FFW Annual Report 2018 Announcement

Appendix 1 (NZAX Listing Rule 10.4.1)
Full Year Preliminary Announcement

Attachments:
Media Release
Directors and CEO Report - Annual Report for the Year Ended 30 June 2018.
Annual Report for the Year Ended 30 June 2018.
Foley Family Wines Limited (“FFW”)
Results for announcement to the market

Basis of Report Audited
Reporting Period 12 months to 30 June 2018
Previous Reporting Period 12 months to 30 June 2017 (Refer Note 2)

Amount (000s) Percentage change
Total Revenue $NZ 42,078 +10.6 %
Revenue from ordinary
activities
$NZ 42,078 +26.1 %
Operating Profit before
revaluations and income tax
(“Operating Earnings”)
$NZ 2,752 -44.7 %
Operating Profit before interest,
impairment, revaluations,
income tax and depreciation
(“Operating EBITDA”)
$NZ 6,523 -24.7 %
Reported Profit from ordinary
activities after tax attributable
to security holders (“Reported
NPAT”)
$NZ 1,805 -40.9 %
Profit for the period net of tax
attributable to security holders
$NZ 1,805 -40.9 %

Dividend Amount per security Imputed amount per security
Final $NZ 0.03 $ 0.011667

Record Date 11 September 2018
Dividend Payment Date 18 September 2018

Current Reporting Period Prior Reporting Period
Net tangible assets per share $1.56 $1.50

Notes: 1. This announcement should be read in conjunction with the
attached audited Annual Report 2018. A copy of the
Annual Report 2018 can also be found on the FFW web
site www.ffw.co.nz.
2. The 2017 comparatives have been amended due to the
reclassification of $216,000 of expenses on the Income
Statement from discounts (which are recorded as a
reduction in Revenue) to Selling, marketing and promotion
expenses to be consistent with the treatment of these
promotional expenses in the current year.

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23 August 2018


Foley Family Wines Reports a Year of Significant Progress

Foley Family Wines Limited (FFW) announces a Profit for the period after income tax of $1,805,000 on sales
revenue of $38,084,000 for the Group for the year ended 30 June 2018.

Highlights:
Case sales 471,000 (up 21%)
Bottled sales revenue $38,084,000 (up 25.2%)
Operating cash flow $7,175,000 (up 104.8%)
Mt Difficulty acquisition conditionally approved (OIO approval pending)
Strategic Partnership with Lion announced.

Chief Executive Officer of FFW, Mr Mark Turnbull, said:

“The 2018 year has been a year of significant progress for FFW recording an operating profit before revaluations
and income tax (“operating earnings”) of $2,752,000, compared with $4,979,000 for the previous financial year.
Excluding the effect of non-recurring revenue and expenses from each financial year this would have been
$2,180,000 this year vs $1,431,000 last year, representing a 52.3% increase.”

“In terms of bottled wine case sales, these increased from 389,000 last year to 471,000 this year, a 21% increase,
with New Zealand and Australia having stand out results. It’s been very apparent that the quality of the FFW
wine and tremendous wine accolades have been a driving force in this growth.”

“FFW’s focus now is to grow value commensurate with the quality of the wine. To address this, Lion will become
the dominant distributor for FFW and will implement new strategies in New Zealand. This will have a material
impact on profitability in the New Zealand market and FFW overall for future years.”

“Last year FFW stated that it intended to actively seek out a new acquisition. The directors firmly believe the
acquisition of Mt Difficulty will strengthen FFW’s position as New Zealand’s foremost wine groups in the premium
segment. The quality of the wine produced across the portfolio will set us apart from competitors.”

“FFW is well placed to satisfy the most discerning retailers and restaurateurs in any market. In addition, having
the ability to manage all brands from a central point from a logistics perspective has received very positive
feedback.”

The Directors have resolved to maintain a final fully imputed dividend of 3 cents per share.

The Annual Shareholders’ Meeting of FFW will be held in Wellington this year. Further details will be provided
in due course.

