ASX Announcement 16 May 2016 New Strategy Draws on Gage Roads Craft - - PDF document

Gage Roads Brewing Co Limited has been one of Australia’s leading craft breweries for over 14 years. The Gage Roads craft range includes Atomic Pale Ale, Sleeping Giant IPA, Narrow Neck Session Ale, Breakwater Australian Pale Ale, Single Fin Summer Ale, Pils 3.5% and Small Batch Lager which have grown to become one of Australia’s most popular suite of brands. Through its contract brewing services division, Australian Quality Beverages, the Company also provides specialist contract brewing and packaging services to brand owners throughout Australia.

ASX Announcement 16 May 2016

New Strategy Draws on Gage Roads’ Craft Beer Heritage

Gage Roads Brewing Co (ASX: GRB) today launched an operational strategy to focus on growing its proprietary craft beer range and the production of high quality, higher margin products. Following a three-year extension (with a further two-year option), of its supply and distribution agreement with Pinnacle Liquor Group, Gage Roads is positioned to increase the supply and distribution of its craft beers, while maintaining overall production volumes. Pinnacle Liquor Group (“Pinnacle”) is a subsidiary of the recently re-named Endeavour Drinks Group (formerly Woolworths Liquor Group). Changing Macro Beer Environment Gage Roads managing director John Hoedemaker said the macro environment of the Australian beer sector supported a shift in focus back to Gage Roads’ heritage and core competency – the development and brewing of quality craft beers. “The overall beer market is slowing, primarily due to the decrease in volumes in mainstream beer sales,” Mr Hoedemaker said. “In contrast, the higher-value craft beer sector has been improving year on year, as Australians’ tastes evolve and become more accepting of beers produced by smaller craft brewers. “We have a number of established and well-recognised craft beer brands in the market that have enjoyed extremely strong growth and we believe the time is right for us to focus on further growing our craft beer business, which is what we do best.” Craft Beer Sales Increasing Sales of Gage Roads’ craft beers have increased more than 86% in the past 12 months and now account for 28% of YTD total sales, compared with just 13% in FY15. By 2021, Gage Roads’ anticipates its higher margin, proprietary craft beer brands will make up 70% of its total sales. Gage Roads entered into a new supply deal (see ASX announcement) that will see the brewer continue to supply Pinnacle with contract brewing services. “Pinnacle’s continued support and ranging of Gage Roads’ products, while accommodating a reduction in contract brewing volumes, provides us with the capacity to focus on higher margin craft products and the flexibility to

• pen up other channels to market,” Mr Hoedemaker said.

“While maintaining our current production volumes, Gage Roads will ramp up its sales, marketing and promotion plans nationally for our craft beer products.” “Our strategy is to grow our high value in-house brands and become less reliant on the contract brewing of mainstream beers as we open up distribution channels in pubs and bottle shops across Australia,” Mr Hoedemaker said. National Brand Awareness and Engagement “A key pillar of our strategy to successfully make that transition is a big focus on building national awareness of our brands. We are currently in the process of expanding our sales team on the Eastern seaboard and opening up more opportunities for consumers to trial our products and engage with the Gage Roads brand values and ethos. “Our strategy will give beer drinkers nationally the opportunity to discover

• ur craft beers and build a positive connection with our brand,” Mr

Hoedemaker concluded.

• END-

APPENDIX: Gage Roads Brewing Co. Investor Presentation (May 2016). Further information: Marcel Brandenburg John Gardner Company Secretary Media/Investor Relations Gage Roads Brewing Co Ltd Citadel-MAGNUS Tel: (08) 9314 0000 0413 355 997

RETURNING TO CRAFT

MAY 2016

2

A Proven Track Record

• One of Australia’s most established and awarded brewers of craft

be beer er (es (establi lished 2002)

• Curre

urrently ly pro producin ing 11 m mil illi lion lit itre res p.a p.a. com compris isin ing of

• f 2.5

.5 mill llio ion litres pro proprie ietary ry craf craft bran brands and and 8.5 .5 mil illi lion lit itre res con contrac act bre brewing

• Sta

tate-of

• f-the-art, worl

rld-cla lass facil facilitie ies, $25m inv nvested ed in n capi capital l ex expe pendit iture re sin since e 2010, , up up to to 17.4 .4 mill llio ion lit itre res p.a. p.a. capac capacit ity

• Only

nly bre brewer r lis isted on

• n Aus

ustrali lia Secur ecurit itie ies Ex Exchange (A (ASX)

• Sinc

nce 2010, , Com

• mpany has

has ach achie ieved ed 29% CAGR R in n rev reven enue

• Im

Improve ved pro product mix and and co cost con control l de deli liver ered ed int nter erim im EB EBITDA $1.8 .8m in n H1 FY FY16

