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

[Audio Gap] We'll start with an overview of our results for FY '23. I'll then cover off some of our immediate actions that we've taken since May, including a renewed focus on the LARK Spine, the initial rollout of our integrated operating rhythm, increased financial and capital discipline and our new organizational design. I'll also provide you with details of our progress in Asia. In addition, I'm excited to share our most recent industry awards, that continue to highlight the quality and credentials of Lark as Australia's #1 luxury single malt. I'll then hand over to Iain, who will take you through our financial results in more detail, and he'll also talk through our whiskey bank, before I conclude with an update on our upcoming Investor Day and our FY '24 perspectives. At the end of our presentation, Iain and I will be happy to take your questions. Turning to Slide 3, which are the FY '23 key highlights. Net sales revenue was $17 million, which was down $3.3 million on the previous year. Normalizing for nonorganic and opportunistic sales in the prior year, organic net sales was actually up 15%. Lark's core Signature and Symphony product ranges continue to perform strongly, growing net sales revenue by 53% and 49%, respectively. Gross margin remained strong at 68.9%, up 240 basis points, benefiting from positive channel mix towards owned channels. Operating EBITDA was a loss of $2 million, largely reflecting less opportunistic sales at the top line and the impact of an annualized cost base from FY '22. Our balance sheet is in good shape with $7.2 million of cash at year-end. We have a $15 million undrawn committed bank facility in place. This facility has now been extended to January 25 and is available to be drawn in full. Our high-quality whiskey bank now sits at 2.4 million liters, underwriting future sales growth and allowing short-term flexibility in our immediate production planning. But before we move any further, some great news, we've hired an Asia Director and entered into the MOU with Luen Heng in Malaysia, representing tangible progress in our Asia expansion. Let me now cover off immediate actions we've taken since May '23. As we turn to Slide 4. In relation to the Lark brand, our focus is on building the reputation for quality and craftsmanship and establishing Lark as a truly global luxury brand. The Signature Collection was launched in April and was our first move towards the importance of an always-on Lark Spine of core products and a move away from a proliferation of limited releases to ensure we can execute against future growth. A Spine or ongoing repeatable product range, provides consumers products they can come back to, knowing it will be consistent each and every time. Without this focus and discipline in product architecture, it limits our ability to scale internationally for a variety of reasons, but also creates incredible complexity within production planning and operations. The leadership team and I are aligned, focused and building the right processes within our operating rhythm to develop a sustainable growth model for Lark into the future. We've adopted a data-led approach to outline where we can credibly play and help inform some of the strategic questions we need to answer. These insights will drive decision-making, building clear priorities with respect to the consumer target, product architecture and ongoing communications. Finally, as we've previously announced, in the fourth quarter, we took action with respect to obsolete packaging to protect the Lark brand and drive focus towards our core range. All of this means we're building great foundations, which allow us to scale. We are incorporating this into our way of working, and we're using data and insights to inform our go-to-market decisions. Moving to Slide 5; while there's been some challenging trading conditions and changes in consumer behavior post COVID, luxury brands have remained in the main more resilient domestically and internationally. While we remain vigilant to consumer shifts, we're confident that our strategy and focus on geographic diversification will more than offset this softness. In undertaking our expansion, we're building our route to consumer. This means ensuring we know where we have a right to win, namely channels, segments, classifications and occasions and how we show up. This is related to how we build increased awareness, create relevant distribution and ultimately drive rate of sale. Our key channels domestically remain our own hospitality venues in e-commerce, our national key accounts, wholesalers who also service our on-trade customers, global travel retail and private clients. In short, we will have greater focus, channeling our resources into the right places and delivering relentless consistent execution. Turning to Slide 6; I'll now talk through 3 key areas of operations, finance and people. Firstly, in relation to operations, we've introduced and our embedding an integrated operating model within the business to build agility, through having clear ways of working, understanding roles and responsibilities and providing appropriate decision-making autonomy, knowing that a fully operational Pontville is capable of producing greater output more efficiently and with the knowledge that our current Whiskey Bank is adequate to meet short-term forecasts. The leadership team and I have made a decision in May to concentrate our production in Cambridge. The decision revolved around an assessment of our maturing inventory, undertaking preparatory work for a future distillery where new make spirit will be more efficient and exercising appropriate capital discipline. Next, we'll move into the area of finance. Iain will cover this off in more detail, but some key highlights. Importantly, we've increased our engagement with NAB, who have been supportive of a long-term relationship with Lark. We've worked together in order to provide them with a better