Australian Vintage Ltd (AVG) Earnings Call Transcript & Summary

Right. Good afternoon, ladies and gentlemen. My name is James Williamson, and I'm honored to be your new Chairman. On behalf of the Board, I welcome you to Australian Vintage's 2024 Annual General Meeting. As the necessary quorum is present, I declare the Annual General Meeting of Shareholders open. 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, present and emerging. We recognize and respect their cultural heritage, beliefs and relationship with the land and we also extend that respect to the Aboriginal language groups and other First Nations people. Thank you to everyone here today, and a very warm welcome to those who have joined us online. Let me now hand over to Alicia Morris, our General Counsel and Company Secretary, to cover some important matters regarding the conduct of the meeting.

This year's meeting is being held as a hybrid meeting in accordance with the company's constitution, providing shareholders with the option to attend online or in person. The online component of the meeting will run via the Computershare meeting platform. All virtual attendees can watch a live webcast of the meeting and shareholders and proxies 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 will be notified via the online platform. The meeting will be adjourned to a time to be confirmed and we will lodge an announcement with the ASX. 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, the Chairman will shortly open voting for 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 your screen. You can change your vote up until the time the Chairman declares voting closed. Holders attending in person and eligible to vote have been issued with a blue voting card when registering this afternoon. On the reverse of your blue card are your voting paper and instructions. I will now go through the procedures 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. Once we have completed the items of business and when you have finished filling in your voting paper, please lodge it in a ballot box to ensure your votes are counted. During today's meeting, online attendees can submit questions at any time. To ask a question, select the Q&A icon. Type your question into the text box. And once you finish typing, please hit the send button. Please note that while you can submit online questions from now on, the Chairman will not address these until the relevant time in the meeting. At that time, the Chairman will also 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 questions facility is available during this meeting. To use this service, please follow instructions written below the broadcast on the Computershare meeting platform. For in-person attendees, simply raise your blue or yellow vote card during question time and we will bring you a microphone. We will answer as many questions as we can and close question time when all questions have been answered or the Chairman believes the time provided was adequate to provide a reasonable opportunity for shareholders to ask questions. We will answer any outstanding questions in due course via e-mail or posting responses on our website.

