Assessment Steps 3-6

Rhiannon BellamyACCT11081Martin TurnerCQ University

ContentsStep Three..........................................................................................................................................2

Australian Vintage............................................................................................................................. 2

The Board of Directors..................................................................................................................2

Chief Executive Officer – Neil A McGuigan...........................................................................2

Chairman – Richard H Davis...................................................................................................3

Non-Executive Director – Perry R Gunner.............................................................................3

Non-Executive Director – John D Davies...............................................................................3

Non-Executive Director – Naseema Sparks AM...................................................................3

Capabilities of Australian Vintage...............................................................................................3

Wine Brands...................................................................................................................................3

Distributors..................................................................................................................................... 3

Highlights........................................................................................................................................ 4

Acquire Miranda Wines.................................................................................................................4

Acquire Nepenthe Wines..............................................................................................................4

Discover: Australian Vintage Limited – YouTube Video..........................................................5

Financial Statements.................................................................................................................... 5

Consolidated Statement of Profits or Loss and Other Comprehensive Income...............5

Consolidated Statement of Financial Position.......................................................................6

Consolidated Statement of Changes in Equity......................................................................7

Questions....................................................................................................................................... 8

Consolidated Statement of Profits or Loss and Other Comprehensive Income...............8

Consolidated Statement of Financial Position.......................................................................8

Consolidated Statement of Changes in Equity......................................................................8

Australian Vintage vs. Carpetright...............................................................................................8

Discussion With Others................................................................................................................ 9

Billy Van Moolenbroek – AVJennings.....................................................................................9

Step Four...................................................................................................................................... 11

Step Five.......................................................................................................................................12

Step Six.........................................................................................................................................14

Feedback to Others.................................................................................................................14

Feedback Received................................................................................................................ 14

Step ThreeDelving into the life of a company… feel’s like déjà vu….

Anyways, unlike my UK based company in first term, I have the pleasure of delving into the like of an Australian Wine Company. Now I’ve only recently started drinking wine myself; always having thought that it was gross so I stayed away. So this will be educational to say the least.

Website Link: http://www.australianvintage.com.au/  

Australian VintageFrom my initial readings, it appears that the company has been doing quite well in

the last few years after having changed their focus from bulk wine supply to their three key brands, McGuigan, Tempus Two and Nepenthe. The current strategy of Australian Vintage is to increase the sales of the three key brands, growing their global export business as well as effectively controlling their costs, which included a termination of an onerous long-term vineyard lease and the expiry of some onerous third party growers. The termination of the long-term vineyard lease resulted in a 9.2 million cost to the business, resulting in a 2 million net loss for 2016. Before this termination, the company was expected to have a 7.2 million profit, which was an increase of 0.1 million from 2015.

In 2016, Australian Vintage faced some trouble with it’s British partners as an unfavourable drop in the GBP as a result of the Brexit vote resulted in a $1.1 million reduction of the predicted net profit after tax.

2016 was also the year that Australian Vintage reintroduced a fully franked dividend of 1.5 cents per share.

The Chairman, Mr Richard Davis, predicts that ‘the company will continue to face short-term challenges as it transitions from bulk wine producer to a quality branded business, however the business is on track to building a sustainable growing business.’

 

The Board of DirectorsChief Executive Officer – Neil A McGuiganNeil was previously the General Manager of Production and Wine Supply at Australian Vintage Limited. He was appointed as a Director and as the CEO on 21 July 2010. Neil has over 37 years’ experience in the wine industry. He previously worked at the then privately owned Briar Ridge before leaving in 2000 to run Rothbury Estate and its satellites in the Upper Hunter, Cowra and Mudgee for the Foster’s Group.

Chairman – Richard H DavisChairman of Monash IVF Group Limited and Director (and previously CEO) of InvoCare Limited where he previously spent almost 20 years growing and managing the business. Former accounting partner for a national accounting firm.

Non-Executive Director – Perry R GunnerOver 30 years’ experience in the wine industry. Former Chairman and Chief Executive Officer of Orlando Wyndham Group Pty Limited. Chairman of Freedom Foods Group Limited and Deputy Chairman of A2 Corporation Limited (N.Z.). Chairman of the Risk Committee.

Non-Executive Director – John D DaviesFellow of the Institute of Chartered Accountants having worked for 36 years with Ernst & Young. John was elected to Ernst & Young’s Asia Pacific Board of Partners for a 6 year period until his retirement in 2011. During his career he provided professional services to many of Australia’s leading wine companies and he also owns a commercial vineyard in central Victoria. Chairman of the Audit Committee.

