Australian Vintage Ltd (AVG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 2023 Annual General Meeting of Australian Vintage Limited. My name is Richard Davis, Chairman of your company. I'm pleased to chair today's meeting. This meeting is being held as a hybrid meeting in accordance with the company's constitution, providing shareholders with the option to attend online. The online component of the meeting will be run by the Computershare meeting platform, which allows shareholders, proxies and guests to attend the meeting virtually. All virtual attendees can watch a live webcast of the meeting, and shareholders and proxy can ask questions and submit votes online. Today's meeting is being recorded, and the recording will be made available on our website. Should we experience any significant technical difficulties today. Online shareholders can be notified via the online platform. The meeting will be adjourned to a time to be confirmed, and we will lodge an announcement via the ASX. Company Secretary has informed me that we have a quorum present. Accordingly, I declare the meeting to be open. Before proceeding with the formal parts of the meeting, on behalf of the Australian Vintage, I would like to acknowledge that we are meeting on the traditional country of the Gadigal people of the Eora Nation and pay respects to Elders past and present. We recognize and respect their cultural heritage, beliefs and relationships with the land. We acknowledge that they are of continuing importance to the Gadigal people today, and we also extend that respect to the Aboriginal language groups and other First Nations people. I would now like to introduce our directors. To my immediate left, or to your right, I have Craig Garvin, then Peter Perrin, then I have Naseema Sparks; John Davies; our CFO, Adam Rigano; and our General Counsel, Company Secretary, Alicia Morris. I'd also like to introduce Mark Phelps from EY, our lead audit partner. Mark is here today and available to answer questions from shareholders about the conduct of the audit and the preparation and conduct of the audit report. Voting today will be conducted by a way of a poll of all items of business. In order to provide you with enough time to vote, I will shortly open voting through all resolutions. If you are joining us online and are eligible to vote, once voting opens, press the vote icon and all resolutions will be activated with 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 will receive a vote confirmation notification on the screen. You can change your vote up until the time I declare the voting closed. Holding -- holders attending in person are eligible to vote have been issued with a blue voting card when registering this afternoon. On the reverse of your side of the blue card is the voting paper and your instructions. I will now go through the procedure for filling in the voting papers. Proxy holders have attached to their admission card a summary of proxy votes, which details the voting instructions for business items on the appointment documents in your favor. By completing the voting paper, when instructed to vote in a particular manner, you are deemed to have voted in accordance with those instructions. In respect of any open votes, a proxy holder may be entitled to cast. You need to mark a box beside the motion to indicate how you wish to cast your open votes. Shareholders also need to mark a box beside the motion to indicate how you wish to cast your votes. Please ensure you print your name where indicated and sign the voting paper. When you have finished filling in your voting paper, please lodge it in the ballot box to ensure your vote has been counted. I now declare voting open for all items of business. During today's meeting, online attendees can submit questions at any time. [Operator Instructions] Please note that while you can submit online 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 as well as questions from in-person attendees. Please note that your questions may be moderated, or if we receive multiple questions on one topic, amalgamated together. For those shareholders who wish to ask a verbal question, an audio question facility is available during the meeting. To use this service, please follow instructions written below the broadcast of the Computershare meeting platform. For in-person attendees, simply raise your hand during question time, and an attendee bring you a microphone. 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 is adequate to provide reasonable opportunity for shareholders as a whole to ask questions. We will answer any outstanding questions in due course via e-mail or post the responses on the website. 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. Today, my presentation will cover the state of play of the Australian wine industry and the sound business fundamentals of Australian Vintage. You will then hear from our CEO, Craig Garvin, who will touch on the '23 result highlights, the progress against our strategic plan and an update on the strategic review. At the completion of this, we will move through the formal proceedings, including shareholder questions. We are experiencing one of the toughest external operating environment in decades, characterized by: low margins; Australian wine exports declining by 11% in value; aggressive competitive behavior; and significant hyperinflationary costs. In such an environment, I'm proud to say Australian Vintage has managed to grow market share and hold revenues flat at $258.6 million. The industry has experienced a lot of media attention in recent months, with Wine Australia data highlighting significant export declines in traditional markets. Europe and North America recorded declines of 13% and 14%, respectively, with exports to Asia declining 5% over the prior period and 32% in the last quarter. When coupled with an oversupply of grapes from the prolific '21 and '22 vintages, which created 2.8 billion bottles of surplus wine, triggering unsustainable great sourcing behavior in the industry, it is easy to get caught up in the potential doom and gloom. The '23 vintage was one of the lowest in decades, at only 1.3 million tonnes, which will ease some of the oversupply from the prior vintages. It is important at this point that I remind shareholders as the wine industry is cyclical in nature, and we are currently experiencing a trough. Like any cycle, the industry is expected to improve again in future years. When you look at our share price, and you can see it is being impacted by adverse industry conditions including high interest rates, global cost hyperinflation, China trade tariffs, excess capacity, grape surpluses and irrational competitor pricing behavior. Our strategic plan with these structural issues including: reducing net debt to minimize the impact of interest rate rises; and reducing controllable costs by $9 million from '23 to offset the hyperinflationary costs. Australian Vintage demand is in balance with supply, meaning we are not dealing with a large surplus like many of our competitors. We also believe the current industry conditions provide an opportunity for increasing shareholder returns, leading to our announcement of a strategic review in July. In the context of irrational competitive behavior and adverse market conditions, I'm pleased that AVG has been able to grow or maintain market share while taking price in all our geographical areas. We have maintained market share in the U.K. in the still wine category; however, we have grown in the no-and-low category and remain global market leaders in this category. We have grown share in Australia, a highly competitive market, and grown our contribution in emerging markets. Our strategy of putting the consumer at the heart of everything we do is allowing us to recruit new consumers whilst maintaining our existing consumer base. We are very pleased with the recent government approach to China and China's agreement to undertake an expedited review of the wine import duties. Indirectly, across the industry, we believe that this important market will have a profound effect on the supply and demand balance of the Australian wine industry. Australian Vintage has maintained "be ready" position with our partners in China, and we are ready to supply once the market reopens. Despite the adverse industry challenges, Australian Vintage continues to remain profitable, with a sustainable business model that has stood up against significant headwinds. Our strategic plan is on track. In '23, we successfully navigated the external market challenges to grow market share, take price, grow our premiumization and innovation portfolios, while absorbing hyperinflationary costs of $18 million pretax, delivering an underlying net profit after tax and pre-SGARA of $4 million. We are finding ways to offset the hyperinflationary impact by taking $9 million in costs out of our business from '23, and we'll take -- this will take effect predominantly in the second half of '24, meaning, next year. Craig will expand further on this in his CEO address. Our fundamentals are well placed for the future, and continued investment in brands, innovation, premiumization and our persistence of high-value emerging markets. Through our actions, we expect our underlying EBITDAS and our net profit after tax and SGARA to improve in '24, with underlying EBITDAS to be directionally in line with 2022 subject to a normal vintage, foreign exchange and agricultural risk. We have reduced our net debt down to $48 million, however given hyperinflationary pressure and our focused intent to reduce net debt further, we have suspended the '23 final dividend. We have announced a strategic review, supported by Evans and Partners to explore options to unlock further shareholder value, which Craig will elaborate on. However, we do not require a strategic transaction to support the future profitability of this company. I will now hand over to Craig to provide a further update of the '23 and our priorities and focus for '24.