Thank you, Alicia. I now declare voting open on all items of business. Before we start our formal presentation, let me introduce you to my fellow directors. Beginning on my left is Elaine Teh, Non-Executive Director; and then there's Margaret Zabel, a Non-Executive Director and Chair of the People, Remuneration and Nomination Committee; and our final director, Michael Byrne, Non-Executive Director and Chair of the Audit, Risk and Sustainability Committee, has intended to join us today. However, he has advised us that he is unwell and sends his apologies to shareholders. You will understand that Michael is particularly disappointed to miss this meeting of shareholders and we wish him well on his recovery. Also joining us is our Chief Executive Officer, Craig Garvin; our Chief Financial Officer, Adam Rigano; and you met Alicia Morris earlier. I'd also like to introduce you to 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 content of our audit report. 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. We've included targets in our presentation and I point out that all targets are subject to macroeconomic conditions, normal vintage, consumer behavior and foreign exchange movements. Over the next few minutes, I will share my views on the past year's results and discuss our priorities to restore value for shareholders. You will hear from the CEO, Craig Garvin. And following this, we will move to the formal proceedings, including questions. As I said earlier, I'm honored to be your new Chairman. Like you, I'm a shareholder in AVG. While I may not have held my shares as long as many of you, I am a significant and committed shareholder because I believe this is a good business. I say that as someone who spent over 28 years in financial markets, including as head analyst covering global alcoholic beverages for a major pan-European bank. I'm now the Co-Founder and Chief Investment Officer of Wentworth Williamson Management, a private fund manager I co-founded in 2013. Wentworth Williamson is backing the Australian Vintage team with our money as we consider them to be one of the best teams in the industry. I believe that with our current Board, management team and support from key shareholders, Australian Vintage is well positioned to navigate the challenges of a difficult and volatile global market. We are a truly multinational wine company with a portfolio of great brands in all markets. We have world-class assets and innovative know-how. We are a global leader in low and no alcohol wine and we've expanded into spirits and ready-to-drink cocktails to diversify our portfolio, as we have some of the best distribution partners in each of our markets and a strong long-term customer and supplier support. In our view, given the above and with the alignment we have between the Board and management on strategy, we can grow sales and earnings, achieve consistent, sustainable free cash flow and the share price should close the gap to its net tangible assets per share. First, though, I want to acknowledge it's been a particularly difficult year for shareholders in Australian Vintage. As a fellow shareholder, I know how many of you are feeling. Our company has excellent assets, great brands, a global footprint, a talented team and enormous potential. But through a combination of factors, some within our control, some beyond our control, Australian Vintage has simply not delivered the value it should have for us as shareholders. In particular, we acknowledge that the capital raise conducted in June this year lacked broad shareholder support and eroded shareholder value. This led to a significant decrease in the share price, which has since remained stagnant. The stagnation is partly due to one of our major shareholders significantly reducing their holdings despite the company's inherent value. In July, we began a process of Board renewal with Margaret Zabel joining the Board. In August, your other directors joined the Board, including me as Interim Chair and CEO. To be frank, the current situation is unacceptable to both your Board and the company's leadership team. I want to assure you that the new Board, our CEO and everyone at Australian Vintage are fully aligned on the actions needed to turn the situation around. We have a laser-like focus on turning our circumstances around and restoring value for shareholders. Let me also assure you that we understand the urgency of the task. Your new Board of Directors is closely aligned with shareholders' interests and brings significant global experience across beverages, logistics, financial markets, fast-moving consumer goods, marketing and innovation. As you know, a key responsibility of the Board is the appointment of a Chief Executive Officer. In August, as your new Board, this was our first priority. When we reviewed possible candidates for the CEO role in September, it became clear that Craig Garvin is the best person for the job. I understand that some of you may find this decision unusual, especially since Craig left us in May. I want to take a moment to explain how your Board reached this decision. In January 2024, a matter involved in a lapsing judgment by Craig was brought to the company's attention. The previous Board engaged a leading employment law firm, Lander & Rogers, to conduct an independent review of the matter. To be clear, the review did not include any advice or findings suggesting that Craig should leave the company. As a result, this Board did not agree with the decision in May that led to Craig's departure and we resolved to have him participate in the CEO search process. Craig's appointment in October followed an external search that considered several exceptional candidates. His track record at Australian Vintage, his leadership style and his deep understanding of our industry and partners making the ideal choice to lead the company and restore value for our shareholders, customers and employees. Craig is a respected and well-liked leader who will continue to execute on the strategy to transform Australian Vintage into a leading branded beverage business, delivering balanced growth in both revenue and profitability for shareholders. As Chair, I also served as acting CEO for several weeks in September, which gave me the privilege of getting to know our leadership team. That experience made it clear to me that we have an exceptional executive team with a strong positive culture. Our management team collectively has over 100 years of experience in fast-moving consumer goods with most of that within the alcoholic beverage industry. I am confident that we have a committed and capable team focusing on restoring value for shareholders. I made the point about our leadership team because execution is the real differentiator in business. The 5-year strategic plan developed by Craig and the team transforming the company into a consumer-led business with a commitment to innovation remains just as relevant today. Craig adopted a consumer-led approach when he joined 5 years ago and that has seen revenue growth by 4% per annum, branded contribution up from 50% when he joined to 78%. New products are now driving 35% of margin and that did not exist 5 years ago. And also global leadership in a low alcohol wine category. Without the strategy, we would not have been able to absorb the significant increases in the cost of doing business that occurred following COVID and was exacerbated by the geopolitical tensions. Although, inflation is moderating, we need to be vigilant and continue to take costs out of our business. The strategy is sound. By financial year 2027, we are targeting sustainable free cash flow of more than $20 million and a return on capital of more than 8% per annum for the company. So, let me be clear. This is not business as usual at Australian Vintage. As I said earlier, the Board and the management are aligned on growing sales, tightly managed costs and working capital to achieve sustainable, consistent positive cash flow, and we are moving with urgency. Our aim is to close the gap between our share price today and our net tangible assets of around $0.60 per share. We have a strong focus on restoring shareholder value, and this is supported by a clear and achievable plan. We understand the urgency of the task and we have a talented management team capable of delivering these results. And we appreciate your continued support. I will now hand over to Craig to go through this in more detail. Craig?

