ANNOUNCEMENTS

MWE Key Operating Milestones - Q1 Business Update

29 Oct 2018, 04:16PM | NXTUPDTE



MARLBOROUGH WINE ESTATES GROUP LIMITED (NXT: MWE) – NXT Market Announcement

Date: 29 October 2018

MWE Key Operating Milestones - First Quarter (July - September) Business Update

General Commentary

AUCKLAND, NEW ZEALAND, 29 October 2018, – The board of Marlborough Wine Estates Group Limited (NXT: MWE) is pleased to announce the quarterly performance of the business to 30 September 2018 (Q1), compared to the company’s Key Operating Milestone (KOM) targets for the financial year ending 30 June 2019 (FY19).

MWE has enjoyed a strong first quarter and is looking to focus on further growth in the domestic market and expansion into new international markets.

Expansion of New Zealand Markets

MWE has successfully launched its products into the lower North Island region and the South Island. The initial results have been promising and MWEis looking forward to growing its national distribution in FY19.

Recent Awards

MWE’s products have performed very well in recent global wine competitions, receiving medals in the below competitions during the fourth quarter of the last financial year:

• Gold Medal, OTU Classic Sauvignon Blanc 2017, CWSA 2018
• Gold Medal, OTU Classic Rosé 2018, CWSA 2018

MPI Update

MWE understands that the dispute between the Ministry for Primary Industries (MPI) and MWE’s former wine processor remains unresolved and the timing for a resolution remains uncertain. Based on legal advice received, MWE considers that it has a strong basis for claiming damages from its former processor. MWE will update the market as and when more information becomes available.

OIO Update

The Overseas Investment Office (OIO) has formally concluded its investigation into the breaches and issued a warning letter to MWE and Mr Min Jia. In the warning letter, the OIO states that it considers that the breaches were at the low end of the range for possible breaches of the Act. The warning letter confirms that the OIO has decided to take no further enforcement action with respect to the breaches.

Future Vineyard Development

MWE has started planting Pinot Noir in its Donaldson and Hammond blocks. Marlborough Pinot Noir is proving to be an important wine export for New Zealand and is growing steadily in popularity.

MWE will initially plant more than 11 ha of Pinot Noir and further planting of Pinot Noir and Pinot Gris are planned for the next 2 – 3 years.

Performance Against Key Operating Milestones

In accordance with the requirements of Rule 49 of the NXT Market Rules, the Board of Marlborough Wine Estates Group Limited is pleased to report the following Key Operating Milestone performance for Q1 of FY19 as detailed in the attached annoucement.

Commentary regarding KOMs

Gross Harvest:

MWE is forecasting a small lift in Gross Harvest volumes for the FY19 year to 1,800 tonnes, up from 1,784 tonnes for June 30, 2018, financial year (FY18).

Gross Harvest is an annual measurement of grape production from the vineyards and shows the vineyards growth and grape supply capacity. Harvest yields are expected to increase from the existing vines until they mature. The importance of increased gross harvest is to meet bottled wine sales growth. In particular, it demonstrates the ability of MWE to meet growth in sales without a need to reduce or cease bulk grape sales in the short term.

Gross Harvest is a seasonal metric which is normally reported in the last quarter of the financial year (April to June) following the annual harvest of the grapes. As such, there is nil Gross Harvest reported in Q1 of FY19.

Bulk Grape Sales:

Grape supply agreements have been signed to supply bulk grapes from certain vineyard blocks but MWE is expecting bulk grape sales to fall to 1,200 tonnes in FY19 compared with 1,306 tonnes in FY18 as the business looks to allocate more grapes to its own production to supply its international and domestic bottled and bulk wine markets.

Due to increased operating efficiency and vine maturity, MWE expects a lift in gross harvest volumes as outlined in the Gross Harvest KOM. The Bulk Grape Sales measurement shows the bulk grape allocation of the total harvest under the first KOM (Gross Harvest) with the remaining harvest being processed for bottled wine and bulk wine sales. MWE’s key strategy is to significantly increase exports of bottled wine that will be supported over time by more allocation of grapes to bottled wine processing.

There were no Bulk Grape Sales recorded in Q1 of FY19 which is in line with MWE’s expectation.

International Wine Sales:

MWE slightly exceeded the reset international bottled wine sales target of $1.3m in FY18 and is forecasting a lift to $1.5m for FY19. The premium wine market in China has slowed and MWE is working with its distributor to improve its competitiveness by improving its pricing strategy and product range. MWE is also looking for other channels in the China market to expand its presence.

MWE started exporting to many new markets in FY18, including Taiwan, the UK, Australia and Finland and the Company will continue to focus on opening up new markets and improving sales in its existing export markets in FY19.

MWE has also extended the bulk wine contracts with a large US importer. These bulk wine sales will improve MWE’s cash flow in the short term and support MWE in building and establishing relationships in the international markets.

In Q1 of FY19, MWE shipped wine to the UK, Australia, USA, China and Taiwan. MWE is looking at signing up with more distributors in the international markets in the coming months and is confident that the KOM will be achieved.

New Zealand Bottled Wine Sales:

New Zealand Bottled Wine sales revenue grew strongly in the last financial year and MWE expects further good growth in sales in FY19 to $610,000 (up from $340,000 in FY18).

In the first quarter of FY19, MWE launched into the Lower North Island and the South Island. MWE saw the sales grow rapidly with many new groceries stocking MWE’s products. MWE is confident the New Zealand Bottled Wines sales KOM will be met this year.

FURTHER INFORMATION REGARDING KOMS

All NXT companies are required to set KOMs and targets and must report against those targets on an ongoing quarterly basis. A KOM is a metric for measuring and reporting on the performance of MWE. The KOMs must meet the NXT standard. This means that the KOMs when taken together, address the most significant factors by which the performance of MWE’s business should be assessed and monitored and will result in understandable reporting for investors.

Future Events

Event Date
Annual General Meeting 13/12/2018
2nd Quarter Business Update Due 31/01/2019
Half Year Result Due 28/02/2019
Half Year Report due 31/03/2019
3rd Quarter Business Update due 28/04/2019

ENDS

Authority for this announcement

Name of senior manager or director authorised to make this announcement: Catherine Ma
Contact phone number: 09 215 6650
Contact email address: catherine.ma@otuwines.com
Date of release: 29 October 2018

Marlborough Wine Estates Group Limited’s shares can be traded on the NXT Market. Marlborough Wine Estates Group Limited is required to disclose information under the NXT Market Rules. Information about the NXT Market and the NXT company is available here www.nxt.co.nz.



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