Thank you, Richard, and hello shareholders. It's a pleasure to be here, in my fourth as CEO, and welcome to the room today. Nice to have you here. I want to talk about 2023 and some of the key initiatives that we're undertaking, and there are a lot of initiatives. A quick recap on '23. I'm confident that our strategic plan is on track despite the adverse trading conditions that Richard has outlined. Our relentless pursuit to drive pillar brands, innovate, take price and expand geographically does set up well for the future of our strategic plan. Given the trading environment, I'm encouraged that we've maintained revenue in line with the prior year. We continue to grow market share, take price and improve our mix of higher-margin business, driven by innovation and brand growth. Our pillar brand revenue was 78% of our total revenue, which is well up from 61% in 2019. We continue to be the global leaders in No-and-low segment, and that's reflected in our significant increase in product ranging, increased market share, supported by our innovation and market-leading technology. Innovation that did not exist 3 years ago when coupled with premiumization of our brands now represents 33% of our total margin, up from 3 years ago. So 3 years ago, 35% of that revenue didn't exist, larger perspective. That reflects the success of our strategic plan and that we are on track despite short-term issues. Our innovation is focused on recruiting new consumers to our business, especially Gen Zs and millennials, or anyone under 35, as my daughters often remind me. Of course, we could not have achieved our results without our dedicated employees, suppliers, growers and customers. People are our greatest asset. I'm extremely pleased that we've continued to improve our lead safety metrics. Our employee engagement is an employer of choice levels, world-leading, and we're providing market-leading employee benefits. We've demonstrated that our balanced scorecard approach is working and is setting us apart from our competition over the long term. However, 2023 saw us absorb significant inflationary costs, and we've worked hard to realign our business as the low-cost producer. We have not compromised on our strategic plan despite these short-term cost pressures and challenges. To offset these hyperinflationary costs, we've ensured a $9 million cost out program within '23, which I will provide more information on shortly -- '23, '24, I should say. So addressing our full year '23 highlights from a financial point of view. Our continued investment in marketing and the consumer-led approach to brands has ensured a sales revenue of $258.6 million. It's in line with the prior year when most are experiencing significant declines in revenue. This is an extraordinary result, especially when we're able to take price across our key geographies. Our focus on premiumization and innovation, as per our strategic plan, allowed us to absorb $18 million in hyperinflationary costs while still generating a profit. Our underlying EBITDAS was $26 million and our underlying NPATS was $4 million. In a challenging environment, we took the initiative to reduce our net debt to $48 million, $26 million lower than the prior year. This was a deliberate move through the sale and leaseback of our commercial vineyards, Coldridge and Grande Junction. This ensured we were able to maintain our strategic plan focus. Through these actions, we've also strengthened our balance sheet with gearing at a healthy 17% and leverage of 14%, setting us up well for '24 and beyond for the life of our strategic plan. As you can see, product innovation is now contributing 15% to our margin that did not exist 3 years ago, and we expect this trend to continue given our strong innovation pipeline. Importantly, our innovation and premiumization is recruiting new consumers, especially those under 35 who we refer to as Gen Z, whilst retaining our existing consumer base. Our innovation has not stopped. We remain global leaders in the no-and-low category, launching our new Not Guilty brand and our McGuigan Mid range globally. In the U.K., we launched these products prior to the duties tax coming into effect August 23. We've also introduced Sarah Jessica Parker's Sevenly product to the U.K. shelves, which we produce on her behalf. Other innovations such as Sooshi Mango's Johnny, Vince and Sam's Vino and the Butcher's Cellar continue to drive high-margin growth and excitement in the industry we play in. As previously announced, we have entered the drinks and spirits category as a long-term strategic play, and Mr. Stubbs continues to grow and be profitable. Our recently released premium gins are receiving outstanding awards and disrupting the market. Tempus Two Shiraz Gin received 3 double golds in a row at San Francisco, Singapore and New York's prestigious spirits competition as well as receiving the Masters Medal at the 2023 Gin Masters. In simple terms, it's now regarded as the world's best Shiraz gin, quite a progression from a wine company. It's important that we don't lose this focus just because of short-term inflationary costs, and we stick to our strategic plan. Here is a montage of some of the innovation we've released over the past year, recruiting new consumers to our business, whether it be Tempus One, Not Guilty, premade cocktails, all of these products are great examples of being on consumer trend and not losing focus. I'm pleased in 2023, we're also able to make significant progress across many ESG initiatives. We've submitted our assessment for B Corp global certification. B Corp is the most comprehensive whole-of-business global standard in regards to ESG. The B in B Corp stands for benefit with certification focused on how strong the business is with regards to governance, community, environment, employees and customers. Again, this notion of being a balanced scorecard business with pragmatism. We continue to implement our initiatives, including: we've reduced our greenhouse gas emissions by 6% on a per unit basis over the prior year, that's quite progressive; reducing plastic, removing shrink wrap from our pallets and replacing it with recyclable cardboard; lightweighting our bottles, we look further at lightweighting consolidation opportunities; and our wineries and vineyards have achieved Sustainable Winegrowing Australia certification. These are the achievements, and pragmatic and practical and real. Our people are our most important asset. We've had a very strong focus on culture, well-being and safety over the last few years. Through this focus, we've seen our total recordable injury frequency rate decreased by 40% over the prior year. We received the Most Improved Gender Equity Award from the Drinks Association, reinforced by recent news that we have been named as an Inclusive Employer for '23, '24 by the Diversity Council of Australia. Earlier, the Chairman addressed Wine Australia exports declining 11% over the prior year, which have had an