Release Date: February 22, 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 a strong ambition to become a leader in New World Whisky, leveraging its 30 years of history and unique Tasmanian provenance.
- The company has secured distribution agreements in Indonesia and Singapore, with MOUs in place for Malaysia and the Philippines, indicating progress in international market expansion.
- Despite a challenging economic environment, the core Lark signature range saw a 13% increase in net sales year-on-year.
- Lark Distilling Co Ltd (ASX:LRK) has a high-quality whiskey bank of 2.4 million liters, providing flexibility for future sales growth and production planning.
- The company has extended its $50 million undrawn committed bank facility to January 2028, ensuring financial flexibility and stability.
Negative Points
- Net sales revenue for the half year was $7.4 million, down $2.2 million compared to the previous corresponding period (PCP).
- Gross margins decreased slightly from 68% to 66%, impacted by channel and product mix.
- The company reported an operating EBITDA loss of $8.4 million, highlighting ongoing financial challenges.
- There was a significant slowdown in the legacy indirect export channel, contributing to the revenue gap.
- Domestic wholesale channels and Tasmanian hospitality venues were negatively impacted by lower tourism and the cycling of limited releases from FY23.
Q & A Highlights
Q: Can you elaborate on the reasons behind the decline in net sales revenue for the half year?
A: Satya Sharma, CEO: The decline in net sales revenue to $7.4 million, down $2.2 million against PCP, was primarily due to the cycling of older limited releases and a slowdown in the legacy indirect export channel. However, our Core Lark signature range saw a positive performance, up 13% on PCP.
Q: What measures are being taken to address the slowdown in the legacy indirect export channel?
A: Satya Sharma, CEO: We are making significant progress with direct export expansion, including distribution agreements in Indonesia and Singapore, and MOUs in Malaysia and the Philippines. We expect these efforts to offset at least half of the expected decline in legacy indirect export sales in H2.
Q: How is Lark Distilling managing its gross margins amidst the current economic conditions?
A: Iain Short, CFO: Gross margins were 66%, down slightly from 68% due to channel and product mix. We have implemented disciplined cost control measures, resulting in savings in overhead costs despite inflationary pressures.
Q: Can you provide more details on the company's financial flexibility and capital position?
A: Iain Short, CFO: We remain well-capitalized with $5.5 million of cash at 31 December and a $50 million undrawn committed bank facility extended to January 2028. This provides us with significant financial flexibility in the short to medium term.
Q: What are the strategic priorities for Lark Distilling moving forward?
A: Satya Sharma, CEO: Our strategic priorities include creating long-term brand value, establishing international sales momentum, and exercising cash and capital discipline. These priorities are aimed at creating long-term and sustainable shareholder value.
Q: How is Lark Distilling planning to build its brand equity internationally?
A: Satya Sharma, CEO: We are focusing on building brand equity foundations internationally, entering identified markets, and practicing cash and capital discipline. Our partnership with Peter Gilmore and our award-winning products are key elements in this strategy.
Q: What is the company's approach to production and inventory management?
A: Iain Short, CFO: We have consolidated production at our Cambridge Distillery and tapered production levels to around 100,000 liters per year to align with current demand. This allows us to optimize production costs and maintain flexibility for future growth.
Q: Can you discuss the company's performance in the global travel retail (GTR) channel?
A: Satya Sharma, CEO: Our presence in key Australian airports has grown, and we have developed joint business plans with GTR partners. This channel is showing good operating momentum, driving an increase in net sales, which was up notably versus PCP.
Q: What are the company's plans for the Bothwell Distillery?
A: Satya Sharma, CEO: We have decided to explore options to divest the Bothwell Distillery as it is no longer required for our current production needs. This decision aligns with our strategy to optimize production costs and maintain financial flexibility.
Q: What are the expectations for the full year FY24 results?
A: Satya Sharma, CEO: We anticipate a challenging trading environment but remain focused on executing our strategic priorities. We expect direct export sales to offset more than half of the expected shortfall in the legacy indirect export channel, and we are committed to achieving positive operating cash flows by FY26-27.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
