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Busy Palandri in quiet restructure

IT has been a busy year for the people at the controversial Palandri wine group, with some significant activity in both the public domain and behind the scenes at one of the wine world’s most unusual corporate models.

Battling against negative perceptions of the group’s favoured fund-raising mechanism, tax-effective investment schemes, the South West wine group managed to raise more than $47.3 million over three years by its June 14 close with the sale of 2350 units.

That was well short of its goal of about $80 million but a respectable result compared with many others in the business.

The company also had a very public setback with the aborted $25 million purchase of Amberley Estate, a failure which cost $850,000.

The much smaller purchase of Rosabrook did go through, however the group is looking at selling the associated Margaret River vineyard assets, possibly with a contract to buy the grapes.

Another quiet but significant change was a restructuring of the Palandri group. In April, parent company Margaret River Wine Production Ltd absorbed Palandri Production Ltd, the company that was promoted to share investors through previous Palandri prospectuses.

As new shareholders in MRWP, investors could enjoy some of the direct benefits of future fund-raising efforts, like a forthcoming project to raise $52 million for a US-focused wine business, if they are successful.

In return, former Palandri Production shareholders have watered down their 51.5 per cent interest in the company, which owned significant Margaret River land, the Margaret River winery and the very brand names that are being so heavily marketed at the moment.

Certainly, before the restructuring, stakeholders in MRWP have done well from fund-raising efforts during the past two years.

Based on a policy of paying out about 25 per cent of after-tax profits as dividends, around $2 million was declared in two tranches during 2000-01 (August and February) following a group net profit of $7.6 million for 1999-2000.

Until recently, MRWP was 80 per cent owned by its directors, led by executive chairman Darrel Jarvis, who controlled 45.6 per cent of the company before the merger with Palandri Production.

Mr Jarvis said the April transaction had watered down his holding to below 35 per cent, though it appears to have left the directors as majority shareholders.

On top of the dividends, directors were paid $1.3 million between them. Mr Jarvis took home around $410,000 and Mark Norton, who recently left the board, was next with about $380,000, due mainly to a deal which gave him 1 per cent of funds raised from the most recent fund-raising efforts.

Dividends, though, look likely to fall this year, given group net profit dropped to $1.2 million in the 12 months ending June 30 2001, largely due, it appears, to a change in accounting policy.

A move to defer the recognition of revenue until the year it is earned largely wiped out MRWP group’s pre-tax operating profit for the past financial year.

The accounts show that, if the new policy had been adopted from the company’s start-up, the 1999-2000 group pre-tax profit would have fallen to $4.3 million instead the $14.7 million reported and 2000-01 group pre-tax profit would have jumped $7.8 million instead of a $993,339 group pre-tax loss reported.

On the sales front, the company claims to have met the sales target of 52,840 cases, albeit with some product picked up through the $2.5 million purchase of Baldivis Estate in May 2000.

According to the company, wine sales have been made at an average of $115 a case, a price which would have generated around $6 million, a fraction of the $38.9 million in total group revenue revealed in the MRWP accounts.

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