ASX-listed craft drinks company Mighty Craft expects to exit at least one more investment this quarter following an ATO ruling that its majority-owned brands will be ineligible for the excise rebate scheme.
The ATO recently ruled Newcastle’s Foghorn Brewery – one of Mighty Craft’s early investments in its previous guise as Founders First – could not claim the excise rebate because it is 75 per cent owned by Mighty Craft.
The ATO therefore treats Mighty Craft and Foghorn as a single entity for taxation purposes, and the umbrella company today informed the ASX it will not challenge this ruling.
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“Given the costs involved the company does not consider that this is in the best interests of shareholders,” Mighty Craft said.
Mighty Craft flagged the excise issue in its August results announcement, when it tabled plans to divest its stake in Foghorn and sell its wholly owned hospitality venues, Mighty Hunter Valley and Mighty Moonee Ponds.
This was followed by a September announcement that it had cancelled its shareholding in South Australian beverage company Sparkke, in return for the leasehold on Adelaide brewpub The Whitmore.
Excise ramifications
The excise ruling now has ramifications for Mighty Craft’s minority investments in Sauce Brewing, Slipstream Brewing and Brogan’s Way Distillery.
Clearly it is a major disincentive – for all concerned – for Mighty Craft to ever take a majority position in these companies if it means they will not be able to access the crucial tax break.
“The prize for small-to-medium businesses on the excise remissions is quite significant at around $350,000 a year,” Mighty Craft CEO Mark Haysman told Drinks Adventures.
“That’s something that has gone against us. For us to continue to build these smaller businesses, it makes it challenging when we can’t access that excise remission where we own over 50 per cent of those businesses.”
Excise aside, Haysman said there was always going to come a time when Mighty Craft would need to focus and simplify its portfolio.
“The plan was always to invest in these businesses and build them and grow,” he said.
“We always knew that some of them would make it in terms of hitting the scale that would drive the outcomes we needed in a listed environment, and some may not.”
He said the financial landscape has changed since Founders First embarked on its journey in 2019.
“The investment community now is not just looking for growth. They’re looking for us to get to profit, and do that quickly,” he said.
Following the recent Sparkke exit, Mighty Craft today said it expects “at least one further divestment” this quarter.
Mismatch Brewing ‘doubling down on SA’
Meanwhile, Haysman acknowledged that the interstate rollout of wholly owned subsidiary Mismatch Brewing had not gone as planned.
He confirmed retailer Dan Murphy’s had “rationalised” its ranging of underperforming Mismatch beers in the eastern states.
“A big part of the growth profile for Mismatch was to access the eastern seaboard and use the on-premise to help us do that,” he said.
“Obviously the on-premise was largely closed for the first quarter last year, so that made it difficult.”
He said Mighty Craft will therefore be “doubling down” efforts for Mismatch to dominate the local market in South Australia, where it is taking over The Whitmore venue previously occupied by Sparkke.
October tracking for record sales
Despite the headwinds, Mighty Craft today reported sales revenue of $17.8 million for the September quarter, up 66 per cent on last year.
“The October 2022 result will be a record sales month for the company with approximately $9 million in sales revenue expected, giving the company confidence in the growth trajectory heading into peak period,” Mighty Craft said.
Star performer Better Beer is on track to achieve its 10 million litre volume target for FY23, and has additional products in the pipeline to follow its Zero Alcohol and Ginger Beer range extensions.
The company said its hospitality venues are now profitable, having increased revenue by 75 per cent on last year as the market rebounds post-COVID.
But Haysman told Drinks Adventures this had not affected the planned sale of its Moonee Ponds and Hunter Valley venues.
“I think the opportunity to redeploy capital that comes back in from those businesses, into accelerating the growth of the priority brands, is a better outcome for us,” he said.
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