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Grape expectations under query

TOUGH times dog the wine industry so it was with much surprise that Briefcase found itself contemplating a product disclosure statement (prospectus to you and me) to raise up to $16.15 million for the creation of a major new vineyard in the Frankland River district of WA’s Great Southern.

Courageous was a word that sprang quickly to mind given that other vineyards in the same area are struggling to sell their grapes into a market that is stuffed to the gunnels with grape juice just waiting to be turned into wine.

Fascinating was another description because it is possible that the Great Southern Vineyards 2004 Project is deliberately choosing a low point in the cycle to enter the industry with the first vintage timed to coincide with what the industry hopes will be an upswing.

This is possible. Markets have a habit of changing as the chaps behind Great Southern know too well. Three years ago they were flying high as the kings of plantation timber, only to land with a thud when the Australian Tax Office fiddled with its rules and investors fled the tax-effective market. Good times have returned to the tree business and Great Southern obviously believes it is time to broaden the offering.

At first blush, apart from the questions about demand for grapes, the vineyard project looks well structured. Frankland does produce excellent fruit, the Great Southern team know how to manage an agricultural venture – and they understand the importance of making sure that whatever is grown can be sold.

And this is where the vineyard prospectus becomes quite interesting. Page two and three of the prospectus set out a 12-point overview describing the key elements of success in grape growing. Right land, expert management and a deal to sell the grapes. Item 10 says "Grapes will be sold to producers of premium WA wines, including Goundrey Wines Pty Ltd and West Cape Howe Wines Pty Ltd" – this statement follows item nine which says "four years after planting the vineyard is expected to reach full production".

Having a sales deal is good news indeed. In fact, it gets even better when a reader makes it to pages 68 and 73 to discover that the Goundrey and West Cape Howe deals specify a price of $1,500 a tonne, which is a good price in the current climate. Here is the clause that covers the Goundrey sales agreement: "The purchase price for fruit harvested from July 1, 2004, until June 30, 2007, is $1,500 per tonne of fruit". The West Cape Howe contract is from July 1, 2004 to a review date of January 1, 2009.

Now Briefcase is not much good at agriculture but as it understands the situation a grape vine takes a few years before it generates a decent yield of fruit. In fact that page nine statement says "four years after planting the vineyard is expected to reach full production". Then there is an interesting item in the prospectus that says any proceeds from grape sales in the first three years will be retained to meet management costs.

So what, says the clever reader, is the value of a three-year contract with Goundrey, starting on July 1, 2004 around the same time the vines are planted? Exactly how much grape will get the $1,500 a tonne. Very little is the answer, according to David Ikin, a spokesman for Great Southern.

"The price of $1,500 sets a base price and it will cover any early grapes harvested," Ikin told Briefcase.

OK, how much will be harvested? "Very little is expected but there may be a tonne or two," he said. "It sets the basis for negotiation for when the vineyard is in full production."

If this was not a prospectus seeking to raise $16.15 million from the public Briefcase would be tempted to have a bit of a giggle. Here we have an agreed price for a product that is currently proving hard to sell – which is terrific. But apparently there won’t be much product to sell at the agreed price – which is less than terrific.

  

TALK of the town last week was the highly promoted re-launch of that old lady from the swamp, the West Australian newspaper. With all the huffing and puffing from the north bank of Herdsman Lake the average reader could have been forgiven for thinking that something momentous had happened.

Perhaps it did in the lives of people who get excited about fonts, white space and modular layouts. It certainly did not do much for the place that Briefcase looks for guidance, the stock market.

While TV and radio has been filled with chit chat about the new-look West, investors have been rather rude. Over the course of the first week of the re-launch, the share price of WA Newspaper Holdings slipped slightly, down from $6.39 to $6.36 (week on week closing price). Most other print media stocks were up a bit, or steady.

What becomes a little more interesting is to look at the media price trend since earlier this year when newspaper stocks were at their peaks. It is here that WA Newspapers and its re-launched flagship stand out from the crowd.

Since hitting a peak of $13.81, the share price of News Corporation has dropped 5.4 per cent to $13.06 (the closing price last week), Fairfax is down 4.3 per cent, Rural Press 5 per cent, APN 5.6 per cent and WA News a stand-out 7.7 per cent lower with its fall from $6.89 on January 19 to $6.36.

To be fair, it will take time for the new look West to work but it is interesting that the owners appear to be voting with their feet after a surprise cost blow out in the first half, another fall in circulation and now the expensive exercise of a re-launch.

 

"A newswriter is a man without virtue, who writes lies at home for his own profit." Samuel Johnson.

 

 

 

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