RNS Number : 1280E
Cosentino Signature Wines plc
24 September 2008
24 September 2008
Cosentino Signature Wines plc ("Cosentino", "the Company" or "the Group")
Interim results for the half year ended 30 June 2008
Cosentino Signature Wines plc, a luxury and ultra-premium wine brands producer with operations based in the Napa Valley and Lodi regions
of Northern California, announces its Interim Results for the six months to 30 June 2008.
Highlights
� Turnover was US$4.49million (2007: US$5.24 million)
� EBITDA was US$1.20 million (2007: US$1.92 million)
� EBIT was US$0.577million (2007 of US$1.34 million)
� Loss before tax was US$0.354 million (2007: US$0.264 million)
� Loss per share steady at US$0.01 (2006: US$0.01)
� Strong US market fundamentals in spite of uncertain economic environment
� Solid first half for Retail Division:
- Wine club membership up 18% year on year
- New capacity added to tasting facilities will lead to strong Autumn and Christmas period
� Wholesale division strengthened:
- Substantial orders received before the end of the first half did not ship until after the period ended, as distributors continue to trim
and monitor their reduced inventories
- Depletion allowances and promotional expenses have now been halved, with little or no fall off in sales
- Focus on new markets, including lucrative US East Coast
� Trading strong since period end in both retail and wholesale divisions
� The Board is confident of meeting or exceeding expectations for the full year
Larry Soldinger, Chairman of Cosentino Signature Wines plc said:
"Trading in the first half of the year was challenging; although the Retail division was strong our Wholesale division suffered from our
distributor partners reducing their inventory levels. It was not until after the end of the period that much of our committed stock could be
shipped. However by the end of August 2008 revenues were running approximately 3% ahead of the same period in 2007 and revenues through the
end of this month will result in yet a greater percentage increase.
"Our wines continue to be the best in class, continue to attract numerous awards and our brand is strong.
"Given the foundations which are now in place, the strong balance sheet, the strong and stable management team, and the strong current
trading levels, your Board is confident of meeting or exceeding expectations for the full year."
For further information contact:
Larry Soldinger, Chairman 020 7831 3113
Jonathon Brill/ Billy Clegg/ 020 7831 3113
Edward Westropp, Financial
Dynamics
Jonathan Wright 020 7107 8000
Seymour Pierce
CHAIRMAN's STATEMENT
Introduction and summary
I am pleased to update shareholders as to the performance of the business during the first half of the financial year to 30 June 2008.
2008 will be the most seasonally sensitive year to date in Cosentino's 16 year history, following a slow start to the year from a
financial perspective. However, the first half has seen significant progress from an operational perspective, the fruits of which we are
already seeing in the first few months of the second half.
At 30 June we had significant contracted orders which we were unable to ship before the period end. Most of this backlog has now been
shipped which has resulted in revenues through to 31 August being slightly ahead of the same period last year and we are expecting a record
month in September.
Your Company has strong brand recognition, a reputation for making the finest quality Californian wines and a coveted position at the
table of the International and American wine connoisseurs.
Financial summary
Turnover for the period was US$4.49 million (2007: US$5.24 million). Earnings before interest, tax, depreciation and amortization
("EBITDA") of US$1.20 million were generated, relative to an EBITDA of US$1.92 million in the previous year. The loss before tax was $0.35
million (2007: loss of $0.26m) and the first half loss per share was $0.01c, the same as the loss per share in the first half of 2007.
Net assets at the period end were US$27.62 million (2007: US$27.61 million).
The Directors are not recommending the payment of an interim dividend for the period.
Market
Demand for wine in the US continues to be strong, with demand for luxury and ultra-premium wines continuing to exceed the overall wine
market growth. Despite the slowdown in the US economy, people's desire to enjoy good quality seems to have been maintained, perhaps even
enhanced. The outlook for our sub-sector of the wine market in the US is strong.
We anticipate the 2008 harvest will be of excellent quality, although lighter than the norm, with the number of harvested grapes down.
