Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lark Distilling Co Ltd (ASX:LRK, Financial) has established distribution agreements in key Asian markets, including Indonesia, Singapore, Malaysia, and the Philippines, which is expected to drive future growth.
- The company has secured a strategic partnership with Seppeltsfield Wines, ensuring access to premium oak barrels for whisky maturation, which is a significant competitive advantage.
- Lark Distilling Co Ltd (ASX:LRK) has a strong balance sheet with a pro forma cash balance of approximately $27 million post-equity raise, providing financial flexibility.
- The company has received multiple awards for its whisky, including gold medals at the Global Spirits Master's competition and category wins at the World Whisky Awards, enhancing its brand reputation.
- Lark Distilling Co Ltd (ASX:LRK) has a clear strategic plan to become a leader in New World Whisky, with a focus on building long-term brand value, international sales momentum, and cash and capital discipline.
Negative Points
- Net sales revenue for FY24 was $14 million, down $3.1 million from FY23, primarily due to a slowdown in the Chinese indirect export channel and lower sales of older limited releases.
- The company reported an operating EBITDA loss of $2.8 million for FY24, indicating ongoing financial challenges.
- Gross margins decreased slightly to 68% from FY23, impacted by product and channel mix.
- Domestic consumer sentiment remains cautious, which could continue to pressure sales in the Australian market.
- The transition to a new domestic distribution partner, Spirits Platform, may result in lower gross margins due to the inclusion of distribution margins in the selling price.
Q & A Highlights
Q: Can you talk through the Asia distribution strategy? How will you invest in each market? And what are the key success drivers in building brand momentum as you see them?
A: The Asia distribution strategy aligns with our general distribution strategy, focusing on using distributors with strong portfolios. Initially, we aim to build awareness and distribution, making our product available for sale and then activating those distribution points to build momentum. Success drivers include creating hooks for consumers to explore New World Whisky and leveraging distributor partners to drive growth in each market.
Q: North America and North Asia have been mentioned as export markets. Can you please speak to plans to enter these markets?
A: North America and North Asia are key whisky consumption hotspots and are firmly in our plans. We aim to enter these markets with the right formats, propositions, and brand identity post-restage. We are currently in discussions with distributors and hope to enter these markets quickly after the restage.
Q: Any comments on domestic consumer sentiment and demand? Is this continued to come under pressure?
A: While Lark is resilient, it is not immune to general consumer sentiment. We have a strong brand with a loyal base and are optimistic about growth through our new distribution model with Spirits platform, which will expand our footprint and put our product in front of more consumers.
Q: Can you speak to how defensible the Tasmanian Peated profile is? How difficult is it for competitors to access Tasmanian Peated?
A: Other distilleries produce some Peated whisky, but mostly from Scottish peated malt. Lark has a unique mining license for peat, making it challenging for competitors to scale. Additionally, our peat smoking system and access to premium barrels through partnerships like Seppeltsfield contribute to our competitive advantage.
Q: What are the expectations for possible sale proceeds from the Bothwell site?
A: We have appointed an agent to explore the sale of the Bothwell site. It is a unique asset, making it difficult to put a firm figure on its value. We will ensure we make the best decision for our assets through this process.
Q: How should we think about channel fill in the coming quarters?
A: As we enter new markets, we will initially sell into distributors to ensure they have enough stock. We are at an early stage of understanding demand signals in new markets. In mature markets like Australia and Global Travel Retail, predictions are easier. We expect chunks of selling in export markets and replenishments in Australia.
Q: Are insurance policies in place to protect the inventory, which makes up a large component of the balance sheet?
A: Yes, we have appropriate insurance coverage in place. Additionally, we have multiple controls and processes to protect our inventory, including spreading it across different sites in Tasmania and conducting regular audits to ensure it meets future growth requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