Non-Executive Director – Naseema Sparks AMCurrently Deputy Chairperson of Racing NSW and Director of Melbourne IT Limited, PMP Limited, Grays e-Commerce Group Ltd and AIG Australia. Former Chairperson of Deals Direct Group with extensive experience in marketing and digital media after a successful career with M&C Saatchi, one of Australia’s largest and most successful advertising businesses. Naseema holds post graduate market and research qualifications and an MBA from Melbourne Business School. Chairperson of the Remuneration and Nomination Committee.

Capabilities of Australian Vintage

Wine Brands Distributors McGuigan

Wines Tempus Two Nepenthe Miranda Passion Pop

Australia UK & Ireland Europe New Zealand Asia The Americas

Bulk Wine Supply Own Brand Solutions Bespoke Branded Solutions Reduced & 0.5% Alcohol

Solutions Contract Processing Vineyard Management

Concentrate Contract Packaging

Highlights1992 McGuigan Wines founded by Brian McGuigan

1994 Simeon Wines Limited founded.

1997 Tempus Two brand is launched

1999 Acquire Yaldara Barossa Valley

2002 Merge with Simeon Wines to create Australia’s 4th largest wine group – McGuigan Simeon.

2003 Acquire Miranda Wines

2007 Acquire Nepenthe Wines

2008 The company transitions from McGuigan Simeon to Australian Vintage Limited.

2009

Major Awards– International Winemaker of the Year – IWSC London.– Australian Producer of the Year – IWSC London– International White Winemaker of the Year – IWC London

2011Major Awards– International Winemaker of the Year – IWSC London– Australian Producer of the Year – IWSC London

2012

Major Awards (IWSC | IWC London)– International Winemaker of the Year – IWSC London– Australian Producer of the Year – IWSC London– International White Winemaker of the Year – IWC London

2013 Major Awards– International White Winemaker of the Year – IWC London

Discover: Australian Vintage Limited – YouTube Videohttps://www.youtube.com/watch?v=hOpEbhabCh0

Financial Statements

Consolidated Statement of Profits or Loss and Other Comprehensive Income

Revenue

The majority of Australian Vintage’s revenue ($242,686,000) was gained from the sales of goods ($235,880,000) as well as contract processing ($3,705,000) and rendering contract vineyard services ($3,101,000).

Distribution Expenses

The increase in distribution expenses ($13,631,000 to $13,709,000 – increase of $78,000) was most likely due to increase in branded export sales.

Finance Costs

The biggest save for the finance costs was the reduction in ‘interest on obligations under finance lease’ from $314,000 in 2015 to $86,000 in 2016. AV also reduced their ‘interest on bank overdrafts and loans’ from $5,856,000 in 2015 to $5,582,000 in 2016.

Vineyard Lease Exit

AV had a major loss ($13,148,000 compared to $1,005,000 in 2015) in the termination and exit from the Del Rios vineyard lease. The termination of the onerous long-term lease is predicted to save $5 million per annum in grape costs.

Consolidated Statement of Financial Position

Cash and Cash Equivalents

Looking through the notes of the cash and cash equivalents, I’m a little confused about the second half of the table… does anyone have anything similar?

Trade and Other Receivables

The most significant I have found about the accounts receivable is that in 2016 the company wrote off $817,000 as not collectable, compared to 2015 which had only $172,000 as not collectable. They are still averaging the same 37 days to collect, but have also reduced how many accounts are past due in 30-60 days, 60-90 days and 90+ days.

Inventories

Av had an increase in their ‘other stores and raw materials’ and ‘work in progress’, but had a decrease in ‘bottled wine’ and ‘bulk wine’. However, the company had a $10.2 million increase in cost of sales.

Other Financial Assets

AV obtained hedge assets – foreign currency forwards and options in 2016. I’m not quite sure what hedge assets are because I don’t believe I had them in my last company.

Borrowings & Other Financial Liabilities

AV decreased both their current borrowings ($1,514,000 in 2015 to $259,000 in 2016) and their other financial liabilities ($1,534,000 in 2015 to $248,000 in 2016). However, they increased their non-current borrowings ($104,390,000 in 2015 to $107,131,000 in 2016) and their other financial liabilities ($20,000 in 2015 to $309,000 in 2016).

Reserves

AV increased their reserves by 32.78% from $671,000 in 2015 to $2,047,000 in 2016.

Overall, Australian Vintage increased their total assets by $1,230,000, increased their total liabilities by $1,826,000, which still resulted in a decrease of net assets of $596,000. AV also

decreased their equity by $596,000.

Consolidated Statement of Changes in Equity

The first thing that caught me off guard was that I looked straight to the bottom of the total column, expecting to see the 2016, however I found the balance at 30 June 2015. What they’ve actually done is put the top half as the 2016 financial year and the bottom half as the 2015 financial year. This tripped me out for a second because in my last company they had the previous financial year at the top and the current one at the bottom.