impact driven by macroeconomic conditions, and that is driving a depressed share price in the very short term. We understand that. Against this challenging context, we have continued to take price, grow market share in all our key categories for the longest road. In Australia, Asia and Ireland, we have grown market share. In the U.K., we are very pleased to be flat with the prior year, given the challenges that the U.K. market faces, and we have extremely aggressive competition in that market. At the same time, we took price, which is the right long-term decision. This shows the strength of our brands and our innovation. I am also encouraged by the Australian government negotiations with China. I spent some time in China with our partners very recently, and they are also excited to get trading again. So we look forward to that opportunity moving forward. Our strategic plan remains our focus in combination with solid business model that has stood up against significant inflationary headwinds that have impacted the whole industry. You see from the slide there, as I talk to it, that we are on track with the basic essence of our strategic plan. We continue to drive the portfolio harder by ensuring our mix of branded revenue is approximately 80%, and we now add focus on new geographies for those great brands. Our people, as I've said, are our strongest asset, delivering discretionary effort and hence competitive advantage. Our safety statistics have seen considerable year-on-year improvement, and we're recognized as I've mentioned, as a Diverse Employer of Choice, all substance for the future strategic plan achievements. We're attracted consumers to our brand, and this combined with strong innovation is in a very competitive market, ensures our margin and mix of branded business is healthy moving forward. It's fundamental. Ultimately, this strategy combined with debt reduction translates into a strong balance sheet for the future. Our balanced scorecard approach is working despite short-term inflationary pressures. Therefore, our cost-out program is centered to what I want to highlight in this update. I've spoken extensively about the $80 million of hyperinflationary costs that we've absorbed in 2023 and we are not alone as this hit the whole industry, as Richard outlined. This is cyclical, and as such, we are acting with urgency by taking $9 million in cost out of the business from the prior year, which will predominantly impact in the second half. It's all in place. Whilst there's been some easing of sea freight costs, it is by no means come back to pre-COVID levels. Other inflationary costs persist, including wages, energy, fuel costs globally. I'm sure you've all seen this in your general daily lives. We now have in place lower-cost contracts on dry goods, sea freight and others. We've implemented lightweighting of bottles, as I've talked to, corporate cost reduction largely through reducing head count and value chain efficiencies to achieve our $9 million in-year cost out program. Further, we've been able to reduce our operational costs through the closure of our Hunter Valley Winery. Whilst our operations are very efficient, we continue to look at consolidation opportunities where it bank sets. As reported in the media over the last couple of months, you would have seen multiple headlines on the challenges the wine industry is facing. As you can see on the screen there, there are many. And the wine industry is going through somewhat of a reset. These headlines provided some indications of what is happening. You can see here that all major wine businesses feeling the pressures from the adversity impacting the sector. Many in a tougher position than we find ourselves. In this environment, Australian Vintage is looking at all opportunities to drive increased value for shareholders, and as such, a strategic review as we have announced previously. We've appointed Evans and Partners to undertake a strategic review with 3 key objectives: one, a comprehensive review of the industry and the state of play. You can see from those headlines in the prior slides, and as Richard talked to, the industry is characterized by excess capacity, surplus wine, low margins and significant cyclical hyperinflationary pressures. Australian Vintage within this context of the market dynamics is doing well. Whilst we have a robust business and strengthened balance sheet, increasing scale and brand portfolio is seen as an important element to maximizing the shareholder returns. Therefore, that's the second part of the review. Finally, the identification of opportunities for rationalization and consolidation in the industry we play in. We think these are responsible moves at this time to review all of this. We will keep you informed, all of our shareholders, and expect to have a market update at the half year results release. So that's an outline of the process that we're running. AVG remains profitable with a sustainable business model. I want to reinforce that, standing up against significant headwinds. We are well placed for the future, but we have to deal with cyclical inflation in the short term and as such, reduce debt. We continue to be relentless in the pursuit of consumer-led innovation and take no short cuts towards our premiumization and our brands. Strategically, we continue to invest in marketing, and we do see significant positives in both China and rest of Asia coming up in the near future. We are the leaders globally in no-or-low. I'll repeat that, we are the leaders globally in no-or-low and successfully launched our drinks business in 2023. We're looking to expand that business and collaborations globally, utilizing our strong retail partnerships. We have tremendous assets, innovation capability and people. We are expecting our new and emerging markets to represent a higher mix of our earnings over the next 3 years as we shift to a more geographically-diverse business. The Middle East and India represent significant business opportunities for Australia, with strategic partners appointed by us in both markets. All news to come on that at the half update. Despite a strong start to the year, we still expect our first half revenues to be flat in a highly definitive market globally. We do expect, however, to continue to gain market share. We expect underlying earnings to improve into '24 with improved margin, branded mix and cost outs, as I have referred to, with urgency. We have a continued focus on strengthening our balance sheet and reducing net bank debt. Those 2 things go in hand-in-hand. These outcomes are subject, of course, to novel vintage FX and agricultural list. And we all know the agricultural market that we play in has its ups and downs. Thank you so much for listening and to your continued support to Australian Vintage. I'd like to take this moment to thank our staff, customers, suppliers and growers for their ongoing support. Without such, these achievements would not be possible.

