LARK Distilling Co. Ltd. (LRK) Earnings Call Transcript & Summary

Good morning, all, and thank you for joining us today. We are pleased to introduce the company's new CEO, Satya Sharma. Also joining us is Non-Executive Director, Laura McBain. Shareholders will be able to participate and ask questions at the appropriate time whilst the meeting is in progress. We may experience some time lag, and this may cause some delay in your text questions or comments coming to our attention. Should you wish to ask a question, we request that you type them in a distinct manner. We also encourage you to launch questions as early as you can. Shareholders wishing to ask questions, please take note of the following instructions. Please select the Q&A icon located at the bottom of your screen. Type your questions in the ask a question box, and press to send out. The questions will be addressed at the appropriate time. Thanks, Sash.

Thanks, [ Eleanor ]. Good morning, everyone, and thanks for taking the time to join me today. This morning, I'll share my work history and experience, why I'm proud and excited to be the new CEO of LARK and my immediate priorities. For clarity, today is intended to be a short introductory market briefing, likely 30 minutes or so, and it's certainly not intended as a trading update, which will take place as part of the usual Q4 results. In the coming days, I'll reach out to our large shareholders for a series of one-to-one meetings, and I'll also be attending some broker-hosted calls. I thought I'd start by providing a short history into who I am, so bear with me. I've graduated from the University of Technology, Sydney with a bachelor of business and laws and for my [ sense ] I'm also a qualified chartered a counter. I spent approximately the first 8 years of my career in Australia, 5 years of which was with Moore Stephens Sydney, now Pitcher Partners across 2 stints. Early on in audit and due diligence and then as a corporate finance manager working across M&A, independent accountant's reports, IPOs, et cetera. Many of these involve cross-border engagements across Asia and across the world. In between this time, I worked at Arnotts as a senior supply chain analyst supporting manufacturing, logistics and procurement. I then moved into a commercial manager role working with sales, marketing and NPD across our key retailers in Australia and the APAC region. I'll confess that to this day, Tim Tam has continued to hold a very, very special place in my heart. In 2013, my wife and I packed up our bags and moved overseas to London to explore the world and gain some international experience, which is where I started my decade-long career with William Grant & Sons, owners of Glenfiddich, The Balvenie, Hendrick's and Monkey Shoulder. Initially, I was the Head of Business Strategy and Development, working on long-range planning, assessing and presenting M&A opportunities to the Board, undertaking new market entry strategies, distributor assessments and providing brand AMP allocation recommendations. I also worked as the interim CFO for the APAC region based in Shanghai with responsibility over markets such as China, Korea, Taiwan, Southeast Asia and Australia. I then moved to Singapore in a general management capacity to recommend and implement a change in the Southeast Asia go-to-market strategy. I continued to be based in Sunny Singapore for the last 8 years, becoming the Regional Managing Director of Southeast Asia and Australasia, sitting on the branded business unit board with global oversight of William Grant & Sons brands. During this time, we rebuilt the business, which had gone through a significant amount of turmoil. We built a reputation within the industry as a team grounded in integrity, committed to driving win-win outcomes and ensuring we executed against our promises. Importantly, today, Southeast Asia is one of the fastest-growing business units in William Grant & Sons. So I suppose that begs the question, why the move to LARK? Candidly, it's a mix of both personal and professional reasons, having been away from Australia for over a decade, a country I love and where I have deep friends and family, the draw to rediscover Australia was very, very strong. I came to know about LARK about 5 years ago, while in Australia and started to follow its progress. It was the brand that stood out in terms of a wonderful story and whiskey profile, which I believed had global appeal. The call from Headhunters was unexpected. And while I was very happy at William Grant & Sons, I was intrigued to learn more. I think it's fair to say both LARK and I went through some very thorough due diligence, and although it took a while, perhaps longer than either of us expected. I'm delighted to know that I'm now in a position to lead the growth of LARK going forward. As you probably know, I'm extremely passionate about whiskey and the whiskey category. And I firmly believe in the power of brands which can credibly differentiate and disrupt categories. Equally, it is an opportunity at such a critical and exciting moment in the next chapter of growth for LARK, which I know I can utilize my skills, entrepreneurial mindset, experience and relationships to grow the business in and outside of Australia. So let me get into what makes LARK an exciting opportunity against the global backdrop. I genuinely believe in the huge upside of LARK in the changing world of luxury spirits. Status spirits is defined by IWSR as greater than USD 100 for a 700 ml bottle. That's about AUD 150. Status Malts account for almost 900,000 9-liter cases globally and represent $2.5 billion in retail sales value. Of this, approximately 80% is made up of Asia Pacific, global travel retail and the U.S. market. The ultra-premium category is defined by IWSR at greater than USD 75 for a 700 ml bottle. Again, that's about AUD 110. Ultra plus malts, which includes status spirits, accounts for almost 6.2 million 9-liter cases and represents about $7 billion in retail sales value. Of this, approximately 70% is made up of, you guessed it, Asia Pacific, Global Travel Retail and the U.S. So while there's many exciting markets across the world, which we will continue to explore, these particular segments and territories are growing in both value and volume terms year-on-year and are the immediate focus over the short term. Now whiskey involves patient and carefully-managed long-term thinking with long-term asset appreciation coming from quality, maturing liquid, coupled with investment in developing the strength of brands with rich stories to tell. These stories must be emotionally compelling, grounded in substance, has provenance and must transcend single markets, capturing