• Gro

ross marg argins mai aintain ined ov

• ver

er the the pas past 7 y yea ears rs (ci (circ rca 50%), ), chan change e in n pro productio ion mix to towards pro proprie ietary craft craft be beers ers is s de desig igned to to furt further er inc ncrea rease marg argins to to 70%

Returning to Craft

• Th

The e Com

• mpany ha

has anno announced ed a a str strategy to to impro rove sale sales mix aw away from from lower er marg argin con contrac act-brewin ing to towar ards hi higher er-margin in craft craft be beer er by by ope

• pening up

up pre previ viously unt untapped mark arket seg segments “Gage Roads is the strip of ocean that separates Rottnest Island and Fremantle off the coast of Western Australia. It is home to surfers and swimmers, seagulls and sharks, ships and sailors. It’s a place where you can relax, escape, explore, or seek out adventure. We saw a lot of ourselves in that little spot. That’s why named our brewery after it.“

THIS IS GAGE ROADS BREWING CO.

0.0 0.5 1.0 1.5 2.0 2.5 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Est million litres

Gage Roads Craft Beer Sales

GRB Product Sales 16% Other Contract Brewing 32% Woolworths Contract Brewing 52%

FY15 Revenue Breakdown

GRB Product Sales 32% Other Contract Brewing 21% Woolworths Contract Brewing 47%

FY16 YTD Revenue Breakdown

Light Beer 3% Low-carb Beer 8% Cra Craft Bee Beer 9% 9% Mid-strength Beer 14% Premium Beer 24% Full-Strength Beer 42%

Beer Market Product Segmentation (2015-16)*

3

Craft Beer r In In Growth

• The

he Aus ustra rali lian Cra raft ft be beer r ind industry ry is is enjo njoyin ing st strong ta tail il win inds as as con consumers sh shif ift pre prefe fere rences aw away ay from from main ainstrea eam be beer ers to to craft craft bran brands, now now acco accounting for for 9%* * of

• f the

the ind ndustry, up up from from (2% (2%* in n 2012)

• Majo

ajor bre brewer ers hav have e att attempted ed to to cl claw back back mark arket sha share re and and pro product relev relevan ance thr through acqu acquisit itio ion of

• f craft

craft bran brands i.e. .e. Little e Crea reatures by by Lion (20 (2012), ), Moun

• untain

in Goa

• at by

by Asah sahi (20 (2015), ), Byro ron Bay ay Brew rewing by by Lion (20 (2016)

• Org

rgan anic and and non non-organic c gro rowth opp

• pportunities em

emerg ergin ing in n the the Aus ustrali lian craf craft be beer er mark arket, nat natio ionall lly ov

• ver

er 230 craf craft bran brands est establis ished*

Key statistics

• Craf

raft be beer er mark arket gro rowin ing at at 16.4 .4%^ (6 (6-yea ear CAGR)

• To

Tota tal l Bee eer r mark arket $4.3 .3bn*, de decli clinin ing 1.1 .1%^ (6 (6-yea ear r CAGR) R)

• Craf

raft be beer er mark arket ex expe pected to to gro row to to 12-15%* of

• f the

the ov

• vera

erall ll mark arket wit ithin 5 y yea ears (U (US Mark arket 17-20%)

THE AUSTRALIAN CRAFT BEER MARKET

SAB SAB Mill iller, , 40. 40.7% Li Lion, , 43. 43.0% Ot Other, , 16. 16.3%

Market Share (2015-16)*

*Source: IBISWorld ^Source: Aztec Australia

Total l $4.3 .3bn

BEERS WORTH DRINKING

4

Great Products

• Sui

uite e of

• f reco

recognisable le craft craft be beer ers in n the the mark arket

• Prog

rogre ressive ve, mod

• dern

rn mark arketin ing st stra rategy

• Nat

atio ional l craft craft rang range e po positioned for for hig high vo volu lume pot potential

• Pack

ackagin ing wit ith st strong sh shel elf pre presence

• Craf

raft be beer er de deliv iverin ing st strong marg argin ins

• Majo

ajorit ity of

• f majo

ajor r craft craft bran brands are are ow

• wned by

by the the bi big bre brewer ers, con consumers va value e and and su support ind ndep ependents

In In Growth

• Curre

urrently ly 300,0 ,000 cas cases pe per r annu annum, a a st strong mark arket has has be been en de deve velo loped ed for for our

• ur bran

brands in n the the curre current chan channel

• Gag

age e Ro Roads pro propri rietar ary craft craft be beer er bran brands gro rowing at at 86% YTD TD

