Enotria & Coe gets major cash injection to deal with ‘post-Brexit world’

Enotria & Coe has received a major investment from its largest shareholder, BlueGem LP, to ready the drinks supplier for a ‘post-Brexit world’, db can exclusively reveal.

Enotria & Coe CEO Troy Christensen

In an interview with the drinks business on Wednesday this week, Enotria & Coe CEO Troy Christensen said, “We were not in right capital shape to deal with the post-Brexit world, so our shareholders BlueGem have made a major investment.”

The cash-injection, made on 14 September, means that the total debt of Enotria & Coe has dropped by 70% from £42 million to £13m, according to Christensen, pointing out that the former figure represented the company’s highest level of debt, and followed Enotria’s acquisition of Coe Vintners in August 2015 to form Enotria & Coe.

Speaking about the newly-combined company’s plans to grow in the UK market, and the challenges of a weaker Sterling following the Brexit vote, Christensen said it was vital that Enotria & Coe was not held back by the need to service a high level of debt.

“With Brexit and the currency, we didn’t want to be restricted… the last thing we wanted to be was be encumbered by our financial structure, so we have taken out our term debt with the capital injection by BlueGem,” he said.

Continuing he stressed, “We have made a lot of investments, and we have the opportunity to grow; we didn’t want anything to hold us back.”

Following the changes, he added, “Now I have no debt repayments and my interest is less than half what it was.”

According to an official press statement, which will be disseminated next week, db can also reveal that Enotria & Coe has moved its banking arrangements entirely to an asset-based lending structure, allowing the company to eliminate all term debt.

This new structure removes quarterly debt repayments, dramatically reduces interest costs, and substantially removes performance-based covenants.

Looking ahead, Christensen said, “We see plenty of opportunity in the UK: premium wines and spirits are still doing well [post-Brexit], we are seeing people drinking less but better.”

However, considering the past financial year, Christensen also told db that the company’s earnings before interest, tax, depreciation and amortisation (EBITDA) had taken a hit – down from £3.1m in FY2015 to £2m in FY2016.

“You will see in our FY16 numbers that while our sales are up, our profit is down, and that is partly due to foreign exchange, but it is because of the integration of Coe, which we bought in August 2015, but integrated on 1 February 2016.”

In particular, he said that this consolidation brought a “one-time cost” in terms of redundancies.

“We were very generous… everyone had a fair package, but it meant that almost £3 million went out last year as a one-time cost,” he said.

As for the impact of the drop in Sterling’s value after the Brexit vote, he said, “EBITDA is down by a third, and that is essentially the effect of Brexit, we were not adequately hedged.”

He then added, “We are a distribution company, we make a few percentage points buying and selling, so, with a 20% currency move one day, it meant that we spent the rest of the year trying to claw that back.”

Indeed, later on in the discussion, Christensen told db, “With such a seismic shift in currency, it takes a while to normalise, and our gross profit per case is now about where it was pre-Brexit, but it has taken two price increases to get there.”

More generally, he said that the combination of integrating Coe Vintners and the effect of Brexit vote had “absorbed a lot of resources,” but, with the new capital structure, he added that Enotria & Coe is in “a really good position”.

He also remained positive about the UK wine trade, despite the potential challenges for the country post-Brexit, in particular a concern surrounding increased customs administration once Britain leaves the EU.

“At the end of the day the UK has a much more business friendly environment than Europe, and post-Brexit that will continue,” he said.

“Ultimately it is a great opportunity, and instead of arguing what Brexit will look like, we need to make sure the UK is still a desirable place for investment.

“Yes there is short term risk, but in the long term, we see opportunities, and we are one of few with zero term debt,” he concluded.

The key points from changes to Enotria & Coe’s capital structure can be viewed on the following page.

Enotria & Coe: key points from the company’s press statement

Enotria & Coe “is the UK’s leading premium wine and spirits supplier”, with around 8% of the market

The new capital structure allows Enotria & Coe to deliver its ambitious growth plans over the coming years and significantly reduces the company’s long term debt exposure and cost of debt.

The business has reduced debt by 70% to £13m after the capital increase and refinancing.

Yearly payments of capital and interest have been reduced by over 90%.

Enotria & Coe CEO Troy Christensen said: “Enotria&Coe is uniquely positioned to service the UK’s diverse drinks market. We have an exceptional portfolio which ranges from the world’s largest wineries to hyper‐regional new gins, delivered on our own industry‐leading fleet and supported by an expert sales and marketing team who work with our diverse customer base to develop and drive their business.

“Over the last three years the shape of the business has been completely transformed, and the structure of this new financing arrangement reflects our new business model, makes us one of the few wholesalers in the market with no term debt, and provides fuel for growth.”

Enotria was acquired by BlueGem Capital Partners LLP in 2012 and has been on a transformative journey under CEO Troy Christensen since he joined in 2014.

Since that time the business has invested heavily in developing the business, including:

• Moving to a new warehouse facility and offices,

• Implementing a new ERP Platform, AGR demand planning system, Esker order automation software, Tasklet warehouse management system and scanning technology, Paragon fleet routing and Paragon GPS tracking system,

• The acquisition of Coe Vintners, which was fully integrated in 2016 to make Enotria&Coe the UK’s leading premium wine and spirits distributor.

The business will launch a new web platform in October.