Australian spirits producer and distributor Top Shelf International (ASX: TSI) has executed a binding term sheet for a $5 million sale and leaseback transaction of the farmland and structural improvement assets at the Company’s agave farm in Eden Lassie, Queensland’s Whitsundays region.
The agreement does not cover the farm’s distillery plant and equipment assets or agave plants. Once all expenses related to the transaction are settled, the Company plans to use the money earned from the sale to support capital needs, including reducing debt.
The binding agreement includes the total sale price of $5 million, with an initial term of 10 years and an option to extend for another five years; the annual lease cost starts at $500k, and Top Shelf retains the right to buy back the assets in the future for at least $6.5 million.
As part of its capital strategy, the Company had been exploring a sale and leaseback deal for a while. Initially, it considered selling both its agave distillery plant and equipment assets along with its land assets. However, by agreeing to sell only the agave farmland and structural improvement assets, Top Shelf can maintain complete ownership and control over its agave agronomy activities and distillery operations.
Top Shelf International is a Melbourne-based distiller and marketer of premium Australian spirits, with distinctive brands such as NED Australian Whisky, Grainshaker Hand Made Australian Vodka, and Act of Treason Australian Agave. Besides distilling and manufacturing its own portfolio of spirit brands, it provides canning, bottling and packaging services at its Campbellfield production site in Victoria.
In H1 FY24, Top Shelf’s revenue increased by 3.6% to $15.2 million, with a statutory profit of $4.3 million. The Company’s EBITDA stood at a loss of $6 million, an improvement from PCP’s $9.8 million. At the end of the half, Top Shelf, with a market cap of $33.3 million, had a net debt position of $22.3 million. What’s more, its available funding reserves were less than the minimum requirement of the financing facility agreement.
Thus making this agave farmland deal essential.
The Group created its agave spirit range from its agave agronomy operation in The Whitsundays region of Queensland with a dedicated on-farm agave distillery. It started agave harvest and production in December 2023 and announced the first release of the Act of Treason Australian Agave product in January 2024.
It has onboarded Australia’s largest national liquor retailer, Endeavour Group (Dan Murphy’s and BWS), and expanded with Coles Liquor Group (Liquorland, First Choice and Vintage Cellars), which is set to go on shelf in June 2024.
Top Shelf is currently undergoing a pivot in its strategy to focus on margins and profitability. This entails streamlining its operations to maximise efficiency and asset use. In August 2023, Top Shelf raised $30 million in equity, which facilitated several key initiatives, including debt reduction by $10 million, the completion of the agave distillery in The Whitsundays, and the implementation of a business turnaround plan.
Top Shelf has executed the agave farmland binding term sheet with an entity related to non-executive director Stephen Grove. The transaction remains subject to shareholder approval.
Alinda is a Business Reporter for The Sentiment
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