Mighty Craft : Q4 FY22 Business Highlights & Cashflow

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Mighty Craft delivers record sales in Q4 FY22, poised for strong start in FY23

28th July 2022

ASX Announcement

Mighty Craft Limited (ASX:MCL) (Mighty Craft or the Company) is pleased to provide a business update for the quarter ended 30 June 2022 (Q4 FY22) and an Appendix 4C.

Highlights:

Financial Performance

• Record cash receipts of $27.1m1 for the quarter, up +176% on Q1 FY21 ("pcp") and
  +27% on Q3 FY22 ("previous quarter").
• Sales revenue of $23.2m, up +161% on pcp and +20% on previous quarter.
• Operating cash outflow of $(1.0)m versus $(2.9)m in the previous quarter, the improvement reflecting strong wholesale trading through winter which is traditionally the slowest time of the year and disciplined management of accounts receivable.
• Investing cash outflow of $(1.7)m reflecting the completion of the Kangaroo Island Distillery upgrade and installation of the Whisky Still $(0.8)m along with investment in PP&E at Slipstream and digital infrastructure.
• The company notes allwholesale volume targets have been met for FY22

o Beer / Cider litres - 8.0m actual versus 8.0m litre target o Spirits Bottles - 264k actual sales versus 250k target

o Whisky under maturation - 334k litres achieved versus 300k litre target

• Better Beer sales - Better Beer delivered 4.3m litres in sales for FY22 versus the 4m litre ambition. This is a strong result given the brand launched in November FY22 and was capacity constrained over the peak summer period.

• Mighty venues continued weak performance contributed a $0.25m loss at the EBITDA level during the quarter.

• The company will report full year earnings on the 31st of August however notes the following as impacting FY22 profitability:2

o Assets held for sale - As previously reported the company is looking at several non-core asset sales and these will move into held for sale in the FY22 accounts which will result in a non-cashimpairment of ~$3m.

o Cost reduction program / redundancies - In light of the current operating environment the company has executed a cost reduction program in Q4 FY22 that will result in ~$0.7m of redundancies that will impact the FY22 results.

o Share based payment expense - ~$1m non-cashexpense will be incurred in FY22 as part of the long-term incentive / retention program.

o Debt facility with Pure Asset Management - the new funding arrangement will result in a $(1.2)m non-cashimpact to FY22 results.

1. All numbers are unaudited management accounts
2. Final impact to FY22 results to be confirmed after the audit review in August and reported on 31st August

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• The company's cash balance as at 30 June 2022 was $3.74m (31 March 2022: $6.8m)
• The company notes that it increased its debt facility with Pure Asset Management during the quarter. The facility remains undrawn at the end of Q4 FY22.

Strategic

• Better Beer to launch in New Zealand in Q2 FY23 - agreement executed with DB Breweries (a wholly owned subsidiary of Heineken) and Better Beer to distribute [and, in time, manufacture] Better Beer in New Zealand.
• Export acceleration - export distribution deals executed with one of the largest distributers in China along with Europe (based out of Rotterdam) and North American distributors. Initial shipments into China will occur in Q1 FY23.
• Price / Inflation - in response to the inflationary headwinds across the sector the company has executed price increases across the portfolio. The wholesale price increases take effect from 1 August in line with the rest of the beverage industry
• Whisky Development Syndicate ("WDS") successfully raised $3.8m to date - The WDS was launched on 30 March 2022 and it has been received well by syndicate investors. Proceeds from WDS will go towards funding MCL's whisky expansion program.
• Overhead cost reduction plan implemented -aleaner operating model has been put in place for FY23 which has resulted in a number of redundancies that will impact the FY22 accounts $(0.7)m. These cost reductions initiatives will result in ~$2m of people cost savings in FY23.
• Successful entry into No/Low alcohol segment - significant distribution gains were made across grocery supermarkets during the quarter with Better Beer Zero Alcohol, Mismatch Zero Pale Ale and Hills Cider all targeting this growing consumer trend. These products represent over 3,500 distribution points across the country.
• ATO / Excise rebate - the company notes that it has been in discussions with the ATO about its eligibility for the excise rebate across multiple entities. The company has received notice from the ATO that the Foghorn Brewery claim for FY20 and FY21 has been rejected and the Kangaroo Island Spirits claim have been rejected for FY21. The company has 60 days to appeal and will update shareholders further on reporting FY22 results.
• Executing capital management program:

1. Planned divestment of non-core assets comprising the two Mighty venues and

potentially smaller branded assets. This process is ongoing, and the company expects to have some resolution through H1 FY23.

1. Successfully negotiated increased debt facility with Pure Asset Management. o WDS successfully raised $3.8m to date allowing the acceleration of the Whisky
   strategy without impacting MCL's operating cash flow. Given current market conditions the company has extended the closing date of the syndicate until October 2022.

