Let’s face it ETW (and by default, ETWG) are both so deep in the...

Let’s face it ETW (and by default, ETWG) are both so deep in the kaka that there is no saving them, I think that my friend was right, and here are the reasons why:

1. Industry conditions are the worst they have ever been, the grape glut is so severe that there is now enough wine already made to fulfil customer demands for over a year (!!) without any winery in the country producing a single drop more wine!! And that calculation is done on current demand that has been significantly inflated by the rock-bottom prices on wine!! Winemaking has always been a tough, capital intensive business, but right now, it is literally impossible to make respectable profits in wine.

And it looks like there is no respite in sight over the next 2-3 years.

2. ETW is basically running on ANZ’s charity and last time I checked, the big four banks weren’t known for being charitable, understanding or in any other way benevolent. ANZ WILL pull the rug out from under ETW’s feet sooner or later (look at what happened to ION – they had pledges from their bank, which were subsequently broken, I’ll be surprised if the ANZ sticks around until December.
3. Even IF ANZ stuck around until their December 2006 pledge, that is still 11 months before the notes mature, so what happens then?

4. Korda Mentha are also bleeding ETW dry, charging a cool $300,000 pcm (that’s $3.6m pa), about $300,000pcm more than ETW can afford to spend, just to keep this lost cause ticking.

5. The ETWG notes are killing ETW as well, how is ETW going to afford to pay out the notes on 29 October 2007?! Even if they stopped burning cash like crazy, they still wouldn’t be able to afford it right now, do you really think that they are going to make enough money to pay for it in less than two years’ time (for that matter, do you think that they are going to make ANY money in the next two years)?! NTA is whisper thin at the moment, and with any more losses ETW will have negative NTA – where will the money for the notes come from then?

6. All of these factors are exacerbated by the fact that suggests that ETW’s financial management is still woeful! The fact that they have not been buying back the ETWG notes on market and cancelling them (thereby reducing the indicates at least one of three things:

i. Their CFO is an imbecile;
ii. Their CFO doesn’t have enough cash to buy back any notes (doubtful given that they have enough cash to pay Korda Mentha $300k pcm); or
iii. They don’t have any intention of paying out the notes in the future.

I’d say that the ETWG notes are worth no more than 40c apiece, and the shares are worth less than 5c per share at the mo’

To those of you who persist in holding I say: “Good Luck!”