the attention of a global audience, which is now more than ever, more connected. Now there is absolutely no question, LARK has some incredible stories to tell. It is the brand that started craft distilling in Australia. It is the first single malt in Australia, a claim no one else can make. It was started by the founding father of Australian whiskey, Bill Lark, who remains committed to the business. And importantly, it has whiskey of the highest quality, which has been recognized the world over as evidenced by its impressive and growing cabinet of awards. LARK was awarded the best single malt whiskey in the region at the World Whiskey Awards in London this year. Bill was recognized and honored with the prestigious Lifetime Achievement Award at the 2022 Spirit Business Awards in London and Lyn Lark was inducted into the Australian Distillate Association Hall of Fame of March this year. At the Australian Whiskey Awards again in March of this year, LARK was awarded Distillery of the Year. Bill was named Personality of the Year. Chris Thomson was named Distiller of the Year and Dark LARK was crowned single malt of the year. In 2021, LARK was shortlisted for the World Whiskey Producer of the Year in the coveted international wine and spirits competition for the second year running. And finally, hot of the press, last week, LARK Classic Cask was awarded Best Australian whiskey from Endeavour Group out of over 450 entries, which I know the team and I are extremely proud and excited about. Now let me move my attention to the environment in which LARK sits, it is pristine surrounded by pure air some of the freshest and cleanest water sources in the world and utilizes amazing barley. Its location in Tasmania creates a climate which I started referring to as Goldilocks conditions for maturing whiskey, not too hot, not too cold. This creates an environment for whiskey, which has the right to be considered alongside the titans of the global whiskey industry. Importantly, in April 2021, LARK was named Australia's first carbon-neutral distillery under the federal government's Climate Active program, meaning the activities associated with running Tasmania's first distillery has no negative impact on the climate. LARK isn't scotch, and it isn't bourbon and it isn't Japanese and has no desire to be any of these things. It is proudly Tasmanian and it has its own secret source. It will help its story, which is respectful of traditions, but not constrained by it. It has an amazing right to be limitless, expressive, experimental and a social currency for consumers which are drawn to these qualities. Equally, LARK is welcoming to all of those who are ready to venture out of the tried and tested being among the first to experience a new and exciting world of whiskey with the build of our new distillery at Pontville, this will complete an important piece of the puzzle for LARK at home. Speaks in history but equally modernized providing enough capacity and therefore, surety to take our exceptional product to the world. So in a nutshell, a big commercial opportunity and obviously not an easy one to crack, but with our stories and provenance, our globally acclaimed whiskey, our infrastructure and our favorable environment, we've got the ability to build LARK into being an iconic global brands. Now let me take you through my early observations over the last 3 weeks or so. Through my early engagements with our teams, our customers and our consumers, there is incredible belief about what LARK could be with direction, a compelling vision and the implementation of a fit for purpose framework, the future is and continues to be bright. There is no question that the business has gone through its ups and downs. And LARK is not immune to the global headwinds, which we can see in the horizon. But great businesses and teams find opportunity and volatility, uncertainty, complexity and ambiguity and use it to galvanize and create forward momentum. While being grateful for the enormous strides the business has taken, there is a recognition amongst the LARK executive team and the Board that there is more work to do to take LARK to the next level of growth. And as such, we will define the skills, experience and roles which we need and act decisively to obtain these. A recent example is hiring Iain Short as our CFO. Iain comes with a chartered accounting background with PwC and 13 years of involvement in the whiskey industry. His experience includes strategy and finance across a global stage and includes the channels of global travel retail and private label. When these new skills are coupled with the existing team who have built and helped shape LARK from the distillates to the hospitality team and of course, Bill who continues as our ambassador, I feel confident we have what it takes to create a winning combination. Over the short term, we'll focus on building and fortifying our business, we will remain disciplined and won't be distracted by short-term noise, remaining steadfast in our commitment to continue to put out exceptional products, which never compromise on quality and deliver against obviously the high expectations of our consumers, particularly as we enter international markets. Now this gets me to the immediate priorities for the team and I over the short term. We'll undertake a diagnostic of the business and ensure we have a fit-for-purpose organization. What this means we'll do a deep dive into our current business performance and model. We'll face into any challenges that the business has and may encounter, so we can spend our time future-facing and not explaining the past. We'll implement an embedded operating model and positive ways of working to mobilize and unite organization. We'll assess and onboard appropriate distributors in markets we view as the next frontiers of growth and we'll continue to focus on building consumer-pull brands with long-term brand equity while continuing to build a whiskey bank to underwrite our future growth. At the conclusion of our comprehensive diagnostics, which we expect to be around sort of September, October, we plan to share with the market our strategy and our priorities for the next chapter of growth. Finally, I want to say a big thank you to the LARK team and the Board for their warm welcome and support. I look forward to getting out and meeting many more of our team, our customers, our consumers and our shareholders in the near term and delivering against the immense trust, which has been placed on me and my management team to drive the business forward for all stakeholders. Now a massive thank you for all of you for joining today and making time. I'm now happy to take any of your questions.