understanding of our business and our cash conversion cycle. This has meant we continue to have an undrawn committed bank facility. This facility is now available until January 25, and importantly, is available to be drawn in full. Finally, and importantly, people. In June, we undertook an internal restructure to right size our organization and redeploy resources to support future growth areas. This organizational design is now live. The leadership team and I have been working on building a new set of values and a company purpose which will underpin the next stage of our growth. We're also cascading a new set of KPIs within the organization, to ensure clarity of expectations is clear to everyone within the company. We're confident that this will provide increased direction, driving greater engagement and importantly, having a positive impact on culture. Turning to Slide 7; I've now made 3 visits to Asia since starting with Lark and will be there again in September to look -- to onboard our new Asia Director and engage with more international partners. Our recent exports have been great to see some sales, however, long-term brand building and shareholder value creation needs us to adopt a longer-term and sustainable approach to international markets. The importance of international expansion has been well documented as life progresses into a global luxury brand. But it's important that we started making actual progress in unlocking this important building block. Today, I'm delighted to announce we've appointed an Asia Director; Alfred Goh, who will commence with us in early October. Alfred was a standout candidate among a very credentialed short list. He comes with significant commercial and marketing experience across APAC in the wine and spirits industry and is currently managing 11 distributors across the region. Importantly, Alfred is fluent in Mandarin, Cantonese, Hokkien and Thai and will be based in Singapore. As I've mentioned, Latest commenced engagement with multiple potential distributor partners with positive conversations to date, along with incredible insights into things we need to consider as we unlock this vital region. We'll provide further updates on this area at our Investor Day in October, but first, an MOU has been signed with Luen Heng with respect to Malaysia -- with the MalaysIain market with a formal distribution agreement to follow. For context, Malaysia is a strategic market within the Southeast Asia block, representing the biggest single malt market in that area. A great distributor partner works hand-in-hand with brand owners to build brands and deliver sales execution excellence, including distribution, activation and advocacy. They are essentially an extension of the brand and our trusted custodians of it, Luen Heng ticks all of these boxes. Having personally worked with Luen Heng previously, led by Datuk Kenneth Soh, I can tell you firsthand, they have the credentials to work with us and make us a success in this market. Luen Heng represents leading global brands with a diverse portfolio of products across all relevant channels. It's also important to note that Luen Heng also clearly understands single-malt, distributing leading global malt brands as part of their portfolio. As I move to Slide 8, in addition to the progress we're making in Asia, it's great to know that in 2023, Lark made its first steps into the GTR journey, Global Travel Retail, that is. GTR acts as an amazing shop window, providing an opportunity to engage with the target consumer as they dwell, explore and discover. This creates the ability to establish our brands, build increased awareness and consideration and ultimately drive conversion and loyalty. As Australia's #1 luxury single malt whiskey, Lark is perfectly positioned to be the perfect gift for business partners, family, friends and equally to enjoy yourself. Lark is now available in Sydney, Melbourne, Brisbane, Gold Coast, Canberra and Perth International airports. These are run by some of the most well-respected global travel retailers in the world, who we connected with at the tax-free World Association Conference in Singapore at the start of May. As we progress into the next stage of growth, we'll work closely with our GTR partners to build joint business plans and drive win-win outcomes. In the interim, people look out for Forty Spotted and Lark as you depart and enter international airports around Australia and enjoy -- and gift to the best Tasmania and indeed Australia has to offer. As I move into the next slide and speaking of the Best Tasmania and Australia has to offer, it's fair to say that the quality of the whiskey produced by Lark has not gone unnoticed, winning accolades both domestically and by the international community. Lark had a record year in FY '23, recognized with 56 awards across products, people and innovation. More recently, in August, the 2023 World Whiskey Masters results saw our signature range win a host of awards. TasmanIain peated winning a Master's Medal and both Rebellion and Classic Cask winning gold metals. In addition, it's always amazing to be recognized by one of your most influential customers. And this year, Lark saw Classic Cask take out Dan Murphy's Decoded Spirits Award for best AustralIain whiskey. Not forgetting some of the incredible innovations -- sorry, which builds fame, PR and talkability, Dark Lark also won a masters metal in the World Whiskey Masters. Symphony No. 1 was named Australia's best blended malt at the World Whiskey Awards. And finally, Forty Spotted Citrus and Pepperberry also took out a masters medal in the Global Gin Masters. The team and I, along with our Board, celebrated these wins at Cambridge earlier this month. And needless to say, there is incredible pride among the team about what we've been able to achieve and great excitement about what we can achieve in the future. Let me now pass to Iain and he'll take you through some of the details of the financials and our whiskey bank.

