Further detailed information is contained in the Information Memorandum (IM)Download IM
From humble beginnings selling small batches at the Matakana Farmers Market in 2009, Zeffer has grown to become a leading craft cider brand and the largest independent, dedicated cider producer in New Zealand.
Today we're producing over 460,000 litres per year (roughly equivalent to around 3,000 bottles a day), with our cider being sold across NZ and exported to China, Taiwan, USA, Australia, Thailand, Singapore, Germany, Hong Kong and Japan.
Unlike many brands that produce cider from concentrate loaded with sugar, we use natural juice from freshly crushed Hawke’s Bay apples, creating an authentic New Zealand cider with a drier, crisper flavour. Outside of our award-winning core red and green apple range, we produce world-leading, “new world” style ciders such as our Hopped and Apple Crumble ciders, using innovative local ingredients like kawakawa and NZ hops.
The cider market is experiencing rapid international growth with the global market picked to grow from US$10.7 billion in 2016, to US$16.3 billion in 2023. Here at home, cider is one of the fastest growing alcohol categories with grocery sales alone now reaching $54m per annum. Much like the trend from mainstream to craft beer over the last five years, consumers are now also seeking a more premium, handcrafted cider. With nationwide distribution and strong brand positioning, we’re set to continue growing with the premiumisation of the cider category.
While we currently export to nine markets around the world, this year we're honing our export focus on one of these markets (the largest by far), China. Cider is taking off in China, so we’re working closely with a leading Chinese distributor and have set up local, dedicated staff to drive sales in this exciting, emerging market. We are also currently recruiting for a Global Sales Manager to oversee our export team and add further focus to our China export efforts. In our first full year operating in China we achieved ex cidery sales of $365,000 and are forecasting this to grow to $630,000 in the coming year.
Here at home, our distributor, Quench Collective, is on track to continue growing sales through their high call frequency and merchandising coverage in all key retail outlets. Last quarter, we achieved ranging in 35% of all supermarkets in New Zealand and increased our sales on the same quarter the previous year by 72%.
Since our successful capital raise of $1.2m in March 2017, we have executed against our strategy and grown sales by 70%, from $1.6m to $2.8m, beating our FY18 forecast by $140,000 (on breakeven EBITDA). We successfully moved production from our previous cidery in Silverdale, north of Auckland, to the source of our apples in sunny Hawke’s Bay, resulting in a state-of-the-art site with the capacity to produce over 2 million litres of cider per annum. We also managed to take out the overall trophy at the International Cider Awards in London. This is considered the ‘Oscars’ of the brewing and cider industry, giving Zeffer the title of the makers of the world’s best cider. We were also awarded an International Growth Fund from New Zealand Trade and Enterprise (NZTE), which resulted in a 3-year investment of just under $500,000, designed to accelerate our growth in China. In the upcoming financial year we are forecasting $4.5m revenue (with EBITDA of $75k).
We have recently completed our 3-year strategic plan and defined our vision, which is ‘to sustainably grow to be a $10 million revenue company with positive EBITDA by 2021, with $8 million of revenue coming from branded sales in no more than four markets’. The timing is right to on-board additional investment to capitalise on four clear opportunities for the business:
We’re now raising up to $1.8m through Snowball Effect, on a pre-money valuation of $8.26m to drive forward with our 3-year strategy.
We love what we do and we love sharing our world-class, unique cider with New Zealanders. This is our opportunity to strengthen the Zeffer team at an exciting point in our growth journey, by on-boarding the Kiwis who love our cider, as shareholders. If you are an existing shareholder, we hope the information and engagement we have provided over the past year has given you confidence in the opportunity in front of us and our ability to execute. Together, we can create New Zealand’s next FMCG success story.
Since our $1.2m capital raise in March 2017, we have had a busy and successful year at Zeffer. In our Information Memorandum prepared for that raise (2017 IM), we outlined a number of targets that the capital was going to be used for. The table below provides an update on our progress against those targets in the 12 months since we completed that raise.
Our use of funds from last year’s raise was broadly in line with the forecasts in the 2017 IM.
Over the last six years, cider has been the fastest growing alcohol category both in New Zealand and much of the world. The early growth in the NZ market was driven by sweet, flavoured ciders (both local and international brands), the majority of which are made from juice concentrate and are loaded with added sugar.
Consumers are becoming increasingly educated on cider and the various styles available. There has been a big shift in demand over the past 3 years toward a more premium, handcrafted style, without the added sugar. Zeffer sits firmly at the centre of this growing category, known as “craft” cider. We’re not only leading this space in NZ, but we’re also playing an active role in shifting the global palate to the more refined, new world craft flavours now available.
Zeffer is New Zealand’s largest independent, dedicated cider producer. We produce world-class, drier ciders in new-age, innovative styles. All of our cider is made from freshly crushed New Zealand fruit from the Hawke’s Bay region, without the use of cane sugar, artificial flavours or colourings.
