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42 Below float looks set to sex up stock exchange

By Deborah Hill Cone

Friday 5th September 2003

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About-to-list vodka company 42 Below has prepared "plain vanilla" financial statements and in a conservative move will not value the cult brand on its balance sheet, its managers said yesterday.

The startup marketing company announced this week it would make an initial public offering and list on the New Zealand Exchange. The decision is a PR coup for stock exchange head Mark Weldon, who has launched a crusade to bring a new breed of brand-driven "sexy" companies to the exchange.

"We're not about wood chips and plastic lunch boxes," 42 Below founder Geoff Ross said.

One of 42 Below's three shareholders, former Empower entrepreneur Grant Baker said they had kept 42 Below's financial statements straightforward and simple.

The shareholders were not repaying themselves any cash from the capital raising as the money they had put into the business ­ which was "in the millions" ­ had been capitalised, Mr Baker said.

Mr Baker and colleague Shane McKillen chose to back the business with some of the money they made from their phenomenally successful energy retailing business, Empower, which they sold to Contact Energy for $55 million (not $23 million as had been widely reported). The pair, and partner Andrew Hawken, built up Empower from nothing to 10% of the national retail power market within five years ­ and when they sold out looked for new ventures.

Mr Baker and Mr McKillen bought into 42 Below, a company for which they have global ambitions.

The company contracts out the manufacturing of its products, 42 Below vodka and South gin ­ although it owns the recipe, and focuses on marketing and building its brands.

It is common practice for brand-driven companies to value brands as assets and a Direct Broking report estimates some liquor companies would have negative equity if they took their brands off their balance sheets.

Mr Baker said in future 42 Below might value its brands but was keeping its offer simple and would not do so yet.

"We don't want to be tricky, we're keeping it very straightforward," Mr Baker said.

The super-premium vodka 42 Below, which is unashamedly New Zealand in its presentation, is already being stocked by some of the hippest bars in LA and London.

Mr McKillen has moved to LA permanently to promote the product there, where his five Kiwi staff schmooze to get the brand into the most prestigious bars and restaurants.

The company has not released its prospectus yet but has said in the past it was looking to raise about $10 million to $20 million to fund its expansion in the US and UK.

The float is being underwritten by lead broker Dorchester Group and the shareholders, Mr Ross, Mr McKillen and Mr Baker, will keep a majority stake in the company.

42 Below is tiny but growing fast, with turnover doubling each quarter, and it is projecting it will turn over $2.5 million by the third quarter next year, or 100,000 litres.

With the international vodka market totalling 480.5 million litres, 42 Below needs only a small segment of the market to generate large amounts of revenue.

Another super-premium vodka, France's Grey Goose, had gone from selling 30,000 cases five years ago to one million cases per year now.

Mr Ross said their objective was for 42 Below to become New Zealand's first truly global beverage brand.

Other well-known New Zealand drinks such as Montana wines and Steinlager suffered because they were not clearly identified as New Zealand brands.

"One is named after a state in America and the other is a German word," Mr Ross said.

42 Below had been helped by New Zealand celebrities, such as Kylie Bax and Rena Owen, who had been generous with their networks and helped to promote the brand among opinion-formers in the US.

Mr Ross said the tipping point for 42 Below would come once the brand was being poured in the top bars in the top-10 cities in the world.

"Once you crack [London bar] Chinawhite, the next 50 bars are easier," Mr Ross said.

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