Thanks Sash, and good morning, everyone. I'm on Slide 12, and while FY '23 was a challenging year looking at the reported numbers. As has previously been disclosed, the prior year comparatives included a number of one-off and opportunistic transactions. Looking through the impact of these one-off sales, there is encouraging underlying performance, with net sales up 15% year-on-year. What is good to see is that this growth is supported by the initial progress being made in the expansion of sales into export and travel retail channels, as we continue to build the foundations for the longer-term growth of the company. Importantly, gross profit margins continued to perform strongly, improving to 68.9% in the year. This increase was driven by a year-on-year increase in whiskey net sales value per liter to $280. And this increase was driven by product mix and significantly domestic channel mix towards Lark's hospitality venues, where we capture both retail and distribution margins as a direct-to-consumer play. These increases more than offset the impact of moving towards export customers. For export customers, as we use the distributor sales team rather than our own, with their distribution margin in the value chain, and that means relatively lower selling price for export than domestic sales. What this means is, as the business scales in the future with international sales and the mix of business moves further to export. We'd expect a decline in average net sales value per liter as the absolute quantum of net sales growth. In the year, marketing expense was maintained to support short and long-term brand deliverables. And while this was maintained, our absolute spend and reinvestment rates are still below global spirit brand peers in the luxury sector. This will mean we need to be choiceful and targeted about where we direct our marketing dollars going forward, in a phased approach to international expansion. There was an increase in normalized operating costs of 29%. This was driven by an increase in headcount within marketing and e-commerce, as well as costs associated with ongoing work to expand export channels. In addition, there was the annualizing impact of 2 things; a full year of the sales structure, which was implemented in mid-FY '22 to complete the transition from the previous distributor-led sales model, as well as a full year of 2 hospitality venues. The Still, which opened in December '21 and the Pontville cellar door from April '22. While we've seen the annualized cost of these venues in FY '23, their addition facilitated an increase in consumers engaged across our hospitality sites in Tasmania to more than 50,000 over that financial year. As mentioned by Sash earlier, one of the immediate actions taken in Q4 related to cost control was the restructure implemented. This has taken some cost out of the business to allow redeployment and a focus on growth areas without further significant overhead expansion. In the year, we had non-recurring one-off costs of $2.3 million, which included $1.4 million in the final quarter as previously reported. Our operating EBITDA was a loss of $2 million, down from a positive $2.4 million in FY '22. Moving on to Slide 13; the balance sheet and capital position remains sound, providing Lark with important financial flexibility. Our year-end cash position was $7.2 million, and after repayments in the year, Lark is now debt-free with a $15 million committed bank facility available from NAB. This has now been extended to January 2025 and the full amount is available to be drawn. Elsewhere on the balance sheet, total inventory costs, when combining noncurrent and current, increased by 3% to $61.9 million in the year. Within this, there was a more considerable increase in the book value of maturing inventory in Cask, as we continue to build the whiskey bank. However, this was partly offset by a reduction in finished goods within current inventory, with a focus in H1 of FY '23 on selling out stock on hand of limited releases produced in the previous 2 fiscal years. Government grants in the year received were $3.7 million, and that was the federal government modern manufacturing grant, $3.4 million, with the balance being a Tasmanian State Government Tourism grant. Turning to Slide 14 and our fantastic whiskey Bank. Whiskey under maturation increased by 16% in the year to 2.4 million liters. The increase over time is shown on the slide, with the jump in Q3 of FY '22, driven by the Shene acquisition, of course. Importantly, the size and the quality of the whiskey bank supports long-term growth brands by underwriting our future sales. There's been significant focus on segmenting our whiskey bank by age, wood profile, finish, to align with the long-term product architecture as part of our ongoing strategy work. Importantly, the existing whiskey bank allows us to optimize our production in the short to medium term. And with our Pontville design stage nearing finalization, in addition to greater production capacity, we can look forward to increased efficiency in our new make spirits in that new Pontville build. We have a focus on capital discipline and in preparation for that Pontville build, a decision was made to focus operations at Cambridge from May 2023, and this distillery reforms the best liquid of our core signature range. We've been able to make this operational decision, focusing on capital discipline as a result of the benefits of both the existing whiskey bank and our future distilling capacity and be confident that our inventory profile and high-quality liquid is able to support our future sales. I'll now hand back to Sash.