There are three product ranges that make up Zeffer cider:
We outsource almost all of our fruit supply to key suppliers in the Hawke’s Bay region. The Hawke’s Bay is New Zealand’s largest apple-growing region and we have fruit supply partnerships in place with several of the region’s leading apple growers. A small proportion of our fruit comes from other NZ regions, and this fruit is typically used for our Reserve Range, where we aim for particular flavour profiles using specific cider apple varieties.
Our choice of fruit is integral to the production of “new world” style ciders that are more fruit forward and session-able than the traditional English and French styles.
While we crush the majority of our apples after they are freshly picked, our growers employ state-of-the-art cool storage, meaning that we have a consistent supply for 9 months of the year. In the coming year, we are moving to a vintage model of production, meaning we will crush the bulk of our apples in season to ensure we access our apples at the lowest price and reduce our reliance on more expensive, cool stored fruit later in the season. This model positively impacts our cost of goods sold and the quality of cider we produce.
We use pressing partners located near our new facility in Hawke’s Bay and focus the production team on fermentation, blending and packaging our cider.
We originally crushed apples on site until we hit a scale that our crushing machine could not handle. The location of our new cidery has resulted in substantial freight savings and timely delivery of our freshly crushed juice.
Fermentation is controlled on-site by the Zeffer production team, which is comprised of two cider makers, one cellar hand, one packaging manager, and seasonal staff utilised as needed across heavy production periods. It’s an experienced team with extensive experience in cider and wine making.
Fermentation is temperature controlled to maintain natural fruit flavours and to ensure the speed of fermentation is optimal for producing top quality cider.
We bottle ‘in-house’ which allows for flexible stock management. This ensures controlled and efficiently lower stock levels, whilst guaranteeing no ‘out of stocks’ over key selling periods. It also allows limited lead-time on export orders and customised labelling, and gives us greater flexibility around new product development.
We have invested in a new Italian-made bottling line with a 12-head filler and the capacity to package 2,500 bottles per hour. On a normal day shift, this allows us to package 5,000 litres of cider. There is sufficient capacity through this packaging line for the business to package over 1.5 million litres before any major upgrades are required.
Our cider is packaged through sterile filtration to ensure stability and 2-year+ shelf life. This is in contrast to most beers, which have a shelf life of 6-9 months.
Domestically, we have a 3-year distribution agreement in place with Quench Collective (owned by Sacred Hill Wine Company), which commenced 1 September 2016. Quench Collective is considered one of NZ’s best off-premise distributors, focused on grocery and traditional liquor outlets with a sales team known for delivering results. We’re confident that our partnership presents the best opportunity to capture significant domestic market share. They were an integral part of the success of Panhead Brewery who, in partnership with Quench Collective for just over 2 years, saw significant growth. This growth led to Panhead becoming one of the largest craft breweries in New Zealand, before being purchased by Lion Nathan in 2016.
On-premise, we utilise a number of sub-distributors which sees Zeffer in over 200 bars around NZ. Internationally, Zeffer is currently sold through distributors in:
The relatively young cider category has seen substantial growth since 2010, and is now turning over more than $100m per annum in New Zealand. International cider sales have also surged in recent years and it is anticipated the global market will grow by an additional 730 million litres through to 2021. The UK cider market alone turns over 1 billion pounds per annum.
Allied Market Research project the global market for cider to grow from US$10,667 billion in 2016 to US$16,252 billion in 2023. Global industry analysts state that the increased demand for global cider will be driven by increasing preference for craft and premium cider, innovation in flavours and products targeted at males, and improving budgets for marketing and brand awareness. They also state interest in healthier gluten-free alternatives, proven health benefits of cider, the sweeter taste of cider compared to beer driving consumption patterns among women under 30 years, flavour innovations and the ‘beerification of cider’ increasing consumption from males as some of the key trends that will drive strong total cider category growth over the next 6 years.
“Not unlike the rise of craft beer before it, the recent success of cider producers in tapping into a seemingly ready and growing global market has provided further evidence of rising segmentation within many developed alcoholic beverage markets.” - Rabobank Beverage Analyst, Marc Soccio. July 2015 .
Cider gained profile and market share in New Zealand following the launch of Monteiths and Isaacs cider by DB Breweries and Lion Nathan in 2010. Subsequent growth has been driven by the emergence of sweet flavoured ciders (like Rekorderlig) which introduced a wide range of new consumers to the category.
The cider landscape can be split into three distinct tiers:
RTD (ready to drink style)
Craft - the next wave
DB Breweries currently have ~43% market share (AZTEC, total grocery, quarter to March 2018) in NZ following their acquisition of Redwood Cellars. Their brands include those in the RTD (Rekorderlig and Orchard Thieves) and mainstream (Monteith’s and Old Mout) segments. Other larger multinational breweries focused on the category are Independent Liquor (19% market share with Somersby) and Lion (25% market share with Isaacs, Scrumpy and Speights Cider).