Authorised for public release.

For further information please contact:
Mark Turnbull
CEO, Foley Family Wines Limited
PO Box 67, Renwick, 7243, Marlborough
Tel: +64 21 714 885
Email: mark@ffw.co.nz

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DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018
The Directors of Foley Family Wines Limited (FFW) wish to announce the 2018 operating results and annual
report for the 12 months ended 30 June 2018.

Highlights:

Case sales 471,000 (up 21%)
Bottled sales revenue $38,084,000 (up 25.2%)
Operating cash flow $7,175,000 (up 104.8%)
Mt Difficulty acquisition conditionally approved (OIO approval pending)
Strategic Partnership with Lion announced.

Operating performance

The 2018 year has been a year of significant progress for FFW recording an operating profit before revaluations
and income tax (“operating earnings”) of $2,752,000, compared with $4,979,000 for the previous financial year.
Due to the requirement to account for insurance proceeds $2,027,000 was accounted for within the operating
earnings due to the Culverden Earthquake in the prior year.

Profit for the year net of tax was $1,805,000, down from $3,056,000 the previous year.

The following table provides a reconciliation of the operating earnings and profit for the year net of tax excluding
the non-recurring revenue and expenses in each financial year. These are the effect of the one-off mergers and
acquisitions costs incurred in the current year in relation to the Mt Difficulty purchase, and the earthquake
insurance proceeds and expenses in the prior year. We believe this table gives investors a better understanding of
both the progress that has been made and also some of the issues that FFW has encountered. FFW believes it has
a clear strategy to address these issues, which will be discussed later.

DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED)

Reported
Group
2018
Non-
recurring
Group
2018
Excl Non-
recurring
Group
2018
Reported
Group
2017
Non-
recurring
Group
2017
Excl Non-
recurring
Group
2017
% change
Excluding
Non-
recurring
$’000 $’000 $’000 $’000 $’000 $’000
Revenue – Sales revenue 42,078 - 42,078 33,363 - 33,363 +26.1%
Revenue - Total 42,078 - 42,078 38,037 (4,674) 33,363 +26.1%
Expenses excluding interest (38,209) 375 (37,834) (31,927) 2,647 (29,280)
Operating Profit before
interest, impairment,
revaluations & income tax 3,869 375 4,244 6,110 (2,027) 4,083 +3.9%
Net finance costs (1,080) - (1,080) (1,126) - (1,126)
Operating Profit before
impairment, revaluations &
income tax 2,789 375 3,164 4,984 (2,027) 2,957 +7.0%
Impairment (37) - (37) (5) - (5)
Operating Profit before
revaluations & income tax 2,752 375 3,127 4,979 (2,027) 2,952 +5.9%
Revaluation gains and losses (110) - (110) (996) - (996)
Profit before income tax 2,642 375 3,017 3,983 (2,027) 1,956 +54.2%
Income tax expense (837) - (837) (927) 402 (525)
Profit for the year net of
tax 1,805 375 2,180 3,056 (1,625) 1,431 +52.3%

Operating Profit before
interest, impairment,
revaluations, income tax &
depreciation (“Operating
EBITDA”) 6,523 375 6,898 8,657 (2,027) 6,630 +4.0%

Case sales and bulk wine
Bottled case sales (000’s) June 2018 June 2017 % change
New Zealand 144 92 +57%
Australia 113 68 +66%
United States/Canada 122 147 (17)%
United Kingdom/Europe 73 64 +14%
Other/Rest of World 19 18 +5%
TOTAL 471 389 +21%

Net case realisation June 2018 June 2017 % change
Ave. Price per case ($) 81 78 +4%
Ave. Selling, Promotion and Marketing cost
per case ($)
10 9 +11%
Net case realisation ($) 71 69 +3%

DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED)
This year was one of significant progress in terms of case sales, with New Zealand and Australia having stand out
results. It’s been very apparent that the quality of the FFW wine and tremendous wine accolades have been a driving
force in this growth. FFW’s focus now is to increase pricing to ensure it is commensurate with the quality of the
wine. To address this, Lion will become the dominant distributor for FFW and will implement a new pricing and
promotional strategy in New Zealand. This will deliver a minimum increase of $10 per dozen, depending on brand
and varietal needing to be addressed. This will have a material impact on profitability in the New Zealand market
and FFW overall for future years. The New Zealand market was the key influence in terms of the lack of EBITDA
growth. Simply put, too much wine was sold too cheaply compared with the quality of the wine.

