RNS Number:2159V
Cosentino Signature Wines plc
20 April 2007
20th April 2007
Cosentino Signature Wines plc ("Cosentino", "the Company" or "the Group")
Preliminary results for the year ended 31st December 2006
Chairman's Statement
Introduction
2006 was a challenging and disappointing year for the Company and its
shareholders with a number of significant, as well as unforeseen, events that
adversely affected the business.
Following the appointment in November 2005 of a new Board of Directors and new
CEO, to whom I handed over the day to day running of the business, philosophical
differences gradually arose between the other Board members and me over how our
business should be operated. With the benefit of hindsight it is clear the
Board adopted an overambitious strategy to acquire other wine producing assets
around the world while attempting to dramatically change our successful Napa
Valley based operating business. As a result, attention to operations shifted
away from our core business.
Financials
After record trading up until 31st December 2005, the performance of the
business took a serious downturn during 2006 following this change in direction.
Turnover in the period fell to $7,900,000, with a loss before goodwill
impairment and taxes of $5,968,490.
Included in this loss figure are a number of provisions, totaling approximately
$1,100,000, that have been recorded to recognise restructuring expenses that
will be required to bring the business back to profitability. These provisions
include redundancy and other termination expenses relating to former senior and
middle management employees as well as loan refinancing expenditures.
In the light of the 2006 performance, the Directors have reviewed the carrying
value of goodwill and have decided to make a non-cash impairment charge of
$12,523,000. Net losses before goodwill impairment and after taxes were
$3,371,000 and after the goodwill impairment amounted to $15,894,000.
Also in 2006, the Company experienced delays in the refinancing of its loan
package while it was completing the construction of three new production
facilities. The construction of these facilities, along with the Company's
disappointing operating performance, required the Company to increase its
borrowings under its credit facilities to $23 million by the end of 2006.
However, the construction of all of the facilities was completed in 2006 and in
2007, the loan package has been refinanced.
The Directors are not recommending a dividend for the full year.
Operations
The business, which has always prized itself on producing fine wines, changed
its direction under the auspices of two new CEO's. Consequently by the end of
2006, the Company was being managed as if it were a commodity wine business. In
addition, a significant amount of time and money was spent unsuccessfully
pursuing acquisitions around the world, while leaving the operating business in
Napa Valley and Lodi with no clear direction and under-managed.
To further compound the problems arising out of the philosophical and
directional change, the bottling of Cosentino's popular Zin and Cigar Zin was
delayed from its scheduled bottling in May, due to the wine not being ready for
bottling until July. As a result of this delay, sales to distributors for the
first half of the year were disappointing. The problem was compounded through
poor communication between management and our distributors regarding the new
release timing and the future availability of our wines. Our distributors rely
on a number of core wines for their distribution business throughout the United
States. As a result, other wines replaced ours in the distribution channels,
and the Company, for the first time in its history, began to lose credibility
with its distributors.
However, on the positive side, retail sales in the period continued to be
strong, with sales at the Napa site being on plan and wine club membership
performing strongly. Our current club membership now sits at approximately
5,700 members, and the Company had a 45% increase in membership on a
year-on-year basis. Another bright moment was the launch of the Cosentino
agreement with basketball legend Larry Bird to produce and sell lines of the
ultra premium wines utilising the names and images of Larry Bird and Mitch
Cosentino. The Company also delivered one acquisition during the year, that
being the Napa based Lorenza-Lake Winery, trading as Blockheadia, a prominent
luxury and ultra premium Napa Valley wine brand, which had been acquired in line
with our strategy as set out at the time of the IPO.
Management
As the Company continued to move toward a change in its core business strategy I
stepped down; first from my role as executive Chairman in September 2006, and
then in November as Chairman, remaining on the Board only as a Non-Executive
Director. In September, Neville Calvert, stepped down as CEO and in November,
agreed to leave the Board and the Company as of 31 December 2006. Keith Smith,
Non-Executive Director, became CEO in September and Executive Chairman in
November with the support of the majority of the other Board Directors.
In early February 2007, this regrettable period for the business came to an end.
At that time, and as a condition to the re-financing package referenced below,
both Keith Smith and Michael Forman, Non-Executive Director, resigned from the
Board. On that date I re-assumed my former positions as Executive Chairman and
CEO and new Non-Executive Board members, Hal Wolken and Greg Deman, were
appointed.