Thank you, James, and hello, shareholders. After a 6-month absence, it's a privilege to return as your CEO. Today, I want to talk about our plan and restore and grow value at Australian Vintage. This has been a challenging year, but I'm energized by the opportunity in front of us today. Since returning, I've focused on personally meeting our distributors, customers and employees in Australia, the U.K., Asia and Canada. It is clear our partners and our people value our brands, our company and our presence in the market. There is a lot to be optimistic about, even though we are faced with challenging market conditions. You've heard me talk before about the ongoing external challenges for the Australian wine industry here and globally. There have been -- these have been exacerbated by higher cost of doing business in a more competitive and volatile environment. Top line data shows that globally, wine has been growing at around 4% by volume, year-on-year value is flat. The key driver of decline in Western markets is around midweek wine with meals or traditional wine moments. And the wine category is challenged with appealing to the next generation. For Australian Vintage, we see these challenges as opportunities for long-term growth. Retaining wine consumers who tend to be older and appeal to younger consumers in the category, especially in the U.K. and Australia. Our strategy positions us to leverage current industry trends, increasing consumer interest in healthier lifestyles is seeing the no-and-low alcohol wine segment valued at $4.3 billion. With Australian Vintage being a global leader in this segment, we are well placed to take advantage of the predicted annual growth rate of around 7.9%. We are catering to evolving consumer preferences for lighter, more flavorful and refreshing styles, which are appealing to younger drinkers. Growing interest in wine across markets like China and South Korea is a significant opportunity. Our strategy to restore shareholder value centers on 3 pillars; drive top line growth. We're investing in our leading brands and expanding into growth markets like China and North America with a strong focus on innovation. We're addressing demand for premium and no-and-low alcohol products. Cost efficiency. We are optimizing operations to be more flexible and cost-effective. This includes reducing fixed grape supply, improving inventory turnover and maximizing our asset efficiency. Strategic opportunities. We are open to industry partnerships and consolidation, where they are shareholder value accretive. Consolidation, which is well underway, will help address structural issues in the Australian wine market and our modern facilities position us well for potential partnerships. We're already seeing positive momentum. We're continuing to gain market share in our main geographies of the U.K. and Australia, whilst at the same time, expanding into North America, where sales were up 28% over the prior year. Since 2020, we've grown our brands at 4% a year. Over that time, Tempus Two has grown 7% a year; Nepenthe, 13%; Barossa Valley Wine Company, 6%; and our foundation brand, McGuigan brand by 1%. This is an extraordinary result considering that the global wine market is down 4%. U.S.A., China, U.K. and Canada are 4 of the 6 largest winemakers in the world. China lifted tariffs and resumed orders in the second half of 2024 financial year. Whilst it will take time for sales to return to the previous levels, especially given the state of the Chinese economy, the growth opportunity remains significant for us. We're already working closely with our Chinese partners to grow share in China. With the support of our new Director, Elaine, whose company is our distributor in Singapore and Malaysia, we expect to take better advantage of the opportunity in these markets. While we are driving sales and innovation, global inflation means we will have to focus extremely hard on our cost base. It's important to note that we're one of the few wine companies where overall demand is in balance with our supply. In 2024, we grew sales by 1% to $261 million and increased underlying EBIT by 25% to $13 million, whilst continuing to invest in marketing and innovation. As James said, our team understands the urgency required and I'm confident that we can quickly get our strategic plan back on track. When I first joined Australian Vintage in 2019, I recognized the significant work that had to be done to build a branded business and create an efficient operational footprint. With the majority of our global sales in retail markets, we strategically shifted the focus to a consumer-led business from a production-led business. Our consumer-led focus is one that places the consumer at the heart of everything we do and helps build superior sustainable margins for shareholders. It also enables us to be agile and to respond to changing market dynamics to drive revenue and margin. With this in mind, we embarked on a strategy of successfully reducing bulk wine sales and increasing our branded contribution. Premiumizing our portfolio, our brands have all increased their contribution, driving margin. On top of premiumizing, we've been innovating. Innovation is the key to engaging and retaining consumers. Driving global leadership in the no-and-low alcohol category, we have released some exciting new ranges during the year in Not Guilty and McGuigan Mid on top of our existing range. We'll continue to use our strategically important assets to grow in this category. The strategy remains sound. After my 6 months out of the business, all of us on the team at Australian Vintage recognize that where we are today is not acceptable. There are 3 pillars to our strategy to restore shareholder value. We will drive top line growth through investing in category-leading and margin-accretive brands and innovation, leveraging existing export capability to position for new markets expansion across China, Asia and the Americas, utilizing our industry-leading ESG credentials to deliver a point of difference. The second area is costs. We've continued to focus on our operational footprint to allow our cost base to be more variable and increase efficiency, in particular, reducing fixed grape supply, improving our inventory churn, driving further operational efficiencies and sweating our assets while optimizing our overall footprint. Consistent with our strategic plan, we remain open to industry consolidation and partnership opportunities where they create value for shareholders. We truly believe that in order to rightsize and stabilize structural issues in the Australian wine industry, consolidation is key and is happening. Our modern processing facilities are well placed for any opportunity. Future growth will come from a combination. So, let me go deeper. Our investment in product innovation and brands is delivering over 1/3 of our margin in products that did not exist 5 years ago. This is significant for our business as we operate in a category where it is difficult to take price. So, margin accretion offsets increases in cost of doing business. Importantly, our innovation and premiumization is engaging new consumers, especially Gen Zs and millennials, while retaining our existing consumer base. We continue to release exciting new products, including Lemsecco Spritz and CTZN, the first Australian wine curated by artificial intelligence that has just launched in the U.K. along with our Tempus Two -- One Spritz. So, watch out for those ones. In summary, all of us at AVG are focused on restoring shareholder value. We have clarity about what needs to be done. We have an experienced team that has a track record to restore value for shareholders. We understand your frustration and we are moving urgently. The actions already underway give us confidence to target free cash flow generation of $20 million per annum by the end of financial year 2027 and a return of capital of 8%. Of course, these targets are subject to vintage, global macroeconomic conditions that we operate in, foreign exchange and consumer behavior, but they are our goals. Thank you very much for listening, and thank you for your continued support for Australian Vintage. On your behalf, I would like to take this moment to thank our employees, our customers, suppliers and growers for their ongoing support on what has been a very challenging year indeed. I will now hand back to James for the formal proceedings.

