Stone & Wood confirms expansion plans

Stone & Wood has confirmed plans for a $50 million expansion in Murwillumbah close to its current production brewery.

The Northern Rivers brewery plans to build a 200 hectolitre fully automated brewhouse on a 34,000 square metre site that it purchased four years ago.

The construction of the brewery is scheduled to take approximately two years and the finished project will increase the brewery’s fermentation capacity and warehousing space and will also include a hi-tech waste-water treatment plant and a visitor’s centre.

The brewery’s announcement did not include details of how it proposed to fund the expansion, though Jamie Cook, chairman of the Stone & Wood’s parent company Fermentum, told Radio Brews News in January that it was considering a variety of sources, including a potential IPO.

“We need to look at all alternatives,” Cook said.

“We will continue to build our cash reserves and take as much cash as we can, debt is cheap at the moment but has risk attached, it’s like sticking a heavy backpack on.”

He said that Stone & Wood had learned from its own previous expansions and from watching a number of US craft breweries that had over-extended in their ambitions expansions.

“A project like this has a long lead time, so you have to try and shorten that lead time as much as possible because the world can change on you in the time it’s taken you to build it,” he explained.

“We’ve been through this before in a smaller step, from Byron Bay to Murwullmbah and we made sure we rung out the first brewery as much as we could before we took that step and that de-risked the second step.”

Listen to Jamie Cook discuss the plans for expansion earlier this year as Stone & Wood acquired Two Birds Brewing.

Cook said that the expansion would give the company its first excess capacity in over a decade.

“Oh what a feeling that would be, and we haven’t said that since 2010,” he said.

“Although this brewery will have a start-up capacity of 40 million litres, it doesn’t need to be doing 40 million litres to make financial sense, it’s more like mid-20s and it would be great to have a brewery where we have spare capacity.”

He said he wasn’t concerned about encountering the problems US breweries faced.

“So long as it makes financial sense and you’re de-risking it – and I think that’s what we learned looking overseas – people get too far ahead of the curve and end up in strife because the growth hasn’t followed to the level they needed to.”

The 40 million litre figure is a significant milestone for the brewery to target, representing the current exit point for breweries to be eligible for membership to the Independent Brewers Association.

The Byron Bay-founded brewery has long struggled with capacity and has refused to employ contract brewing option to meets its capacity issues. To manage its shortfall it has occasionally had to juggle supplier relationships. Ironically COVID appears to have put increased pressure on the company’s production.

With a strong keg business, Stone & Wood faced the potential for a serious downturn last year as pubs closed due to COVID. In its FY20 report annual report the company indicated that it met the COVID challenge by pursuing “increased ranging opportunities to counteract the impact of lost distribution”.

Brews News understands this saw the brewery commit to the supply of additional packaged product, which has provided increased supply pressures as pubs reopened and keg demand resumed.

Brews News understand financing for the project will be announced after the end of the current financial year.

A Stone & Wood IPO would create an interesting situation with only two other locally-listed breweries, Good Drinks (GDA) and Broo (BEE).

Good Drinks Australia, formerly Gage Roads Brewing Co, currently has a market cap of $124.8 million. In the financial year ending 30 June 2020 it had revenues of $36.8 million and an EBITDA of $0.6 million.

Over the same period, Stone & Wood’s owner, Fermentum, showed sales revenue of $62.3 million and pre-tax earnings of $8.1 million.

Despite being a persistent loss-maker, Broo listed in 2016 and was briefly valued at $288 million, with analysts at the time saying people can have irrational excitement around some stocks. Broo has since crashed to a market cap of $16 million.

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