The RTD segment of the category led growth from 2012-2014, while more recently, classic, premium-style ciders are driving growth in NZ. Classic apple ciders grew in value by 5% on the same period last year and account for 53% of the total category. More premium fruit-flavoured ciders also grew very strongly over the period while entry level sweet ciders saw a sharp decline in market share.
This trend shows a snapshot of the maturation of the category, with consumers shifting from introductory level sweet and discounted variants, to more authentic, premium styles of cider.
As cider is a market in its relative infancy, it is anticipated this trend will continue and premiumisation of the category will occur. This follows the trend of the beer category where craft beer has gained significant market share from mainstream beer as smaller challenger brands have become prominent, following consumers’ changing buying habits and desire to seek out more premium craft offerings.
The growth of craft ciders in NZ is illustrated in last quarter’s AZTEC data for total grocery sales (above), which shows strong growth across craft brands (and decline in the RTD segment). Zeffer was one of the fastest growing cider brands across total grocery in the December 17 to March 18 quarter.
A growing number of consumers are making cider their drink of choice due to its refreshing character, range of styles and flavours and, more recently, the prevalence of premium or craft styles attracting discerning consumers away from RTDs, wine and beer. It’s a drink synonymous with summer and warm climates, and appeals in these conditions due to it being lighter in body than beer and lower in alcohol than wine.
We’re lucky in that our customers love to shout about how much they enjoy Zeffer ciders. The Zeffer Apple Crumble Cider is currently one of the top ranked ciders on Untapped, the world’s largest beer and cider ranking website. Every cider in our current range is rated highly on this platform, which is great validation that we're doing the right things with our flavours.
“Best cider I’ve tried! Perfect combination of flavours in one bottle!” - Carlos R
“Just like drinking an apple pie. Amazingly good and not overly spiced, just right. Liquid dessert!" - Gordon F
“Hands down one of the nicest apple ciders I’ve ever had” - Nathan W
“So tastes like a crumble. Texture of mouth and aftertaste is amazing. Love it. Best cider I’ve ever had” - Kevin D
Note: This is just a small selection of our over 50 awards recognising the quality and innovation of our cider.
Our journey began on one of our co-founders’ parents’ farm in 2009, when Sam and Hannah decided to try their wine-making hand at making cider. After extensive research, we knew the style of cider we liked best. The ciders available at the time were almost all made from concentrate and far too sweet for our liking, and we therefore wanted to make real cider from real fruit with patience, craft and quality.
We knew that the final product would taste its best if we started with the best ingredients, so we scoured the country to find specific apple varieties from orchards around New Zealand. After long wintery nights crushing, an exploding fruit press, experimental brews and many hours spent hand bottling, we had our first 3,000 litre batch ready for release in the Spring of 2009. We sold it exclusively through the local Matakana Farmers’ Market and were rewarded with great feedback.
Over the course of the next year, we had a stream of eager and regular buyers, and this resulted in steady growth and allowed us to scale manufacturing and build our own cidery in Fernhill, Hawke’s Bay. Today we’re producing over 460,000 litres per annum, making Zeffer the country’s largest independent, dedicated cider producer.
Governance and strategy. We learned that methodical strategic planning and strong governance is invaluable and it has been crucial to our success to date. Our board is responsible for developing and overseeing the strategic direction of Zeffer.
Our board meets bi-monthly to check progress against our strategic plan, identify and mitigate potential risks to the business, approve capex, and ensure the business is focused and diligent in its goal of continued sustainable growth. In addition, we conduct annual strategy sessions where we renew our rolling 3-year strategic plan and finalise our more detailed 1-year strategic plan for the financial year ahead.
Distribution is king. It doesn’t matter how good your product is if you’re not able to get it in the best stores and bars. We have worked with 3 different distribution partners over the years and all of them have contributed to our success. However, since signing with Quench Collective in late 2016, we have observed a significant boost in our off-premise coverage.
Focused core range. We have learned to focus our efforts on a limited number of products rather than spread our distribution focus too thinly. It’s better for the brand for there to be a consistent offering in 50% of stores rather than a sporadic offering of 1 or 2 different products across all stores. A variable offering across the stores results in variable sales, which impacts repeat orders. We work closely with sales reps to ensure they understand which products need to be prioritised when working with the buyer.
Targeted, effective marketing. We have significantly increased our marketing return on investment and have improved our brand presence by analysing which events and types of campaigns most effectively reach our target audience. We now only focus on key, high profile events and run 1 or 2 campaigns in early summer which provides momentum into the peak summer period. We’ve also prioritised social media and have adjusted our content and approach and engaged a specialist digital agency to execute our strategy.
Concentrated export approach. We have refined and continue to develop our export strategy by employing our years of experience and knowledge of the domestic market. It’s all about choosing the right distribution partners, ensuring effective price modelling, targeted product offerings and providing high levels of marketing and sales support. This process has led to us focusing the majority of our time on one key export market (discussed below). We were fortunate to have an MBA team conduct their project on Zeffer’s path to market in China, which taught us a lot and assisted our strategy development.
