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Brewer seeking crowd-funding cancels shareholders' dividends

Shareholders in Renaissance Brewing company, the first business to seek equity through crowd-funding in New Zealand, have cancelled their claim on $147,000 of accumulated earnings "to make Renaissance a more attractive investment opportunity."

The move to "retire" the sum in the shareholders' current account is a key factor in the Marlborough-based, high-end craft beer brewer moving out of negative equity over two of the last three financial years, according to the simplified disclosure issued today by Renaissance. The shareholders' current account was the firm's retained earnings that could have been paid as dividends to shareholders.

In the year to March 2012, Renaissance had negative equity of $245,000, reducing to $129,000 by March 2013 and turning to a positive $80,000 equity position in the 2014 year, comprised of current liabilities of $142,000 and non-current liabilities of $398,000 being out-balanced by $621,000 of total assets, including $87,000 of cash on hand.

The company's development director, Roger Kerrison, told BusinessDesk that Renaissance forecasts the company remaining in positive equity over the next three years, for which it has published earnings projections but not a projected balance sheet.

Renaissance is seeking to raise between $600,000 and $700,000 by selling up to 350,000 new shares at $2 apiece, equivalent to 12.28 percent of the company, through the crowd-funding platform Snowball Effect, the first such platform to be licensed to raise equity from the general public under the new Financial Markets Conduct Act. The act allows capital-raising for small companies without requiring the same level of detailed disclosure and expense as a stock exchange listing.

Snowball Effect kicks off officially on Wednesday, while a second crowd-funding platform, PledgeMe, will launch on Friday.

Would-be shareholders in Renaissance can take a minimum of 250 shares for a $500 investment and if they buy 1,000 or more, they'll receive a mixed dozen of special brews not available to the general public. Renaissance makes a range of seven regular brews and has a more experimental range under the "Enlightenment" label.

The company acknowledges in its disclosure that the shares will not be easily traded and that the issue price reflects this.

Short form financial statements show the company made after-tax profits of $90,000 and $115,000 in the 2014 and 2013 financial years respectively, having broken even in 2012. Total sales rose from $967,000 to $1.5 million over those three years, to yield gross margin after cost of sales in the 2014 financial year of 42 percent.

Staff, including shareholders working in the business, and administration expenses are forecast to rise from $469,000 to $500,000 between March 2014 and March 2017, by which time it expects total revenues of $3 million and earnings before interest, tax, depreciation and amortisation of $750,000.

That presumes successful execution of a sales growth strategy that will concentrate on building New Zealand domestic markets in the current financial year, a push into Australia, the US and Europe (excluding the United Kingdom) in 2016, and a strong push into the UK and emerging Asian markets in 2017.

The funds raised will be put mainly to increasing throughput for the brewery, as well as business development in both New Zealand and offshore markets. The $700,000 is broken down to: stainless steel kegs, $80,000; bottling and kegging equipment, $140,000; tanks and boil equipment, $100,000; work in progress (working capital to fund lags between brewing and sales), $100,000; refrigeration upgrade, $30,000; new market launches, $70,000; current export market development, $70,000; domestic business development, $40,000; new export market development, $30,000.

The company has a four-year $362,460 loan from the ANZ bank, which is being repaid from operating cashflows and matures in November 2018, and $230,000 in working capital facilities.

It plans not to pay dividends while the company is in its development phase.


Comments and questions

Slight correction: shareholders who buy 1000 shares get a mixed dozen of the *standard* beers every year and also the ability to buy special beers as they come available.

That's not a bad dividend yield.

This just does not really make sense. By March 2017 if the company hits is targets (big IF remember Moa) then the business probably has a valuation of $3-5m as a private firm. So 12.28% is less than the $700k required today.

If they can list then based on Moa's current valuation they would probably be worth say $8 (on the same hsitoric revenue multiple). This would equate to the $700k being worth around $1m. A return on investment of 15% per annum - which in no way compensates for the risk. PE firms are looking for 25% per annum for larger businesses and 40% for venture capital.

Equity Crowd Funding is a good development, but not if it is going to result in serioulsy mispriced offers going to uneducated investors.

While I can understand the valuation comparison its probably not completely fair to compare them to Moa who've been punished by investors for continual under performance. These guys do have a history of making a profit

I thought the Renaissance offer information was a refreshing change to the usual. Beers delivered to your door was a nice touch

Agree MOA has been punished for the failure to deliver, but it also reflects the value of a listed small brewery operation. Some of the punishment is because investors realise it is a lot harder to build this business than perhpas they thought.

My other valuation is based on the norms for buying private businesses across all range of industries and sectors. Fact is this is over valued and will only pay off if it can signifcantly over deliver on results.

Maybe sceptical but have not too many companies over deliver.

Will be interesting to see how equity crowdfunding develops in NZ. Agree that fleecing the average punter on valuation will come unstuck pretty quickly. I'm looking forward to some new and interesting opportunities.

Valuations for SME's in NZ is always tricky - very limited comps to go on