Thank you, Craig. This afternoon, we have 7 items of business, including a review of the accounts and 6 resolutions, which we require shareholder vote. But first, I will outline some procedural matters. Voting will take place by poll after we've covered all formal business items. I will introduce each item of business individually and then we'll open the floor to questions once all items have been presented. 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 final results will be made available via the ASX as soon as possible following the close of voting. A reminder, 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 Directors' Report and the Auditor's Report of the company for the year-ended 30 June 2024. 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 here today 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 election of Margaret Zabel as Non-Executive Director. Margaret retires in accordance with the constitution and being eligible, offers herself for reelection at the first Annual General Meeting since her appointment. Margaret was appointed as Non-Executive Director of the company by the Board on the 23rd of July 2024 and is Chair of the People, Remuneration and Nomination Committee and member of the Audit, Risk and Sustainability Committee. Having had regard to the ASX Corporate Governance Principles and Recommendations, the Board considers Margaret to be an independent director. Margaret is a specialist in customer-centered business transformation, brand strategy, innovation, communications, customer experience and change leadership. She has 20 years senior executive experience working across major companies and brands in FMCG, food and beverage, technology and communications industries, including multinationals, ASX 100 and not-for-profits. Margaret is Non-Executive Director of G8 Education, Select Harvests and Collective Wellness Group. The Board, with Margaret abstaining, unanimously recommends the election of Margaret Zabel. Margaret, would you like to say a few words in support of your election?