However, we anticipated this at the time of the first frost this season and have secured the grapes at reasonable prices to deliver our plan
on the wine production front. It is likely the shortage of grapes could lead to an increase in the price of wine going into next year - a
trend the Company is positioned to benefit from.
Retail Division
Divisional turnover during the period was $1.9 million, with retail margins remaining consistent.
The retail division has had a solid first half of 2008. There was a continued increase in Cosentino's Wine Club membership, which now
has reached 7350 members, an increase of 18% from a year ago. We continue to draw a share of traffic through Napa Valley, where tourist
numbers are lower year on year and we have focussed on retaining existing club members, such that the fall out rate has improved
significantly. The Wine Club proposition remains attractive to our existing and potential customers.
Wine Club sales were complemented by a solid performance from our tasting rooms in Napa Valley and Lodi. New capacity added last year
means we are well placed to take the business forward in the seasonally strong Autumn and Christmas periods.
Our new tasting room manager has already made a number of innovative changes to this end of the business and the results are being seen
already. Visiting our winery as a leisure experience is being promoted through hotel partners and referral contacts more aggressively than
ever before. These sales efforts are gaining traction.
Our newly established harvest party on 27th September is a sell-out event and we expect that weekend, where people will fly in from all
around the USA to attend, will be a busy weekend with sales of our current vintages as well as our library wines.
Wholesale Division
Divisional turnover during the period was $2.4 million, with margins remaining consistent.
Following the strengthening of our key distributor relationships in 2007, the first half of 2008 was slow, although some one-off trends
were seen and some important foundations were put in place. The benefits of these changes will be seen in the second half of the year.
For much of the first half we saw distributors running down their inventories. As a consequence, it was only towards the end of the
period that substantial orders came through, much of which is only now being shipped.
Depletion allowances and promotional expenses introduced by our predecessors have now been halved, and we have seen little fall off in
sales.
In this division, we are focusing on opening up new markets, as a result of bringing on board our new Vice President of Sales, who had
served 22 years at Beringer and then its successor, Fosters. New distributors in specific new states including Washington, Oregon, Alaska
and Idaho have recently been added to our distribution network in order to fully focus on the expansion of our sales in this region.
Additionally we are in the process of expanding our sales channels on the East Coast, where our new VP of sales has strong historical
relationships. We are confident of delivering a number of new distribution channels in the coming months.
New developments
Last year, we moved all of our winemaking operations in the Lockeford facility to our Clements facility in order to consolidate our Lodi
production into our larger facility. We decided at that time that we would use the empty Lockeford facility as a 'custom crush' operation,
whereby we would crush grapes, produce wines, bottle wine and store wines in barrels and tanks for small scale local wineries. This new
division is now operating at full capacity and we are attracting as much business as we can handle in the Lockeford facility. We will
continue to commit resources and focus on our expansion of this new division. We have found the demand for smaller lots of custom crush
services, along with the related winemaking, bottling and storage requirements from virtual wineries to be quite lucrative and in demand.
Our Yountville facility in Napa Valley currently has a 12,000 case capacity, limited by our use permit. We are currently in the process
of requesting from the county an increase in our use permit from 12,000 cases to 40,000 cases. We have the financing in place to execute the
growth phase and when approval is granted, it will be very significant for the future financial performance of the business as our Napa
Valley Wines are the highest priced, earn the highest margins and are always in strong demand.
Management team
We now have completed the hiring of our very solid management team. This is the strongest team that we have ever assembled in our
Company's history. We have greatly strengthened our operational team during the period with the addition of our new Vice President of
Sales, a new General Manager for our Yountville operations, and a strong new tasting room manager. Last October we brought on an excellent
COO for the business and he is working closely with me day to day. All top executives continue to report directly to me. I would like to
take this opportunity to thank all of our colleagues for their hard work.