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Simplifying and focussing the business model

As previously reported a key step in the investment cycle for Mighty Craft is portfolio management. This entails portfolio prioritisation and continually assessing divestment opportunities to recycle capital and focus on the core brands. This strategy naturally includes an increased focus on the brands that are majority / wholly owned to drive the best outcome for Mighty Craft shareholders. As part of this investment cycle the business is looking at several divestment opportunities across the portfolio and this includes both non-core brands and venues. This will be an ongoing aspect of the annual planning cycle and consistent with focussing investment and resources towards the brands that will provide the best return for shareholders.

Mighty Craft's Managing Director, Mark Haysman said: "Q4 FY22 was another record sales quarter for the business despite the mixed performance of our venues and sales into the on- premise channels. Wholesale sales strong growth trajectory continued throughout the quarter, buoyed by our high growth brands, Better Beer, Jetty Road, Kangaroo Island Spirits and 78 Degrees. During the quarter we were delighted to secure the upcoming international launch of Better Beer into New Zealand and to also see our no/low alcohol offerings gain significant traction in the grocery supermarket segment. Our move into the low/no alcohol category is just one example of our strategy to quickly capitalise on emerging consumer trends and preferences by adapting, and leveraging off, our premium craft brands.

We have been focused this past quarter on preparing the business for a strong start to FY23, with volume targets exceeded for FY22, whilst also streamlining the business through implementing our cost reduction plan and non-core asset divestment program. All of which will enable the business to deliver ongoing and sustainable profits. We have made significant steps this past quarter towards ensuring we are in good stead from a capital management perspective for FY23. The renegotiation of our Pure debt facility, the funds raised through the Whiskey Development Syndicate and our plans to divest our non-core assets will ensure we have the necessary funds to grow our business, in a more simplified and focused format, and continue to back the brand winners. I look forward to updating you further on our plans for FY23 at our full year results."

Whisky Acceleration Update

The company continued to invest in whisky stocks with litres under maturation increasing to 334k litres during the quarter, representing an increase of 61k litres on Q3 FY22. The Whisky Development Syndicate, which raised $3.8m in Q4FY22 and will fund a significant portion of the Mighty Craft FY23 Whisky ambition.

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	Whisky Bank3	Litres
	CY21	67,897
	CY22	44,210
	CY23	26,472
	CY24 - 26	196,026
	Total in barrel as at Jun 2022	334,606

Venue Performance

Venues performance was mixed through Q4 FY22, which is the lowest trading quarter of the year given the seasonal nature of venues. The overall contribution of venues continues to contract, with venues representing 19% of group sales for the quarter. The venue portfolio continued to be loss making across the quarter driven by poor performance of the two Mighty venues and Jetty Road Lorne. The company is seeking to divest both Mighty venues and will transition the Lorne venue to a more appropriate brand in time for summer trading.

Q4 FY22 Sales		Channel Mix
Retail venues vs wholesale		YTD Q322 vs Q4 FY22
	120.0%
	100.0%						Nationals
19%							Off-premise
80.0%						On premise
	60.0%
	40.0%
81%	20.0%
Retail - venues	0.0%
YTD Q3	Q4 FY22
Wholesale/ D2C
	FY22

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

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Financial Performance

Cash Receipts since IPO

Mighty Craft again delivered record receipts this quarter with $27.1 in cash receipts. This is significant given the seasonality of the alcohol category with Q4 traditionally being the slowest quarter of the year. This result through winter sets the business up for a strong FY23.

Quarterly Cash receipts since IPO4

30,000

Key Growth Drivers

25,000
20,000
15,000
10,000
5,000
-
Q2 20	Q3 20	Q4 20	Q1 21	Q2 21	Q3 21	Q4 21	Q1 22	Q2 22	Q3 22	Q4 22

Wholesale Revenue Growth

Wholesale revenue again grew significantly in Q4 delivering $16.9m in revenue for the quarter, representing another record quarter. This represents +113% growth versus Q4 FY21. Key growth drivers for the quarter were Better Beer, driven by the core lager as well as the launch of Better Beer Ginger Beer and Better Beer Zero Alcohol. Better Beer generated $9.5m in sales for the quarter. Other notable growth performers for the quarter were Jetty Road (+39%), Kangaroo Island Spirits (+54%) and 78 Degrees (+22%). Q4 is traditionally the slowest quarter of the year from a seasonal perspective and the company is pleased with the ongoing growth and how this will set the business up as the weather improves through H1 FY23. The company is pleased with the ongoing growth achieved this past quarter, especially given Q4 is seasonally the slowest quarter, and believes the business is in good stead for H1FY23 as it capitalises on stronger trading conditions as the weather improves.

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

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