Mighty Craft had a mixed FY23, with some promising areas of growth and further changes to its board of directors.
Trevor O’Hoy has resigned from Mighty Craft’s board of directors, having joined the role in April this year. He attributed his resignation to his inability to fulfil the time commitment that he believed is required of the Mighty Craft board at this critical time. Prior to his role at Mighty Craft, O’Hoy was a former managing director and CEO of Carlton and United Breweries, and a board member of Fermentum during its sale to Lion.
In FY23, Mighty Craft’s revenue growth was up 48 per cent compared to the prior corresponding period, with a total revenue of $82.5 million. This was driven primarily by growth in the wholesale channel, which saw an increase of 45 per cent.
Brand performance was mixed, with Better Beer, 78 Degrees, and Seven Seasons leading the growth. Better Beer had a growth of 135 per cent to $45 million, and a total sale volume to 10.4 million litres. 78 Degrees had a growth of 22 per cent, followed by Seven Seasons which grew by 12 per cent, all of which is encouraging considering category declines in both craft beer and gin. Other brands remained stagnant on average.
Jess Lyons, Mighty Craft interim CEO, spoke to the board’s impression of the results.
“The team has delivered strong growth in FY23 in a significant year of change for the business. $82.5 million in sales at +48 per cent organic growth is a significant achievement. Notwithstanding this, earnings performance has not met expectations of the management team and board,” she said.
The impressive growth of Better Beer has led Mighty Craft to shift mix away from spirits. However, spirits are typically a higher market segment, and this has contributed to a decline in gross margins. Better Beer made up approximately 60 per cent of total sales in FY23, a significant increase compared to the 41 per cent of FY22. Inflation is affecting margins across the beer and cider category, and Mighty Craft was unable to fully recover the inflationary impact despite price increases on 1 August 2022 and select increases on 1 February 2023.
Within spirits, gross margins remained relatively stable at 35.2 per cent, buoyed by a 5 per cent price increase on 1 August 2022. Total spirits sales volume was up 19 per cent, at 299,000 bottles. Venue gross margins were 67.3 per cent, a minute increase compared to FY22, as price increases passed the impacts of inflation to the consumers. While venue performance was encouraging in H1 FY23, it did soften during H2 FY23.
In the month following the strategic review announced by the ASX on 11 July 2023, two core priorities have emerged.
The first is to restructure the cost base of the organisation to ensure a medium-term pathway to sustainable earnings. This comes in three phases, with the first phase of removing $4.9 million from head office costs and discretionary spending now completed. The second phase is to identify $4.9 million in further savings across head office and corporate costs, which is expected to be completed in H1 FY24. The final phase is to obtain $1.5 million in further supply chain consolidation savings.
The second priority is to expand the divestment program to materially reduce debt, and allow the completion of the restructuring plan. This targets $25 to $45 million in divestments, repayment of the bridging load and improvement in the trade payables position.
Next steps
Mighty Craft chairman Chris Malcom outlined the future steps for the business.
“Mighty Craft is going through a significant period of restructuring to address a number of issues within the business. As part of the strategic review the board has listened to many key stakeholders and it is clear the business model needs to change. We need to reduce debt and we need to reduce the cost base. In order to do this, we need to divest some larger assets. Once we are through this interim period and divestments are clearer, we will outline a path forward for the business. Rest assured the management team and new board are working incredibly hard to stabilize the business and implement the outcomes of the strategic review.”
The divestment process is ongoing and there has been interest in a number of medium-sized and larger assets in Mighty Craft’s portfolio. Notably, Jetty Road was divested in FY23.
“The board-led strategic review announced to the ASX on the 25 May outlined the key short-term priorities, notably reduce debt via an expanded divestment program and restructure the cost base. The board and management are working hard on the expanded divestment program and look forward to updating shareholders at the earliest convenience. As for the cost base, we’ve already made significant progress, removing nearly $5 million of cost during Q4 FY23, with further reductions slated for H1 FY24. I remain confident we are on the right track to stabilize the earnings profile of the company and provide a clear path forward for all stakeholders,” said Lyons.
As part of the strategic review, Mighty Craft has also announced its funding plan, the first stage of which is a short-term funding runway to assist in the execution of the divestment program. This has been secured with a $5 million bridging debt facility, repayable on 18 February 2024.
Two months into FY24, overall sales results have been steady, with approximately 15 per cent growth over July and August 2023 compared to the same period in 2022. As with FY23, this growth is primarily driven by Better Beer, 78 Degrees and Seven Seasons. Additionally, Mighty Craft has released its FY24 growth ambitions. FY23 growth for beer, cider and RTD was 13.3 million bottles, and the FY24 ambition is 19 million litres, with Better Beer’s goal of 17 million litres making up the broad majority of the target. Spirits grew by 299,000 bottles in FY23, with an FY24 of 400,000 bottles, and maturing whiskey grew by 469,000 litres with a FY24 goal of 535,000 litres.