Strategy
The strategy during the majority of 2007 was to strengthen the balance sheet and restore profitability to the Company. Now that this is
all but achieved, our strategy going forward is one of organic growth, geographical spread through increasing our distribution network,
operational excellence, continued growth of the Wine Club membership, increased sales in the tasting rooms at the wineries, and through the
growth of our emerging custom crush business. The Board will also consider the right acquisitions at the right time.
Outlook
Since the period end, trading has been extremely strong. Indeed, despite a slow first half, as of the end of August, 2008 revenues were
running approximately 3% ahead of last year. August proved to be the biggest revenue month in the Company's history and based on the trading
to date and the expected orders for the month of September, we anticipate that September may be an even bigger month than August was.
Our wines continue to be the best in class and continue to attract numerous awards for their quality, variety and flavour, and our brand
is strong.
Given the foundations which are now in place, the strong balance sheet, the strong and stable management team, and the strong current
trading levels, your Board is confident of meeting or exceeding expectations for the full year.
Larry J Soldinger
Chairman and CEO
CONSOLIDATED INCOME STATEMENTS
Six months ended Six months ended
30 June 2008 30 June 2007
US$ US$
Continuing operations
Revenue
Distributors 2,356,985 3,321,128
Retail 1,906,263 1,928,490
Other 222,911 4,870
4,486,159 5,254,488
Cost of sales (1,204,289) (1,298,294)
Gross profit 3,281,870 3,956,194
Operating expenses (2,704,681) (2,619,716)
Operating profit for the period 577,189 1,336,478
Other income 1,813 5,412
Finance costs (933,985) (1,606,483)
Loss before tax (354,983) (264,593)
Income tax income/(expense) 139,600 117,463
Loss for the period (215,383) (147,130)
Loss per share
Number of shares outstanding, basic and 22,403,451 22,322,564
fully diluted
Loss per share, basic and fully diluted (0.01) (0.01)
CONSOLIDATED BALANCE SHEETS
Note 30 June 2008 31 December 2007 30 June 2007
US$ US$ US$
ASSETS
Non-current assets
Property plant and equipment 21,066,334 20,821,607 20,120,978
Intangible assets 4 6,357,396 6,355,103 5,769,199
Deferred tax assets 4 6,711,990 6,571,990 6,787,990
Other assets 584,121 219,370 215,462
Total non-current assets 34,719,841 33,968,070 32,893,629
Non-current assets held for - - 18,740,815
sale
Current assets
Inventories 16,163,562 14,270,100 9,797,335
Trade and other receivables 1,587,148 942,787 2,035,682
Cash - restricted - 123,147 -
Cash and cash equivalents 187,032 254,669 199,107
Total current assets 17,937,742 15,590,703 12,032,124
Total assets 52,657,583 49,558,773 63,666,568
EQUITY AND LIABILITIES
Equity
Share capital 387,220 387,220 387,220
Share premium - - 43,268,657
Retained earnings 27,230,306 27,445,689 (16,041,439)
Total equity 27,617,526 27,832,909 27,614,438
Non-current liabilities
Borrowings 15,000,000 13,500,000 25,000,000
Obligations under finance 2,252,957 2,115,534 2,672,996
leases
Redeemable preference shares 1,148,920 1,119,634 2,873,333
Subordinated borrowings 2,500,000 - -
Loan notes 587,500 587,500 587,500
Total non-current liabilities 21,489,377 17,322,668 31,133,829
Current liabilities
Obligations under finance 1,044,621 808,392 1,072,398
leases
Trade and other payables 2,506,059 3,594,804 3,845,903
Total current liabilities 3,550,680 4,403,196 4,918,301
Total liabilities 25,040,057 21,725,864 36,052,130
Total liabilities and equity 52,657,583 49,558,773 63,666,568
_______________________
Larry J. Soldinger, Chairman
STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY
Share capital Share premium Retained earnings Total
US$ US$ US$ US$
Balance 1 January 2007 387,220 43,268,657 (15,894,308) 27,761,569
Cancellation of share premium - (43,268,657) 43,268,657 -
account
Costs associated with - - (130,085) (130,085)
cancellation of share premium
account
Income for the period - - 201,425 201,425
Balance at 31 December 2007 387,220 - 27,445,689 27,832,909
Loss for the period - - (215,383) (215,383)
Balance 30 June 2008 387,220 - 27,230,306 27,617,526
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six months ended Six months ended