The USA is a critical market for FFW and its export strategy. This year had some disruption due to distribution and
personnel changes. Notwithstanding this, FFW brands are continuing to gain traction especially our super premium
brands such Vavasour and Grove Mill. The FFW USA team won a substantial new retail listing in late June that will
lead to strong growth in the next financial year for the Grove Mill brand. The Directors are confident the USA will
return to growth in the 2019 year and, if the currency maintains, the current levels will a deliver strong financial
contribution.

FFW is pleased with the progress it continues to make in the competitive UK market and the Rest of the World
markets. All markets produced an improved financial performance contribution.

This year bulk wine sales were 101,607 9L equivalents compared to 46,000 9L equivalents last year. This enabled
FFW to balance the large 2016 vintage while supporting overseas distribution opportunities. Depressed bulk wine
pricing meant that this contributed little margin, however it corrected FFW’s inventory position from the prior
vintage. For the 2019 financial year, FFW is not in a position to commit to bulk wine sales of any significance and
will remain focused on building its high value bottled wine brand. Simply put, FFW needs all wine to support its
2019 bottled wine sales plan. FFW does not bottle any wine in market.

Average price per case has improved slightly to $81 for the year. As outlined earlier, the implementation of a new
pricing strategy will lead to a material improvement in case price realisation in New Zealand. Last year FFW
outlined its strategy of focusing on the premium sector, and, in particular wines with an average case rate over $120
NZD. The new Lion partnership will be a major step in delivering this. Finally, the pending Mt Difficulty transaction
will make a material impact on case realisation. It is forecast that Mt Difficulty will deliver a further 50,000 dozen
in New Zealand at average case realisation of $130.

Earthquake

To recap last year, the 7.8 Culverden Earthquake caused significant damage to the Grove Mill winery with all tanks
sustaining some level of damage (from minor repairs to complete write-offs).
The financial implications were that in the prior year FFW received $4,674,000 in insurance proceeds (note 3).
Non-recurring costs (inventory write off, extra costs of working etc) totalled $2,647,000 (note 4). FFW incurred
$3,168,000 by way of costs on asset replacements. The difference between these reflects the insurance excess of
$1,125,000 and costs not covered of $16,000.

DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED)
Balance sheet strength and cash flow

Operating cash flow was $7,175,000 for the year, up from $3,503,000 last year. The prior year was impacted by the
unbudgeted funding required for earthquake damage. As well as being impacted positively by the increase in
revenue flowing from higher bottled wine case sales, this year has also benefited from the resulting decrease in our
inventory levels at year-end and also more favorable exchange rates.

FFW paid down term debt by a further $1,000,000, thus reducing total term debt to $9,002,000. At year-end, total
assets were $131,241,000 (2017 $128,421,000) and equity was $94,482,000 (2017 $91,144,000).

The final payment of $865,000 excluding GST ($994,000 including GST) was received in August as full and final
settlement for the earthquake claim.

Capital expenditure

FFW capital expenditure amounted to $2,121,000 in 2018 vs $4,886,000 in 2017, which was significantly
influenced by earthquake expenditure of $3,168,000 (the remainder being $1,718,000). This year’s expenditure was
more in line with expenditure in 2016 of $2,134,000 as it was not influenced by external events. A critical
investment this year was a new wastewater plant at the Grove Mill winery. This investment was necessary from an
environmental and growth perspective. The new plant enables FFW to increase winery production to 4,500 tonnes
(a 50% increase from the current 3,000 tonnes) and the plant can be expanded to 6,500 tonnes if required.