Yes. Thank you, James, and thank you to all the shareholders of Australian Vintage for this opportunity. I'm truly honored to be considered for election for Board of the company and I'm following -- and have followed this company for many years and it's a company I truly respect. The new Board and management team at Australian Vintage has a strong commitment to quality, innovation and delivering value, principles I hold in very high regard. Throughout my career, including leadership roles within the alcohol industry, I have focused on driving transformational growth, building brands that resonate and maximizing returns. My experience includes time at Lion, where I gained firsthand insights into the challenges and opportunities unique to the alcohol sector. My recent Board experience has strengthened my understanding of governance, strategic oversight and the importance of aligning Board initiatives with shareholder interests. Serving on both listed and private boards over the last 7 years has equipped me with further insights into driving growth, managing risk and enhancing operational efficiency. I'm confident these experiences will allow me to add value to Australian Vintage by helping to guide strategic decision-making, promoting sustainable growth and ensuring our focus remains on delivering robust returns for shareholders. Looking ahead, I'm energized by the opportunities that lie before us and also Craig's leadership. What excites me the most about joining Australian Vintage is the company's commitment to expanding its market presence and also increasing its profitability. If elected, I'm committed to working with the Board and the CEO to unlock new avenues for growth, leverage our industry expertise, innovative culture and importantly, prioritize shareholder returns as we advance our strategic goals. Thank you for considering my candidacy, and I look forward to the opportunity to contribute to Australian Vintage's future success.

Thank you, Margaret. Moving now to Resolution 2, the election of Michael Byrne as Non-Executive Director. Michael retires in accordance with the constitution and being eligible, offers himself for reelection at the first Annual General Meeting since his appointment. Michael was appointed as Non-Executive Director of the company by the Board on the 14th of August 2024 and currently holds the position of Chair of the Audit, Risk and Sustainability Committee and member of the People, Remuneration and Nominations Committee. Having had regard to the ASX Corporate Governance Principles and Recommendations, the Board considers Michael to be an independent director. Michael has expertise in strategic planning, operational management and financial stewardship has left an indelible mark across diverse industries and geographies, including Australia, New Zealand, North America, Oceania, Europe, subcontinent Asia and the Middle East and Africa. Michael is currently a Non-Executive Director of Ausgrid, New South Wales Ports and Peel Ports U.K. as well as a Senate member of the University of WA and has previously held positions of Managing Director of Toll Group, CEO of both Coates Hire and Linfox as well as the Board and committee positions with Australia Post, OzHarvest, Victoria University and the University of Denver. The Board, with Michael abstaining, unanimously recommends the election of Michael Byrne. In his absence today, Michael has asked me to read his statement to shareholders. Shareholders, I apologize for not being with you today. It's an honor to join the Board of Australian Vintage at a time when clarity and good governance are paramount to support our focus on restoring shareholder value. As you heard from the Chair, I'm currently a Non-Executive Director of Ausgrid, New South Wales Ports and Peel Ports U.K. as well as a Senate member of the University of WA. Previously, I was a senior executive with a range of leading transport and logistics companies where my experience is directly relevant to many of the issues facing Australian Vintage. This included as Managing Director of Toll Group and CEO of both Coates Hire and Linfox. I also held Board and committee positions with Australia Post, OzHarvest, Victoria University and the University of Denver. I'm looking forward to working with my fellow directors and the company's management as well realize the significant opportunities in front of Australian Vintage. This is Michael's statement. Margaret, I'll now ask you to continue and introduce the next resolution.

Thank you. I have the pleasure of introducing the next item of business, which is Resolution 3, the election of James Williamson as a Non-Executive Director. James retires in accordance with the constitution and being eligible, offers himself up for reelection at the first Annual General Meeting since his appointment. James was appointed as a Non-Executive Director of the company by the Board on the 23rd of August 2024 and currently holds the position of Interim Chair. Having had regard to the ASX Corporate Governance Principles and Recommendations, fourth addition, the Board considers James to be a non-independent director due to his role as Co-Founder and Chief Investment Officer of Wentworth Williamson Management, a substantial shareholder of the company. The Board, with James abstaining, unanimously recommends the election of James Williamson. James, I invite you to say a few words in support of your election.