Refinancing and Proposed Issuance of Preferred Stock
MCOZ Preferred, LLC, an entity which I control, made a $3 million bridge loan to
the Company on 9 February 2007 as part of a refinancing package. This bridge
loan, together with earlier loans aggregating $1 million from a former Director
and me, will be converted into preference share and associated warrants as part
of a proposed issue which we expect to announce formally shortly.
In March 2007 the Company agreed a two year extension and a $2 million increase
in our secured senior term loan. Following the increase in credit, this loan now
totals $20 million and interest is payable at the Prime Rate (currently 8.25 per
cent.) plus 2 per cent. This increased facility was accompanied by the issue to
the lender of 1,182,677 of 5 year Warrants, exercisable at 24.75p per share. The
Company has also agreed a two year extension to its $5 million senior
subordinated loan, with a second lien on all assets, at the Prime Rate.
Appointment of Nominated Advisor and Broker
We are also pleased to announce the appointment of Seymour Pierce as our new
Nominated Advisor and broker, whose appointment will become effective upon the
completion of our proposed preferred share issuance.
Outlook
Having stepped back into the role of Executive Chairman and CEO on 9th February
2007, I am optimistic that the Company will return to the strong pre-IPO
performance record that we previously enjoyed.
In my short time back with the Company, I have personally been in contact with
our key distributors to explain the difficulties of the previous year and have
received a warm welcome back.
Our Executive Winemaker, Mitch Cosentino, is solidly behind me in my positions
as Executive Chairman and CEO and both he and our entire staff have fully
supported me throughout this unfortunate period. Our pre-IPO philosophy and
management practices are now back in full force and we continue to produce what
we believe are among the best wines in the world.
The Company is back in a solid position to execute on its business plan and
return to its organic growth strategy. I am also pleased to report that some of
the early steps to improve the business are paying off. Sales in the first
quarter of 2007 are up 73% on the same period in the previous year, with retail
sales being up 40%, and our all important distributor sales up 102%. Monthly
costs of operations have also been sharply reduced.
We continue to look at the option of selling some of our non-core assets in
order to strengthen our balance sheet, but we will not do so at the expense of
jeopardizing the Company's future operations. We are also currently looking to
hire a new COO for our California operations, a vacancy which had been created
in my absence.
As the Company's largest shareholder, I am extremely disappointed by our 2006
performance. However, I look to the future with confidence as we put back into
place our prior management systems and philosophies and re-establish our key
distributor relationships. I believe these actions, along with the enthusiasm
of our loyal employees, customers and fans and the continuing production of our
outstanding wines, will ensure that this Company regains its pre-IPO position as
the envy of the wine industry.
Larry J Soldinger
Chairman
For further information contact:
Larry Soldinger, Chairman On day 020 7831 3113,
thereafter +1 847 726 8100
Jonathon Brill/ Billy Clegg/ 020 7831 3113
Edward Westropp, Financial Dynamics
CONSOLIDATED INCOME STATEMENTS
Period from Twelve months Period from Twelve months
inception of ended 24 November ended
24 November 31 December 2005 to 31 December
2005 to 2006 31 December 2005 2005
31 December
2006
US$ US$ US$ US$
Continuing operations
Revenue
Distributors 5,731,839 4,556,980 1,174,859 6,450,082
Retail 3,774,296 3,364,009 410,287 2,720,549
9,506,135 7,920,989 1,585,146 9,170,631
Cost of sales (3,890,711) (3,489,986) (400,725) (2,831,247)
Gross profit 5,615,424 4,431,003 1,184,421 6,339,384
Operating expenses (8,171,524) (7,200,285) (971,239) (4,686,026)
Operating profit/(loss) for the (2,556,100) (2,769,282) 213,182 1,653,358
period
Other income/(expense) (40,084) (48,943) 8,859 32,435
Restructuring costs (1,095,887) (1,095,887) - -
Goodwill impairment (12,523,365) (12,523,365) - -
Finance costs (2,054,478) (2,054,378) (100) (2,090,830)
Profit/(loss) before tax (18,269,914) (18,491,855) 221,941 (405,037)
Income tax/(expense) income 2,375,606 2,375,606 - (36,143)
Profit/(loss) for the period (15,894,308) (16,116,249) 221,941 (441,180)
Earnings per share
Loss per share, basic and fully -0.71
diluted
CONSOLIDATED BALANCE SHEETS
31 December 2006 31 December 2005
US$ US$
ASSETS
Non-current assets
Property plant and equipment 38,880,218 30,193,112
Goodwill 5,733,541 17,917,991
Deferred tax assets 6,681,990 4,294,594