Thank you, Craig. This afternoon, we have 3 items of business including a review of the accounts and 2 resolutions which require a shareholder vote. But first, I will outline some procedural matters. Voting will occur via a poll while we'll 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. A reminder 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. First item, to consider and receive the Financial Report, the Directors' Report and the Auditors' Report of the company for the year ended 30 June '23. This item does not require a resolution but does provide an opportunity for discussion. As mentioned earlier, the company's auditor, Mark Phelps, 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 a Non-Executive Director. Peter retires in accordance with the constitution and being eligible offers himself for reelection. Peter has been a Non-Executive Director of the company since 2017 and currently holds the position of Chairman of the Risk and Sustainability Committee and member of the People Remuneration and Culture Committee. Having had regard to the ASX corporate governance principles and recommendations, the Board considers Peter to be an Independent Director. Peter brings a wealth of high-level wine industry experience as the past Manager and Director of a number of large listed private and vintage wine companies in Australia, the United States and New Zealand and over 40 years wine career that focused on sales and marketing, both here in Australia and overseas. Mr. Perrin is a trustee and honorary life member of Wolf Blass Foundation. The Board, with Peter abstaining, unanimously recommends the reelection of Peter Perrin. Peter, would you like to say a few words in support of your reelection?

Thank you, Richard. I certainly would. First of all, as Richard mentioned, I've been in the Australian wine industry since the '70s. And it's probably fair to say, I've seen some interesting cycles of boom and bust. But the situation over the last 12 months has probably been one of the most challenging times I've ever seen for the Australian wine industry with a combination of all the things that Craig mentioned all appearing to happen at once. I guess one thing you could take out of adversity, there's always opportunity. And I think I'd like to say that my experience in the wine industry, with mergers, takeovers, rationalizations, I think probably puts us in pretty good stead with our strategic review with what opportunities will come out of this industry to make it stronger and to make it better. And I'm committed that Australian Vintage will be part of that. When I joined the company, I chaired the Risk Committee, and I've been very proud of what we've been able to do with our people, our culture, our safety. We then about 18 months ago, brought the sustainability side of the company's endeavors under my control as the Chair of the Risk and Sustainability Committee. And I'm very proud with what we've done as a company. We've been able to get certification for all of our vineyards, our owned and operated vineyards, along with the Barossa Valley winery. Sustainable wine growing Australia means that we have healthier vineyards. We use less water and we use less chemicals. So basically, everything wins. The second part of that, that Craig touched on was B Corp certification, an independent certification that started back in the mid-2000s, a global certification set by nonprofit corporation to recognize companies that have a real culture of wanting to be serious about their sustainability. Not just putting up some wind farms or solar farms, but actually be very serious about we want to do with sustainability and being able to be recognized as a leader in this. There's only about 22, 23 wine companies in the world that have B Corp certification, and Australian Vintage will be certainly the largest Australian. There's only one other very small Australian wine company. Not only is this the right thing to do, as we all know, but it's -- also being an old salesman, it's also another string to our bow for our customers. Also in Europe at the moment, but certainly here in Australia, as we have this B Corp certification, it will then help our customers who are going down their own green journey wanting to engage with us because we already have this certification. We expect that to come through early in '24. So I'm very keen to be reelected and to continue this journey. I certainly want to come out the other side of this trough, which I know we will, and I look forward to supporting Craig and his team, all of our employees and certainly you as shareholders. So if you voted for me, thank you very much.