It's both an honor and a privilege to be considered for election to the Board of Australian Vintage. I truly believe we are on a pathway to an exciting and prosperous chapter for the organization. Thank you again to the shareholders for this opportunity.

Thank you, James, and I'll now hand back to you.

Thank you, Margaret. Moving now to Resolution 4, the election of Elaine Teh as Non-Executive Director. Elaine retires in accordance with the constitution and being eligible, offers herself for reelection at the first Annual General Meeting since her appointment. Elaine was appointed as Non-Executive Director of the company by the Board on the 23rd of August 2024. Having had regard to the ASX Corporate Governance Principles and Recommendations, the Board considers Elaine to be a non-independent director due to a de facto partner being a beneficiary of a trust holding Triple D Ventures, a substantial shareholder of the company. Elaine is the Founder and Executive Chair of Octopus Global Holdings, which is the company's current distributor in Singapore and Malaysia. Octopus Global is the sole representative of many large global distributors in Singapore and Malaysia, including Diageo, Paulaner, San Miguel, Australian Vintage, Fever Tree, ABInBev and more. Elaine holds a Bachelor of Arts, Economics and Japanese from the University of New South Wales, Australia. The Board, with Elaine abstaining, unanimously recommends the election of Elaine Teh. Elaine, would you like to say a few words in support of your election?

Thank you, James, and thank you, shareholder of Australian Vintage, and thank you for the opportunity. I am an entrepreneur for more than 30 years and also a founding member of many non-profit organizations. With that, I have gained a lot of relationship with the government and also customers. I believe in the good team of under Craig's leadership. As a founder of and Executive Chairman of Octopus Group, we are carrying a lot of global brands that James mentioned. And Chris has been a very good leader and also visit distributor like us and many more countries. With that, and I -- if I'm elected, and I hope to my experience and my knowledge and connections that I could assist Australian Vintage to grow in Asia another level. Thank you.

Thank you, Elaine. I move now to Resolution 5, which is to consider and adopt the Remuneration Report of the company. Details of the compensation report are set out in the company's Annual Report and Notice of Meeting, which I will take as read. This resolution is advisory only and does not bind the directors of the company. The Board unanimously recommends that shareholders vote in favor of the compensation report. I now move to Resolution 6, which is to consider and adopt the proposed amendments to the constitution of the company. Detail of amendments are set out in the Notice of Meeting, which I will take as read. The Board unanimously recommends that shareholders vote in favor of the amendments to the constitution of the company. We will now move to shareholder questions. I will first address the questions submitted prior to the meeting, followed by questions from in-person attendees and then move on to text and audio questions submitted online during the meeting. If you wish to ask an audio question, please do so now. I will ask the Company Secretary to read the questions.

Thank you, Chairman. The first question, which was received prior to the AGM is from T&J Humphreys Investments PTY Ltd, who was asked, how is it that we were lied to regarding actual company debt that saw the share price plummet 60-plus percent under the then CEO, who then resigned? On resigning, he received a significant share payout for not knowing about this debt and now he is the best you can find to reappoint him as CEO. How can I have confidence that the same people that manage this major failing can resurrect the company to survive and thrive?

Thank you for that question. Fair bit of inaccuracies there. Australian Vintage have been actively working with its finances to reduce its debt facilities to the lowest level in a number of years, thereby reducing costs. We had just reduced these facilities to save money when 2 events happened unexpectedly and concurrently. One of our global retailers removed their early payment facility and another changed their auditing strategy to just-in-time. All of this happened post Craig's departure for the company in May. Net debt as a result of these events were consistent with the net debt levels post the capital return in 2022. Banking facilities in place are still lower now than in prior years. The previous Board's reaction was to prudently raise additional capital through an equity raise, which was not broadly supported by the major shareholders. There is no point looking back in the rearview mirror, but we know that we have had a long and supportive relationship with our bankers over many years. Our balance sheet is strong with significant tangible asset backing and we are well positioned to drive free cash flow out of the business over the medium term.