An additional benefit of continuing to grow our exports is that sales in Asia and the northern hemisphere help to balance out the seasonal nature of domestic cider sales (with a high season being New Zealand summer).
In January 2018, our senior management team and board of directors completed our rolling 3-year and 1-year strategies. The following are the highlights of our 3-year strategy which directs the Zeffer team’s focus and creates a set of actions for each senior manager to deliver on.
Our purpose: To craft world-class, imaginative apple cider that opens people’s minds to how great cider can be.
Our vision: To sustainably grow to be a $10 million revenue company with positive EBITDA by FY21, with $8 million of revenue coming from branded sales in no more than four markets.
Our 12 key objectives to achieve this:
The name Zeffer is a play on the word Zephyr, a sailing term meaning a light breeze. This reflects our coastal Matakana roots. For trademark purposes and to make it unique, the spelling was altered. Zeffer is now trademarked in New Zealand, China, United Kingdom and Australia with additional trademarks to be added soon.
In late 2015, a full rebrand of the Zeffer range was completed, to ensure the key pillars of the Zeffer brand were effectively communicated via its packaging. The rebrand allowed a consistent message to flow through each of the Zeffer ciders, while also showing clear product differentiation within the range:
Craft: Close alignment with the craft beer movement in terms of differentiation from mainstream offerings through enhanced flavour profile and handcrafted brand positioning. The text ‘Premium craft’ is prominent at the top of each Zeffer label.
Freshly Crushed: Most cider in the New Zealand market is made from an apple concentrate as opposed to freshly crushed fruit. All Zeffer cider is made from selected crushed apple varieties. A ‘freshly crushed’ badge on the core range conveys this and ‘Fresh crushed’ sits atop the label for the innovation and reserve ranges.
New Zealand: Proudly a New Zealand brand made from New Zealand fruit, ‘New Zealand’ is in prominent text at the base of each tier’s label.
Premium: Zeffer commands a premium positioning in the cider market, ‘Premium’ is used on the front of each label in the three tiers.
In 2017, we completed a full audit of the Zeffer brand to ensure our messaging and targeting was aligned with our target market. This helped define our brand purpose, tone of voice, attributes, values, and ultimately the essence of the Zeffer brand, which guides all of our brand communications. In short, Zeffer is all about real people, in a real place, making cider sustainably and creating real moments for people to connect, all the while staying true to our company values.
The brand pillars and key selling points are reinforced in all brand communications, including point of sale, in-store tastings, social media, events, and targeted above the line campaigns.
Our primary marketing goal is to increase our exposure to customers shifting from the mainstream with the premiumisation of the cider category, along with customer education on the strengths of the craft cider segment to attract new cider consumers from beer, wine and spirits. We do this by marketing through channels we have learnt are cost-effective instead of inflating our marketing budget to blast as many channels as we can.
Zeffer participates in a number of targeted events to raise awareness and allow new customers to trial our ciders. We focus on high-level events, as opposed to crowded trade and industry events. To date we have been the cider supplier to WOMAD, New Zealand Fashion Week, Coldplay Concert, Laneway Festival, MoreFM Summer Vineyard Tour, Blackbarn winery concerts and Takapuna Sun and Sound, among others. Events like these have been successful in promoting our range to our target customers, and we’re looking to increase our presence at similar targeted events.
Social media is an important channel for Zeffer and we have put a huge amount of focus into this over the past year. We are executing a renewed social media strategy by working closely with a specialist digital agency to ensure our messages are targeting the right people, at the right place and at the right time. We are also looking to engage a range of Zeffer ambassadors/influencers over the coming year and increase our trade marketing to support our distribution growth in the grocery channel.
Over the next two years we aim to sustainably develop the business to scalable level, where export revenue grows from 23% to 36% of total sales on turnover of $7.5m. We’re already executing towards this goal, and instead of attempting to simultaneously grow a number of markets, we’re focusing on one core export market, China. Over the past 12 months we have worked to establish pricing, format and channel strategies through market research and industry support networks. We have launched very successfully and have proven the significant opportunity for Zeffer in China with over 200 outlets pouring Zeffer in many of China’s leading bars and restaurants.
Zeffer is already the leading craft cider brand in China and we are capturing accounts at a rapid rate. We have placed local sales representatives on the ground in Beijing and Shanghai, each with their own set of strict KPIs. In the coming year we plan to launch an ecommerce store on JD.com or Tmall.com and increase our focus in market by appointing a Global Sales Manager whose core role will be to drive our sales representatives and marketing strategy in China.
Last year we were successful in our application for an International Growth Fund from New Zealand Trade and Enterprise (NZTE). NZTE are a close industry partner and their strategic support along with our International Growth Fund are contributors to our early success in the market. The International Growth Fund provides Zeffer just under $500,000 over 3 years through a joint investment scheme in the Chinese market to help us realise our Chinese export opportunity and grow our sales revenue more quickly.