Other assets 310,618 -
Total non-current assets 51,606,367 52,405,697
Current assets
Inventories 9,454,879 4,793,278
Trade and other receivables 544,081 1,872,215
Other assets 93,956 -
Cash and cash equivalents 85,177 1,770,425
Total current assets 10,178,093 8,435,918
Total assets 61,784,460 60,841,615
EQUITY AND LIABILITIES
Equity
Share capital 387,220 387,220
Share premium account 43,268,657 43,583,446
Retained earnings (15,894,308) 221,941
Total equity 27,761,569 44,192,607
Non-current liabilities
Obligations under loans and finance leases 26,103,399 881,431
Convertible loan notes 750,000 -
Total non-current liabilities 26,853,399 881,431
Current liabilities
Obligations under finance leases 915,034 665,135
Trade and other payables 6,254,458 4,102,442
Other loans - 11,000,000
Total current liabilities 7,169,492 15,767,577
Total liabilities 34,022,891 16,649,008
Total liabilities and equity 61,784,460 60,841,615
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share capital Share Retained Total
US$ Premium earnings US$
US$ US$
Balance at 387,220 43,583,446 - 43,970,666
24 November 2005
Profit/(loss) for the - - 221,941 221,941
period
Balance at 387,220 43,583,446 221,941 44,192,607
31 December 2005
Profit/(loss) for year - - (16,116,249) (16,116,249)
Costs associated with - (314,789) - (314,789)
issuance of new shares in
the prior period
Balance at 387,220 43,268,657 (15,894,308) 27,761,569
31 December 2006
Notes to the financial information
1. Company Formation
The Company was incorporated pursuant to the Companies Act on 11 October 2005 in
England and Wales as a private company limited by shares (registered number
5589673) under the name Cosentino Signature Wines Limited and by virtue of a
special resolution dated 23 November 2005 whereby the Company was re-registered
under section 43 of the Act as a public limited company with the name Cosentino
Signature Wines plc.
Pursuant to a Certificate of Ownership and Merger, on 23 November 2005, Vintage
Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Company merged with and into its subsidiary Vintage Grapevine Inc. ("Vintage")
with Vintage being the surviving entity. Following this merger, Vintage became
a wholly-owned subsidiary of the Company. Following the Vintage merger on 23
November 2005 CSEL Merger Sub, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of Vintage merged with and into Cosentino Signature
Enterprises Limited ("CSEL") with CSEL being the surviving entity. Following
this merger, CSEL become a wholly-owned subsidiary of Vintage.
Vintage, CSEL and its operating subsidiaries produce wines from the Northern
California region of the US. The Company and its subsidiaries sell
ultra-premium wines to fine dining restaurants through third party wholesale
distributors and directly to consumers at its wine tasting rooms and through the
Company's wine club.
Comparative data which includes activities prior to 23 November 2005 has been
provided for completeness and is presented as if the above mentioned merger and
acquisition had taken place from the beginning of the period. The results of
operations for the Company are consolidated from the date of merger using the
acquisition method of accounting.
2. Financial Information
The financial information included in the above statements is an abridged
version of the Company's accounts for the period ended 31 December 2006 and does
not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985. The financial statements have not yet been approved by the
Board and the Auditors' Report has yet to be signed. Therefore, these financial
statements have not yet been delivered to the Registrar of Companies.
3. Deferred Tax Asset
The Company recognizes deferred tax in respect of all timing differences that
have originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax or a right to pay less tax
in the future have occurred at the balance sheet date.
Given the Company's track record of growth and profitability and its future
prospects, management believe taxable profits will more likely than not be
available to utilize existing tax losses. Consequently, the Company has
recorded in the current year a deferred tax asset of $2,375,606 as a result of
current year losses. The deferred tax asset has been computed using a tax rate
of 40%.
4. Loss Per Share
The calculation of the loss per share is based on the loss for the period after
the effect of taxes and is calculated using the basic and fully diluted weighted
average number of ordinary shares issued and outstanding during the period.
Basic and fully diluted ordinary shares issued and outstanding were 22,311,264
for the period ending December 31, 2006.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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