Mighty Craft : Q2 FY22 Business Highlights & Cashflow

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Mighty Craft delivers record sales in Q2 FY22 and a significant strengthening

in operating cashflow

28 January 2022

ASX Announcement

Mighty Craft Limited (ASX:MCL) (Mighty Craft or the Company) is pleased to provide a business update for the quarter ended 31 December 2021 (Q2 FY22) and an Appendix 4C.

Highlights:

Financial Performance

• Record cash receipts of $17.71 million for the quarter, up +179% on Q2 FY21 ("pcp") despite ongoing interruptions to venues and on premise due to COVID.
• Operating cash outflow of $(1.58) million, a significant improvement versus Q1 FY22 which was $(5.5) million reflecting the impact of increased scale on the Mighty Craft business and the near-termpotential for positive operating cashflow.
• The company delivered positive EBITDA in Q2 (unaudited) representing the maiden quarterly profit since the company was incorporated. The profit result was driven by the additional scale through the business in Q2 with receipts of $17.7m significantly higher than the previous largest quarter ($11.4m in Q1 FY22) The company will provide further details on the release of audited H1 results in late February.
• Wholesale spirits/RTD sales revenue of $4.2 million, representing +54.9% growth versus pcp on a like for like ("lfl")2 basis
• Beer / Cider sales of $8.4 million representing growth of +21.9% versus pcp on a lfl basis.
• Better Beer Sales of $1.8 million following the launch in November 2021. The success of the launch resulted in stock shortages across November and December which impacted sales.
  o The company believes the initial estimate of 3 million litres in FY22 will now be more than 4 million litres and will provide further commentary with H1 FY22 results.
• The company's cash balance as of 31 December 2021 was $10.7 million (30 September 2021: $4.85 million)

Strategic

• Whisky acceleration program is continuing with whisky stock under maturation of 218,743 litres, an increase of 16,147 litres from 30 September 2021. The company notes that production was focussed on white spirits in Q2 FY22 to meet peak demand.
• Integration of the of Adelaide Hills Group ("AHG") is largely complete with all four businesses now part of the overall Mighty Craft portfolio and delivering positive profit

1. All numbers included are unaudited management accounts.
2. Like for Like ("lfl") wholesale growth includes historical sales for the AHG group of companies to give investors a consistent view versus prior year excluding the impact of acquisitions.

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and free cash flow across H1 FY22. Achievement of synergies is on track and in line with the business case.

• Conservative capital management: Closing cash of $10.7m reflecting the execution of several capital management initiatives in the quarter as previously reported.

COVID Impact

• COVID interruptions continue to impact sales across direct venues and sales into the on-premise channel. Hospitality venues are experiencing both a drop in patrons coming to the venues along with staff shortages due to the spread of Omicron.
• Trading conditions are expected to remain unpredictable across H2 as Omicron continues to spread across the country. While the company views the impact as short term in nature it is impossible to predict the extent or duration of the interruptions.
• The company continues to prioritise the wellbeing and safety of staff and customers and will continue to ensure that it is well placed to accelerate further once trading conditions return to normal.

Financial Performance

Cash Receipts since IPO

Mighty Craft's cash receipts accelerated significantly in Q2 FY22 with the integration and acceleration of AHG and the hugely successful Better Beer launch in November 2021.

Quarterly Cash receipts since IPO3

20,000	Key Growth Drivers
18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

-

Q2 20

Q3 20

Q4 20

Q1 21

Q2 21

Q3 21

Q4 21

Q1 22

Q2 22

3 As reported to the ASX in Appendix 4C submissions since listing on the ASX in December 2019

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Wholesale Revenue Growth

Wholesale revenue grew significantly in Q2 delivering $12.6m in the quarter. For clarity two views have been included below - one excluding the acquisition of the AHG group of companies and one including the impact of the AHG acquisition. Separating the two views illustrates the impact of the acquisition and the significant scale that it brings into the Mighty Craft business.

Overall, the key contributors to the growth in wholesale were the acceleration of the three AHG companies following integration into the Mighty Craft sales and distribution business and the hugely successful launch of Better Beer. As released to the ASX in December 2021, Endeavour Drinks Group ("EDG") which is Australia's leading retail drinks and hospitality business, have described the launch as the biggest beer launch of 2021. The launch was significantly constrained with most stock selling out shortly after arriving in store. Given the stock constraints it's difficult to estimate the true baseline, however the company believes the 3m litre estimate released to the ASX in December 2021 is conservative and sales should surpass 4 million litres. The company will provide further update with the release of H1 results.