Thanks, Peter. I now move to Resolution 2, 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. This resolution is advisory only and does not bind the directors or the company. In '23, Australian Vintage continue to ensure we have an aligned executive pay structure, which relies on achieving our long-term strategic goals, enhancing cultural alignment and ensuring consistency and commitment to employee engagement and diversity. This year, we instigated a number of market-leading employee benefits, including additional loyalty leave, work from anywhere, expanded personal leave, mental health days, birthday leave and 2 volunteer days per annum. All AVG's investment into our people and strategies sets us up to achieve our long-term sustainability goals across the ESG, our people and social pillars and are aligned with shareholder interests. Across the business, consistency and performance is measured through a balanced scorecard. Scorecard is an executive KPI measure, which aligns directly to long-term strategy and puts the consumer at the heart of everything we do. This KPI balanced scorecard comprises of specific performance measures on behaviors and engagement, safety, EBITS, ROCE, branded growth and innovation and long-term sustainability. AVG's behavioral framework is an integral part of the remuneration structure for all employees, enabling behaviors are ingrained throughout the organization, and set a standard for the way in which all employees operate and behave daily. The Australian Vintage behaviors underpinned the corporate strategy and form the foundation of an engaged and achievement-focused culture, a culture we believe will result in continued growth, enhanced business performance and better aligned executive incentives with shareholder returns. The Board unanimously recommends that shareholders vote in favor of the Remuneration Report. We will now move to shareholder questions. I will first address the questions submitted prior to the meeting, followed by the questions from in-person attendees and then move on text and audio questions submitted online during the meeting. If you wish to ask any audio questions, please do so now. I will now ask the company secretary to read the questions.

