27/08/2008 - 06:41

Gage Roads confident of profitability

27/08/2008 - 06:41


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Gage Roads has posted a net loss after tax of $3.62 million for fiscal 2008 compared to $3.07 million in 2007, reflecting increased marketing and personnel expenditure against a background of flat sales growth.

Gage Roads has posted a net loss after tax of $3.62 million for fiscal 2008 compared to $3.07 million in 2007, reflecting increased marketing and personnel expenditure against a background of flat sales growth.

Gage Roads' chief executive officer Nick Hayler said that while the result was disappointing, the company was well positioned for the future.

"The loss, while disappointing, is a reflection of the investment we have made in the future of this business," he said.

"We have implemented a number of changes during the year which were essential to increasing future sales momentum and securing the future of the Company. We believe the positive impact of those changes will be seen over the coming months."

Mr Hayley said FY2008 was important in terms of Gage Roads' strategy and consolidation.

In April the company announced that it would release 17 new products over two years to help cement its place in Australia's microbrewery market.

The Palmyra-based brewery plans to eventually double production to seven million litres, a fraction of the 1.3 billion litres of beer Australians drink each year.

Starting with its previously-released Wahoo Pale Ale, Gage Roads will strategically release new products into the market with 17 beverages over two years, including two ciders, a low-carbohydrate beer and a non-alcoholic ginger beer, to achieve current capacity of 3.5 million litres by December 2009.

Despite the company also handing down disappointing half-year results in March, along with
Subiaco's Empire Beer Group Ltd and Mount Pleasant beer maker Oz Brewing Ltd, Mr Hayler maintained that brewing boutique-style beers was a fast-growing and lucrative market.

Gage Roads increased sales from $79,900 in 2005 to $2.1 million in 2007, but its two-year strategy was drafted to overturn last year's $3 million net loss and breakeven by December 2009.

To breakeven, its brew masters would have to make 2.8 million litres of beer - more than six times the amount produced last year - to service 4,000 of the 20,000 distribution outlets in Australia.

Following a number of key developments, Mr Hayler said the company starts FY2009 in a significantly stronger position for growth.

With a broader product range, refreshed branding for existing labels, an improved distribution channel leading to increased sales and a new management team, the company is confident it will become profitable by the end of 2009.

In addition to an improved financial outlook, shareholders and investors in the company are set benefit from reduced capital markets competition in the craft brewing sector through two ASX-listed brewing companies recently announcing their intention to sell their brewery assets.

Gage Roads' disciplined business model - with established brewing infrastructure and direct national routes to market - distinguishes it from those ASX listed peers.

Despite the challenging capital market conditions since Gage Roads listed in 2006, Mr Hayler believes the future for the company and the industry looks far brighter.

"Gage Roads has executed a strategy to tackle the challenging market place and adapt through new brands, contract brewing, better distribution channels, and a total focus on quality," he said.

"It has been unfortunate to watch the demise of some of our competitors but it has been testament to our business model and marketing plans that we remain extremely optimistic for the future, having undertaken a capital raising program and secured a premium distribution channel."

Mr Hayler said the catalyst for the improved outlook was executing a binding, long-term distribution agreement with VOK Beverages, which replaced the former agreement with Constellation Wines Australia.

In addition to the distribution agreement, VOK has also agreed to take a $2 million cornerstone investment in Gage Roads by way of a convertible note facility. The convertible note, which is subject to shareholder approval, will provide $2 million in funding to Gage Roads over the next two years.

"In the few months since the commencement of our relationship with VOK, they have proven to be a targeted and results-driven distribution partner, delivering a July 2008 sales into trade result that is our best ever," Mr Hayler said.

Early in 2008 the board determined that an additional $4.1 million was required for working capital.

During the year, Gage Roads successfully raised $1.5 million through a one-for-one entitlements issue which, when combined with the convertible note agreement with VOK, provides the Company with a total of $3.5 million out of the $4.1 million target.

The company is in discussion with a number of parties in relation to the placement of the remaining sum of $600,000.

In the coming quarter, Gage Roads intends to launch a low carbohydrate beer as well as two ciders.

"With a clear and focused path to profitability I am encouraged about the outlook for
2009 and beyond," Mr Hayler said.


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