Moving now to questions from shareholders attending in person. Please raise your hands and we will bring you a microphone.

I think it's okay.

With the appointment of a new Board, can you tell me if a review was done of the remuneration structure?

I think Craig's -- I'm actually -- I think Craig's remuneration is already disclosed to the ASX. And I'll comment on Craig's and then I'll pass to perhaps to you, Margaret. And if you look at the remuneration structure on Craig, he's got a fixed salary and there's options if this is a turnaround. And so really, I think the key message there to shareholders is Craig only makes extra money over the 3-year period if we make extra money. And so it was structured like that. And I think that style is going to permeate down into the organization. But I'll may just pass to Margaret to...

Yes. No, thank you for your question. You're absolutely correct. We are reviewing the overall structure. So, we started off with Craig and his appointment looking top down. We also took onboard, looked at independent benchmarking as well for the entire exec team and are also looking at the remuneration framework overall for the entire business. Yes. So that's one of the things that we're...

So that review is ongoing. It has -- you didn't do it prior as you -- when you came on to the Board. I started this when I came on to the Board. Shareholder, long term. I've got a number of questions. One, at the last AGM, the Chairman promised a strategic review and there was supposed to be feedback to shareholders from that. I appreciate that may not have occurred. Is there any current plan of a strategic review? I know there's objectives, but is there anything of that nature in the current scheme?

I think what -- I'm going to answer briefly. I'm going to pass to Craig. I think that the Board, this new Board and the senior management team believe that this industry is going to continue to consolidate. And I might pass to Craig to...

Yes. Thank you. Yes, we conducted a review and I was well into that review and you may recall that we were recommending to shareholders that we do a consolidation with the Accolade business at the time.

So, a review of merging with other groups, too.

That's right, which was the merge with -- but the one that we worked with was to -- we saw an opportunity to merge with the Accolade business. That was well underway. And then I was removed from the business. So, we're in the middle of that review recommendation and then we took it out to shareholders and it was unanimously supported by shareholders, you were one. And that's why you see in the theme of the conversation today, we're very open to opportunities for our business to continue with that strategy if it creates value.

So essentially, the past strategic review, you're not intending to jump into something at the moment, you're going to look at the whole...

Yes, I'm very committed and comfortable with the strategic review that was done and how we've adjusted the strategic plan to accommodate that review. So, we're open. The Australian industry is consolidating around us. We have to be on the front foot and open for business to look at all opportunities to create the value I think we can.

Appreciating there's a lot of issues out there. Second one, I know James said don't look in the rearview mirror. But in terms of the [ CR ] and the unloading of things that was done. Is there any learnings from that or any feedback that you can give from that, that will perhaps affect the future?

Sorry, repeat your question, I just want to make sure I understand it.

Are there learnings from the last 6, 8 months that we could learn from in the...

I'm not saying you should be -- in the review mirror, but you find something out of that. And again, I think the reporting...

I think the commentary from me because I wasn't on the Board, the commentary from me is the key thing from a Board, number one, is hire the appropriate CEO and have confidence in your management team and then let them get on with their job. And there is a difference and this yin-yang between the Board and the management team. And my feel is that, that relationship may have broken down. And so I think this new Board and the management team are very well aligned about what needs to be done. And I think we've made it pretty clear in our commentary here. If we continue on this pathway organically or if there's consolidation, this Board and the management team are aligned and we respect each other.

Can I just add one point to that? I was extremely energized to come back with this Board, extremely energized. When you look at the experience and the diversity that it can add to that review, it's really well placed.

A comment I'd make, Craig, my experience with the staff is your reputation and relationship with them is excellent. And I've been very pleased with that sort of picture. And I don't think that the explanation of your return has been well presented, but I'm very comfortable with where you're going now.

Very much appreciate those comments.

I've got other questions for the directors. You mentioned that the low alcohol wine was increasing and particularly among the younger drinkers. I was just wondering what percentage is it increasing by? Or what percentage is it compared to your total sale of wines?