30 June 2008 30 June 2007
US$ US$
Cash flows from operating activities
Cash receipts from customers 4,155,204 3,856,842
Cash paid to suppliers (6,680,462) (6,095,440)
Cash generated from operations (2,525,258) (2,238,598)
Interest paid (918,464) (1,606,483)
Income taxes (paid) refunded (400) 11,463
Net cash flows from operating (3,444,122) (3,833,618)
activities
Investing activities
Investment in intangibles (128,692) -
Interest received 1,814 5,412
Purchases of property plant and (628,685) (495,657)
equipment
Net cash used in investing activities (755,563) (490,245)
Financing activities
Costs related to share capital - (539,167)
Proceeds from new loans raised 4,000,000 2,000,000
Proceeds from issuance of convertible - 3,250,000
notes
Redemption of preference shares - 234,880
Proceeds from (repayment of) capital 8,901 (507,920)
leases
Net cash provided by financing 4,008,901 4,437,793
activities
Net increase /(decrease) in cash and (190,784) 113,930
cash equivalents
Cash and cash equivalents at beginning 377,816 85,177
of period
Cash and cash equivalents at end of 187,032 199,107
period
NOTES TO THE FINANCIAL INFORMATION
General Information
Cosentino Signature Wines plc (the "Company") and its operating subsidiaries (together the "Group") produce wines from the Northern
California region of the US. The Group sells ultra-premium and luxury wines to fine dining restaurants through third party wholesale
distributors and directly to consumers at its wine tasting rooms and through its wine club.
The Company is a public company incorporated and domiciled in the United Kingdom and has its primary listing on the AIM Stock Exchange.
This condensed consolidated interim financial information was approved for issue on 21 September 2008.
1. Basis of presentation
The condensed consolidated interim financial information for the six months ended 30 June 2008 has been prepared in accordance with IAS
34, 'Interim Financial Reporting'. The condensed consolidated interim financial information should be read in conjunction with the annual
financial statement for the year ended 31 December 2007, which have been prepared in accordance with IFRS.
2. Accounting policies
Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year
ended 31 December 2007, as described in those annual financial statements.
Tax expense in the interim periods is accrued using the tax rate that would be applicable to expected total annual earnings or losses.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year
beginning 1 January 2008 but are not currently relevant for the group.
* IFRIC 11, *IFRS 2 * Group and treasury share transactions*.
* IFRIC 12, *Service concession arrangements*.
* IFRIC 14, *IAS 19 * the limit on a defined benefit asset, minimum funding requirements and their interaction*.
The following new standards, amendments to standards and interpretations have been issued but are not effective for the financial year
beginning 1 January 2008 and have not been early adopted.
* IFRS 8, *Operating segments*, effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14, *Segment
reporting*, and requires a *management approach* under which segment information is presented on the same basis as that used for internal
reporting purposes. The expected impact is still being assessed in detail, but it appears likely that the number of reported segments may
increase.
* IAS 23 (amendment), *Borrowing costs*, effective for annual periods beginning on or after 1 January 2009. This amendment is not
relevant to the group, as the group currently applies a policy of capitalising borrowing costs.
* IFRS 2 (amendment), *Share-based payment*, effective for annual periods beginning on or after 1 January 2009. Management is assessing
the impact of changes to vesting conditions and cancellations on the group*s SAYE schemes.
* IFRS 3 (amendment), *Business combinations* and consequential amendments to IAS 27, *Consolidated and separate financial statements*,
IAS 28, *Investments in associates* and IAS 31, *Interests in joint ventures*, effective prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. Management is
assessing the impact of the new requirements regarding acquisition accounting, consolidation and associates on the group. The group does not
have any joint ventures.
