FROM selling beer in dead animals to dropping taxidermy ‘fat cats’ from a helicopter over the City and producing such quirkily titled ales as Never Mind The Anabolics, hipster beermaker BrewDog has done much to cultivate its anti-establishment image.
Such stunts mean the Aberdeen-based brewer will never be the darling of the City and a staple of institutional investors despite delivering impressive growth since it was founded in 2007 by James Watt and Martin Dickie as a response to the generic brands that dominated the UK market.
Year-on-year growth has made BrewDog the UK’s fasted growing food and drinks firm, according to its entry in The Sunday Times Fast Track 100, while its latest financials show turnover of £29.6m and pre-tax profits of £3.7m, up 55% on the previous year. This in turn has fuelled rapid expansion with a series of new ventures in the offing.
It now exports beers and ales to more than 50 countries, has established a global bar franchise with establishments from Sao Paulo to Helsinki, and plans to expand its UK brewery, build a distillation plant and open a craft beer hotel.
Key to that success has been Watt and Dickie’s complimentary talents. Dickie, a trained brewer, deals with production, while Watt takes care of the rest of the business. The pair lacked critical acumen in one specific area however: finance.
Enter Neil Simpson, the long-time adviser made finance director. Simpson joined as BrewDog’s first finance director in August 2012 from accountants Ritson Smith, where he had been advising the business since shortly after its launch in 2007.
Likened on BrewDog’s website as a Soviet sleeper agent “who can be activated by a uttering a single word or phrase” and credited with owning one of the “most immaculate lawns” in his area, Simpson is slightly more prosaic about what he brings to the team.
Initially, he put in back office support structures to take care of the basics.
“Make sure you look at cashflow on a weekly basis,” Simpson suggests but adds that, although budgeting and projections are important, “you can spend too long on the numbers and not enough on the business”.
“Year-on-year growth is continuing at very strong levels in terms of revenues and, more importantly from an FD point of view, delivering profit and net cash working capital. The story is good at the glossy end as well as the working end,” he tells Financial Director.
Make my day Punks
With big investors few and far between, the start-up turned to the nascent crowdfunding market as a way to raise capital. In 2009, it launched its first crowdfunding drive, dubbed Equity for Punks after its signature Punk IPA, and attracted more than 1,300 investors. Its anti-business model was born.
For Simpson it took some getting used to when the business first came to him as an adviser. “In 2009, they came in and said how they wanted to raise the money and I said ‘this is not the done thing’ but it was in vogue,” he remembers.
The offering was a success and the initiative has raised £7.5m to date through three issuances. A fourth round of fundraising aiming to raise £25m is currently underway – which has earned it a ticking off over false statements made in its prospectus – and has already raised £6m.
Once complete the offering will be used to fund ambitious expansion plans unveiled at its alternative take on the AGM, which included music from rock band Idlewild and beer tasting. The expansion plans are more mainstream and include new bars, distillery and brewery expansion, such as a new state-of-the-art craft brewery on a new site in, Ohio.
The brewer is taking its craft beer offering to the US, having provisionally agreed a deal to build a new 100,000 foot brewery in Columbus, Ohio. In addition to the 100-barrel brew house, the 42 acres of land will house BrewDog’s US offices, a visitor centre, a craft beer restaurant and a taproom. Once opened, BrewDog will be brewing its full line-up of beers as well as small batch special brews unique to the US brewery.
In January, the business launched an import and distribution division to import beers from famed American craft brewer, Stone Brewing Co. Launching the division isn’t about taking out costs, Simpson explains.
“It’s more about providing an element of it being under our control. Our margin isn’t any different selling to our own bars or selling to a third party, however with our own bars we have control of the beer process from manufacture direct to the customer so we can influence how it is served, the engagement between the bar staff and the customer,” he says.
“We can get that period of education about what craft beer is and those good aspects of it so that hopefully that develops their interest and gets other people interested, which in turn increases our sales potential in our own network and in the wider distribution channel.”
Setting the bar
BrewDog is also ramping up its bar empire with new bars earmarked in Oslo, Leeds, London and its home town of Aberdeen. Whether in the UK or overseas the analysis largely follows its existing model, Simpson says.
“We have got that track record of our operation of a bar in terms of what our expectations are of turnover and cost with country differentials and legal impact systems built in. We have already got the real driver for identifying what will work through our existing countries of distribution,” he explains.
“Through our distribution network we know which countries we are already selling a lot of craft beer into and therefore what areas of the world are well established and that gives us a good feel for which countries can substantiate a craft beer bar in front of our branding because of the sales that are already there.”
In terms of set up costs, the international bars are on a partner arrangement so cost calculations are not an issue but here in the UK the business looks at payback in terms of beer sales and units profitability itself.
“We have a standard template, but within that template we have outliers so we might have smaller or bigger, higher profile sights that fall out with the norm. But that norm means we set a benchmark where we look for payback of our in costs with 24 to 36 months. That’s not hard and fast but it’s a good guide to which we work,” Simpson says.
International expansion is at the heart of the latest stage of the brewer’s growth strategy, but projects such as a new distillation centre and a first BrewDog hotel are more “wishlist” items than core growth areas like the bars and distribution centre.
“Strategically they are a great new area to diversify, which is always good from a risk point and our brand is such now that I think we can start that diversification,” Simpson says.2007