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Ginmeister Limited Investment Review - Q1 2018
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Status Update
- It was good to see so many of you at the Pinkster shareholder meeting in November to hear Stephen Marsh, CEO, give an update on the half year trading and other encouraging developments.
- The 9-month figures to 31st December 2017 (below) show the Company continues to trade well as it builds its brand. Gross profit came in just £5.6k below budget, helped by a better gross margin of 51% (vs 47%). Significantly, the last 3 months recorded the first positive quarterly EBITDA, which is now ahead of YTD budget.
- Sales were up almost 80% on the same period last year, driven by strong growth in UK distributor sales, including Matthew Clark and Enotria&Coe. Although YTD sales of £1,593k were 8% behind budget, half of this difference was a result of sales made under bond, which affects turnover but not gross margin.
- In terms of listings, Pinkster continues to make headway in the off-trade with regular re-orders from prestigious stores, including Fenwick, Harvey Nichols and Selfridges. Recent on-trade wins include the ASK Italian restaurant chain and Bateman’s Brewery.
- The brand continues to innovate in packaging and design, with Pinkster On Tap, a 3 litre bag-in-box format, receiving a positive reception in the trade press for its sustainability credentials.
- On a more challenging front, as highlighted in the August Investment Review, exports continue to disappoint. This is mainly due to the continued delay in launching Pinkster in the US and progress in Australia being slower than expected.
- The Company believes the technical issues causing the delay in the US launch have now been resolved, subject to the approval of the US authorities, and the Company expects to be in a position to supply stock to its US distributor later this year.
- In other news, Pinkster launched a range of fruit gin liqueurs in December under the Hedgepig brand. The first two flavours are Wild Bullace & Quince and Rampant Raspberry, with more to follow in 2018.
Investment Overview
| Company name | Ginmeister Limited |
| Investment vehicle | UK Limited Company |
| Principal business activity | Manufacture and sale of gin |
| Growthdeck investors' investment | £1,000,000 |
| Investment completion date (first close) | June 2016 |
| Growthdeck investors' equity | 18.05% |
| Growthdeck investors' protections | Investor Representative consent required for key company actions |
| Growthdeck involvement | Investor representative on Board monitoring performance |
Trading Performance
| (£’000s) | Actual 2016/17 |
Actual YTD (9 months) |
Budget YTD (9 months) |
Budget 2017/18 FY |
| Sales | 1,107k | 1,593k | 1,734k | 2,229k |
| Cost of Sales | (549k) | (784k) | (919k) | (1,200k) |
| Gross Profit | 558k | 809k | 815k | 1,029k |
| Overheads | (984k) | (870k) | (893k) | (1,142k) |
| EBITDA | (426k) | (61k) | (78k) | (113k) |
| GP Margin | 50% | 51% | 47% | 46% |
Market News
- Industry consumption statistics published in December 2017 confirmed that Britons bought more than 47m bottles of gin last year, setting a new record and doubling in value over the last six years to £1.2bn (WSTA).
- According to Kantar Millard Brown, Pink Gin is fast emerging as an important sub-sector, accounting for 6% value share.
- With Diageo and Pernod Ricard heavily promoting their new launches (Gordon’s Pink and Beefeater Pink), the Company believes that greater consumer awareness of the “Pink Gin” category will also benefit existing producers, such as Pinkster – particularly as it is seen as “premium” quality.
- Pinkster remains at the premium end of the market and Matthew Clark in its 2018 predictions highlighted Pinkster as a “brand to watch”.
- In its Top 10 Food and Drinks Trends for 2018, Drinks Business predicts a big year for pink gin, and describes Pinkster as “the original pink gin from Cambridge, which makes a hero of raspberries in its blend”.
Cash Update
- At 31st December 2017 cash balances stood at £181k. While good, the Company does have seasonal requirement for working capital (autumn production peak) and so a growing balance should be expected.
- In addition to that seasonal requirement, Directors’ loans of c.£225k (as previously reported) are due to be repaid on 31st December 2018. The Company anticipates that it is on track to do this.
Exit Planning
It is still anticipated that a trade sale to one of the drinks majors will be the most likely liquidity event. The Diageo and Pernod Ricard entrants are not anticipated to alter this: multiple brands are run in parallel by such companies and the premium nature of Pinkster will distinguish it from Beefeaters or Gordons.
The Company is, however, assessing more ambitious growth plans to both take advantage of the current fashion for gin, and to accelerate the achievement of a critical mass whereby it becomes an acquisition candidate. This would involve a further fundraise. We will be working with the Company over the coming weeks to assess the benefits/costs of such a course.
Meanwhile, the Company has moved to put an HMRC approved option scheme in place for staff (additional 5%). This is designed to provide an incentive, and retention tool, by way of a share in a successful exit. Schemes for such pools typically run to c.10% (sometimes more in early stage tech) and we have accordingly supported it.
Summary
In 2017, gin became the most popular spirit in the UK. Exports also topped £0.5bn for the first time. Pinkster appears well positioned to continue benefiting from this phenomenon. The current budget for a further doubling of sales would be for the third year in a row. We are pleased to see the management thinking in terms of positioning the business for an exit and will report on the current review on its completion.
