improvement in managing our working capital. Managing our cash has been a key focus for this business and will continue to be so. Over the last 5 years, our net borrowings have decreased from a high of $101.4 million as at 30th of June 2016 to $67.3 million as at 30th of June 2020. That is a decrease of $34 million or 34% over the 5-year period. Whilst the decline in borrowings was assisted by a $16.5 million share placement back in 2017, we did spend $62 million on capital and $11.9 million on paying dividends after taking into account the dividend reinvestment plan. Key debt-related financial ratios that assess the financial well-being of a business have all been improving. The leverage ratio, which is debt-to-EBITDA, which is a good indicator of our ability to repay our borrowings, has dropped from a high of 4.3 to 2.6; and the debt-to-equity ratio decreased from 38% to 22%. With improved performance and a reduction in our FY '21 capital spend, we should again see our debt decrease this coming financial year. And finally, to one of the key metrics that we use to drive our business, return on capital employed. This ratio is used to assess our company's profitability and capital efficiency. Over the last 5 years, we have seen our return on capital average around 4.1%, with the last 2 years, averaging 4.4%. The company has spent significant amounts on capital over the last 3 years. And subject to normal agricultural risks, we expect the benefits from these investments to flow through over the next few years. Our long-term goal is high single-digit returns. And as advised to the market back in August of this year, this year's target is for a 48% growth, which means a return on capital of 6.6%. We will now have 2 presentations from Jeff Howlett and Julian Dyer. And following that, it will be back to the Chairman. Thank you.

Australia and New Zealand business delivered a record performance last year. It was heavily driven by our retail business in Australia, but really it was driven by our focus on executing our portfolio strategy. All 4 of our pillar brands: McGuigan, Tempus Two, Nepenthe and Barossa Valley Wine Company delivered strong year-on-year growth. Joint business planning is at the heart of the way we operate with our key customers. Over the last 12 months, we've been able to outgrow the market in all of our key customers, which is really pleasing. This has seen us grow our market share in all customers over the last 12 months despite an accelerated growth due to COVID. The recent industry benchmarking survey has also confirmed is where it's ranked Australian Vintage is one of the leading suppliers to the retail industry in Australia. Our Australian retail performance has helped us weather the storms in other channels that have been negatively impacted by COVID, which include our cellar doors, on-premise and our New Zealand operations. Pleasingly, though, we're seeing a real strong return to growth in all of these channels as we start the new financial year. Look, there are a number of brand highlights for me from last year as well as some personal and team ones. Firstly, the launch McGuigan Zero was arguably one of the most successful brand launches for Australian Vintage in recent memory, where we've established ourselves the leading player in the emerging nonalcohol wine category. Secondly, the continued growth of our Tempus Two brand, which has seen us stretch the brand into new occasions like sparkling and continue our push to a national footprint as well. Lastly, what I'd like to say all proud of the team. In really trying circumstances over the last 12 months, they've shown great resilience and flexibility to deliver some outstanding results to really setting us apart in the marketplace. Clearly, the job is not done. I'm really proud of the team we're building and the opportunities in front of us to help us achieve our vision of becoming the first choice for all occasions.

Well, we've had a really strong year here in the U.K. and Europe division with sales and EBIT ahead of budget, which has been fantastic news for us. But also more pleasingly, we've managed to grow gross margin successfully as well at the same time, so improve that return for us. And that's a consequence of shifting the mix of what we sell to higher-priced wines. And this really follows on from our strategy reaccelerating, focusing our brand-led portfolio-driven strategy. Certainly in the last year, we've improved our insights capability and understanding of the consumer of our core brands. This is really helping us to engage with our direct customers in terms of the brand story and the relevance to the market. One of the most exciting things happened in the last 18 months has been our sponsorship with the McGuigan brand of the drama channel on UKTV, which is the biggest sponsorship advertisement that we've ever done, national TV free to air, 20 million eyes on, 40% of the adult population seeing the ad up to 90 times a year, which is just a significant investment, but also supporting our sales line as well and then giving us the ability to go to customers and get the activations and [indiscernible] We were trading pretty successfully for the past few years up to March in really good growth. And COVID has certainly accelerated that, particularly in this market here in the U.K. and Europe. We've got a very strong business within supermarkets, convenience chains, wholesale, online. And these are all the businesses that certainly over here, both in U.K., Ireland and Europe, have remained open during lockdown restrictions. So we're pretty confident that we'll be able to continue to see great sales success over the next period. We've really improved the quality and the engagement that we have with our customers and the way that we business partner with them, a truly collaborative approach, not just sales team to sales team. By doing that, we can become even more relevant and more a trusted partner to these companies and make ourselves more sticky, which gives us confidence in the sales plan that we have, not just now, but also for the next few years as well. If we look at where we're strong. We're particularly strong within supermarkets. With our McGuigan brand, we are the #2 brand in the supermarkets. But if we look at the independent channel, the are we sort of just popped into the top 10. So we have further opportunities for growth there, particularly as a consequence of lockdowns as people shop more locally in smaller format stores. We also will be putting a lot of emphasis and focus on Tempus Two in this market. As you all know, it's one of our pillar brands. We really understand who the consumer is for that, younger audience, more affluent audience, placed more female focused. And last but by no man's lease the McGuigan Zero, what a success story that's been. It's probably been the best launch that I've ever had in my entire wine career. An outstanding start a year ago. We've now got listings in every single supermarket and now for every single independent customer that we deal with. And I've never known success [like that].

