Endeavour records loss following equity crowd raise

Endeavour Citrus Pale Ale

In its first report to shareholders following its 2018 equity crowdfunding campaign, Endeavour Brewing Co. has reported a half million dollar loss for the 2018/19 financial year.

The company reported a loss of $593,797 for the year, deepening its losses of $278,753 for the previous year.

While the crowdfunding documents projected a ‘moderate loss’ for the year, the result was a significant fall from the $130,425 profit Endeavour was reporting when it launched its equity crowdfunding campaign seven months earlier.

The Sydney-based company, which this month celebrates its 10th birthday, also reported that revenue for the year ending June 2019 was down 2 per cent to $4.86 million, a significant decline from the increase to $6.2 million revenue projected for the year in its prospectus.

The report covers the financial year prior to the current COVID crisis but was filed with corporate regulator ASIC in June 2020, seven months later than its 31st October 2019 deadline.

In the directors’ report accompanying the financial statements, directors Dan Hastings and Andrew Stewart advised that the loss was “mainly due to the cost of additional wages and administration required to support the business strategy”.

However an email to investors said the business had experienced a “period of poor management and material non-disclosure of key matters to the board”.

“After the crowdfunding capital raise at the start of 2019, the business suffered a poor trading period and reported a significant financial loss,” the email said.

“This continued into the 2020 financial year, and the full extent of this unfortunately was not discovered initially until January 2020, following which a full financial review was conducted through into March.

“After a period of poor management and material non-disclosure of key matters to the board, the board has made critical changes at both management and board level.”

Brews News asked the company if the non-disclosure affected the accuracy of financials provided to potential investors in the crowdfunding documents, but did not receive a reply.

The shareholder email also advised that co-founder and popular face of the business Ben Kooyman would be leaving the business, having resigned as a director of Endeavour Beverages in May and Endeavour Taprooms a year ago.

“We want to acknowledge the efforts of Ben, who has been with the company since its inception 10 years ago” the email said.

“After some challenging times and a lot of personal effort at the helm of the business, Ben has decided to leave the business and pursue other interests.”

Returning to profit

Despite a lack of explanation around its failure to meet its earlier projections, the financial report suggested that “revenue benefits from the expansion of the wholesale business are expected in future years in line with continued investment in marketing and product development, subject to market conditions.”

The subsequent email to shareholders said the company has “restored the business to a stronger cash position in the last quarter of 2020 and, after extraordinary items relating to the above issues, have also reported a profit, despite the significant challenges of COVID.”

Sale of intangible asset

The financial report noted that in December 2019 the company entered into an agreement for the sale of one of its intangible assets for $5 million, with settlement of funds in January 2020.

“The sale of this asset does not impact the ability of the company to continue its current operations of the business, and all other intangible assets of the business remain unaffected,” the report noted.

In its email to shareholders the company confirmed the transaction.

“In January 2020, after months of negotiation the company also settled a transaction for the sale of one of our intangible assets,” it advised.

“The full financial impact has been included in the 2020 financial statements, which will be released in the coming months after the year end process.

“We were mindful to first and foremost protect our brand, and we are pleased that we will be able to continue to operate the business as we always have.

When first contacted about its results in July the company declined to comment further on the sale, citing a confidentiality agreement.

Brews News understands the intangible asset relates to the settlement of a trade mark clash with Endeavour Drinks Group. Woolworths Liquor Group changed its name to Endeavour Drinks Group in April 2016.

At that time the Endeavour Brewing said both businesses would co-exist with the name and aimed to ensure that Endeavour Drinks Group wouldn’t be using Endeavour on any private-labelled beer.

“Woolworths approached us some time ago and we positively agreed to co-exist,” Ben Kooyman said in 2016.

“We will continue to just be mutually-valued trading partners, and ‘little ole’ Endeavour Vintage Beer Co. will continue to be independently owned by the original mates that banded together back in 2010.”

IP Australia records show that Endeavour Beverages Pty Ltd holds the trade mark for Endeavour Vintage Beer Co in Class 32 (Beer) while the trade mark has been held by Endeavour Group Limited (formerly Woolworths Liquor Group) in Class 35 (Retailing) since 8th April 2020.

Equity crowdfunding

This was the first report to shareholders since Endeavour became the first Australian brewery to use equity crowdfunding when it announced its campaign in October 2018.

The offer closed in February 2019 with the business raising $558,100, more than its $305,000 minimum target but short of the maximum $2,305,000 it sought to raise.

At the time Endeavour said the campaign will fund an “aggressive expansion” to move all beer production in-house if the maximum was raised. Endeavour also hoped to open several other brew bars as well as seek export opportunities to southeast Asia and beyond.

Neither the financial report or shareholder email updated investors on the application of funds raised through the crowdfund.

The 550 shareholders who joined the company joined company founders Kooyman, Hastings and Stewart and “35 mates”. At the time of the raising the remaining directors held 11.59 per cent and 11.13 per cent of the shares respectively, Kooyman was the largest shareholder with 27.44 per cent of the shares. No other shareholder held more than 10 per cent.

In its email to investors, the company indicated that it would be looking at providing a return to shareholders.

“We are really excited to be currently looking at a return of capital to shareholders after a difficult period but with a very bright future,” it advised.

“We are working hard at this as we speak and looking at the best way to do this and look forward to sharing more with you separately on this in the coming weeks.”

Disclosure: The author bought two shares in Endeavour Beverages Pty Ltd during the equity crowd funding process and owns 0.00001197% of the company being reported on.


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