• Craf

raft be beer ers con contrib ibuting 32% of GRB’s total sales volumes YTD TD, , up up from from 16% in n FY FY15

• Gage Roads’ proprietary craft beer brands now represent the

larg argest ind ndep ependent craft craft be beer er bran brand in n the the Aus ustra rali lian an be beer er mark arket

Ranking Co Company Range ge

• Est. market

et share 1 Lion James Squires Brands 30.2% 2 SAB-Miller Matilda Bay Brands 16.5% 3 Lion Little Creatures Brands 10.9% 4 Coles Liquor Coles Private Label Craft 5.4% 5 Asahi Premium Beverages Cricketers Arms Brands 3.9% 6 6 Gage e Roa

• ads Bre

Brewing Co Co Ltd Ltd Gage e Roa

• ads Cra

Craft Bra Brands 3.9 .9% 7 Endeavour Drinks Group John Boston Brands 3.8% 8 Stone & Wood Stone & Wood Brands 3.0% 9 Matso's Broome Brewery Matso's Brands 3.0% 10 4 Pines Brewing 4 Pines Craft Brands 2.5% 11 Asahi Premium Beverages Mountain Goat Brands 2.3% 12 Coca Cola Amatil Yenda Brands 2.0% 13 SAB-Miller Cascade Brands 1.4% 14 Rebellion Brewing O’Brien Brands 1.0% 15 Lion White Rabbit Brands 0.1%

QL QLD 27 27% VIC VIC 25 25% WA WA 21 21% NSW SW 20 20% SA SA 7% 7%

Gage Roads’ craft beer sales by region (Source: Internal Data) Australian Craft Retail Market (Source: Aztec Australia)

NEW SUPPLY AGREEMENT

5

Providing Support And Certainty

• Executed a new supply

ly agreement t with ith Pin innacle Liq iquor Group, part t of f th the Endeavour Drin inks Group (f (formerly ly Woolworths Liq iquor Group)

• In

Initia itial l 3 year term, plu lus 2 year opti tion

• Fle

lexib ibilit ility to proactiv tively target t th the remainin ing 54% of f th the retail il market

• Contin

tinued support t and dis istr trib ibutio tion for th the Gage Roads cr craft ft brands with ithin th the cu current t ch channel l to market t for 5 years

• Volu

lume commitm itments ts for contr tract-brewed brands ratchet t down over tim time as proprietary cr craft t beer brands grow

• Annual

l volume commitm tments underwrit ite cu current t revenue str treams as we execute str trategy to grow Gage Roads’ craft beer distribution to remaining markets

THE OPPORTUNITY

• Reso

sonating, g, well ll-su supported brands

• Growing craft

ft beer mark rket

• Cu

Curr rrent channel revenues s se secured vi via su supply agreement

• Unlo

lock th the oth ther half lf of f th the retail il mark rket

• Unlo

lock th the on-premise mark rket (3 (31% of f total beer mark rket*)

• Convert curr

rrent volumes (11 mill illion lit litres p.a .a.) .) to

• high

igher-margin ow

• wn bra

rand cr craf aft ra range

• high

igher mar argin dra raught vo volume

• wid

ider er in indep ependent re retail ch chan annel

• Room to over-deliver 6 m

mil illion lit litres wit ith addit itional l capacit ity, no fu furt rther r sig signific icant capit ital exp xpenditure required

6 Re Retail il Mar Market 50% 50% On On-Premis ise 31% 31% Di Distrib ibutors 13% 13% Expo Exports 6% 6%

Australian Beer Market*

Current penetration: 46%

• f retail market
• 5

10 15 20

FY17 FY18 FY19 FY20

million litres Contract-Brewed Products (lower margin) Proprietary Craft Products (higher margin) Capacity

*Source: IBISWorld

GAGE ROADS BREWING CO. IN 2021

• Has

s executed its its 5-year pla lan su successfully

• Dis

istrib ibuting GRB B proprietary ry craft ft brands s th through all ll majo jor retail and on-premis ise channels to market

• Has

s buil ilt a n natio ional Sa Sale les s and Mark rketing capability

• Output of at le

least 11 mil illion lit litres s p.a .a., ., hig igher- margin in craft ft products represe sent 70 70% of f sa sale les s mix ix

• Sh

Shif ift gross ss profit it margin in to 70% (F (FY16: : 52%)

• Vari

riable lab labour and production overheads s of f cir irca 40c per r lit litre

• Sa

Sale les, s, Mark rketing & D Dis istribution costs ts inc increasing to $5m p.a .a. .

