Australian Vintage Ltd (AVG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to this Extraordinary General Meeting of Australian Vintage Limited call to consider resolutions to return capital to shareholders and to consolidate our ordinary share capital. I'm the Chairman of Australian Vintage, Richard Davis, and I'm pleased to chair today's meeting. It is now just after 10 a.m. Australian Eastern Standard Time. We have a quorum present, and I declare this general meeting of Australian Vintage Limited open. Thank you for joining us today at this virtual meeting, which is being conducted entirely online in accordance with the company's constitution. Luckily, we made a decision to hold the event this way in response to government restrictions and the potential health risks arising from the COVID-19 pandemic. I would like to begin by acknowledging the traditional custodians of country throughout Australia and I pay my respects to elders, past, present and emerging, all the traditional owners of all the lands we are on. Before we begin, I will take a few minutes to run through some procedural matters. If we experience technical issues today that result in a number of members being unable to reasonably participate, the meeting will be adjourned and we will be -- we will reconvene at 3 p.m. Australian Eastern Standard Time today. In the event that we take steps to adjourn the meeting, we will make an announcement to the Australian Stock Exchange with all the necessary details. If the technical issues are isolated to my Sydney location, then I nominate Peter Perrin, who is present at our Adelaide office to assume the role of Chair and continue the meeting. Voting on all items of business today will be carried out by way of poll. Shareholders had the option of appointing a proxy before the meeting to vote on their behalf and can also vote at today's meeting online. 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 polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with the voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time 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. However, I will give you a warning before I move to close the voting. During today's meeting, shareholders can submit questions at any time. To ask a question, press on the speech bubble icon, this will open a new screen. At the bottom of that screen, there is a section for you to type your questions. Once you have finished typing, simply hit the arrow symbol to send. 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. We will answer as many questions as we can and close questions times 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. I'm coming to you today from Sydney, which is currently in lockdown as a result of COVID-19. We also have joining us virtually from around Australia and Hong Kong, the rest of your directors; our CFO, Mike Noack; and our company Secretary, Alicia Morris. I'll quickly introduce your Board of Directors. Craig Garvin, Executive Director and Chief Executive Officer; our independent nonexecutive directors, Naseema Sparks, who's the Chairman of the People, Remuneration and Culture Committee; John Davies, who's the Chairman of our Audit Committee; Peter Perrin, who's the Chairman of the Risk and Sustainability Committee; and we also have Jiang Yuan, Non-Executive Director, who we refer to or know as Dixon. I will now move on to my remarks of the business and would like to draw your attention to the standard disclaimer we issued before discussing the company's activity. This is today's agenda. In our February '21 annual -- half year results, in our release, we advised the market that we would be undertaking a review of the existing capital structure. This review, which is now being completed had a key focus on achieving the best return for our shareholders whilst also ensuring that the company has efficient capital structure as well as flexibility to pursue our growth opportunities whilst maintaining its current credit metrics. In May '20, we announced that we will return $23.9 million to shareholders through a capital return. This amounts to a capital return of $0.085 per share. We also announced that as a part of the capital management initiative, we are proposing to undertake an equal and proportionate share consolidation of 0.9 shares for every 1 share currently held. This means that for every 10 shares held on issue, they will convert into 9 shares. The combined impact of the 2 initiatives has a similar effect of a share buyback of 1 share for every 10 for $0.85. The $0.85 is based on the company's net tangible assets per share at the 31st of December '20. The capital return is due to be paid on the 13th of July '21, and our shares are due to start trading on a consolidated basis on the 5th of July '21. We are here today to seek the approval of shareholders for the capital return and share consolidation. Whilst these 2 capital structure initiatives require shareholder approval as separate resolutions, the resolutions are interdependent, meaning that approval of each resolution is conditional on the approval of the other. This morning, we have 2 items of business. But first, I will outline some procedural matters. Voting will occur via poll. I will introduce each item of business and then answer questions altogether. 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 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 you 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 relates to the capital return and is to consider and, if thought fit, pass the resolution appearing on the screen as an ordinary resolution. I will pause to allow shareholders to read the resolution. The second item relates to share consolidation and is to consider and, if thought fit, pass the resolution appearing on the screen as an ordinary resolution. I will pause again to allow shareholders to read the resolution. We will now move to shareholder questions. I will check with our Company Secretary whether we have received any questions. Alicia, have we received any questions?

Chairman, yes, we have received a number of questions asked by shareholders, both prior to the meeting and during the meeting today. The first question is from Nationwide Management Consulting Proprietary Limited, who has asked the following question, "The meeting documents state that the restructure is expected to improve earnings per share. My question is, what is the expected impact on cash flow and franking credits per share?"

Thank you for the question. In terms of operating cash flow, the only impact will come from the additional interest charge on the $24 million we are giving back to shareholders. At our current interest rate, the additional interest cost is approximately $480,000 before tax. The capital return and consolidation has no impact on our franking credits.

The next question is from [ Mr. John Appleby ], who has asked the following question, "The effects China is having on going forward, how much blame and responsibility do you regard the government must take in their White Australia approach to our trading?"

I'm not going to comment on the political aspects associated with the Australian government in China. All I can say is that we continue to have open dialogue and work in partnership with our major Chinese distributor. China remains an important part of our long-term strategy.

The next question is from Burnell Family Superannuation Proprietary Limited, who has asked the following question, "Capital return, the proposed return of capital does not help a superfund that is in a pension phase. A buyback of shares would have been more beneficial."

The Board considered various options for restructuring capital, including a share buyback and determined that the capital return combined with the share consolidation is the optimal method for both the company and shareholders. One particular benefit of this method over a share buyback is that it ensures that each shareholder's proportionate interest in the company remains unchanged following the payment of the capital return.

We have received 5 questions from shareholder, [ Mr. Aston Anson ]. The first question is, "Overconfidence is the underlying cause of every financial crisis. Given we are currently in a period of abnormally high likely nonsustainable profits, how is unnecessarily borrowing money to give that money to shareholders not textbook overconfidence?"

Thank you for the question. We believe that we've got adequate facility in place not only to pay this return to shareholders but also to share the opportunities and execute on our business plan. We are confident that this is not weakening our position financially. And we also think it's in the best interest of our shareholders. But importantly, we've got adequate facilities in place to allow us to do what we plan to do over the next few years.

[ Mr. Anson's ] second question is, "Self-attribution bias refers to people's tendency to attribute successes to personal skills and failures to factors beyond their control. Given we are currently experiencing abnormally high profits, how has this cognitive bias played a role in management's decision to unnecessarily increase debt?"

Again, I don't think we're unnecessarily increasing our debt. Our financial performance has been in line with our plan. In the first year of our 5-year plan, we have had some contribution from COVID in one of our markets in the U.K. But in Australia, it's very much in accordance with our plan. So I don't think that's necessarily the case.

Chairman, the third question from [ Mr. Anson ] is, "The question is not will there be another financial crisis, but when will it occur. How does unnecessarily increasing debt impact the company's ability to survive during a financial crisis?"