Mighty Craft looks to asset sell off in ‘urgent’ turnaround plan
Craft brewer and distiller Mighty Craft will strip out costs, sell off assets, and maybe even de-list from the ASX as an “urgent” plan to save the business is thrashed out.
Mighty Craft shares hit a historic low on Tuesday as the company revealed an urgent plan to save the business including an asset fire sale, cost cuts and a possible de-listing from the Australian Securities Exchange.
The company has had a board and management clean out in recent weeks, with former managing director Mark Haysman resigning last month following its new board announcing a strategic review.
That ongoing review, the first elements of which were released to the market on Tuesday, says the company’s business model, in the words of new chair Chris Malcolm, “requires urgent change’’.
The company, originally known as Founders First, aimed to aggregate craft beer, cider and spirits companies in a listed entity with a view to having the sum add up to greater than the parts.
That dream has not been realised however, with Mighty Craft currently worth about $28m - far less than the $47m it paid for just one of its acquisitions - the Adelaide Hills Group, including Mismatch Brewing and Hills Cider, which it bought in 2021.
The company told the ASX on Tuesday the strategic review had revealed three key objectives which were to: cut head office costs; immediately reduce debt, and; optimise the company’s corporate structure.
The latter could involve delisting from the ASX, with the company saying the “public company structure is not providing shareholders with satisfactory returns’’.
“During the last six weeks, Mighty Craft’s newly appointed board and interim CEO has progressed its review of all aspects of the company,’’ Mr Malcolm said in a statement.
“It is very clear to us that the Mighty Craft business model requires urgent change.
“The cost base is disproportionate to the earnings profile, debt levels are excessive and further simplification of the business model are necessary.
“While there are some positive growth signs, we need to address these issues urgently to ensure a near term path to sustainable earnings.”
Mr Malcolm said the company had expanded its “asset realisation’’ program to help with debt reduction, and already removed $4.4m in costs from the business, while flagging further staff cuts.
The company is targeting another $3m to be cut from head office costs in the current financial year, and is also looking at consolidating its manufacturing operations.
Mighty Craft said “a number of assets are currently under due diligence’’ for sale, and it would “expand asset realisation plans that may lead to potential third-party interest in some of the company’s larger assets’’.
“A sale of larger assets within the business would allow the company to further reduce debt, while also restructuring the cost base of the company in the near term.
“As part of the third and final objective of the ongoing strategic review, Mighty Craft’s board is undertaking an in-depth assessment of the optimal go-forward corporate structure for the
company,’’ the company told the ASX.
“While this element of the strategic review requires further consideration, there are a number of observations: public company structure is not providing shareholders with satisfactory returns; cost of capital for sub-scale consumer-based companies expected to remain high for public companies for the foreseeable future; and as a brand lead business, the company needs to invest behind growth, and this is not possible in the current structure.’’
The company’s most recent trading update indicates it posted third quarter revenue of $25.7m, up 24.5 per cent on the previous corresponding period, and sold 3.1 million litres of Better Beer, up 78 per cent on a year earlier.
Overall beer and cider sales were up 50 per cent to 3.8 million litres while spirits were up 15 per cent at 52,000 bottles sold.
The company had $9.7m in cash at the end of the quarter after raising $5.2m from investors.
It made a net loss of $20.6m last financial year on revenues of $62.6m.
Mighty Craft shares hit a 12-month low of 5.3c on Tuesday, down from 25c over the period.
At noon on Tuesday the shares were 30 per cent lower at 5.6c.
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