Mighty Craft : Q3 FY22 Business Highlights & Cashflow

Mighty Craft delivers record sales in Q3 FY22 despite ongoing COVID disruption

28 April 2022

ASX Announcement

Mighty Craft Limited (ASX:MCL) (Mighty Craft or the Company) is pleased to provide a business update for the quarter ended 31 March 2022 (Q3 FY22) and an Appendix 4C.

Highlights:

Financial Performance

• • Record cash receipts of $21.31 million for the quarter, up +96% on Q3 FY21 ("pcp") despite the ongoing impact to venues and sales into the on-premise channel.

• • Revenue for the quarter of $19.4m up +105% versus pcp.

• • Operating cash outflow of $(2.9) million versus $(1.6)m in the previous quarter (Q2 FY22) reflecting the COVID impact in venues as well as the increased working capital investment to support growth, especially in Better Beer.

• • EBITDA for the quarter of $(1.3) million versus $(2.2) million pcp.

• • Better Beer sales of $7.8 million (1.8m litres) in Q3 FY22 versus zero in pcp, including a record sales month in March of $3.4 million. Better Beer is on track to deliver the 4.0m litre target for FY22.

  • o The company notes that the growth of Better Beer is requiring an ongoing investment in working capital to support the growth and this has impacted operating cashflow.

• • COVID continued to cause disruption to the business in Q3, as flagged in the recent investor update. In terms of the COVID impact the company notes:

  • o Venue sales dropped to 25% of total business sales versus 45% in pcp and 29% in H1 FY22.

    Sales of Kegs in Q3 FY22 declined (4)% vs pcp versus an overall growth rate for the Beer / Cider category of +100% vs pcp for the quarter. This resulted in keg sales only making up 11% of total Beer / Cider / RTD sales in Q3 FY22 versus 22% in pcp.

• • Cash balance as of 31 March 2022 was $6.8 million (31 December 2021: $10.7 million)

Strategic

• • Investor Roadshow - the company released an updated Investor Presentation in March 2022 and undertook an extensive marketing schedule in April, meeting face-to-face with investors across Brisbane, Sydney, Adelaide, and Melbourne.

• • Whisky Development Syndicate - the company announced the launch of the Whisky Development Syndicate ("WDS"), which is a funding initiative that will enable Mighty

1 All numbers included are unaudited management accounts.

Craft to fund and accelerate the production and maturation of Whisky without utilising its own cash reserves. The WDS was launched in early April with an aim to closed by the end of May 2022.

• • Capital management - The company is exploring several capital management initiatives to ensure sufficient funding to execute upon the growth strategy. These include but are not limited to:

  • o The company is working through options with its lenders with respect to working capital funding and expects to unlock further flexibility over the course of Q4 FY22.

  • o Portfolio management and simplification - Mighty Craft is actively pursuing the potential sales of non-core assets, some of which are expected to complete in Q4 FY22.

Mighty Craft's Managing Director, Mark Haysman said: "Q3 FY22 was another record sales quarter for the business despite the ongoing COVID impacts to both our own venues and sales into the on-premise channels. Whilst this has caused a short-term impact from a profit mix perspective, we view this as temporary and expect hospitality to continue to bounce back to pre-COVID levels.

The business is in very good shape heading into FY23 and ready to deliver ongoing and sustainable profits. We will continue to simplify and focus the business, back the brand winners and divest non-core assets, which will also help us from a capital management point of view. We have a very clear set of priorities and the best portfolio of craft beverages in the country, which is incredibly exciting."

Key focus areas and initiatives:

• • Better Beer acceleration - drive towards the FY22 target of 4.0m litres which includes further innovation in market in Q4 FY22.

• • Simplify and focus - the business will continue to look at opportunities to divest non-core assets and is actively engaged in several discussions, which it is aiming to close out in Q4 FY22.

• • Whisky Development Syndicate - partner closely with the WDS to ensure it is fully funded and able to partner with Mighty Craft to accelerate it's production and ambition to deliver 1.5m litres under maturation by FY25.

• • Prudent capital management - the company will focus on increasing the flexibility of funding facilities already in place, along with potential divestments to ensure sufficient funding is in place to fund short and medium term growth initiatives.

• • Cost minimisation - Ongoing focus on profit improvement through cost reduction and shifting focus and resources towards priority brands. A simplified and focussed portfolio will allow the business to implement a leaner operating model heading into FY23.

Whisky Acceleration Update

• • The company continued to invest in whisky stocks with litres under maturation increasing to 273k litres, representing an increase of ~55,000 litres on Q2 FY22. Going forward, once the WDS raising is complete, all future Whisky production will be funded via the syndicate avoiding the need for Mighty Craft to use any cash reserves.

