Wool Co-Operative Paints Red Ink Pictures in New Prospectus

Published: Mon 17 Jan 2011 02:35 PM
Wool Co-Operative Paints Red Ink Pictures in Amended Prospectus
The new Wool Partners Co-operative prospectus is no more attractive than the original version, except that it declares losses in its first year, hints at possible losses in its second year and lists significantly increased costs for interests and float expenses.
“The big question on everyone’s lips is, will the woolgrowers who have subscribed to the first version of the prospectus, get the chance to ask for their cheques back because of the substantially changed offer in the new prospectus?” asked the executive manager for the Wool Exporters Council, Mr Nick Nicholson.
He said Wool Partners Co-operative is projecting a loss to 30 June 2011 of $1.774 million. The following year the prospectus says WPC will make a profit of $1.418 million, but this is based on supply of 65 million kgs of wool.
“They have now reserved the right to start with 55 million kgs of wool, and if they go ahead at this level, we estimate they will lose another $600,000 in the year to June 2012. The first prospectus said the co-operative needed 65 million kgs of wool to run the company’s operations and there have been suggestions this level would give the organisation a ‘mandate’.
“If they go ahead at the lower level we say they won’t have that mandate, and I’d be asking whether they can generate sufficient cash flow and profits to support the price paid for the business,” Mr Nicholson said.
The purchase price of the assets the co-operative is buying from Wool Partners International, of $17,067,000 is to be paid in two instalments. The first instalment of $8,533,500 is due to be paid on 15 June 2011, and $8,533,500 plus interest on 15 June 2012.
“Interest on the second instalment is at 9.75%, so now, WPC pays the purchase price plus another $832,000 in interest.”
Mr Nicholson said an independent poll by Horizon Research revealed almost 100 percent awareness of the Wool Partners Co-operative capital raising offer and this led to a very high readership of the prospectus (research indicated 8 out of 10 woolgrowers read the offer document).
“But 7 out of 10 farmers who read the prospectus were disappointed with the content and 70.5 percent of the woolgrowers who were polled said they had not and did not intend to invest in the Wool Partners Co-operative float.
“When you have a massive communications failure first time round, which leads to a fund raising shortfall of $30 million and still needing another 23 percent of strong woolgrowers, the job of selling the amended version gets a whole lot harder. You’d have to ask what magic marketing they can use to change growers’ minds?” Mr Nicholson said.
“In spite of this communications failure the float costs have gone from $980,000 to $1.355 million with the communications and marketing component rocketing by $155,000 from $190,000 in the first prospectus to $345,000 in the new prospectus
“This project is clearly a fizzer,” Mr Nicholson said.
While the chairman of the co-operative, Mr Jeff Grant had lashed out at him last week, Mr Nicholson said he would keep asking hard questions that he believed the woolgrowers would want to know.

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