Australian Vintage seeks to raise AU$19.9m

Australian Vintage, the owner of the McGuigan and Tempus Two brands, is seeking to avert a financial crisis through a deeply discounted share offering to raise AU$19.9 million (£10.32 million).

The new shares are being offered only to existing investors and financial institutions at a 42% discount to the price at which AV’s shares were suspended at the end of last month.

If fully successful, the issue, which does not have the safety net of being underwritten, will dilute the investment of existing holders by the same proportion.

After being rejected by larger rival Accolade Wines, Australian Vintage says it remains interested in a merger in its efforts to combat the crisis in Australia’s wine industry.

Sacking

And following the abrupt sacking of former chief executive Craig Garvin for a “serious lack of judgement” last month, Australia’s third largest producer is reorganising its board.

A replacement CEO is being sought and chairman Richard Davis will step down after nine years once the capital raising is completed.

Acting CEO Peter Perrin says that wine sector consolidation is “logical” and AV wants to participate in that process.

After three months of detailed talks with Accolade, merger plans were scuppered by a vote by 511 growers in South Australia who rejected Accolade’s attempt to revise its largest grape supply contract.

Accolade is now believed to be in talks with Pernod Ricard about the French giant’s Australian wine interests.

Extreme pressure

At the AU$10-and-below price point where AV’s wines are largely pitched, sales have been under extreme pressure with Rabobank estimating there are at least two years of oversupply in the industry.

In the prospectus for the new shares AV says that rivals have been selling wines below the price of production in an attempt to reduce their inventories.

Perrin says conditions are some of the toughest he has experienced in 40 years in the industry.

“The current cycle is proving to be one of the most challenging on record for the Australian wine industry,” he said.

Simon Mawhinney, managing director of AV’s largest shareholder, fund manager Allan Gray, which holds 17%, was quoted by The Australian Financial review as saying that “industry rationalisation was still needed either through consolidation or proactive steps to close existing surplus capacity”.

He said his company would support “any efforts to achieve a more sustainable future for wine production in Australia”.

Australian Vintage will take a hit of AU$38 million in impairments at its financial year end.

Capital raising

In a trading update, it said expected sales revenue for the 12 months to June 30 to be between AU$257 million and AU$261 million, comparable with the previous year, but lower than its expectations.

Without the capital raising, net debt on June 30 was likely to be AU$70 million to AU$75 million, compared with previous expectations of AU$43 million to AU$50 million.

Australian Vintage said it had an in-principal agreement with National Australia Bank for an extension of its AU$15 million of debt capacity, which will now run until November 2026, plus an extra AU$15 million in short-term debt capacity.

Perrin said the new share issue and reorganising of its debt would give AV “more adequate” levels of liquidity and flexibility to work through the present tough conditions.