We were not expecting this. Innis and Gunn, an established and well regarded craft brewer, have gone back into loss for YE Dec17. It had told Crowdcube investors, who gave them more than £1m in 2016, that it hoped to be making a net profit of £1.18m for the year. The loss was more than £400k.
Innis and Gunn saw higher than projected revenues of £22m but their GPM was well below the figure used in the Crowdcube pitch; 58%. It was in fact only 46%. A 12% drop that represents a heavy £2.64m taken off the GP number. That is a massive drop for a retail facing operation and is hard to put down to anything apart from the fact that the Crowdcube figure was a mistake - a very misleading one. The year gave the company an operating profit of just £80k as opposed to the Crowdcube version of £2.76m. The GM is the clue.
Overall this just may have been a blip - the balance sheet looks healthy and was boosted in the year by another £4.5m equity investment. Exports make up 45% of revenues and are highlighted as a strong growth market for the beers, so there may well be some headwinds to tackle with the Brexit debacle unfolding. the USA , Canada and Sweden make up their three largest markets.
One important strand of the strategy might be questioned. They are opening bars and in the notes to the accounts, the company extols the virtues of this action. At the very end of this section there is an afterthought - brought about by the closure of their St Andrews unit just 2 years after opening. It was the most hopeless sight and as a local I bet back when they opened, that it would close withing 2 years. If they cant do better with their locations then they will be in serious trouble at some stage. Their excuse was that it was too small!
The loss from this closure, which will be substantial, was not included in the accounts to Dec17. The building still stands empty, fully branded as a sad reminder of an I&G flop.
one interesting comparison is with BrewDog; in 2017 I&G's revenue was 20% of BD's, it shipped around 30% of the volume that BD did, revenue growth was considerably slower (22% vs 55% for BD) but still pretty good and in 2018 I&G UK sales have been some of the strongest in the craft segment. The interesting bit is that I&G values itself at around 3% of the current BrewDog valuation. If you value BrewDog on the same forward revenue multiple (even allowing for a healthy 80% revenue growth this year), knock off the value of the preferred shares with a couple of years of accrued guaranteed 18% return and you get to a value for the ordinary shares of around £3. Those are the ones they are selling for £23.
ReplyDeleteHavent you missed the point that BD made a NP before tax of £1.4m whereas I&G made a substantial loss? I dont think valuations operate on this linear scale as you are suggesting - BD is and has been in profit for a while whereas I&G has shown it can still make a loss. I would agree that BD is not a buy at this level but then nor is IG on these results.
DeleteIG should definitely not open bars in the UK. Totally uncool brand
ReplyDeleteNice beer though. Ubiquitous in Dùn Èideann's cool bars. No need for them to carry the overheads of openning up their own bars in my opinion.
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