* IAS 1 (amendment), *Presentation of financial statements*, effective for annual periods beginning on or after 1 January 2009.
Management is in the process of developing Proforma accounts under the revised disclosure requirements of this standard.
* IAS 32 (amendment), *Financial instruments: presentation*, and consequential amendments to IAS 1, *Presentation of financial
statements*, effective for annual periods beginning on or after 1 January 2009. This is not relevant to the group, as the group does not
have any puttable instruments.
* IFRIC 13, *Customer loyalty programmes*, effective for annual periods beginning on or after 1 July 2008. Management is evaluating the
effect of this interpretation on its revenue recognition.
3. Financial information
The financial information above does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The
interim financial information has not been audited by the Company's auditors. The results for the year ended 31 December 2007 as shown in
this report do not constitute statutory accounts but are an abridged version of the Company's 2007 accounts which have been filed with the
Registrar of Companies. The accounts to 31 December 2007 did not contain any statement under section 237 (2) or (3) of the Companies Act
1985 and the auditors' report was unqualified.
4. Property plant and equipment and intangible assets
Property plant Intangible assets
and equipment
Six months ended 30 June 2007
Opening net book amount as at 1 January 38,844,560 5,769,199
2007
Additions 590,813 -
Disposals - -
Depreciation and amortisation (573,580)
Transferred to non-current assets held (18,740,815) -
for sale
Closing net book amount as at 30 June 20,120,978 5,769,199
2007
Six months ended 30 June 2008
Opening net book amount as at 1 January 20,821,607 6,355,103
2008
Additions 628,685 128,692
Disposals - -
Depreciation and amortisation (383,958) (126,399)
21,066,334 6,357,396
Closing net book amount as at 30 June
2008
Intangible assets include goodwill and the cost of capitalized software. During the interim and subsequent period, no events have come
to the attention of management that would indicate a change in goodwill.
5. Deferred tax asset
The Company's underlying trading subsidiaries are subject to US Federal and State corporate income tax. As inventory is sold, under
current US tax legislation, the Company is expected to obtain a deduction for tax purposes of the differences between the tax value of the
inventory and its book value. A deferred tax asset at current US tax rates of US$6,711,990 (2007:US$6,787,990) has been recognized in
respect of this deduction as well as the result of net operating losses through 30 June 2008. The estimated average annual tax rate used for
the year to 31 December 2008 is 40%.
6. Subordinated borrowings
In anticipation of the proposed expansion of its production facility in Yountville, California, the Group entered into a loan agreement
in the aggregate amount of $5,000,000 on 22 May 2008 to fund working capital needs and the anticipated costs for the contemplated expansion.
The line of credit bears interest at an annual rate of 12%, is secured by the Group's assets, is subordinate to senior and senior
subordinate borrowings and matures on 31 December 2010. As of 30 June 2008 the Group had $2,500,000 of undrawn borrowings under this credit
facility.
7. Preference shares, warrants and options
At 30 June 2008, 332,972 (2007:65,268) options were outstanding under the Cosentino Signature Wines plc 2005 Equity Compensation Plan
with exercise prices ranging from �0.245 to �1.25. Of these options, 27,972 (2007:27,972) were vested at the end of the interim period.
During the period no options have become exercisable due to the conditions attached to the options. No charge has been made to the
profit and loss account for any options granted.
8. Seasonality
The retail and wholesale sales for wines are subject to seasonal fluctuations with peak demand in the third and fourth quarter. This is
due to seasonal harvest activities and holiday periods. For the six months ended 30 June 2008, the level of retail and wholesale sales
represented 39% (six months ended 30 June 2007: 48%) of the annual level retail and wholesale sales in the year ended 31 December 2007.
9. Post balance sheet events and contingent liabilities
No events have occurred subsequent to 30 June 2008 which would require disclosure in, or adjustment to these financial statements.
No contingent liabilities existed at 30 June 2008 which would require disclosure in these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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