COVID, floods and growth costs impact BrewDog results

BrewDog’s Australian arm has filed its report for the 2022 calendar year showing a loss of $1.49 million for the year.

The result follows a million-dollar loss in the prior year.

In a director’s report accompanying the results, the company said that despite the loss, revenue had grown.

“BrewDog Australia delivered group revenue growth of 38.1% for the 12 months to 31 December 2022, despite a challenging start in Q1 2022 with Covid-19 restrictions impacting hospitality, alongside the flooding in South East Queensland,” the report noted.

“Growth was driven through significant wholesale sales growth (163% increase on 2021), the opening of BrewDog Fortitude Valley in November, in addition to launching a franchise bar partnership between BrewDog Plc and Australian Venue Co for which the Group will supply BrewDog branded beverages, with both BrewDog Pentridge (Melbourne) and BrewDog South Everleigh (Sydney) successfully opening in late 2022.”

The company said operating losses for 2022 increased by $185,000 compared with the previous year which the company attributed to pre-opening costs for its BrewDog Fortitude Valley venue.

Australia and New Zealand CEO Ed Bott said the company was focussed on expanding.

“We’ve doubled our capacity in terms of tanks, we’re going to increase our capacity, probably by about a third again this year,” he said.

“And we’re changing our packaging as well, so we’ve got a new packing line just arrived in the brewery now, and a centrifuge going in in a month or two, and then also some other little bit of kit in the brewery as well.

“So we’re trying to expand the brewery, probably investing around, last year, a half a million and this year about a million in the brewery and that’s kind of just to set us up in terms of the growth that we’re seeing from a wholesale perspective.”

He said the company was also investing in operations, investing in sales and marketing staff.

Bott said the company’s Australian plans were on track with what was planned in its crowdfunding prospectus.

“If you look at the original EFP prospectus, we said, I think four bars in the first few years and we’ve opened what three now, two in partnership with AVC and one ourselves,” he said.

“We said we’d put sales reps interstate and Queensland and we’ve done New South Wales. And we’ve got one, almost two and it next couple of weeks as we’re finishing off recruitment on that.”

He said COVID’s border closures had slowed down the expansion into Victoria but it was on the cards.

“So since then, we’ve looked at how we can expand our distribution of sales. And so far, the wholesale sales are going quite well,” he said.

“But we’re making sure we look after southeast Queensland first as our home and then New South Wales as a second priority, and then moving into Victoria and probably over the next 18 months.”

He said the company was looking to grow in wholesale based on the growing retail footprint.

“Bars obviously bring automatic volume, right. But you always have a halo effect as well,” he said.

“A little bit like the onion in terms of the bar in the middle, and then distribution building out from that bar.

“People know the brand, locals go there, they drink the beer, then they go to the retail store and buy the beer as well.

“So you automatically get growth as well, if you have the distribution. And that’s down to us.”

BrewDog’s Australian results come as the company recently announced it was closing two bars in London and one in the United States, but Bott said the market was tougher in Europe.

“Our bars in Australia are absolutely fine. they’re doing really well,” he said.

“But we have an estate of around about 115 bars globally now, and in the last 24 months with COVID and then inflation, especially in Europe, there’s a lot more challenges around power and gas pricing as a result of some of the things happening between Russia and Ukraine.

“That has made a really difficult situation, if you read about hospitality, UK has an amazing number of hospitality locations closing on it on a weekly basis.

“I think Australia is a little less affected by comparison.”

Growth critical for the company

BrewDog’s parent company has recently announced aggressive plans to expand into China, with the self-described anti-corporate Beer Punks signing a deal to brew with Budweiser.

BrewDog’s expansion plans come amidst reports the company is looking towards an IPO in the next few years, depending on market conditions.

There is pressure on the company to grow ahead of any listing. BrewDog sold a 22 per cent share to private equity firm TSG Partners for £213 million (AU$395m) in 2017, giving BrewDog a notional value of more than £1 billion.

The investment came at a high point for brewery valuations, just two years after Constellation Brands bought Ballast Point for US$1 billion (AU$1.4 billion). Ballast Point was sold in 2019 reportedly for less than US$100m.

The TSG Investment is a ticking time-bomb for BrewDog, and particularly its many equity punks hoping one day for a return on their investment, with TSG to receive a compounding 18 per cent return on any liquidity event, before any other shareholders.

US drinks site VinePair noted that under this arrangement “unless the company’s value outpaces the guarantee it promised TSG, equity punks stand to lose money at a public listing, because BrewDog would have to dilute their shares to pay that 18 per cent compounding return.”

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