Cider is still a relatively new concept in China, although over the last 2 years larger international brands like Magners and Strongbow have made their debut with strong reported initial sales. Overall, the import of cider into China increased from 93,268 litres in 2009 to 524,950 litres in 2015 (Technavio Global Cider Market Report, 2016).
Much like the Chinese beer industry, where mainstream brand sales have declined in recent years as the market begins to demand more premium/craft beers, we believe the same trend towards premiumisation will emerge for cider (as has been the case for almost all developed markets).
The Free Trade Agreement, climate, craft beverage boom and burgeoning middle class present highly appealing opportunities for Zeffer to capitalise on. We are New Zealand’s trailblazers with our cider export focus into Asia. The path is unchartered by New Zealand cider producers, largely due to the domestic focus of the New Zealand multinational cider brands (Lion, Independent). Heineken/DB have had the most offshore success to date, with Monteiths cider in Australia and Old Mout in the United Kingdom.
While our core export focus is on China, we capitalize on other market opportunities as they arise and where there is ‘low hanging fruit’ in terms of sales.
We have a distribution agreement with one of the leading craft beverage distributors in Thailand. There is real potential in the Thai market, and to capture the current opportunities, we now have a Bangkok based sales rep on the ground. Zeffer was the first cider on tap on the Island of Koh Samui, and we have produced a custom bottled cider for one of Thailand’s most exclusive resorts.
We’ll continue to sell in and explore other international markets as opportunities arise. For example, Singapore is another important market where we have a highly motivated distribution team. We recently installed Zeffer taps on the rooftop bar of the world-famous Marina Bay Sands resort. However, while we envisage growth in the years to come, we see Singapore reaching saturation before China.
We have also recently entered the Taiwanese market and are currently performing market testing and developing a launch strategy. We are also conducting a feasibility study this year on our future market entry into the USA to build on our current distribution in market. In Australia, Coles recently ranged Zeffer into 67 of their First-Choice liquor stores across the states of New South Wales, Victoria and Queensland.
NZ still has a lot of distribution upside and will remain a focus for Zeffer, while also becoming a test market for our new products before they are pushed into export. Our three-year goal is to grow Zeffer to 6% of the total NZ market share in grocery cider sales (from approximately 1.5% - 2% currently). Based on the current grocery cider sales of $54m, this would see our domestic grocery sales account for $3.24m of our $10m total revenue forecast in FY21.
Our off-premise nationwide distributor is on track to continue to grow sales through their high call frequency and merchandising coverage in all key retail outlets. At the same time, we’re focused on building trusted relationships with NZ’s leading craft bar operators to ensure long-term commitments to pour Zeffer. We’re facilitating ease of access to Zeffer bottles and kegs for on-premise operators by using second tier distributors in all NZ regions and mobilising our own on-premise sales representatives to support sell in.
In July last year, we moved the cidery from our previous site just outside Auckland to our new home in Hawke’s Bay. The primary reason for this move is because the site is just down the road from our apples and pressing partners. This has an immediate and substantial impact on freight savings and we are also utilising Port of Napier for our export orders. The other reason for our move was to allow our production volumes to scale up. The site we have secured has significant capacity and will allow Zeffer to scale up to over 2 million litres in the coming years with minimal additional capex.
There was a bottling room fit out that needed completing at the new site, but the majority of the infrastructure was already in place and Zeffer purchased all of the tanks and production equipment as part of the move. To scale the site up to produce over 2 million litres, there is some additional capex required in the form of packaging tanks, carbonation systems, and a few other minor capital equipment purchases.
An additional benefit of our new premise is the potential of a cellar door offering to showcase Zeffer. Prior to Zeffer taking over Crossroads Winery, Crossroads operated a very successful cellar door which drove high margin revenue. Since we took over the site we have opted not to run a cellar door until we can renovate the space and ensure it is aligned with our brand messaging, creating a memorable Zeffer experience for visitors. Although situated around 20km from Napier and Havelock North, we are on a busy road near some of the region’s top attractions including Trinity Hill, Te Awa winery and restaurant, The Village Press, and the beginning of the Gimblett Gravels wine region.
After engaging an external analysis of the opportunity for the Cellar Door space, the plan is to establish an off-premise offering with cider tastings available on site. This is to reduce the time and dollar commitment required through building an on-premise offering, where a full commercial kitchen and higher staff numbers are required. The Cellar Door is planned to open in time for Labour Weekend 2018. The offering may be extended in future years to include a bar and kitchen, pending the success in year 1. This is an exciting opportunity as it gives the Zeffer brand a tangible home and allows us to showcase our site to consumers, trade partners and key networks who will enjoy an authentic Zeffer experience at the real home of Zeffer.
