Ferret's Stock Watch: GAGE ROADS BREWING CO LTD 18 Jan 2013...

Ferret's Stock Watch: GAGE ROADS BREWING CO LTD
18 Jan 2013 09:23:00
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A BREWER WITH THE IMPIMATEUR OF WOOLWORTHS FOR MARKETING

Sydney - Friday - January 18: (RWE Aust Business News) - In days of yore a brewery was a top stock like Tooth, Tooheys and CUB but since their heyday the industry also carries many boutique brews that have crowded and clouded the industry's true direction.

The Ferret came across GAGE ROADS BREWING CO LTD (GRB) in the wee small hours this week in a late ASX release that made him sit up and take notice.

It is partnering Woolworths's growth with about 39 per cent share of the Australian liquor market.

Gage Roads Brewing has executed brewing agreements with two new customers, the Australian Marketing Division of San Miguel Yamamura Packaging Corporation and Duckstein Brewery Margaret River.

The company will begin production of two new products for San Miguel Yamamura Packaging Corporation in March.

These products are predominantly destined for the export market.

San Miguel Packaging Corporation is a joint venture between the Philippines-based San Miguel Corporation, "southeast Asia's largest food and beverage packaging company", and Nihon Yamamura Glass Company Ltd of Japan.

This week, GRB also successfully completed the first production run of Duckstein Brewery's "First Batch Pilsner" in 500ml bottle format.

As announced at the AGM on November 8, the company's capital expansion program, which is designed to expand production capabilities to 3m cartons a year by FY15, is giving it the opportunity to enter new markets and attract new contract brewing customers.

But the crux of this story is that Woolworths has been steadily increasing its stake in this brewer newcomer to now more than 25 per cent.

Meanwhile, commentary on the results for the half-year ended December 31, 2011 made the following highlights.

Revenue increases 32 per cent to $8.1 million

Total sales volume increases by 28 per cent

Record December quarter NPAT of $0.68 million (unaudited)

4 new products launched to market

Summer 2012 tank expansion complete

This first-half of FY12 has seen Gage Roads Brewing Co achieve significant milestones towards its 4 year growth plan, including increasing production capacity, sales volumes, reductions in operating costs per carton and improvements in productivity.

Total sales volume for the half-year was in excess of 490,000 cartons, an increase of 28 per cent over the corresponding 1st half of FY11.

Correspondingly, revenue increased 32 per cent to $8.1 million for the half-year ended December 31, 2011.

Notwithstanding the net loss for the half year of $80,000, the company achieved a $680,000 net profit (unaudited) for the December quarter.

Although hampered by the first quarter's unseasonably low results and a number of shutdowns undertaken during the period to install new equipment, the result for the half-year recovered strongly in December and was only marginally below director's original expectations.

SHARE PRICE MOVEMENTS

Shares of Gage Roads Brewing yesterday rose 1.5c to 13.5c. Rolling high for the year is 14c and low 5.1c. The company has 341.1 million shares on issue with a market cap of $46 million.

Reviewing earnings growth outlook, the company has based it on leveraging of fixed costs financial model.

Director's are confident that the company's growth plans should deliver to shareholders continual growth in earnings.

Strong sales and production capacity growth on an annual throughput capacity should increase from 1.2 million cartons in FY12 to 3 million cartons in FY15.

Variable input costs will fall 50 per cent by FY15 (energy, CO2, water, raw materials utilisation)

Improving operating efficiencies and improved equipment targeting a 50 per cent reduction in costs by FY15 on a per carton basis.

Fixed-cost structure should fall 50 per cent by FY15 which covers occupancy costs, salaried management, administration costs)

It remains reasonably fixed. Targeted reduction by 50 per cent on a per carton basis as total volumes double.

Variable labour costs (down 50 per cent by FY15) (brewing & packaging labour)

Same great team and headcount with automated equipment delivering double the volume targeting a 50 per cent reduction in costs by FY15 on a per carton basis.

Future growth and plank strategy was included in the company presentation.

It aims to become Australia's 1 craft contract brewery

The booming growth of the craft market, our new flexible brewing equipment, our passion for and tradition in craft beer, and our competitive cost structure means Gage Roads is perfectly placed

It is targeting to partner new and existing craft brands wishing to expand into bottled and draught products.

Partnering Woolworths's growth with about 39 per cent share of the Australian liquor market.

"Our business with Woolworths continues to grow, new product is a significant contributor to the company's future volume growth.

An example of this is the recent development and national launch of the Sail & Anchor Craft range.

Another example is the limited release 640ml products such as "Pumpkin Ale" and soon to be launched "The Convict" designed to take advantage of seasonal retail selling opportunities during the year.

It is also increasing draught beer sales

"With our increased capacity and lower cost structure, Gage Roads is planning to increase it's draught beer presence in WA.

With the demise of Swan Brewery, the banner of largest WA brewery passes to Gage Roads.

And Gage Roads is planning to honour the commitment of all breweries to provide our customers with the freshest local beer possible.

Objecives - total budgeted spend $12.4 million

Spend to date $8.6 million, 70 per cent complete

On schedule - staged completion of various sub projects, total project expected to be fully completed by March 2012.

Increasing labour rates and construction conflicts while maintaining full summer production may elevate costs to complete, 10 - 20 per cent increase at completion is possible.

Project funding have also been outlined.

The capital expansion project delivers increasing production capacity in stages during the 4 year time frame matching the expected customer demand

$12.4 million total capital expansion project budget.

$8.6 million spend to date funded by:

- $5.5 million increase in Debt

ANZ facility

Guaranteed by Woolworths

- $3.1 million self funded to date from positive operating cash flow

$3.8 million expected to continue to be funded from positive cash flow in FY13 and FY14

BACKGROUND

Gage Roads Brewing Co Ltd is an Australian-based company involved in the brewing, packaging, marketing and selling beverages.

Its origins go back to 2002 in the Fremantile Sail and Anchor Pub brewery through a meeting between brewers Bill Moedemaker and Peter Nolin who decided over a beer that they should set up their own operation.

It was in partnership with Bill's brother John that they created the Gage Roads Brewing Co which began to make beer in 2005 with its first brew called Pure Malt Lager which was a great success in WA bottle shops.

GRB joined the ASX list in December 2006.

The company has two operating segments, being brand brewing and contract brewing.

GRB's products for brand brewing include Wahoo Premium Ale, Gage Premium Lager, Gage Pils, Sleeping Giant IPA, Atomic Pale Ale, and Blue Angel Cider.

GRB provides contract brewing services such as beer, cider, other alcoholic beverages, non alcoholic beverages; glass bottling line for 330ml up to 750ml; product & liquid development; 50lt Keg filler; Haccp certified; and great pricing - delivered into WA or east coast.

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