Mighty Craft review recognises business model flaws

ASX-listed drinks company Mighty Craft has updated shareholders on the outcome of its strategic review with new board Chair Chris Malcolm acknowledging the company’s business model requires urgent change.

The strategic review was commenced in May “in response to feedback from several large shareholders” and saw the resignation of CEO and Managing Director Mark Haysman in June.

In an announcement to the stock exchange today, the company advised the strategic review has revealed three objectives, including restructuring head office costs to ensure sustainable earnings in the short term, immediately reducing debt and optimising the company’s structure.

Mighty Craft’s recently appointed chair Chris Malcolm said the review made it clear 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,” he said in the statement.

“While there are some positive growth signs, we need to address these issues urgently to ensure a near term path to sustainable earnings.

He said the business had expanded the asset realisation program to assist with reduction of debt and the company had already removed $4.4 million of cost from the business, ahead of further cost reductions to be executed throughout the first half of the current financial year.

“We’re also assessing all options regarding the optimal future corporate structure for Mighty Craft, an element requiring further consideration.”

The removal of $4.4 million of annual cost, has included “headcount reductions” with other savings to come from “head office and other lease costs reductions”.

Further saving of $3 million annually will come from the consolidation of manufacturing processes between locations and “procurement synergies” across its spirits business.

Mighty Craft launched as Founders First in late 2018 taking a stake in Victorian craft brewery Jetty Road and promising to be a craft business accelerator.

The company quickly took stakes in Foghorn, Ballistic, Sauce and Slipstream.   In 2021 it purchased Adelaide Hills Group for $47 million, adding Mismatch, The Hills Cider Company and Adelaide Hills Distillery to its portfolio.

Despite its many investments, which have included dabbling in a variety of now-closed or abandoned hospitality ventures, the business has failed to take any of its acquisitions to meaningful scale.

Early this year Ballistic went into voluntary administration, with its other breweries currently being offered for sale.

Its thirty percent share in Better Beer, coming through its investment in alcoholic kombucha brand K.Booch, has been the one bright spot for the business with the influencer-led brand reaching more than 10 million litres per year.

However, Better Beer is yet to close the $20-million capital raise it announced in March leaving the brand’s value – and Mighty Craft’s share – uncertain.

Better Beer co-founder Nick Cogger told Brews News that the uncertainty around Mighty Craft’s future had seen the raise put on hold.

“With everything that has been happening at a Mighty Craft level over the past couple of months including a new Chairman, new board members, the announcement of the strategic review and new CEO, we made the decision to pause our capital raise pending today’s announcement and the restructure of entities,” he said.

“We will be picking up with interested parties in the next couple of weeks”

Brews News has reached out to Mighty Craft Chair Chris Malcom and Interim CEO Jess Lyons for comment.

Mighty Craft shares (MCL) fell to a historic low of $0.057 following the announcement, giving the company a market cap of less than $29 million.

Listen to editor Matt Kirkegaard question Mighty Craft’s former CEO about the company’s management costs and challenges around scaling in a 2021 Beer is Conversation.

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