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No sting in the tail as Casella Wines moves towards debt restructure

29 Jan 2013 SYDNEY MORNING HERALD - ELI GREENBLAT WINE


JOHN Casella would like the world to know that reports of the pending death of Casella Wines, his family owned winemaker behind international juggernaut label Yellow Tail, are greatly exaggerated.

Talks with bankers over the restructuring of a long-held lending agreement were progressing smoothly in the lead-up to Tuesday's deadline, he said.

Speaking to BusinessDay from New York, where he is meeting with key US importers and distributors who handle the bulk of the 12 million cases a year the Griffith-based winery produces, Mr Casella hit out at recent reports, including one in The Wall Street Journal, that portrayed the business as mired in financial woes due to its first reported loss in 20 years and a breach of its debt covenants.

"The thing about these stories is they are blown out of proportion. We are trading solidly, we are not late paying one creditor, everything is fine renewing these facilities," Mr Casella said.

"If you look at our company we're solid, we have piles of retained earnings, our debt level to asset ratio is comfortable and these stories being pumped out undermine our customers' confidence and our employees' confidence, and it's not really fair the way things are turning out."

Founded by Sicilian immigrants Filippo and Maria Casella in 1965, Casella Wines turned its flagship Yellow Tail wine from an idea on a drawing board to a few years later the biggest imported wine in the US with its leaping kangaroo label dominating American supermarket aisles and liquor shops.

The success of Yellow Tail - built upon more than 8 million cases a year sold into North America, together with a low Australian dollar - helped drive 20 years of profit growth for the Casella family.

But that run has come to a screeching halt with recently released financial accounts revealing the winemaker posted a full-year loss of $30 million - its first in two decades as its debt ballooned to more than $130 million.

Sales for the year fell 2.8 per cent to $335 million, the accounts to end-June showed.

The slump into the red triggered a breach of its loan covenant with National Australia Bank and a January 30 deadline to patch up its margins and provide a strategy to slim down its cost structure.

Mr Casella said Casella Wines was sitting on more than $400 million in retained earnings and that its reported losses were accounting losses not related to its day-to-day trading.

"We are doing our best and engaged with our bank to have a [loan] facility in place not just for one year but for many years to come so we can operate in comfort," he said.

Casella Wines, which as recently as 2011 reported a profit of $45.3 million, has seen its financial position deteriorate recently due to the high value of the Australian dollar.

The winemaker has doggedly refused to lift prices to protect its balance sheet and has instead chosen to protect its customers - its US importers and distributors.

"There is nothing more destabilising than having prices go up and then down again; other companies did that and they lost market share," Mr Casella said.

"Our sales volume remains solid and is only down 0.2 per cent in the US. We don't have a sales problem, we have a margin problem created by a huge movement in the currency, which is now 50 per cent above the historical average."

Mr Casella said he has reassured US customers that it was business as usual at Casella Wines.

"There are stories floating out there, what can I do? We have tried to be open and honest with the market and present it as it is, and it's not so much the Australian media, but The Wall Street Journal had a nasty article," he said.

Mr Casella said the winemaker remained committed to its $46 million beer joint venture with Coca-Cola Amatil, which was launched last year and is producing a beer called Arvo.

The family winemaker also plans to release a portfolio of premium wines.