Vodka maker sniffs profit by 2006

By IRENE CHAPPLE

Spirits producer 42 Below yesterday unveiled a leap in expected sales and said it would be in profit by 2006 - but failed to silence the sceptics.

The company, which makes vodka and gin, is now forecasting an extra 40 per cent - or $2.57 million - in sales, bringing revenue to $9 million for the year to September, 12 months after its float.

It also talked about profitability for the first time. It expects to break even in the March 2005 quarter and end the financial year to March 2006 in the black.

Founder Geoff Ross said the increase in sales was due to a better-than-expected response to the product in the United States market.

"We're rapt," he said.

The forecast increase in sales will tie up the company's cash reserves.

The prospectus projected $10.5 million in the bank by September, but the company now expects to have between $5 million and $6 million left over.

An additional $1.5 million is expected to be spent on market development, and between $3 million and $4 million more than expected on stock.

One fund manager said the company was burning through cash and might need to raise more capital.

But finance director Stephen Sinclair said the money was tied up in working capital, which was still on the balance sheet.

There was no need to raise more cash, he said.

Investors responded yesterday by bouncing the share price up 2c to close at 46c, still shy of its 50c listing price.

But if the company's warrants, offered to subscribers when it listed, are added on, the share price is valued at 51c.

The company, which has had a tumultuous ride since its float, is widely regarded as overvalued, despite its multi-award-winning product and marketing savvy.

Matt Willis, of ABN Amro, said 42 Below "is an absolutely superb company".

"It is a brand story more than anything.

"The product is built around the clean, green image and they've clearly got a good one ...

"As to the financials? Well, how the market values it is a completely different matter. It is well and truly overpriced."

Ross said the sceptics would be proven wrong, "one by one".