The increase in production capacity at our new site allows us to develop contract manufacturing as an additional arm of the business. The benefits of this include greater buying power of packaging materials; a reduction of fixed overheads as a percentage of our cost of goods produced; and the ability to sweat our assets to generate cash flow and provide a greater return on our fixed assets. It also allows us to have the site operating at near capacity in our quieter production times during the year, allowing full retention of skilled production staff.
We are currently in discussions with a number of potential partners in the alcohol and non-alcohol beverage space who have shown interest in Zeffer manufacturing their products. This additional revenue stream has become a focus alongside our own cider making, although it comes with an assurance that contract manufacturing will never take priority over the Zeffer branded products, nor jeopardize our ability to maintain the highest production standards and quality.
The short-term goal for Zeffer is to sustainably drive revenue growth. However, we believe that the most likely mid-term exit opportunity for shareholders will be through a trade sale as we continue to cement our position as NZ’s and China’s leading craft cider.
The cider category has been an active space for acquisitions over the last few years. Heineken in particular has been aggressive on the acquisition front, buying international brands such as Bulmers and Strongbow. Closer to home they acquired Redwood Cellars (Old Mout) via DB Breweries.
Wineries are also closely looking at cider companies. Cideries are seen as complimentary businesses to wineries due to shared equipment and fruit being grown in the same regions. There are a number of wineries who have also produced cider, including Jacobs Creek, Kono and Giesen.
Most major players have made investments in both cider and beer. Now they are investing in craft beer to offset declining main stream beer volumes and investments in craft cider will follow.
“Cider is the second strategic pillar of the company, with a plan to shape the cider category in the long term. It will take time and it’s not a short-term play, but we do see it really growing for the future and accounting for a much bigger slice of the overall pie in Heineken.” - Sharon Walsh, Heineken Director of Global Cider, November 2016.
At this stage the company has no plans to pay a dividend, instead preferring to reinvest profits into ongoing growth of the business. The board will review this position and various dividend policy options on a regular basis.
Key staff hold equity in Zeffer. The senior management are committed and motivated to driving Zeffer long term to achieve the sales targets projected. That being said, no member of the team is irreplaceable, and there is a wide pool of talent in the NZ wine and beer industries we can draw from ongoing.
NZ has one of the most competitive alcoholic beverage industries in the world. We’ll work to ensure we maintain our premium product position through marketing and superior product offerings. We also aim to keep innovating to stay ahead of the competition, developing sought-after cider styles. Lastly, we’re focused on only working and maintaining long-lasting and trusted relationships with the best distributors.
We are conscious of the risks involved in scaling a FMCG business, particularly when we are looking to expand both domestic and international markets. The short production time, simpler fermentation equipment and significantly longer shelf life means cider has less scaling risks and capex requirements than beer. The equipment at our new cidery allows us to scale the business beyond forecasted volume growth over the next five years. Further, we don’t grow our own fruit and it’s easy for us to store large volumes of juice, meaning there are few scaling risks on the supply side.
There is a risk that craft cider falls out of favour in our target markets, despite the cider category being fairly well established throughout the world. Focusing on 3 core growing markets while continuing to keep strong relationships in other markets helps to mitigate this risk, and the board will regularly review sales volumes with management so it can act quickly in implementing changes in strategy.
As with any export company, there is a risk that offshore distribution agreements will break down. However, we have built trusted relationships with our key export partners and are in regular communication. There is also a risk that premium cider doesn’t develop as we anticipated in our foreign focus markets. We have thoroughly tested the opportunity in these and have been presented a strong case by our distribution partners as to why we should invest time and resource into their market. As with any export market, regulatory and import rules can present a barrier to entry. We work closely with the Ministry of Primary Industries and New Zealand Trade and Enterprise to stay up to date with any regulatory changes and work with our import partners to ensure smooth importation.
Recall of product due to contamination is an ongoing risk with any food business. We have a strict food safety program in place in order to meet export standards, and to date we’ve never had issues with non-compliance with this program. We’re implementing new equipment components at our new cidery that will further bolster safety.
Our primary ingredient is apples. Currently, there is an abundance of fruit supply in the Hawke’s Bay region, however a poor season or an industry-wide adverse event is a risk. To mitigate this, we’re forming long term supply contracts with our key growers to ensure access to sufficient juicing fruit. Outside of this, apples can be sourced from overseas, however this would be a worst-case scenario and our preference will always be locally grown fruit.
We will need to ensure that we continue to have appropriate governance controls in place. We’ve worked hard on improving the structure of the Zeffer board over the last year, and we’ll aim to keep at least one reputable, independent and/or non-executive director on the board going forward. We also have a history of lean operations, and we’ll continue to implement our low-cost model as much as possible.
The following statement of performance and projections reflect a robust and profitable business model through solid gross margins, a simple product range and accelerating domestic and export growth.
All financial forecasts and projections included below are based on the company’s best assessment for future potential financial performance. The assumptions on which the forecasts and projections are made may prove to be incorrect, and actual results may differ significantly.
