Palandri chief executive Darrel Jarvis has received plenty of industry criticism since his winery was established nine years ago.
Palandri chief executive Darrel Jarvis has received plenty of industry criticism since his winery was established nine years ago.
The winery has, and continues, to do things quite differently to its Margaret River neighbours, including selling its premium wine in casks and, more recently, in a ‘Cheer Pack’, an eco-friendly wine container made from aluminium and plastic.
But it has been the winery’s tax-effective managed investment schemes that have drawn the most criticism, with rival producers claiming Palandri makes money from management fees rather than wine sales.
Those schemes are now under threat, with the federal government shocking MIS operators earlier this month by moving to stop investors receiving an up front tax deduction from non-forestry projects.
However, it’s not necessarily bad news for Palandri, according to Mr Jarvis.
The winery has spent the past nine years marketing MIS projects to fund its aggressive export push. Last year alone it raised $30 million from investors.
Mr Jarvis said its work with MIS projects was coming to a close, with its latest scheme to raise $15 million to be released in a fortnight, “rounding out” its series of capital raisings.
Palandri is now poised to expand through the distribution channels it has set up on the back of its branding and marketing programs, largely funded by MIS investors.
Mr Jarvis said that, unlike many other wineries, Palandri set out to develop a global marketplace from the outset and used MIS projects as a way to fund export development.
But he said finding seed capital to develop a brand and fund marketing exercises was difficult.
“If you want to raise capital to build a winery you can; if you want to raise capital to grow grapes you can; but how do you get money to build an intangible asset?,” he said.
“Our business plan started with building a marketplace and ended with agriculture, not the other way around.
“I would never have entered this business without the marketing dollars and without WA being fundamentally different in the wines that it can produce.”
Last year, Palandri posted an after-tax profit of $4.1 million, up from $762,800 the year before. It was the winery’s seventh consecutive profit.
Palandri’s wine sales jumped 95 per cent on the back of an 80,000-case order from a European customer.
But while the company’s annual accounts show sales of bottled and bulk wine nearly doubled to $8.3 million, they accounted for 20 per cent of the group’s total revenue. Wine production and marketing fees brought in $20.8 million.
Mr Jarvis said the company’s strategy on developing export markets was paying off.
He said Palandri was taking phone calls from offshore retailers interested in working with the winemaker. The group recently secured an order for 45,000 cases of wine from Canada, according to Mr Jarvis.
As other producers slash wine production, exit contracts with growers or slide into administration on the back of a glut of grapes, Mr Jarvis is sitting back planning the next global export assault, with America and China firmly in Palandri’s sights.
In fact, he doesn’t think there is a glut for WA producers.
While Mr Jarvis concedes there is an oversupply of cheaper “basic” wine, he said there was plenty of demand for premium wines, particularly offshore.
Mr Jarvis said wineries that remained focused on selling their wine in an increasingly crowded Australian market were the ones in trouble.
“It’s hard yakka and if you want to be on the shelves there [overseas] you have to get over there and live and breathe it,” he said. “Sitting in a town in WA, you couldn’t be further from the real world.”
Palandri is now the biggest exporter of WA wines and sells about 150,000 cases of wine to the UK.
It plans to produce 500,000 cases of wine this year.
And while others talk about pulling out vines, Palandri is putting them in.
Mr Jarvis believes there will be shortfalls, particularly for sauvignon and semillon varieties.
“I think the opportunities for WA wineries overseas are huge, particularly for sauvignon semillon blanc,” he said. “Consumers love the stuff and there is not another country or state that can make it like WA can.
“We better get off our butts and plant some grapes because we have to look forward.”
Last year, Palandri planted 50 hectares of grapes and it plans to plant 100ha of vines this year via MIS projects.
Palandri also intends to raise a further $5 million to $10 million rights issue when it launches on the Australian stock market, which is planned for the middle of the year.
The ASX listing follows Palandri’s delisting from London’s Alternative Investment Market last year. The move to a more regulated environment was based on improving the stock’s liquidity and would better reflect its growing net asset base.
Mr Jarvis said other fundraising options would become available to Palandri following its Australian listing, but it would most likely come at the expense of “mum and dad” MIS investors.
“If the tax man cuts off the MIS the Chinese, which recently invested with us, may take a bigger equity stake rather than mum and dad investors getting involved. I don’t know what is good about that,” he said.