In 2016, Australian Vintage made a loss of $1,972,000 compared to $9,366,000 profit that was made in 2015. This was a result of the onerous long-term lease that was terminated.

Questions

Consolidated Statement of Profits or Loss and Other Comprehensive Income

o What are non-recoverable incentives to customers?o Did anyone else have an increase in their gross profit, but a loss in their net due to a

significant event?

Consolidated Statement of Financial Position

o Biological assets and water licenses, is that to do with boats or something that the company own to export their products around the world?

o Does anyone else have any interesting assets?o Does anyone else have any current and non-current provisions that seems high? And what

exactly would be classified as high?

Consolidated Statement of Changes in Equity

o What are interest rates swaps?o Exchange differences arising on translation of foreign operations, is that just to do with the

exchange rate on sales overseas?o How could 2015 have a negative dividend paid when they didn’t pay a dividend?

Australian Vintage vs. Carpetright This term, I was given Australian Vintage, a wine company based in Australia. Last term, I was given Carpetright, a flooring and bedding company based in the UK. I have found that having looked at a company last term has improved how I look at a company this term and what I should and shouldn’t be looking for. I found reading the financial statements easier, however, I still had some items that were new to me so I am unsure of some things. It also took me less time to find the important notes, such as what the company strategy is and what major events have affected the company. Whilst both companies offer products and services, I think it will be interesting reading about Australian Vintage as it exports more globally than Carpetright.

Discussion With Others

Billy Van Moolenbroek – AVJennings

My discussion with Billy was insightful to say the least. He seems to have a really good grasp on what is going on in AVJennings and their financial statements. We first started out by comparing some of the similarities and differences between the two companies:

Similarities Differences Australian Product & services $’000 Both increased their market sales in the

last 3 years Both have foreign currency translation Both have done their market research

Australian Vintage has distribution expenses

Inventories Australian Vintage has hedge assets AVJennings has been operating for 85

years, whereas Australian Vintage has been operating for 15 years.

We also talked about some of the significant differences in our figures, such as the finance costs and income tax. It was interesting to see that Australian Vintage spent almost 10 times the amount of finance costs than AVJennings; however, it seems that AVJennings had a large tax expense whereas Australian Vintage had a tax benefit.

Further on we discussed how we think our companies would fair in a recession. I believe that AVJennings would probably suffer a bit, but considering their market strategy of ensuring that houses are affordable, I believe that they would bounce back fairly quickly. Australian Vintage, well I think that it would continue to do well because what else is there to do except drink your problems away in a downturn…

What really made this a meaningful discussion was when Billy explained a question I had about Australian Vintages’ cash flow statement with regards to the cash and cash equivalents of the business.

Regarding your question with the cash flow statement's second half of the table, I share your confusion. Here's what I understand so far, though. A cash flow statement measures how much cash is being spent (displayed as a negative) or earned (displayed as a positive) by the business in three different activities (operating, investing and financing).

The heading states "(Increase) / decrease in assets." I was thinking perhaps this section measured how much money was spent on assets (thus increasing the asset value, but decreasing the bank value) and how much money was received from the sale of assets (thus decreasing the asset value, but increasing the bank value).

So, your company's footnotes state that trade and other receivables include loans to other parties. This coincides with the increase to trade and other receivables in 2016. If we assume the company has loaned $3.031m to other parties, the decrease in cash as a result of the loan, matches the increase to the trade and other receivables asset account.

So, the heading states "Increase/(Decrease) in liabilities." This means that increases to liabilities are positive (cash is coming into our business) and decreases to liabilities are negative (cash is leaving our business). This coincides with the current trade and other payables, since the company has gained $2.649m from the account, it can only be assumed that the cash is coming in as a result of the loan. This transaction would increase the value of both the business' bank account and liabilities.

Consequently, negative amounts, such as the $165,000 decrease in 2015 to trade and other payables would be a result of the business paying off their current debts. This transaction would decrease both the value of the owed liability and the cash in the business' bank account.

As well as explaining what hedge assets and biological assets were.

From what I can gather so far, a hedge is an investment (I assume shares in other businesses, foreign currency etc.) which the company uses to 'protect' themselves financially from any forecasted major event. Like the recession.

It's like insurance, we pay for insurance so if something bad happens, we are covered.

We both agree that we like our companies this term, and I look forward to seeing how they both fair in the future.