Our domestic growth will be based on continuing to build our brand awareness and maintaining our strong rate of sale, while increasing the range of product in each store that stocks Zeffer cider and increasing the number of stores stocking our product across New Zealand. Specifically, we will focus on increasing store ranging through our key grocery channel. We assume an increase in store ranging from the current (nationwide) 35% to 60% over the next 3 years. Our ranging percentage is provided by AZTEC and is measured by the number of total grocery stores selling Zeffer, divided by the total number of grocery stores in New Zealand. Our New Zealand distribution is a long way from being saturated, and given the strong gains since signing on with our distributor Quench Collective in September 2016, we believe we are yet to fully realise the domestic opportunity.
We plan to continue increasing ranging through our traditional liquor partners (e.g. Liquorland, Liquor King, Glengarry, etc.) which will be driven in large part by Quench Collective. We also assume further growth in our domestic draught volumes. This will be driven by working with our distribution network to put Zeffer focused on-premise sales reps in all major cities.
Export growth assumptions include China performing strongly. We plan to recruit an export sales manager in FY19 to drive our growth opportunities in China and work with our existing sales team. We believe our forecasted growth in China is achievable, having signed one of the leading craft beer importers in this market. Initial consumer feedback from this emerging market has been very positive, and our distributors believe they can position Zeffer as the cider of choice in the draft market while being well represented in the off trade.
While maintaining a strong focus on this key market, we will continue supporting our tier 2 markets of Thailand, Taiwan, Singapore, Hong Kong, Japan and Australia.
We also plan on bringing one additional tier 1 market onboard. A feasibility study will be conducted in FY19 to test the merits of a more focused push into the rapidly growing US cider market.
The USA is the second largest cider market in the world. We currently send some stock to the USA, however it has not been a major area of focus to date. We see significant opportunities within the USA cider market, however it is a complex market with a three-tier distribution system along with differing rules across different states. We will therefore look to thoroughly research the best distribution model and which specific states to focus on before putting resource into this market.
Gross margin – Our gross margin remains consistent through growth due to savings gained from pressing a greater portion of our fruit in season (made possible through capacity of new site), which will offset the product mix shift towards larger packs and grocery.
Overheads – The overhead structure is such that no significant increase in fixed overheads is required to reach our forecast targets. The majority of the increase falls within the marketing budget (to further build on the strength of the brand alongside distribution gains), export investment (travel and market support) and increase in production staff, as required (we are assuming 4 additional FTE by 2020). Overheads are forecast to reduce from 42% of net revenue in FY18 to 29% of net revenue in FY20 due to the scaling of our production model.
The forecast set out in this section, and the assumptions upon which they are based, reflect a position that the Board believe to be reasonably achievable. These do not reflect stretched goals, but they are also not highly conservative. It follows the Board’s best estimate of future performance and is based on current market opportunities (both domestic and international) and in line with our 3-year strategic plan. The strategic plan is based on the sales growth strategy outlined earlier in this IM of broader distribution across the NZ market through our key distribution partner, Quench Collective, along with focusing resource into the current opportunities within our targeted Asian markets. Gross margins are forecast to remain strong through this growth, given logistical cost savings gained through the relocation to Hawke’s Bay.
The forecasts assume raising the maximum of $1.8m in this round. In the event of raising less than $1.8m, savings will be made through stretching working capital further, delaying any cidery upgrades, and phasing brand investment further. Every effort will be made to ensure these savings do not impact the forecasts as presented.
There will be an upside to these forecasts if another export market (outside of our core focus) presents itself as a significant opportunity and if we secure greater contact manufacturing revenue than anticipated.
We have a history of achieving our budgets and have good control over costs to ensure there is no overspending vs our plan. We also have robust tracking/reporting of results vs budget, which the board reviews bimonthly with any variances acted upon.
It is our aim to over-deliver on our forecast performance. We want to be able to communicate our success in these areas with shareholders in the near future.
As outlined above, Zeffer raised $1.2m of growth capital in March 2017. Prior to that raise, the business was largely funded by the founding shareholders who had invested approximately $1m into the business to cover funding requirements (in the period up to March 2017). This includes a $300k capital raise in August 2015 from existing shareholders which related to the purchase of our bottling line in August 2015. That raise was completed at a pre-money valuation of $3.6 million.
We are raising up to a maximum of $1.8m. Funding will be used towards:
Capital raising fees
The pre-money valuation agreed by the Zeffer Board is $8.260m (share price of $1.40). The company offers up to 17.9% equity if $1.8m is raised at a valuation multiple of 2.95 x revenue. As at March 31 2018, Zeffer had total debt of ~$460k.
The valuation has been determined having regard for:
As Zeffer’s employees, professional network, family and friends are likely to invest in this Snowball Effect capital raise, the Board have the success not only of this offer but also of the financial success of all shareholders firmly front of mind.