Thank you, Craig. Mike, Jeff and Julian. This afternoon, we have 6 items of business, including a review of the accounts and 5 resolutions, which require a shareholder vote. But first, I will outline some procedural matters. Voting will occur via a poll. I will introduce each item of business and then answer questions all together. Where appropriate any undirected proxies that have been directed to me as Chairman will be voted in favor of each resolution. Details of the proxy's results recorded will be displayed at the conclusion of the discussion, and the results will be made available via the ASX as soon as possible following the close of voting. I remind that the poll is currently open, and you can submit your votes at any time. I will now move to the formal items of business. The first item is to consider and receive the financial report, the director's report and auditor's report of the company for the year ended 30 June '20. This item does not require resolution, but does provide an opportunity for discussion. As I mentioned earlier, the company's auditor Mark Phillips, is present and available to answer any questions, which will be addressed after all items of business have been introduced. The next item is resolution 1, the reelection of Peter Perrin as an independent non-Executive Director. Peter retires in accordance with the constitution and, being eligible, offers himself for reelection. Peter has 35 years of experience in the wine industry, predominantly with Wolf Blass Wines, Mildara Blass and Foster's Wine Estates. His experience spans both Australia as well extensive experience in exports markets as International Trading Director of the Foster's Wine Estates. During the last 10 years, the last decade, as Managing Director of Torbreck Wines, Peter grew, the premiumization of Torbreck brand around the world, consolidating existing and new vineyards and acquiring wineries from outside of Australia to build its portfolio. Peter retired full-time from Torbreck in July '20. He's a current trustee of the Wolf Blass foundation, overseeing winemaking scholarships, the Canberra recent challenge and the establishment of the Wolf Blass Gallery and Adelaide Hills Wine Center in South Australia. Peter has been a Director of Australian Vintage since March 2017 upon the retirement of the then Board member, Perry Gunnar, and was elected by shareholders to serve a term of 3 years at the 2017 Annual General Meeting. Peter is Chairman of the Risk Committee and a member of the People Remuneration and Culture Committee. The Board, with Peter abstaining, unanimously recommends the reelection of Peter Perrin. The second resolution is the reelection of Jiang Yuan, or as we refer to him as Dixon. Dixon retires in accordance with the constitution and, being eligible, offers himself for reelection. Dixon has been a non-Executive Director of the company since 2017 and is classified as a non-independent Director, due to his directorship of Vintage China Fund, a substantial shareholder of the company. Dixon is the founder of YesMyWine, the largest imported wine platform in the world. Based in China and brings to the Board considerable experience in selling wine in that market. The Board, with Dixon abstaining, unanimously recommends the reelection of Dixon. I'll now move to Resolution 3, which is to consider and adopt the remuneration report of the company. Details of the remuneration report are set out in the company's annual report. The resolution is advisory only and does not bind the directors of the company. Over financial '20, we have aligned the executive pay structure to illustrate the importance of achieving our long-term strategy, enhancing cultural alignment and ensuring consistency and commitment to employee engagement and diversity. These changes have been implemented through 3 actual strategies being the first one, the creation of an executive KPI measure, using a balanced scorecard, which aligns directly to our long-term strategy, and comprises specific performance measures on behavior and engagement, safety, EBIT, return on capital employed and brand gross margin. Second is the implementation of a 5-year gender diversity strategy with an aim to be increasing female representation across all levels of the business. And the third, investing in a 5-year employment engagement strategy, which includes incorporating employee engagement scores into all KPIs and an ambitious strategy to become a global best employer within 5 years. We are committed to driving an achievement-based culture, which will result in a continued growth and enhanced business performance. And better align executive incentives with shareholder returns. The Board unanimously recommends its shareholders vote in favor of the remuneration report. I now move to Resolution 4 regarding the approval of the issue of securities under the AVG performance right and option plan. The aim of the plan is to align long-term incentives for its senior executives with the delivery of key performance measures and to align them with company and shareholder objectives through the award of performance rights or options. It is proposed that the grant of performance rights or options under the plan will be made annually following announcement of the company's full year financial results in accordance with plan rules. Shareholder approval for future issues of equity securities under the plan is sought for the purposes of Exception 13 of Listing Rule 7.2 so that any equity securities issued under the plan are excluded from the calculation of the maximum number of new securities that can be issued under Listing Rule 7.1. While the shares issued in relation to the executive equity incentive for the current year have been purchased on market, and the company intends to purchase future shares on market based on our cash flow projection, approval under this resolution will give the Board flexibility to issue equity securities over the next 3 years without contributing to the 15% cap should the Board decide not to purchase the shares on market in future years. The Board unanimously recommends that shareholder vote in favor of the approval of the issue of equity securities under the AVG performance right and option plan. I now move to resolution 5 relating to amendments to the company's constitution to provide for virtual and hybrid general meetings. Today's Annual General Meeting is being held virtually pursuant to the determination released by the treasury in response to the COVID-19 pandemic. The Board is of the view that it would be beneficial to have the flexibility to hold virtual and hybrid general meetings following the expiry of the treasurer's determination. And the proposed amendment to the constitution will enable the company to hold such general meetings, noting that the company will always provide shareholders a reasonable opportunity to participate in any such general meetings. The specific detail of the amended proposals are set out in the Notice of Meeting. The Board unanimously recommends that shareholders vote in favor of the amendments to the company's constitution.

We now move to shareholders' questions. I will check with our company secretary, whether we have received any questions. Alicia, have we received any questions from shareholders?

Chairman, yes, we have. The first question is from Mrs. Kerry Margaret Bible and Mr. Stephen John Bible who've asked, can Dixon shed any light on the future of China sales.