Thank you, Chairman. The first question which was received prior to the AGM is from [ Mr. and Mrs. Nelson ] who have asked where are the main sales made?

A high proportion of our business is Australia and the U.K. And as I've talked to, emerging markets are a key part of our strategic player moving forward.

Thank you. Now moving to questions from shareholders attending in person. Please raise your hand and an attendant will bring you a microphone.

I've got a few questions, but I'll just ask one to give other people a chance. I've been noticing you've been advertising lately. So that's good. I presume it's an increase because I haven't noticed it before. And just lately, I've been hearing it. So well done there. I just want to know, at this time of year, you would expect an uptick in sales, but are you seeing an uptick in excess of the normal because of the advertising? So in other words, how effective has the advertising been?

Thanks for the question. So in that regard, there's normally a lag effect when you do advertising. You would expect to see it probably in quarter, a bit more next quarter and so on. So it sets up really well for the second half. This time of year, we do have a seasonal uplift because it's coming into Christmas and summer. And the advertising you're talking about is targeting more at the traditional consumers with things like McGuigan Black Label and so on, radio advertising and maybe that's some of what you've heard as well. We're also putting a reasonable amount of investment into our new products and our innovation because we've got to give them life for the future at the same time. And they are always obvious. I'll give you an example. We're investing in Live Nation. So festivals and those kind of things, the younger consumers to get into -- you'll see images of Tempus One there. It's a great product, and it's more in a can format for outdoor and sporting events. So that gives us real growth. So we're seeing an uptick in that. We are winning share, which means our advertising is working. But in same value segment, which might be in a slight decline. Staying flat and winning share is a success, even if it doesn't necessarily give you that incremental volume on those traditional brands. So we're happy with it. We make our marketing dollars go a long way. And that's really important that we continue to do that. So I'm really pleased to hear that you're hearing. That's great. That's great news so you can ask me questions all the time.