Valuation of the company before funds are invested
The maximum amount the company is looking to raise
Percentage of the company offered at the maximum target
The cost of each share
The minimum investment amount for this offer
See the Subscription Agreement for details
The company may have rights to shorten or extend this period
The company may have rights to shorten or extend this end date
We are offering Investment Class Shares, as non-voting shares, to prevent the company from becoming a “Code Company” for the purposes of the Takeovers Code. In broad terms, a company becomes a Code Company when it has 50 or more (voting) shareholders and share parcels, and shareholders of Code Companies can be restricted in how and when they are able to transfer their shares. Due to the Zeffer’s size, our advisors and the board do not believe it is in the best interests of the company, its existing shareholders, or investors for Zeffer to become a Code Company and bear increased compliance costs.
Investment Class Shares give the holders:
The Investment Class Shares do not give the holder the right to vote in relation to any resolution of Zeffer, other than to vote on a proposal or resolution that affects the rights attaching to the Investment Class Shares.
All Investment Class Shares automatically convert to Ordinary Shares upon certain events such as an initial public offering (share-market listing) or any other liquidity event set out in the subscription and shareholders’ agreement. In such an event, each Investment Class Share will convert one for one into an Ordinary Share, which shall rank equally with all other existing Ordinary Shares. This conversion is designed to give holders of Investment Class Shares the same economic benefits as holders of Ordinary Shares upon a liquidity event.
The constitution and subscription and shareholders’ agreement set out other terms that will apply to any shareholding in Zeffer. You should read these documents before subscribing for any shares under this offer.
This offer will be made through Snowball Effect (which is a licensed intermediary) in the course of supplying crowdfunding services to Zeffer (in each case, within the meaning of clause 6 of Schedule 1 of the Financial Markets Conduct Act 2013).
Executives are remunerated by Zeffer through fair and reasonable salaries using related industry comparisons. The key executives’ remuneration is based on performance KPIs being met from the previous year and is decided by the Chairman.
The Company Chairman is remunerated in line with industry standards. Executive directors are not remunerated for being on the board. The board reserve the right to appoint other directors from time to time and, if deemed in the best interest of Zeffer, these directors or existing directors may be paid fair and reasonable fees.
The land on which the cidery is situated is owned by a group that includes Zeffer shareholders (Ronald Whitmore, Sam Whitmore, Hannah Bower and Elizabeth Bower). Ronald, Sam and Hannah are significant shareholders in Zeffer and Sam and Hannah work in the business. The lease with these related parties was negotiated on an arms-length basis by senior members of the management team who are not related parties. The lease for the land is set at a market rate and is reviewed periodically.
Zeffer Cider has four directors:
Biographies for the directors can be found in the Overview section.
The Board has no plans to raise capital in the next 2 years, but may elect to raise capital in the future to accelerate our growth plans or for potential acquisitions to drive shareholder value.
We currently use Snowball Effect’s Registry Services to manage our share registry.
We intend to keep our investors updated through:
Snowball Effect charges an initial fee of $5,000 and a fee if a company successfully reaches its funding target. This latter fee is the larger of $25,000 or 7.5% of the funds raised. Snowball Effect may amend this fee in discussions with a company before an offer is listed on Snowball Effect.
This information memorandum has been prepared by Zeffer Brewing Limited. The information contained in this information memorandum is confidential. This information memorandum has been compiled from information believed to be reliable as at the date of this document. The purpose of this document is solely for information purposes to assist recipients in making their own evaluation of whether they wish to invest in Zeffer Brewing Limited through its offer on Snowball Effect. Zeffer Brewing Limited’s offer is only capable of acceptance on Snowball Effect’s website. Snowball Effect is licensed and regulated by the Financial Markets Authority.
The distribution of this offer outside of New Zealand may be restricted by law. This is not intended to, and does not, constitute an offer of securities in any place which, or to any person to whom, the making of such offer would not be lawful under the laws of any jurisdiction outside New Zealand. This includes, but is not in any way limited to, Australia and the United States. It is the responsibility of any Snowball Investor to ensure compliance with all laws of any country outside New Zealand relevant to their subscription, and any such Snowball Investor should consult their professional advisers as to whether any governmental or other consents are required, or other formalities need to be observed to enable them to apply for securities pursuant to each offer. The failure to comply with any applicable restrictions may constitute a violation of securities law in those jurisdictions. The securities in each offer have not been and will not be registered under the US Securities Act or the securities laws of any state of the United States.
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It's crucial for you to understand the characteristics and risks of this investment opportunity. New Zealand law normally requires people who offer financial products to provide in-depth information to investors before they invest. The usual rules do not apply to offers by companies through Snowball Effect. As a result, you may not be given all the information you need to make an informed decision. Investing is risky. Some of the key risks include loss of capital, illiquidity, lack of returns, dilution, loss of key people and customers, and lack of control. You should only invest money that you can afford to lose.