Brewdog's 2017 results show a drop in profits, after tax, for the world beating brewer, of £2.2m on last year's £3.2 result. Does it matter for a company that became a paper Unicorn recently?
As always this post comes with caveats. We know that Brewdog is a phenomenally successful UK company. We only asks these questions about its recent progress so as to analyse the use of ECF on this scale.
Expansion is the probable cause and if they can keep the money flowing in as fast as it is flowing out, then no, it probably doesnt matter at this stage. Administrative expenses rose by £15m, from £20m to £35m. Meantime GP only rose by £12m with a fall of 1% on the GPM. Their favourite headline figure, EBITDA, has been given some treatment so that it appears to be increasing from £6m to £8m. However this would seem to be some accounting ruse as the non 'adjusted' figure is down by almost 40%. Of course that message is somehow lost in the mayhem of a Brewdog accounts presentation. The bottom line net profit number has not been adjusted. Other income from non controlling interests is set at just over £4m.
The finance costs more than doubled to £1.2m
Brewdog have been struggling a little to raise their punk equity both in the UK (still below the first target of £20m and so nowhere close to the real target of £60m) and the USA. In the US they appear to have taken down the running meter - well we couldnt find it anymore. Their map of US investors is still bleak.
During the year, the company bought back shares to value of £705k at a price of £13.18 per share. In December 2017 the company sold B shares for £23.75 each. Not quite sure how that works?
The company claims to have seen sales growth in the UK of 78% over the year. But the accounts show UK sales going from £58m to 89m. Not sure how that works either.
Sales in the US were tiny at under £4m out of a total £111m. As the brewery has been in action there since July 17, this seems like a slow start.
As ever the plans are gargantuan. New breweries in Australia and the Asia are the headlines. All in keeping with Hatman's love of Locke's advice -
IF WE DISBELIEVE EVERYTHING, BECAUSE WE CANNOT CERTAINLY KNOW ALL THINGS, WE SHALL DO MUCH WHAT AS WISELY AS HE, WHO WOULD NOT USE HIS LEGS, BUT SIT STILL AND PERISH, BECAUSE HE HAD NO WINGS TO FLY.
As ever the plans are gargantuan. New breweries in Australia and the Asia are the headlines. All in keeping with Hatman's love of Locke's advice -
IF WE DISBELIEVE EVERYTHING, BECAUSE WE CANNOT CERTAINLY KNOW ALL THINGS, WE SHALL DO MUCH WHAT AS WISELY AS HE, WHO WOULD NOT USE HIS LEGS, BUT SIT STILL AND PERISH, BECAUSE HE HAD NO WINGS TO FLY.
With rising costs that will be difficult to cut, the ECF cash is looking more and more crucial, if his wings are not to be scorched.
What's this about a share buyback??
ReplyDeleteCheck the notes to the accounts. It's stated in there.
DeleteYes i see it. They also did one in 2016. Why?
DeleteThanks for your post Rob, really interesting. With a growing business like Brewdog it is perhaps no surprise that underlying profit is so low, although it does mean that shareholder dividends are probably quite a few years away even if there is the predicted IPO in 2020.
ReplyDeleteThe rise in turnover is impressive but is concentrated as you say on the UK market. If Brewdog are to justify their unicorn status the next couple of years will require sustained growth in other markets. I think they have a good shout at doing it - they have an excellent brand and (some) great products. The new brewdog pub in tower hill round the corner from my office is always jam packed with people, night and day, so it appears the millennials definitely buy into the brand.
I think technically the share buyback was the mechanism by which BD allowed existing crowd funding investors to cash out some shares (in a very limited way) as part of the TSG investment in the company, so not really a buy buyback even if the accounting treatment shows that. The UK raise looks pretty successful considering the crazy valuation, but agree the US effort is already looking like another flop, which is perhaps unsurprising when you consider the craft beer market over there is more established and competitive, BD is a relative newcomer and crowd funding doesn't really exist. BD may yet spread themselves too thinly but they are still sitting on a pile of cash from the PE buy in so I don't see them having cashflow problems in the near future. Worst case they now have a business that would, in extremis, get taken over and probably see early stage investors make a decent return. Buying in at a valuation of £1.7bn? in the words of another Scottish entrepreneur, "I'm oot".
ReplyDeleteGreat article Rob, but it think the sales for 2016 were £58m and therefore a 53% increase to 2017. Still not the 78% they suggest.
ReplyDeleteThanks - the not uncommon typing error!!
DeleteI understand BD's success in US crowdfunding is roughly in line with their 2nd UK crowdfunding. This is even more about discounted beer rather than as investment, as there is no clear path to an exit. So very small investments would be expected.
ReplyDeleteUS market was always going to be a tougher nut to crack and so it will prove but I understand that sales figures so far look very promising. A more mature market where BD's product quality won't stand out as much, but a larger market. And few can match BD when it comes to marketing.
2016 buy back could be to do with the last share trading day. Perhaps BD had to step in to prop up the price. I feel certain they will find a reason to not have another trading day!