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Madison debuts on HK stock exchange
Madison Wine Holdings raised net proceeds of HK$ 56.3 million (over US$7.2 million) by placing 100 million shares on Hong Kong’s second board Growth Enterprise Market on 8 October, becoming the second fine wine merchant in the city to access public funding through this channel.
The slightly over-subscribed placement by Madison Wine was allocated to 140 individual, professional and institutional investors. Following the placement, Madison Wine remains majority owned by chairman Raymond Ting, with a shareholding of just over 61%. The Growth Enterprise Market or GEM has been a popular listing platform for small to medium cap companies to access public funding to finance growth, in anticipation of a potential listing on the Main Board after fulfilling the requirement of a minimum of 3 years of track record and an aggregate of HK$50m of net profits in the three years and a market cap of HK$200m at the time of listing.
Established in 2010, Madison Wine focuses on the sourcing of fine and rare wine and sales to wholesale and retail clients. Speaking to dbHK, Andrew Bigbee, who was appointed as Madison’s deputy chairman in January 2015, to sharpen the focus on the company’s growth strategy in preparation for the listing plan, confirmed that 30-40% of the company’s client base comprised mainland Chinese clients.
According to Bigbee, Madison’s strong performance reflects an encouraging sign of the resilient demand for fine and rare wine, especially from affluent Chinese clients who have developed a palate for fine and rare wine and who prefer to buy and store their fine wine collection in Hong Kong where they can be assured of the provenance.
The company’s financial statements for the year ended 31 March 2015 reported revenue of HK$147.7m and net profit after tax of HK$14.3m, representing a 100% year-on-year increase, against the backdrop of widely reported scaled-back ostentatious spendings on luxurious products by Mainland Chinese consumers, in light of the government’s ferocious anti-graft measures.
Ever since Hong Kong’s abolition of duty on wines at 20% abv or below in 2008, the city’s wine industry has gone through dramatic growth as well as industry consolidation, in part due to the crackdown on corruption by the Chinese government which has had a direct impact on the already fragmented market in Hong Kong and created a much more competitive landscape. In 2014, 65% of the market was controlled by top five merchants.
The number of wine merchants operating in Hong Kong has shrunk from 671 wine merchants in 2010 to 528 in 2014, according to a report compiled by Paris-based market research company Ipsos. The earlier dominant French influence has given way to a diversification of the wine regions and styles available in Hong Kong with the establishment of a number of specialist wine merchants, focusing on specific regions (as was examined in the April/May issue of dbHK).
According to the Ipsos report, Hong Kong’s wine market was valued at HK$2.7bn in 2014, representing a 10.3% compound annual growth rate (CAGR) since 2010. The market is now predicted to grow at a compound annual growth rate of 5.3% to 2019, with the premium wine category (according to the Ipsos report, wine retailing at HK$1,000 a bottle or above) predicted to grow at 1.9% during the same period.
To stay competitive and profitable in a crowded market, Madison’s future plan consists of both organic and acquisition-driven growth. The company plans to use 50% of the proceeds on the expansion and diversification of its wine portfolio and sourcing of high quality fine and rare wines, 30% on the strategic acquisition of local wine merchant business(es), and the balance on brand building, promotional and marketing efforts as well as general working capital. Upon listing, Madison Wine has appointed three new non-executive directors including Debra Meiburg MW.
“It is exciting to be part of this unique approach in building the wine market in Asia” said Meiburg. “Few wine related companies have access to public market support to provide capital for future growth. It is great to see the next phase of building this business.”
At the end of the first day of trading on 8th October, Madison Wine’s shares traded up over 720%, closing at HK$6.20 per share, compared with its listing price of HK$0.75 per share.