Thanks, Sash. We have had a few questions come in. The first one is, can you talk through which export markets are of highest priority, is Asia first?

Yes. Look, I think going back to those statistics, it's important that LARK fishes where the fish are. And we talked about sort of, give or take, 70% -- 70% to 80% of the business where we play is in Asia, travel retail and the U.S. Asia has 2 billion to 3 billion people. So it's too big for us to ignore. It's certainly one of the biggest opportunities and having spent about 10 years or so in Asia, I'm hugely excited by it. The population is young. There's a growing middle class. They're digitally connected. They're looking to explore, discover, experiment, all of these things which work within the psyche of LARK. But we need to realize that, I suppose, the consumer is different, and we need to think as a global business and cater to that global audience as we move into the accessible luxury, which is what our product is and make sure that we take great strides in getting there. So yes, it's one of our greatest opportunities, but it is in line with many others as well.

Thanks, Sash. The second question is, as you move further into export markets, would you expect Symphony and Classic to be high in the mix or limited releases?

I think you have to build the spine of the business. And I think I've always believed in the idea that there has to be something that is what is LARK, what's LARK known for. And so I do believe it plays a role. Limited releases, of course, make a difference, and they do provide a point of talkability PR, but they do need to make -- be an add-on, I would say, to creating what LARK stands for today.

Yes. The next question is, based on your early read on the business, how is the marketing footprint placed? And does this say more investment or redirected focus?

Yes. Look, again, we've got a firm belief in building brands and building brands require investment. So as we enter markets, I think we need to invest behind them. We need to make sure that the steps we take are considered. So they're not just spray and pray is a term that I've heard once or twice. They need to be strategic. They need to be following the right footprint. They need to be working with the right partners, and those right partners need to understand we are investing for long-term brand growth.

Yes. Next question is which channels do you see the most slack in, B2B, e-comm, hospitality, export or global travel retail?

Sorry, the question was? Slacking? Right?

Yes. So which channels do you see the most slack in B2B, e-comm, hospitality, export global travel retail?

I may or may not be answering this question right, but let me have a crack at it. I think really importantly, we've seen a slowdown in particular e-comm every single, I suppose, player in the e-comm space will stay the same. I do think that there is immense growth in every channel. It means us getting the right offerings in place. I think e-commerce has an incredible opportunity if we get the right offerings on to our online platforms. In terms of our national key accounts, I think I've just spoken about the Endeavor awards. We've got some great success and momentum. So that fills me with an incredible amount of confidence. Now global travel retail, I've always viewed as a shop window. It's an opportunity for us to sort of showcase our brands, give it accessibility and the limelight in front of a global audience. And I think that's an opportunity there. And then when I also have a look at what we've got in terms of our future export partners, those we will assess, we'll have a look at the opportunity, and we'll stage our entry into those respective markets. So I hope I've answered that question. I may have misconstrued it, but things across looks okay.

The next question is, can you talk through your experience with WG&S in Southeast Asia? What did the business look like when you commenced? And what does it look like now?

Yes. So in short, there wasn't a business when we commenced. Very, very similarly, it might sound strange, William Grant & Sons has been around for over 130 years, often referred internally lovingly as a Scottish export company. We brought our business away from Shanghai, and we redeveloped it in Singapore and created a Southeast Asia hub. That business went through turmoil. There was incredible amounts of, I suppose, wrong brand positioning, wrong sort of processes and procedures, lack of controls. We've implemented that from basically a standing start to where it is today, which is, as I mentioned, one of the fastest-growing and a great contributor to the William Grant & Sons' business. That's followed a wave of malt whiskey. I think it's important to say and a consumer preference towards a type and flavor profile, which thankfully for William Grant & Sons, make of this.

The next question is, what is Australian whiskey's perception in Global Markets? Is there more category investment needed? And who should be making this investment?

Yes. I'll take a step up, and I'll talk about whiskey and malts. So whiskey and malt is on fire, right? It will continue to be on fire. I think there's a -- dark brown spirits is literally what the Asian consumer consumes. It is absolutely in the bull's-eye. Now there's a perception about Australia, which is very positive in terms of auxiliary industries and Australia as a trademark or a brand name. And I think Tasmania is just as much in that what I described pristine environments, fresh water, et cetera, et cetera, and produce. There is investment required to educate the consumer about what Tasmanian and Australian whiskey is, and I think those -- that condition that differentiates Tasmania to the rest of the world is an important part for us to play. Who plays the role in that? I think it's really important that we sort of say our partners who we will eventually partner with. We need to provide them the opportunity to have the right tools, assets to go out and tell the story, but we also need to spend a lot of time in advocacy and education in order to be able to drive that future upside.