Step FourFirstly, I just want to point out that I know that it looks like I have made a loss in the period I have recorded in my income statement, however, as we are doing cash base processing, I have treated all my prepaid expenses as the actual expenses. So, while it appears that all my expenses outnumber my revenue, at this point I am not accounting for my assets. I my chart of accounts tab, you can see that I have added what my prepaid expenses would be.

I find that prepaying my expenses is advantageous in my life. I feel more at ease knowing that when a bill comes, I don’t have to fork out half my bill to cover it. I also find prepaying bills also prevents me from wasting money on unnecessary things, such as take away.

I want to continue processing my bank statements in the future in hopes that it will further control my unnecessary expenses. I’ve found that it has helped me in the last couple months with saving for a house.

Key Concepts:

Chart of Accounts Identifying and Classifying Accounts Income Statement

I’m lucky enough to have covered chart of account in high school, so the general order of revenue, expenses, assets, liabilities and equity are not new to me. I found classifying the various transactions between revenue and expenses probably a lot easier than I would classify assets, liabilities and equity.

After having done a lot of linking cells for formulas last term, this task felt kind of easy. I can see the advantage of producing an income statement every month to see how much unnecessary money I’m spending on take away and other random stuff.

Questions to respond to:

a) Compared to the example chart of accounts, while the amount of accounts don’t really differ, there are some differences. As probably a younger person compared to the example, I don’t exactly have any life or income insurances and I have expenses such as rent or prepaid mobile compared to mortgage payments or phone bills. When I recorded my own chart of accounts, I have added some asset accounts for future use.

b) I feel like I had a fair amount of detail. I like detail because it makes everything easier to understand. I feel as though a company should always be as detailed as realistically possible to allow as much in-depth insight to the chart of accounts as possible.

c) The best way to analyse the income statement is to look at the profit and loss and work out where, if needed, internal controls should be implemented to improve expense spending and increase revenue. Personally, recording the income statement hasn’t helped in my private affairs as I use a different method; however, the process itself has helped improve my understanding of the financial statements.

Step FiveAustralian Vintage

Trial BalanceFor the period ended 30 June 2016

Debit$’000

Credit$’000

Cash & Cash Equivalents 6,011Trade & Other Receivables 42,789Inventories 197,662Other Financial Assets 1,161Other Assets 1,622Biological Assets 32,828Property, Plant & Equipment 81,375Goodwill 37,685Other Intangible Assets 5,784

Water Licenses 7,554Deferred Tax Assets 36,134Trade & Other Payables 43,813Borrowings 107,390Other Financial Liabilities 557Provisions 6,866Other Liabilities 215Issued Capital 443,266Reserves 720Accumulated Losses 151,577Revenue 242,686Fair Value of Grapes Picked 4,206Investment Income 86Gain On Sale of Other Property, Plant & Equipment 157Income Tax Benefit /(Expense) 713Cost of Sales 181,350Other Gains & Losses 94Distribution Expenses 13,709Sales & Marketing Expenses 28,522Administration Expenses 7,207Finance Costs 5,790Vineyard Lease Exit 13,148Net Gain/(Loss) on Hedging 1,375Exchange Differences Arising On Translation of Foreign Operations 48TOTAL 852,050 852,050

The process of picking out the various accounts and putting them under their correct headings, such as assets, wasn’t too hard for me. The first thing I did was go through the two financial statements and highlighted the accounts I thought that would be included. Some that I had highlighted, I did not include in the trial balance as they had a zero-value for 2016. The first question I had in this step was whether ‘earnings per share’ were to be included. I was lucky enough that when I came across this question, I happen to be at work… so I asked my boss, who happens to be a chartered accountant, the question. She answered my question using a client’s work as an example.

While following Maria’s Tutorial video, the one thing I came across that I didn’t know was temporary accounts and how they were closed off. I was like ‘huh…what is she talking about?’. (Obviously guilty for not having read the couple pages it had said we needed to read) But I was able to follow along with the video and understand the basic concept.

I was able to identify the link between the financial statements and have detailed them below:

Statement of Equity

I was able to link the:

Share capital total $445,266 to the Issued capital in the balance sheet; Hedging reserve total $1,375 to the Net gain/(loss) on hedging in the income statement; Foreign currency translation reserve total $(48) to the Exchange differences arising on

translation of foreign operations in the income statement; Accumulated losses total $(1,972) to the Net profit/(loss) for the year in the income statement;

and finally, Total comprehensive income for the period total $(645) to the Total comprehensive

income/(loss) for the year in the income statement.

Balance Sheet

Income Statement

Despite not previously not knowing what temporary accounts were and how we ‘closed’ them off, I believe that Maria explained them well enough in the tutorial that I don’t need to read the chapter, but of course I’m still going to… just in case.

Step Six

Feedback to Others

Feedback Received