Gage Roads takes earnings hit on sales shortfall

Gage Roads Brewing Company has taken a half-year profit hit after sales of its Good Drinks brands at national chains dipped by 25 per cent, but the Palmyra-based brewer says the sales shortfall is a temporary issue.

Gage Roads reported a 10 per cent increase in revenue to $19.2 million for the half year ended December 31, but recorded a net loss of $722,721.

The profit hit was largely down to a shortfall in Gage Roads’ Good Drinks business, which is the trading name for its national sales and marketing division and represents the full range of the brewery’s beers.

While total Good Drinks sales were up 17 per cent compared to the previous corresponding half year to reach 4.2 million litres, sales at national chain bottleshops dipped by 25 per cent.

Gage Roads said the shortfall was due to a combination of high opening inventories and the timing of new product ranging with its largest customer.

“We feel this is a temporary shortfall to strategy,” Gage Roads managing director John Hoedemaker said in a statement to the ASX.

“The higher-than-usual inventory balances were a result of meeting volume commitments relating to a supply agreement which concluded June 30, 2019.

“Accordingly, this stock overhang is not expected to re-occur.”

Gage Roads said its $8 million packaging line expansion program was on track, as was its plan to establish a microbrewery and taproom in the Sydney suburb of Redfern.

Distributions to the east coast were up 62.5 per cent, with Gage Roads strategy of partnering with the ACT Brumbies, Sydney Kings, Western Sydney Wanderers and Laneway Music Festival driving market penetration.

Single Fin and Matso’s Ginger Beer were Gage Roads’ leading brands, growing at an annual rate of 34 per cent on premise and at bottleshops.

Gage Roads said it viewed the 2020 financial year as a year of “changing gears”, with its investments into the business to drive future growth.

“The transition from a contractual relationship to a traditional supplier with our largest national chain customer has been completed but in this period led to an isolated and temporary loss of sales that did have an impact on our short-term earnings.” Mr Hoedemaker said,

“We expect H2 FY20 sales and earnings to be on track and aligned with our strategy, however, they will not recover the H1 shortfall and will mean that our target of 25 to 30 per cent EBITDA growth is unlikely to be met for FY20.”

Mr Hoedemaker said the company’s investment in new packaging lines, its growing sales capabilities and broadening of its brand portfolio would be key strategic pillars in its future growth.

Gage Roads shares were steady on the ASX today, at 6.5 cents.