The pressure just keeps coming for Australian Vintage Limited (AVL) as merger talks with Accolade Wines end unsuccessfully, and the winemaker asks for a suspension of its shares on the ASX, after announcing debt levels could be over 50 per cent higher than previous estimates.
The news comes after AVL recently sacked its former CEO Craig Garvin over undisclosed behaviour that was “inconsistent with the values of the company”.
On Monday AVL asked the ASX for a voluntary suspension of its shares, having previously requesting a trading halt on May 23. AVL said it was not in a position to make the announcement regarding the trading update that it had referred on May 23 in its request for a trading halt.
The company requested the suspension remains in place until it is able to make a statement in relation to its proposed capital raising and debt refinancing, which it hopes to make around June 11, 2024.
AVL said its net debt as of 30 June 2024 is expected to be in the order of $70-75m, significantly up on its previous management expectations and guidance to the market of $43-50m.
The statement also said: “In addition, $15m of existing bank capacity is due to expire at the end of July 2024, reducing Australian Vintages bank capacity, including overdraft facilities, to approximately $78m.
“Given expected working capital requirements in Q1 FY25, Australian Vintage believes that commencing trading would be materially prejudicial to its ability to source additional capital which is critical to support its continued financial viability and operations.”
AVL also announced in request for voluntary suspension to the ASX an update on its talks with Accolade Wines regarding a potential merger. AVL said premliminary two-way due diligence had been largely completed by mid-April 2024 and that since the completion of the initial due diligence period, “both AVL and Accolade had been engaged with respect to commercial terms and process for more detailed and substantive diligence”.
However, AVL said that it had received correspondence from Accolade on the evening of May 22, which stated that Accolade and its senior lenders were ‘not in a position to continue discussions further at this time’. AVL said Accolade declined to provide any further detail as to why the discussions were ending, but noted that the guidance from Accolade “was received shortly after the CCW Co-operative Limited Annual General Meeting, which was held on 21 May 2024, and which voted down a Special Resolution to restructure Accolade’s largest grape supply contract, the Preferred Supply Agreement”.
When AVL announced its half-year results in February this year, the company said its revenue was in line with the prior year, while margin and underlying earning improved despite challenging trading conditions.
AVL said that it has seen continued improvement in its performance across key markets, which is consistent with its strategic plan. In Australia, despite strong competition in all segments AVL reported market share growth of two per cent, while the overall market declined by five per cent.
At the time, Garvin said: “Our operating cash flow and free cash flow, pre asset sales and dividends, improved by $7.4m and $8.4m respectively over the prior period. Whilst this is an improvement we remain focused on a number of actions to reduce net debt. We are comfortable at this level as we process more wine in anticipation of higher F25 sales.”