West Australian brewer Gage Roads has defended its move to supplement two executives’ salaries by $110,000 each at a time when the company is struggling to turn a profit.

The payments were awarded to chief executive officer John Hoedemaker and chief operating officer Aaron Heary, bringing their FY15 salaries to $500,000 and $400,000 respectively, the FY15 annual report revealed.

The report said the “one-off compensation” was in lieu of not having adjusted Hoedemaker and Heary’s remuneration in the three years prior. Their base salaries remain at $390,000 and $290,000 respectively.

The payments, together with an increase in headcount in the quality assurance and HSE departments boosted the company’s total wage bill by seven per cent to $5.9 million, the report said.

This was against a set of results that were “at odds with our ambitions for FY15”, Hoedemaker told shareholders.

He acknowledged to Australian Brews News that “executive pay is a contentious issue”.

“We received some feedback from the market that key executive pay being stagnant for some time posed a flight risk,” he said.

“What our remuneration committee chose to do was seek independent advice which indicated that pay levels were less than market over a number of years and that an adjustment was warranted.”

Year to forget
The company’s total sales volume for FY15 fell 17 per cent on the previous year to 1.4 million carton equivalents.

Revenue was down 11 per cent to $24 million and EBITDA (earnings before tax, depreciation and amortisation) declined 29 per cent to $610,000.

Net profit after tax was down 119 per cent as the company reported an $830,000 loss.

In his note to shareholders, chairman Ian Olson acknowledged that the results were not what they’d signed up for.

“When your Board committed to the capital expansion program in 2011 we expected volumes in FY15 to be comfortably higher than 2.0 million case equivalents, indeed we were expecting volumes to be trending towards 3.0 million case equivalents by this time,” he said.

“This year’s disappointing result reflects materially lower volumes (1.4 million case equivalents) that were generated on a cost base geared for closer to 2.0 million case equivalents.”

In FY14, Gage Roads set itself a target of filling its newly expanded 3 million case production capacity by FY17, but no such deadline was provided this year.

Woolies still shopping around
Gage Roads would be closer to hitting its volume targets if Woolworths, its biggest shareholder with a 25 per cent stake, was sending more business its way.

As previously reported, Woolworths’ Pinnacle Drinks subsidiary has recently begun using Australian Beer Company in Yenda, NSW, for some of its contract brewing needs. It also produces some products at the Asahi brewery in Laverton, Victoria.

The new managing director of Pinnacle, Chris Baddock, joinedthe board of Gage Roads in February.

“[He] has extensive experience in beer and we feel his participation at our board has only served to strengthen the relationship,”Hoedemaker told Australian Brews News.

Hesaid Gage Roads’ contract brewing arm Australian Quality Beverages remains the largest contributor to Pinnacle’s domestically produced exclusive beer portfolio.

“However our arrangement is not and has never been an exclusive arrangement,” he said.

“From the commencement of our relationship back in FY09 Woolworths has worked with and I am sure will continue to work with other contract suppliers for their own commercial reasons (for example access to capabilities such as canning that we don’t currently have).”

A Woolworths Liquor Group spokeswoman told Australian Brews News: “Pinnacle Drinks has a strong relationship with Gage Roads and we look forward to continuing our work with them into the future.”

Craft range “flying along”
Hoedemaker said Gage Roads is currently focused on shifting sales towards higher margin products including its refreshed craft range, which is “flying along and about to hit the east coast”.

The craft range drove an 18 per cent sales increase for the Gage Roads brand in the last quarter of FY15, the company reported in August.

Otherwise the CEO said the priorities are achieving only the highest quality standards of production, “which we believe will deliver a more efficient and lower cost business”.