42 Below has first profit in its sights

By PETER GRIFFIN

Vodka and gin maker 42 Below is not yet toasting a maiden profit but, with sales growing and plans for expansion in the US, it expects to break even early next year.

The company lost $2.8 million in the half year to September 30, on sales of $5.8 million.

Losses will continue this half year as 42 Below builds its American distribution network, but the company is confident it will increase revenue and cut its loss "substantially".

42 Below chief executive Geoff Ross said the name of the game was simply increasing the volume of vodka and gin sold around the world.

"Costs do run ahead of revenue initially. However, as that curve flattens revenue will overtake costs."

Sales for the latest six months were up 175 per cent on the previous half year.

"Sales show no sign of slowing," said Ross, who attributed a strong performance in Australia to a distribution deal with Carlton United Breweries.

"We're only a couple of months into it but everything is telling us it was the right decision," said Ross.

42 Below had signalled break even towards the end of the financial year in March, but the company said the figures showed October had been a break-even month.

Ross expected the business in Britain to break even in December.

With New Zealand, Australia and Britain all soon to be profitable, focus would shift to the US vodka market.

"It's the biggest prize and therefore requires the bigger investment," said Ross.

42 Below has so far focused on the eastern and western seaboards of the US and Las Vegas - an "adults' Disneyland", said Ross, and 42 Below's biggest single sales region in the US.

"We could send stock to Texas tomorrow, but we've resisted that temptation because we want to get a solid, loyal support base in the cities we're in."

Around 44 million cases of vodka are sold in the US each year. In comparison, 42 Below sold around 45,000 cases of vodka and gin worldwide in the year to September 30.

Ross said tackling the US market would cost money and 42 Below was having some "initial chats" with potential distribution partners.

But he had no plans to go to the market again to raise money. 42 Below raised $13.8 million when it listed on the sharemarket last October and has $6 million in the bank.

"We can grow with what we've got," said Ross.

Expansion is aimed at maintaining the rapid growth 42 Below has so far experienced.

In particular, Ross wants a larger sales team, more inventory, a larger debtors ledger, incentives for distributors and more advertising.

The latter is already a substantial cost for 42 Below, but the company's marketing machine has been particularly effective lately.

The vodka has appeared on "must have" lists compiled by the glitzy magazines GQ and Elle, and 42 Below has featured on BBC Radio, CNN and the Jay Leno show in the US.

"Media breeds media," said Ross. "In the last four to five months it's snowballed.

"When one magazine picks it up it becomes a sought-after property by other magazines."

The family of fruit-flavoured vodkas produced by 42 Below would receive a new addition - kiwifruit.

"It was the first flavour we ever started on, thinking there'd be a natural appetite for it, but to keep the flavour of the kiwifruit has taken such a long time," said Ross.

"We've finally cracked it."