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Winona Capital ups Rodd & Gunn investment

Winona Capital ups Rodd & Gunn investment as retailer targets North America

By Jonathan Underhill

April 4 (BusinessDesk) - Winona Capital, a Chicago-based private equity firm that invests in consumer brands, has put more capital into Rodd & Gunn New Zealand, saying it is "excited" to be supporting the unprofitable clothing chain during its growth phase in North America.

Winona bought an additional 16.4 million shares in Rodd & Gunn last July, lifting its holding to about 102.2 million shares, or 55 percent of the company. The firm first invested in Rodd & Gunn in October 2015, buying about 81.8 million shares for $20 million, or about 24 cents a share. If the same price was used last year, it would have injected a further $4 million.

Rodd & Gunn posted sales growth of 9.6 percent to $90.5 million in the year ended June 30, 2017, but cost of sales and increased expenses, including freight and travel, led to an operating loss of $964,314 from an operating profit of $1.4 million in 2016. Its net loss rose to $1.65 million from a loss of $968,794 in 2016, even though finance costs more than halved in the latest year. It had to get a waiver from its bank, ANZ Bank New Zealand, after breaching covenants, the annual report says. All of its $9.79 million of debt was coming due in six months or less.

"Yes we made an investment last summer - purely out of excitement," Luke Reese, managing director at Winona, told BusinessDesk. "We understand as well as we invest in companies they usually don't generate profits in the middle of their growth phase."

Rodd & Gun has opened stores in California, New York and Greenwich, Connecticut, and sells via wholesalers and through specialty menswear shops in the US and has distribution through existing Canadian stores. Winona's investment is part of a pool of funds of around US$300 million that the firm puts into consumer-related businesses and brands ranging from foods to pet care to ski gear, outdoor clothing and jewellery.

"The loss-making in '17 for Rodd & Gunn was primarily from the North American expansion," Reese said. "We're investing well ahead of the growth curve in North America and seeing spectacular growth - about eight times in a 3-year period. And we're now profitable," he said, referring to the North American market.

US sales topped $100 million in 2016, managing director Mike Beagley, who owns 34 percent of the retailer with Lewis Grant, said at the time. The brand plays on its outdoorsy New Zealand heritage and roots that it traces back to 1946. Beagley wasn't immediately available to comment on the 2017 results.

The retailer's financial statements show it had contributed equity of $36.8 million in 2017, of which $11.8 million was from 83 million ordinary shares and $25 million was from about 102 million preference A shares. The only change from a year earlier is an increase of 20 million preference shares, an uplift of $5 million.

Asked if there was a cut-off date for the Rodd & Gunn investment, which was made about 2 1/2 years ago, Reese said Winona didn't have any set maturity date such as the five-year horizon sometimes invoked for private equity firms.

"Under no circumstances do we live by a timetable," he said. "We will grow until we believe it is the right time for all shareholders. We have the utmost faith in Rodd & Gunn. We're incredibly excited."

In explaining why the company is a going concern, notes to the accounts say it has "received the commitment of continuing support of shareholders" and it doesn't see an issue around meeting the terms and conditions of its bank facilities. It also says trading is to forecast even taking into account "uncertainties relating predominantly to market conditions across all territories" and exchange rate fluctuations.

Rodd & Gunn tidied up its affairs ahead of Winona's original investment in 2015, acquiring all the shares in Rodd & Gunn Australia, which became a subsidiary, for a total consideration of $14.2 million in shares, cash and a loan.


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