Australian Vintage raising $20m as sales growth stalls and net debt sours

Australian Vintage raising $20m as sales growth stalls and net debt sours

Photo: Australian Vintage, via LinkedIn

Australian Vintage, the producer of Nepenthe, Tempus Two and McGuigan wines, has revealed a stalling of sales growth in FY24 and a blowout in net debt, leading the company to announce plans for a $19.9 million capital raising to stabilise its balance sheet.

The company, which is still reeling from the controversial sacking of former CEO Craig Garvin early last month, also announced today the departure of long-time chairman Richard Davis following completion of the capital raise.

Australian Vintage forecasts that FY24 sales will range between $257 million and $261 million, which is in line with FY23 but lower than the company’s expectations.

While its key markets of Australia and New Zealand have held steady with the previous year, the company does forecast an 11 per cent increase in underlying EBITDAS (with the 'S' standing for stock-based compensation) to between $29 million and $31 million thanks to improved margins.

However, the medium-term outlook for the group remains challenging with a “rebalancing of supply and demand to take time”.

“The current cycle is proving to be one of the most challenging on record for the Australian wine industry and this is reflected in our expected financial performance for FY24,” says acting CEO Peter Perrin.

“In the face of these sectoral headwinds, we are growing market share in our key markets, introducing considered innovations and improving our underlying earnings performance.

“While there are encouraging signs that the oversupply of red grape varietals is easing, consistent with prior cycles, we expect the market will take time to rebalance, and trading conditions are likely to remain challenging in the interim.”

Among Australian Vintage’s key immediate issues is a blowout in net debt to between $70 million and $75 million, up from a previously expected high of $50 million, which has led to the planned capital raising.

Notably, Australian Vintage says the $19.9 million capital raise is not underwritten and therefore is not guaranteed to be fully subscribed.

The issue comprises a $5.5 million institutional placement, $9.5 million from a two-for-seven accelerated, non-renounceable institutional entitlement offer and $4.9 million from a two-for-seven non-renounceable retail entitlement offer.

The equity raising is priced at 20c per new share, which is a steep discount to Australian Vintage’s most recent closing price of 34.5c per share last Friday.

“The capital structures initiatives announced today are designed to provide more adequate levels of liquidity and financial flexibility to navigate the volatile conditions and enable the business to capitalise on future opportunities, including potential consolidation,” says Perrin.

The company’s existing financier National Australia Bank (ASX: NAB) has also come to the party by extending Australian Vintage’s $15 million of existing debt due to expire at the end of July this year until November 2026. The bank has also provided an extra $15 million of short-term debt, with $5 million repayable in November this year and the balance in November next year.

Meanwhile, the company has announced that Davis, who has been chairman for the past nine years, will be replaced by John Davies in an interim capacity.

“On behalf of the entire board and executive committee, I would like to thank Richard for his dedication and service to the company over more than 15 years,” says Perrin. “He has made an invaluable contribution and will be missed.”

The departure of Davis follows the sacking of Garvin early last month “for engaging in conduct that, in its view, displayed a lack of judgement and was inconsistent with the values of the company and the high standards expected of its chief executive officer”.

The termination of Garvin’s contract has thrown into disarray a potential merger with Australia’s second-largest wine producer Accolade Wines. The Australian Financial Review today reported that Accolade Wines had called for a temporary suspension of merger talks ahead of the proposed capital raising.

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