Wayward and Local Drinks emerge from VA
Creditors of Wayward Brewing Company and Local Drinks Collective have voted to accept a Deed of Company Arrangement which will see both companies emerge from Administration.
Under the DOCA proposal creditors, including the ATO, will receive 10c in the dollar.
The related companies entered Voluntary Administration earlier this month “to deal with financial losses the business has accrued in the face of declining consumer demand across the craft beer market combined with significant increases in production costs.”
In a report to creditors, the Administrators advised that the companies owed unsecured creditors, including suppliers, up to $730,000 with statutory creditors owed $1.9 million. Statutory debt included unpaid excise of $1.27 million, and tax payable of $590,000.
The administrator recommended creditors accept the proposed Deed of Company Arrangement noting the “proposal provides a better return to creditors than a liquidation. Accordingly, I am required to recommend that creditors vote in favour of this proposal for a DoCA.”
The administrator’s report noted that Wayward and LDC Director Peter Philip advised that the reasons for the company’s failure were changed business conditions.
“Prior to the pandemic, the business was experiencing high growth and therefore expanded operations to handle this demand,” the report noted.
“During the pandemic, the business was supported by government programs and a moratorium on ATO excise payments which enabled the business to remain solvent. Cost-cutting measures were put in place, but operations were not scaled back in anticipation of a business boost post-COVID.
“The business has been hit by a combination of increasing costs and decreasing demand. In the last 18 months, the business has been adversely affected by large increases in raw material and service inputs (malt, hops, logistics, etc.) of >25% and a decrease in consumer demand caused by inflation and increasing interest rates which became particularly apparent in the spring of 2023 when business usually increases.”
The administrator noted that he agreed with Philip’s explanation for the failure of the company.
Speaking to Brews News at the time the businesses entered administration, Director Peter Philp said that he was not giving up on the idea of LDC.
“We’re not giving up on the concept or the idea of LDC (Local Drinks Collective) or what we’ve what we’ve achieved. We think we’ve got a good business, we just want to restructure things so we can move forward,” he said.
“We made quite a few people redundant last month, so we’re in a position now where we can make money. Assuming that there’s no further deterioration of the market, we just have to try and work our way through this.
“Covid wasn’t easy. We didn’t make any money in COVID. We thought coming out of COVID we would be back to pre-COVID levels. That didn’t happen.
“We’re all hoping for a big summer this year, but these interest rate rises have just killed consumer confidence. So, we’re not alone in that. I think everybody is in the same boat.”
Wayward Brewing and Batch Brewing formed the Local Drinks Collective in October 2022 “to leverage the strengths of member businesses without the companies needing to merge.”
At the time founder Peter Philip said the new entity flips the typical consolidation model on its head.
“Normally you’d go out and raise private equity or something like that, and go and buy the brewing companies and create the mothership model, like the Good Drinks model,” Philip explained in 2022.
“They go out and buy breweries, and that’s how they consolidate.
“This flips that on its head and says, ‘it’s not the mothership that owns the breweries, it’s the breweries own the mothership’.
“So everybody’s motivated for the mothership, to win and to succeed.”
Philip said in 2022 it was a better approach than the breweries just merging their brewing businesses as it allowed each to maintain their current excise relief.
Speaking in early January he told Brews News that despite the Local Drinks Collective model including Batch Brewing, and Batch Brewing recording net losses of $172,000 and $345,000 in FY23 and FY22 respectively, Batch was ‘insulated’ from the administration process.
“LDC is the distribution engine room of the business, so it’s got all of the exposure and all of the cost,” he explained.
“And Wayward has got all of the production costs. So it’s really all about Batch wasn’t doing a huge amount of business, so it’s been relatively insulated from this.”
Brews News understand that in November last year, before the administration process, the combined group had been soliciting investment in the group, which included the option of a full sale.
A brochure prepared by FTI Consulting was circulated to potential investors offering the opportunity to invest in a “unique distribution group including three leading independent breweries, servicing the fast-evolving craft beverages market and a national distribution company.”
The brochure touted the brands as having “a powerful hospitality presence in Sydney and soon in Melbourne that provide a built-in opportunity for market testing and a deep connection to community providing brand authenticity and provenance.”
“The Local Drinks Collective model generates massive operational synergies through sharing of all key functions: sales, marketing, distribution, logistics and administration. Further cost synergies will be realised in the future with further vertical integration and expansion into more states.”
Despite the three breweries associated with the distribution company being referred to as “the group” and “related entities” for the investment or sale, the document noted the structure enabled each brewery to retain its excise remission with an ATO private ruling supporting the retention.
Speaking to Brews News at the time of entering administration, Pete Philp said the group had been looking at partnering with Melbourne’s Hawkers, “but need to be in a strong financial position before we take any new partners into the group.”
He confirmed the group had been looking to take on investment or sale.
“We did do some investigation on that, but there’s just no capital available at the moment.”
Brews News spoke with Peter Philip in October 2023 about the market conditions Wayawrad was facing and how the Local Drinks Collective model was working.
Wayward Brewing Co. and Local Drinks Collective emerge from administration after a financial restructuring
Wayward Brewing Company Pty Ltd (Wayward) and Local Drinks Collective Pty Ltd (LDC), have successfully emerged from voluntary administration after creditors today approved a financial
restructuring of the companies.
Peter Philip, as sole director of both companies, appointed DBA Reconstruction & Advisory as Administrator on 2 January 2024. This was a necessary step to deal with financial losses from a
difficult period for the business.
Peter and his team have worked with the Administrator to develop a compelling Deed of Company Arrangement (DOCA) proposal to financially restructure the business, to ensure a stronger and more resilient operation moving forward. The Administrator recommended that creditors accept the DOCA proposal to provide the best outcome to creditors.
The DOCA was signed after the meeting of creditors today, so control of the business has reverted to Peter and the companies’ management.
Peter noted that under administration it’s been business as usual: “Beer production, sales and distribution and taproom operations have not missed a beat since we entered administration.”
Looking forward, Peter added: “We are grateful that our restructuring proposal has been approved by the creditors and we thank the administrator, our business partners and our employees for their support during the restructuring process, which has been the most stressful time of Wayward’s 10+ year history. It is a great result that nearly 40 jobs have been saved in the process.”
“This has been a very challenging time, but we have been overwhelmed by the outpouring of support from our customers and business partners. Our team are more determined than ever to make the business a success by producing great independent craft beverages for our loyal customer base.”
“I am looking forward to putting this difficult period behind us and I look forward to a great future for Wayward and LDC.”