Maybe a few comments and a question at the end. Appreciating the downturn and the difficulties to last year, we've come through reasonably well on that. One thing that worries me, watching the share price half in the last 2 years has been a bit of a concern. And one of the things that seems to be in there as well is that assets were about $0.09 a share. Are they a little bit exposed in a sense to a strategic takeover in that sense? So we -- our assets are reviewed -- why should they? And I assume the review will it this year. But from a shareholder point of view, so a little bit disappointed on it. So I appreciate any comments you might have about #comeback.

If I take the second question first in terms of the takeover, we're in the middle of a strategic review. One of the reasons for doing that review was to, as Craig alluded to, was to look at our existing business. And there are things that we should be doing that we're not doing, and the drivers of our business on a BAU perspective is are we getting out taking price? Are we taking costs out of the business? Are we putting more throughput through our wineries because that's when we get our economies of scale. Or are there businesses that we could acquire or brands that we could acquire that would help give us greater scale? Well, in relation to the last point, our #1 goal is to get our debt down at the moment. Our debt is just too high for the size of this business in this market. We've taken price so we can tick ourselves, give us a tick there. We have started to take costs out of the business, so we're addressing that. And from an M&A perspective, it's very difficult given our balance sheet that we can do anything there. But there might have been an opportunity for someone to come along and made an offer for the whole business. And today, that does not happen. But at least we've done the right thing to see if there was anything out there that might have been in the interest of shareholders. It doesn't mean it won't happen, but at the moment it hasn't happened. In relation to the profitability at our share price, the share price just goes straight back to profitability. And if you take the $18 million out of hyperinflation and then you look at our debt levels, that basically reflects where we are from a share price point of view. So I would like to think profitability will be coming back this year in line with '22. I'd like to think we can get our debt down even further. And if that happens, then I would hope that the market would reward shareholders. So hopefully, that gives you an answer.

Given that there is a surplus of bottled wine in Australia, and my take from your comment was that AVG does not have a large surplus, what is the next thing you're looking like?

Yes. Good question. Thank you for the question. First of all, we make it a KPI that we try to be in balance.[ Say, 25% ], right? Because it's really important. Sometimes it works for you to have a surplus, sometimes it doesn't, but the risk to the shareholders is too high in my opinion, to run that way. So we run in balance. That's the first point. And it's a deliberate measure, okay? It also allows you to make rational decisions around your brands, not having a big surplus because you're not having to clear it and discount it, which goes against our strat plan if you think about it. The last year's conditions, if you like, in agriculture, were very much characterized by, of all things, floods and too much water, which is kind of ironic when you look at Australian agriculture over the long term, right? But that creates fungus and a range of other issues. We took a hit on that, but much less than the industry do through quite proactive management and frankly, our excellent operations team. So -- however, there will still be a surplus in the Australian market, in my view, over the next year or 2. And we've got to expect over, let's say, 3 years to come back into more of a drought kind of situation. So it will balance itself out. It's a question of timing. As for us, we remain in balance on average and are looking to increase our throughput of our facilities. So therefore, that gives us some choices and access to some market supply options. So we're pretty comfortable with where we sit on that, although there's still a challenge out there from a market perspective.

I think from an industry perspective, it's probably too early making a call for vintage considering what could occur. But I think there was a comment this morning one, I was saying expecting another good year.

Yes. And that's consistent with that in the next couple of years, I think it will take to bleed through, if you like, as we need to start thinking longer term about drought again, as that cycle that we go through. What I reinforce for shareholders is we make it a particular focus to try to be in balance.

Further questions?

Last year, you mentioned your ready-mixed cocktails and you said there was a greater profit margin on that. So I'm wondering how the sales are going with that. Is it increasing compared to the wine sales as far as profit goes, and where are the outlets for them? Where are you selling most of it to?

Thank you. So led by our Mr. Stubbs range, which is premix cocktails, which fits in with more people staying at home and entertaining and going out as discretionary pressures on income spend. We're satisfied. I mean it's only a little over a year old. So it's early days, and we take a 5-year-plus view on this. It's more than washing its face in terms of the investment we've put into it that it's making profit. It is a good margin. We're selling mostly through on-premise and independents at the moment with some ranging in the majors. More importantly, I think, is we've proven the product. We've proven that it works with consumers, but proving for a pragmatic consumer moment, easy to mix, great taste. You don't have to spend ridiculous amounts of money buying 4 cocktails, you can do it at home or on-premise, which is easy. We've got a lot of interest from this offshore as well. And that's where we see the real growth over the next few years coming with this product. Same with Astraea gin, which I talked about the awards that one. So the last year has been like an incubation proving ground concept that has done well. The next stage is grow in other geographies. So I'm pleased with it. I mean you take a 5-year view.

