NAB extends lifeline to Casella
The bank will negotiate with the company over future loan covenants it will accept in the face of the new economic landscape that includes a high Australian dollar and falling revenue.
Casella chief executive John Casella told BusinessDay the talks were positive and the family was investigating a number of opportunities and strategies to bolster the businesses over the next few years. These included the release of a new portfolio of premium wines, some of which could sell for $50 or $100 a bottle.
"I think the bank is doing the right thing and being clever, saying to us, 'I know what you need today, and I know you can travel over the next 12 months without issues and maybe even 18 months, but all we want to know now is what your plan is longer term because maybe the dollar won't recede'," Mr Casella said.
"And that's what we are working through so there is enough facilities in place for us not to get into a crisis within the foreseeable future."
Originally Casella Wines had a January 31 cut-off to renew its debt facilities. Those facilities have been extended, not renewed, as talks continue.
Casella Wines, one of Australia's biggest and most successful winemakers, posted its first loss in 20 years last financial year, recording a loss of $30 million for 2011-12, on the back of dwindling revenues caused by the high Australian dollar. The company exports about 75 per cent of its production to the US, making it highly exposed to currency movements and an appreciating dollar.
Mr Casella said the push into premium and luxury wines could generate fresh revenue and profits for the company, buffering it from losses triggered by a rising dollar. It would be a huge departure for Casella Wines, which has built its success over the past decade on the hugely popular Yellow Tail range of wines that sell for $10 and under.
Mr Casella told BusinessDay a new range of premium and luxury wines the winemaker was working on would probably not sell under the Yellow Tail label. It would rather have a new branding, possibly using the "Casella" name to gain market leverage from the family's long history in winemaking.
The new wines could be on the shelf in the next one to two years.
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NAB extended Casella Wines' debt facilities while the two parties continue talks. The facilities were extended rather than renewed past the original January 31 cut-off so the bank and company can negotiate appropriate loan covenants.
The bank wants to reset future loan covenants to reflect the new economic landscape — notably a high Australian dollar and falling revenue for the winemaker. NAB has signalled it can give Casella short-term runway (around 12–18 months) but needs a credible longer-term plan.
Casella reported dwindling revenues because the company exports about 75% of its production to the US, making it highly exposed to currency movements. The appreciating Australian dollar contributed to the company posting its first loss in 20 years.
Casella Wines recorded a loss of $30 million for the 2011–12 financial year — its first loss in 20 years, driven in part by a high Australian dollar and weaker export revenue.
Casella is exploring a push into premium and luxury wines, including a new portfolio that could feature bottles priced around $50 to $100. The company hopes premium offerings will generate fresh revenue and help buffer against currency-related losses.
According to CEO John Casella, the premium and luxury range would probably not carry the Yellow Tail label. The company is likely to use new branding, possibly leveraging the 'Casella' family name.
The extension gives Casella more time to implement strategies and negotiate covenant terms, reducing immediate crisis risk. It signals constructive engagement between NAB and Casella but also highlights the need for a clear longer-term plan given current currency and revenue pressures.
Casella said the new premium and luxury wines could be on shelves within the next one to two years, depending on product development, branding and market rollout decisions.
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