• Oth

ther fix fixed cost t str tructure at t curr rrent le levels

• 11 mill

illion Lit Litres s at t $1 E EBIT BITDA per r lit litre will ill deli liver a step-change in in valuation

7

8

THE 5-YEAR PLAN

THE 5-YEAR PLAN

9

BR BRANDS

• Bu

Build on

• n cu

current t bran rand momentum

• Pri

rioritise cr craft bee eer bran rands, rep replace con contract bre rewing volu volumes ove

• ver ti

time

• A shift

t to to cr craft bran rands and drau raught im improve ves gro gross pro rofit margins to to 70% by 2021

SALE LES & D DIS ISTRIBUTIO ION

• New

ew supply agre greement wit ith Woolworths supports cu current t rev reven enue str treams and pro rovides fl flexibility ty to to ta targ rget new ew ch channels while rat ratchet eting dow

• wn con

contract-brewing ob

• bligations
• Bu

Build nati tional in in-house sales ca capability

• Rol
• ll ou
• ut

t dis istribution str trategy ta targeting g rem remaining g 54% of

• f th

the e reta retail market

• Rol
• ll ou
• ut

t dis istribution str trategy ta targeting g th the e on

• n-premise drau

raught market

MARKETING

• Exp

xpand cu curren ent marketing g st strategy to to new ew ch channels

MANAGEMENT

• Ali

ligning management t and shareholders wit ith equit ity in incentives lin linked to to KPI’s

• New

ew Sale les & Marketing exe executive ve hire ired in in May 2016

BRANDS

Hig igh Volu lume Potential

• Port
• rtfoli

lio tai tailo lore red to toward rds hig highest vo volu lume cate categorie ies

• Appro

pproachable le and and reco recognisable le st style les

• Pric

rice-positioning de deliv ivers rea real con consumer r va value

Fresh and Consis istent

• Ra

Rapi pid she shelf lf tur turn kee eeps fres fresh be beer er com comin ing thro through

• Wor
• rld

ld-cla lass facil facilit itie ies and and pe pers rsonnel l de deli live ver r con consisten ent qua quali lity

In Innovative Liq iquids

• Stro

trong ea early rly pre presence ce in n Sum ummer er Ale e se segment wit ith Sin Single le Fin Fin, now now the the fas fastest gro rowin ing seg segment

• Dynamic

ic ne new pro product de deve velo lopment pro proce cess

Desig igned For Im Impact

• Pack

ackagin ing de desig igned ed for for she shelf lf impact

• Bol
• ld col

colours, uni unique de desig ign archi architec ecture, e, qual quality mat ater eria ials

10

Current FY17 FY18 FY19

11

• In

Investment in in sa sale les, marketing and dis istribution inc increasin ing to $5m p.a .a. . by 2021

• Hig

igh-profile sa sale les s & m mark rketing executive appointed in in May 2016

• Natio

ional l sa sale les s team exp xpanding to 10

• Bu

Buil ilding brand-passio ionate, natio ional, l, in in-house sa sale les s capability

• Proven model to penetrate in

independent liq liquor retailers s and on

• n-premise outle

lets

SALES

$- $1 $2 $3 $4 $5 $6 FY16 FY17 FY18 FY19 FY20 FY21

Sales,Marketing & Distribution Investment ($m)

DISTRIBUTION: RETAIL

12

• Contin

tinued support t in in exis istin ting retail il ch channel l to market t with ith ext xtended 3 Year supply ly agreement t with ith additi itional l 2-Year optio ion (cir (circa 1,4 ,400 outlets ts)

• Target

t availa ilable untapped in independent t retail il bottl tle shops (cir (circa 2,3 ,300 outl tlets ts)

• Approach oth

ther la large natio tional l retail il ch chain ins to broaden dis istr trib ibuti tion and market t share (ci (circa 800

• utl

tlets ts)

• By 2021 targetin

ting 3,3 ,300 stores at t 4 cartons per outl tlet t per week to achieve 700,0 ,000 cartons per annum of f proprietary products ts

• Gage Roads testin

ting in increased dis istr trib ibutio ion th through th the retail il ch channel l in in WA

• Re

Reta tail il tak take-up ex extr trem emely ly pro promis ising dur durin ing the the 3-month pe peri riod

• Stro

trong re re-orders in n ex exce cess of

• f targ

targeted 4 cart cartons pe per r st store e pe per r wee eek con contin inue

• Sale

ales rate rates ind ndicate e ne new cus customers are are be being int ntroduced ed to to our

• ur craft

craft be beer er bran brands

DISTRIBUTION: ON-PREMISE

13

• Th

The on-premise market rep epresents 31% of f th the total beer r mark rket

• Approximately 3,0

,000 bars, clu club, hotels, , res estaurants ts present a la large market t for our brands (c (currentl tly accessing around 100 venues)

