Cape Town — As rand renders results less than sparkling, company is leaving JSE in order to raise funds

The JSE Securities Exchange SA's (JSE's) smallest listed wine producer, Winecorp, gave a novel reason yesterday when announcing plans to sell its assets and delist.

Winecorp which is 73,5% owned by Hollard Holdings said it would be delisting from the local bourse because it would need funding from its major shareholders after its recent poor performance.

The group also needs to merge operations so that it can launch more branded wines.

Generally the purpose of being listed on the JSE is to raise capital , but chairman Ralph Freese said the group which emerged from the restructuring of the money-losing Savanha five years ago, when the Hollard-owning Enthoven family injected cash should possibly have delisted then.

Winecorp has a business model that depends on a weak rand. In the six months to January, Winecorp reported a headline loss of 0,26c a share and its balance sheet showed an increase in related party loans to R7,9m from R1,4m a year ago. It said sales volumes had risen but the strength of the rand had resulted in a decline in turnover.

Freese said that to keep the business alive, it needed to be merged with other wine businesses that have strong brands and where margins are higher, otherwise Winecorp would carry on consuming cash.

The shares have dropped 40% since the start of the year, though this is up from January, when at one stage they had fallen 60%.

Industry sources say there is a global oversupply of wine, driving down prices, and consolidation of the local wine industry needs to take place to build up the necessary critical mass to compete internationally on brands.

Freese said that only about 15% of Winecorp's equity was owned by unrelated parties, and a few of the bigger minority shareholders were approached to see if they would support the group in a cash-raising exercise, but they indicated they could not afford to do so.

Winecorp's share price performance underscores the difficulty of holding a rights issue. In the past eighteen months the shares have teetered between 15c and 50c on volumes barely reaching 100000 a day.

Winecorp plans to sell all its assets to Winecorp SA and Winecorp Holdings for R25,8m. After costs of about R1,5m, this will see shareholders receiving 49,31c a share. The company estimated its net tangible asset value at 48,05c a share.

This is a related party transaction which will require approval of Winecorp's minority shareholders.