And the Not Guilty brand, I must admit, I haven't seen that. So what's the percentage of alcohol? It's obviously less, is that?

Yes, like 0.5, 0.5. So it's a no alcohol range for people under 30. So it's disruptive in nature. It's doing extremely well in the U.K., and we've got ranging now in Coles, in independents, IGA, for example. And the whole point of it is to attract younger consumers because it's a bit of fun, and it's disruptive. And it's not what their parents drink.

So it's different from the one -- I shop at Coles. So the one in Coles is not 0 alcohol. So it's different from that.

No. It's the same. It's 0 alcohol for all intents and purposes, okay? When I say 0.5, that's a technical jargon, but it's 0 alcohol. But it's something different than say, McGuigan, which is a huge product for us in 0 but people under 30 wouldn't necessarily buy into that because that's what their parents track. The simplest way I can describe it, and it started really successfully, especially in the U.K. It's disruptive.

So if you got one in between because you sent us on to trial, which was a red wine. Do you remember what it was?

20% reduction.

Anyway, 20% reduction or something? I thought it was fantastic. I loved it. And I wrote -- you wanted to comment, and we wrote the comment and everything. And then we got back please comment. So I don't know why that was. But what's happened with that? Because I drink that any time. I think that's terrific.

Give that product out, next to her. Sorry, it didn't work well enough. I'll look at that. But maybe you're alluding to mid-strength. Not sure about our mid-strength range, which we've launched in a hugely successful start in the U.K., again. But in Australia, we've just started ranging and averaging around 7%. We think it has huge growth potential around the world.

So do I.

Lower calories, lower alcohol.

Especially with the drink driving, you can't...

But full flavor.

Yes. And if you're done outing, you're a note, sort of there for a couple of the like a few drinks in will don't drive a bit longer I think it's the way to go. And I liked it better, to be quite honest.

Okay. I'll take that as a comment. I like it. I'll talk to you afterwards about how we improve our process of getting everybody you said.

Darren [indiscernible], shareholder. It's great that the company is innovating and we're getting new ranges of drinks, in particular, nonalcoholic area. I wonder, in general, how big is the percentage of the nonalcoholic drinks versus alcoholic drink?

In our business?

Yes. Well, in general and in your business.

Yes. Okay. Thank you. It depends on the category you're looking at. If you're talking about B, I can't comment, but it's a big percentage led by Heineken globally. In the wine industry, it's under 10%. But it's a really fast-growing emerging category, with all the signs that mid strength is going to take well over 10% as per the previous statement. So Adam, our CFO, do you want to add to that?

Yes. So I -- thank you, Craig. You go back to on the slides that Craig showed earlier around the innovation and premiumization. And one of the callouts that we made is the 15% of margin accumulation that we've got from innovation that didn't exist 3 years ago. The lion's share, the majority of that is actually from our 0 and midranges. So it's becoming a very healthy part of our margin contribution, we'll continue going forward.

And my other question, you'll have to answer it, but I wonder how many nonalcoholic drinks you have to drink to fail the sobriety test?

You would fill up before that happens.

Okay. You don't have to answer it. That could be good for our brand, actually.

It's a very safe thing. Very difficult to achieve that.

And I was also wondering just a comment with the market capitalization of AVG, which is around $100 million now. And when we compare to our big competitors, so they are actually like 90x bigger. Correct? So I wonder -- I mean, it's sort of -- is it adding sort of a bit of more pressure to the company from that point of view? Like how do you feel about that?

We, I think, Richard, answered that previously. But I'm a shareholder, too. And we at our -- 18 months ago, $0.80 share price. That was very encouraging and reflected the progress that we've been making. We have a single-minded focus right now, that is stay with our strat plan and get some cost out of our business and the earnings will take care of the rest.

So was the question that were the larger companies putting pressure on us because we're a smaller company in terms of market cap? Was that your question?