• Targeting 300-400 venues by 2021 at cir

circa 2 keg egs per r venue per week to achieve 40,0 ,000 keg egs p.a. . of f proprietary ry products

• The Company’s Western Australian draught

str trategy has been ext xtremely successful l to-date

• Targetin

ting key ic iconic venues and cr craft ft le leaders

• 155% gr

growth YT YTD

• Str

trong draught margins contribute to a blended gross profit target of f 70% (b (by 2021)

MARKETING

14

Craft Beer Drinkers Don’t Want To Be Marketed To

• Bold, flashy advertising campaigns are for “Big Beer”
• Consumers ch

choose cr craft brands as as an an al alternative to

• th

the main instream

• Our marketin

ing strategy is is alt alternative

Hel elp Beer r Dri rinkers Dis iscover

• Our strategies giv

ive beer dri rinkers th the op

• pportunity

y to

• “discover” our beer and build a positive connection with our

brand

Th Three Pill illar Str trategy

• In

Increasing BRAND AWARENESS SS

• In

Increasing op

• pportunitie

ies for TRIA RIAL

• Creatin

ing an an ENGAGING brand experie ience

Hig ighly Effective

• Low cost for big

ig im impact

• Build

ilds strong brand engagement

AW AWARENESS

ADVERTISING CONTENT AWARDS PR SOCIAL MEDIA DRAUGHT STRATEGY EVENTS PARTNERSHIPS IN-STORE SAMPLING BRANDED ACTIVATIONS

MANAGEMENT

15

• Talented and experienced brewing,

g, management and executive team

• MD, 14 y

yea ears wit ith GRB RB

• COO,

, 14 y yea ears wit ith GRB RB (ex (ex-Lit ittle le Crea reature res)

• CFO

FO, , 5 yea ears wit ith GRB RB

• Sale

ales & M Mark arketing Ex Exec ecutiv ive, e, 17 y yea ears rs ex expe perie ience (ex (ex-CUB and and Little e Crea reature res)

• Long tenure of

f personnel l refl flects str trong cu culture and connection wit ith th the Company

• Str

trong focus on tr training and in industry ry-specific skills ills and contr tributi tion to th the wider brewing community

• Ali

ligned to shareholders in interests via ia em employee share incentive plans linked to KPI’s

• Str

tructure of f share in incentive plans all llow th the business to retain key em employees to execute th the 5-year plan and beyond

PLANT AND EQUIPMENT

16

• More th

than $25m in invested sin ince 2010

• State-of
• f-the-art equipment fr

from le leading suppliers

• Fully compliant wit

ith worl rld-wide best practice quality standards

• Fle

lexibili lity to produce a vast range of f cr craft t products

• Achieves producti

tion efficiencies req equired to deliver product pri rice points wit ith sufficient margins

• Competent and highly-trained personnel
• Effi

ficient t lo logistics and dis istr tributi tion

• Capacity to produce up to 17.4

.4 mil illion lit litres p.a. . wit ithout sig ignificant fu furt rther capital l expenditure

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 $- $5 $10 $15 $20 $25 $30 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 million litres million $ Cumulative Capex spend Capacity Litres

GAGE ROADS BREWING CO. IN 2021

• Has

s executed its its 5-year pla lan su successfully

• Dis

istrib ibuting GRB B proprietary ry craft ft brands s th through all ll majo jor retail and on-premis ise channels to market

• Has

s buil ilt a n natio ional Sa Sale les s and Mark rketing capability

• Output of at le

least 11 mil illion lit litres s p.a .a., ., hig igher- margin in craft ft products represe sent 70 70% of f sa sale les s mix ix

• Sh

Shif ift gross ss profit it margin in to 70% (F (FY16: : 52%)

• Vari

riable lab labour and production overheads s of f cir irca 40c per r lit litre

• Sa

Sale les, s, Mark rketing & D Dis istribution costs ts inc increasing to $5m p.a .a. .

• Oth

ther fix fixed cost t str tructure at t curr rrent le levels

• 11 mill

illion Lit Litres s at t $1 E EBIT BITDA per r lit litre will ill deli liver a step-change in in valuation

17

WWW.GAGEROADS.COM.AU

18

Disclaimer

GRB advises that these presentation slides contain forward looking statements which may be subject to significant uncertainties out of GRB’s control. No representation is made as to the accuracy or reliability of forward looking statements or the assumptions on which they are based. Actual future events may vary from these forward looking statements and you are cautioned not to place undue reliance on any forward looking statement.