My trustee CFO here has those numbers. What I will say before I divert is it's a higher-margin, fast-growing component post-COVID where health and well-being is on everyone's minds regardless of age. So, even with older generation drinkers, it's an important factor of where do they go to next, e.g. mid-strength. And younger consumers love the variety of the pleasure of wine, but without the alcohol. And hence, we did a brand which was called Not Guilty. And you can see the irony of that creates an interesting consumer compelling view at the shelf. I'm going to pick up a Not Guilty because my parents don't drink that, et cetera. So that's the theme of why perhaps some facts.

Great question because it's a key part of our strategy. So, if I take 2024, 20% growth in no-and-low wine alcohol sales by volume and value over the last year, which is excellent. So, when we talk about, as James did before and Craig, about the 35% contribution from innovation, a large part of that is actually the no-and-low alcohol wine segment and it continues to come through. So that's why we've backed it and why we are proud to be global leaders in this space.

Sorry, just to conclude that, the margin on it is higher than...

Even better.

Okay. I think that's what you were looking for. Yes, yes. Well said.

Charlie?

Yes. Charlie Kingston, K Capital. Just a few quick questions, please. Just on the free cash flow. There was a year, I think it was last year or the year before where you reported positive free cash flow, but that included the $60-odd million sale of the property. Obviously, that's a one-off. So, under my definition, that's clearly not free cash flow, but the target of $10 million to $20 million ongoing, I think part of that plan is to reduce inventory. But what is the Board's definition of free cash flow? Is it genuinely from recurring earnings going forward? Or are there one-off elements to that? Because clearly, the interest in the market cap today is $50 million. And if you can deliver $10 million to $20 million of sort of ongoing recurring free cash flow that's an exceptional.

So when you go back to that, you also have a look how much the inventories are going up because that also affects the line that you're looking at. So, you've got to strip that out to B2B like-for-like. So, I'd encourage you to do that. But my definition of free cash flow is assuming neutral working cap movement. So, what we're aiming to do with the business and the way we're aiming to also look at our cost structure and moving a little bit more variable compared to fixed is we want to get to a position in 3 years' time, 2027 is where we have better visibility of our cash flow because you have seen these quite wild swings in our cash flow in the past. So, it isn't -- it has, always going to have that element of agricultural side to it where there's going to be a difference between the P&L and the cash flow. But I have to say in this business and in some sense, I agree with you, if you look at the history, it's been too wide. So, we want to get to a position in 2027 where our cash flow better links with our earnings and we have some better visibility. But Adam, do you want to add something to that?

Thanks, James. Great question because it's in all our target statements. So, great question. At the end of the day, free cash flow and our definition, as James said, is really excluding the asset sales or anything like that in that year. We need to be delivering this from our business, our business as usual. And as we spoke about through this presentation, we're going to do that through top line sales growth. We're going to do it by variabilizing our cost base as well. The combination of those 2 should set us up for very good success going forward. And if we do it the right way, which we think we can and the actions are underway, we'll achieve it.

Charlie, I'll say this too. We have a focus on cash flow and the management team. It's very important to us. We're not paying little dividends and doing DRPs or whatever. We're going for cash flow, we're going for growth.

Look, certainly, given your recent purchases, James, it's great to see. You're certainly heavily aligned. So that's very reassuring. But also on the NTA point, maybe it's more -- I was going to hopefully ask Margaret given it does seem endemic across the ASX sort of agriculturally exposed companies that there are chronic discounts to NTA. Select Harvests is certainly one of them. And maybe it's just a part of the market with agriculturally-focused companies, but I was just hoping to understand how solid that NTA is because, again, $0.15 today, $0.60 NTA. I appreciate a lot is in inventory. And if you look at the history across the sector, TWE once upon a time, poured a bunch of their inventory down the drain. But again, it looks very attractive at $0.15 if that NTA is real and achievable, but maybe there is a chronic discount for these type of companies. But just appreciate any further thoughts on how solid that NTA is and what sort of a fair gap to that NTA we should be trading at, because 50% discount is great?