WINEMAKER Palandri is seeking to bolster its balance sheet by raising $7.5 million through an issue of convertible notes.
WINEMAKER Palandri is seeking to bolster its balance sheet by raising $7.5 million through an issue of convertible notes.
This comes soon after the company asked investors in Margaret River Wine Business to contribute an extra $6.5 million to make up for an unexpected funding shortfall.
The two capital raisings reflect the financial pressure facing Palandri, which like some other wine makers has been hit by falling profit margins.
Despite the current financial pressure, Palandri’s board of directors formally decided last month to list on the Australian Stock Exchange in 2005.
Palandri director Rob Broadfield said the company’s current intention was to raise extra capital at the time of listing and make an acquisition.
“Probably a company similar in size to ours or smaller, with a strong brand,” he said.
Palandri has appointed KPMG Corporate Finance to advise on the listing and plans to seek an underwriter in the New Year.
The company’s future growth plans contrast with its poor historical financial performance.
Its operating profit fell to $671,000 for the year ended June 2003, down from $1.18 million in the previous financial year.
Palandri’s accounts also reveal acute pressure on its cash flow during the year.
While money due from trade debtors was cut by 38 per cent to $4.3 million, money payable to trade creditors jumped by 90 per cent to $7.7 million.
Cash assets fell by half to $1.7 million and the company also raised money from executive chairman Darrel Jarvis.
He provided a $1 million loan in December 2002 and the loan amount was increased to $1.5 million in February 2003.
At balance date, the amount outstanding was $1.43 million.
Mr Broadfield acknowledged the company had been through a tough year, which he said reflected falling margins in the UK export market and failure to achieve fund raising targets.
“We’ve had it really tough,” Mr Broadfield said.
“We didn’t raise the capital we expected. It was lower than we expected.
“We have dramatically cut costs.
“Even then, we have had to tightly manage our creditors.”
Mr Broadfield praised Palandri’s creditors for their support and insisted the worst of its problems were over.
He said sales in the US market had performed well, with 20,311 cases of wine exported to the US in the six months to June 2003.
Palandri anticipates further growth in the current financial year with the volume of grapes crushed expected to increase from 3,518 tonnes in 2003 to 4,200t.
Mr Broadfield said the call on members of Margaret River Wine Business (Project One), who had been asked to contribute a further $4,300 each, was unprecedented.
He said about 85 per cent of members had paid or committed to pay their call.
The money to be raised from the convertible note issue will be loaned to investors requiring finance to participate in its two managed investment schemes, the Margaret River Wine Business and the Palandri America Wine Business.
“At present, the Palandri Group funds such loans itself or through the securitisation of its loan book,” Mr Jarvis says in the prospectus.
“It is preferable for the group to fund the loans from moneys raised through the issue of convertible notes.”
Palandri’s annual accounts show that the company’s main source of revenue was management fees from members of its two investment schemes, which increased 8.8 per cent to $34.4 million.
The accounts also reveal two major changes in accounting policy.
The Palandri brand name was written down by $2.2 million after the company decided to recognise brands at value rather than cost.
KPMG Corporate Finance valued the brand at $4 million, compared with capitalised brand development costs of $6.24 million.
Palandri also changed its accounting policy for the recognition of rental leases over vineyard land.
This resulted in a net boost to income and a $9.8 million write-down of capitalised leases.
After adjusting for the changes in accounting policy and a tax credit, net profit was $3.68 million, up from $1.04 million.
Pro-forma accounts released with the convertible note prospectus indicate the company plans to bolster its cash assets.
The company is seeking to raise $7.5 million and may accept over subscriptions of a further $2.5 million.
The $1.00 notes will pay 9.75 per cent a year and mature on November 30 2006.
A research note by Lonsdale Securities said it was “imperative” that Palandri raised at least $7.5 million.
“The Palandri Group, as is typical of a rapidly growing company, will experience growing pains from time to time where the company may become financially constrained,” Lonsdale said.
“This situation, through prudent management and appropriate funding, can be overcome.
“Lonsec believes this is such a time where a successful and full capital raising under this prospectus will provide the Palandri Group with the financial resources to attract new investors.
“Lonsec believes it is imperative the full $7.5 million is raised and ideally the oversubscription of $2.5 million is also met.”