The beer category is huge, the company estimates the category at greater than 1.6 billion litres and believes a brand like Better Beer has the potential to be a significant national beer brand. This is illustrated by the results in the recent GABS - Hottest 100 Craft Beers poll with Better Beer ranked the #6 favourite beer in the county which is significant given the brand only launched in November 2021.

	Wholesale revenue excluding AHG		Wholesale revenue including AHG
	8,000		14,000
	7,000		12,000
	6,000		10,000
$A000s	5,000	$A000s	8,000
4,000
	3,000		6,000
	2,000		4,000
	1,000		2,000

-						-
Q221	Q321	Q421	Q122	Q2 22
Q221	Q321	Q421	Q122	Q2 22

Cash Flow Update

Operating

Cash used in operating activities of $(1.58) million was inclusive of cash receipts of $17.7 million which is a significant improvement on previous quarter ($5.5 million operating cash outflow) The key drives of the improvement are:

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• Scale in wholesale - the Mighty Craft sales and distribution business is designed for scale and Q2 FY22 is the first quarter where the impact of scale was clearly evident. The company sold $12.6m of wholesale products in the quarter including $5.5m in the month of December 2021. Mighty Craft generates service commissions in the sales and distribution business which are required to cover the fixed costs. (i.e. the national sales team)
• Profit Improvement initiatives- the company is driving several profit improvement initiatives across the business that are starting to deliver incremental bottom-line profit. Specifically, the improvement in Logistics and Warehousing costs has been significant across H1 as Mighty Craft embeds a more efficient and effective network of third party logistics companies ("3PLs") across the country.
• Whisky stocks - see commentary below under "Whisky Acceleration Update"

Investing and Financing

There were several impacts on the cashflow in Q1 from an investing and financing perspective:

• Financing - the key impact in the quarter was the settlement of the sale and leaseback on the Jetty Road Dromana freehold for $3.5m as announced to the ASX on 18th October 2021.
• Investing - the company completed a capital raise in November 2021 raising $5.8m as part of a placement to sophisticated and institutional investors.

Whisky Acceleration Update

• The company continued to invest in whisky stocks with litres under maturation increasing to 218,743 litres, representing an increase of 16,147 litres on the previous quarter. The table below provides an updated volume of MCL's whisky stock under maturation. The company is targeting 300,000 litres under maturation by 30 June FY22. The company notes that distillery production was focussed on white spirits through Q2 in order to meet peak demand and the focus will shift to Whisky production across Q3 and Q4.

	Whisky Bank4	Litres
	CY21	78,487
	CY22	45,123
	CY23	26,472
	CY24 - 26	68,662
	Total in barrel as at Dec 2021	218,743

4 CY represents expected calendar year maturity date - note this may change over time

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Commenting on the quarterly update, Mighty Craft's Managing Director, Mark Haysman said: "Q2 was a strong quarter from a sales perspective and more importantly from a profitability and operating cashflow perspective. This was the first quarter where we have seen the impact of scale on the Mighty Craft P&L and the bottom-line.We will provide further insight when we report our H1 results however this demonstrates the near-termpotential for positive cashflow and sustainable profit which has been consistent in our messaging. The business is built for scale and Q2 FY22 was the first time we have been able to demonstrate the impact to the bottom line. Given the runaway success of Better Beer, the company expects the sales trend to continue to improve. While COVID continues to present challenges across the business, we are confident in delivering a strong H2".

Looking ahead - key focus areas and initiatives:

• Better Beer acceleration - the sales to date on Better Beer since launch is $1.8m. This number was volume constrained with ongoing stock outs across November and December. The company previously estimated 3 million litres in FY22 and based on the latest trends through January now estimates this will be in excess of 4 million litres.
• Spirits acceleration - The company is relaunching the Kangaroo Island Spirits brand in February 2022 at the Kangaroo Island Racing carnival with expanded ranging to follow from March.
• Progress whisky acceleration program with the launch of Hidden Lake, MCL's high-end Tasmanian whisky label, and increasing whisky production capacity significantly with the completion of the Kangaroo Island distillery upgrade.
• Ongoing focus on profit improvement through cost reduction, managing portfolio and channel mix and driving scale through the Mighty Craft sales and distribution business.
• COVID Impact - the company expects ongoing interruptions to the on-premise channel and direct venues due to COVID. While it is impossible to predict the impact - the company views the impact as short term.

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Mark Haysman		Georgie Morell
	Investor Relations
Managing Director
	[e-mail]
[e-mail]
		[phone]

This announcement has been authorised and approved for release by the Board of Directors of

Mighty Craft Limited