  Whisky Bank2	Litres
  CY21	78,487
  CY22	45,123
  CY23	26,472
  CY24 - 26	123,466
  Total in barrel as at Mar 2021	273,548
  COVID Impact

  COVID interruptions continue to impact sales across direct venues and into the on-premise channel. Whist the business experienced an improvement in Q2 FY22, this softened considerably in January and February. The chart below shows the ongoing mix shift away from venues towards national retailers. As previously communicated, we expect trading conditions to remain unpredictable across the remainder of FY22, with consumer confidence and patronage still well below pre COVID levels.

• • Mix impact - the company notes that the performance of venues and on-premise in Q3 FY22 had an adverse impact on both overall growth and margins. Venues dropped to 25% of total business and sales into the on-premise channel were in decline versus prior year.

Channel Mix H1 FY22 vs Q3 FY22

Q3 FY22 Sales Retail venues vs wholesale

120.0%

100.0%

80.0%

Nationals Off premise On-premise

60.0%

40.0%

20.0%

0.0%

H1 FY22

Q3 FY22

Wholesale/ D2C

Retail - venues

2 CY represents expected calendar year maturity date - note this may change over time

Financial Performance

Cash Receipts since IPO

Mighty Craft delivered record receipts again in Q3 FY22 with Better Beer being the key growth driver, along with strong growth across the Seven Seasons and Kangaroo Island Spirits brands. Given the ongoing impact of COVID on venues and the on-premise channel, the company is pleased with the growth profile in Q3 FY22 and notes that once trading returns to normal across venues and on-premise, this presents a positive opportunity for both sales and margin in FY23.

Quarterly Cash receipts since IPO3

25,000

Key Growth Drivers

20,000

15,000

10,000

5,000

-

Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22

Wholesale Revenue Growth

Wholesale revenue grew significantly in Q3 delivering $15.5 million in the quarter, representing another record quarter for wholesale revenue. The Company announced that it has secured an increase of over 8,500 additional distribution points in Q3 FY22, taking the total number to over 33,000. This is important as distribution is the key forward indicator of future sales.

The key contributor to the growth in wholesale was the acceleration of Better Beer. Better Beer delivered $7.8 million in sales for Q3 FY22 (1.8m litres). Since launching in November 2021, Better Beer has delivered $9.5 million in sales (2.2m litres) and is on track to meet the 4.0m litre target for FY22.

During the quarter, the first round of innovation was released to market nationally in all Dan Murphy and BWS stores across the country. Better Beer Ginger Beer is now in the market and early sales data is very positive with $0.5 million in sales in Q3. Further innovation is planned for release in Q4 FY22.

3 As reported to the ASX in Appendix 4C submissions since listing on the ASX in December 2019

In addition, two additional key business growth drivers were Seven Seasons and Kangaroo Island Spirits. Seven Seasons delivered 109% sales growth and Kangaroo Island Spirits 19% growth versus pcp. The company expects Kangaroo Island sales to increase significantly in Q4 given the distribution gains that have been secured on the back of the relaunch without yet realising sale of stock (expected in Q4 FY22).

Overall, the company is pleased with the growth in the wholesale channel while noting that sales into the on-premise channel remain significantly impacted by COVID. Keg sales declined in Q3 FY22 by 4% reflecting the slower than anticipated re-opening of hospitality venues across the country. The company expects this channel to gradually return to normal over the course of Q4 FY22.

Distribution Growth5 (total group)
18,000	35,000
16,000	30,000
14,000
25,000
12,000
10,000	20,000
8,000	15,000
6,000
10,000
4,000
5,000
2,000
-	-

Wholesale revenue4 (total group)

Q322

Q221

Q321

Q421

Q122

Q2 22

Q3 22

Q221

Q321

Q421

Q122

Q222

Cash Flow Update

Operating

Cash used in operating activities of $(2.9) million was impacted by a number of key drivers:

• • Scale in wholesale - the company delivered another record in terms of sales and receipts for the quarter. This is reflected in the record receipts number in the cashflow of $21.3 million.

• • Working capital impacts - the scale of growth has required the company to invest in working capital, especially relating to Better Beer.

• • Whisky stocks - see commentary below under "Whisky Acceleration Update"

Investing and Financing

Minimal impacts during the quarter on investing and financing outside normal operations

• 4 Wholesale revenue represents sales through Might Craft sales and distribution agreements

• 5 Distribution represents unique distribution points for individual products