As stated last year, the directors are committed to keeping capital expenditure below the annual depreciation level
other than in a year that requires capex for production expansion. FFW is now at a point where it will focus on
capital expenditure that will enable the business to grow.

Vintage 2018

Vintage 2018 saw FFW harvest 5,868 tonnes across the Marlborough and Martinborough wineries, an overall
increase of 6% on last year’s harvest of 5,527 tonnes. Pleasingly, both Marlborough and Martinborough FFW
vineyards performed strongly with a 7% and 20% increase in tonnage respectively against last year’s harvest.

Chief Group Winemaker | Head of Viticulture Alastair Maling MW said “The 2018 vintage was well set up with ideal
growing conditions throughout the summer – good flowering and hot summer temperatures indicated an early
harvest which came to fruition as we experienced our earliest harvest for a number of years even with a number of
rain events during January, February and March. Continued investment and focus in the vineyards, both on yield
and aligning vineyards to wine styles, is providing a positive effect on our wines as evidenced by the strong list of
awards our brands have received in the past 12 months. What is particularly exciting from my perspective is that
early indications from the 2018 vintage suggest that the wine quality is even stronger than 2017”.

DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED)
Awards and Accolades

The outstanding quality of wines across the portfolio has been recognised again this year with remarkable results
from some of New Zealand and the world’s largest and most respected wine competitions. Over the course of the
past 12 months, FFW has won the following medals:
One Best in Show
Seven Trophies
32 Gold Medals
63 Silver Medals
85 Bronze Medals

At the New World Wine Awards 2017 our Russian Jack Sauvignon Blanc 2017 was awarded Champion Sauvignon
Blanc, a particularly pleasing recognition of quality and the opportunity to grow this wine’s distribution in one of
New Zealand’s largest retailers.

It was a busy night for FFW brands at New Zealand’s largest wine competition, the Air New Zealand Wine Awards
2017, with Dashwood Pinot Noir 2016 taking out Reserve Wine of the Show, New Zealand Champion Pinot Noir
and Champion Open Red Wine. In the same competition Goldwater Sauvignon Blanc 2017 took away New
Zealand Champion Sauvignon Blanc and Champion White Wine.

In May, Vavasour Sauvignon Blanc 2017 was named Value Best in Show with 97 Points by Decanter Magazine’s
World Wine Awards 2018, while Te Kairanga John Martin Pinot Noir 2016 was awarded a Gold Medal and 96
Points in the same competition. The Decanter World Wine Awards is the world’s largest and most prestigious wine
competition, judged by top wine experts from around the world. It is respected internationally as an unrivalled
source of wine recommendations.

Vavasour Sauvignon Blanc 2017 was once again recognised in Air New Zealand’s “Fine Wines of New Zealand” list.
Martinborough Vineyard Home Block Pinot Noir 2015 was also included this year in this definitive list of New
Zealand’s best wines and wineries.

The directors would like to extend their gratitude to staff for their commitment to the quality of FFW's wines and
for their hard work.

Lighthouse Gin

Lighthouse Gin sales totalled 29,474 700/750ml bottles for the year vs 12,806 last year, an increase of 130%. This
year’s sales included 17,502 bottles shipped to the Craft Club in the UK at the end of June 2017 which were recorded
in this year’s sales due to the terms of shipping.

FFW's focus continues to be new international distribution opportunities along with building the brand within New
Zealand. Lighthouse is now sold in Australia, USA, UK, Germany, Ireland, Japan and Vanuatu.

DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED)
Lion – Beer, Spirits & Wine (NZ) Limited

In May FFW announced Lion (who currently distributes Mt Difficulty) will take a 3.7% shareholding in FFW once
the Overseas Investment Office (OIO) consent for the acquisition by FFW of Mt Difficulty has been obtained.
FFW advises that their application is still being processed by the OIO.
As part of this strategic partnership, Lion (who currently distributes the Martinborough Vineyards and Russian
Jack brands for FFW) will now distribute the wider FFW portfolio - taking on brands such as Vavasour, Te
Kairanga and Dashwood, currently distributed through EuroVintage.
The signing of the distribution agreement means that that the only condition to Lion’s investment in FFW that is
now outstanding is obtaining the OIO approval for the Mt Difficulty acquisition. In the event that OIO consent
was not granted, Lion will not subscribe for the FFW shares and the distribution of Mt Difficulty brands will
simply be excluded from the agreement.
In New Zealand Lion is the largest alcohol company and is fourth biggest in the FMCG sector. Besides FFW
having access to their nearly 300 sales and marketing staff, FFW will collaborate with Lion in terms of supply
chain opportunities. Lion has a stated ambition of becoming New Zealand’s largest wine business and the FFW
portfolio will assist them greatly in the premium segment.

Mt Difficulty and operating results outlook

Last year FFW stated that it intended to actively seek out a new acquisition. At the time of writing our application is
still being processed by the Overseas Investment Office, however we believe the company made a robust application
and consent will be forthcoming. At the Annual Shareholders Meeting in November the directors intend to give an
overview of the FFW business following the Mt Difficulty purchase (should this be approved by the OIO).

The directors firmly believe the acquisition of Mt Difficulty will strengthen FFW’s position as New Zealand’s
foremost wine groups in the premium segment. The quality of the wine produced across the portfolio will set us
apart from competitors.

It’s been very apparent from the media coverage around the pending Mt Difficulty acquisition that the FFW
portfolio is gaining considerable interest both domestically and internationally. FFW is well placed to satisfy the
most discerning retailers and restaurateurs in any market. In addition, having the ability to manage all brands from
a central point from a logistics perspective has received very positive feedback.

DIRECTORS AND CEO REPORT
FOR THE YEAR ENDED 30 JUNE 2018 (CONTINUED)
Moving forward our key priorities are:
• Focusing on growing higher price point sales at the super premium and ultra-premium levels (trading up).
• Cementing the new Lion strategic partnership in New Zealand.
• Seeking out new distribution arrangements in markets where our brands are not represented.
• Nurturing key stakeholder relationships in strategically important markets e.g. Australia
• Continuing to focus on process improvement and delivering cost of goods savings.

Dividend

The directors have resolved to maintain a final fully imputed dividend of 3 cents per share. This reflects the board's
desire to maintain a dividend policy to shareholders and the confidence it has in the business. As outlined last year,
FFW has a strong balance sheet and is focused on increasing the dividend yield to shareholders as the company
grows. The policy of the board is to evaluate present and projected cash flows, sustainable operating earnings and, if
prudent, declare a dividend subject to current and future capital and acquisition expenditure requirements.

NZX listing and new directors

As announced in May, notwithstanding the proposed changes with the NZX, FFW will be seeking approval from
shareholders of an amended Constitution at the Annual Shareholders Meeting in November 2018 and, subject to
NZX approval, plans to move to the NZX Main Board immediately after this meeting if approval is obtained.

FFW intends to announce the appointment of two new Independent Directors in September 2018. This is an
important step in the next stage of the evolution of FFW in New Zealand.

For and behalf of the Board of Directors


Mark Turnbull
CEO and DIRECTOR

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EMAIL: announce@nzx.com
Notice of event affecting securities
1
FOLEY FAMILY WINES LIMITED
JANE TROUGHT, CFODIRECTORS' RESOLUTION
03 572820003 572821123082018
NZGRME0001S1
In dollars and cents
RETAINED EARNINGS
$0.030
ORDINARY SHARES (FFW)
Enter N/A if not
applicable
NZD$0.005294
$1,589,645.04
Date Payable
18 September, 2018
$$0.002083$0.011667
$
11 September, 201818 September, 2018