Thanks, Iain, for taking us through the financials and the wonderful position we're in with our whiskey bank. We've spoken about our Investor Day previously and now have set a date for the 17th of October in Hobart. At the Investor Day, we plan to set out our purpose, long-term vision and values, along with our strategic roadmap, priorities and scorecard. We hope this will provide both the necessary glide path, but also a clear understanding of the decisions we will make to set Lark up to achieve its undeniable potential. Finally, moving to Slide 17; as we look ahead to FY '24, we thought it was important to share with you some perspectives of how we see the year ahead. It will come as no surprise that international expansion for Lark will diversify the business and provide a platform for growth, aiming to offset subdued consumer confidence and economic headwinds. We will continue to build our spine, as well as have a clear limited release strategy, which both is good for the brand and delivers commercial objectives. Importantly, this will also accrete brand value. As Iain has mentioned, in half 1, we will cycle $2 million of limited release sales from the prior year, with 70% of those being in quarter 1. These related to a concerted effort of selling out stock on hand of remaining limited releases from FY '21 and '22. While half 1 will see us cycling these older limited releases, we will also be laying the groundwork of building international market sales in the second half. This will involve operationalizing our dedicated Asia Director, onboarding distributor partners and undertaking go-to-market readiness activities. We will invest in A&P to support the launch of our Asia business to build equity and awareness and importantly, begin to build consistent, repeatable sales momentum, as we enter this next and important chapter of growth for Lark. We'll ensure the actions we've taken with respect to the capital discipline continue and we keep a tight rein on our cost of doing business. As I mentioned, we're planning an Investor Day on the 17th of October, where we'll provide a strategic roadmap, priorities and scorecard. But before we finish up, a shameless plug, Saturday is Father's Day and Lark has activated across the country and on our D2C sites to make sure you give that a very, very special Lark single malt. I'll now open up to questions for Iain and I.

Thanks. First question is for an update on Pontville.

An update on Pontville? Yes, as I mentioned, we're finalizing the design phase at the moment. We're expecting to have good visibility of effectively those, let's say, those final specs and costings in the next couple of months. We'll be then in a position to assess what that looks like, the final specs understand all of the production and timings of that. We are anticipating that the full year build, once we move ahead, will last over 2 fiscal years. So it's something we're looking at in detail. As you'd imagine we're very excited about it, and we'll be having a more firm update over the next couple of months, with those plans finalized, and we'll be able to share a full overview of that at the Investor Day in October. Next?

We have a question on Investor Day, whether it will be a Zoom call or an on-site day. Sash?

Yes, we are working through the Investor Day, as I mentioned, Peter, earlier. It will be on the 17th of October in person in Hobart. So we're looking forward to welcoming as many people to our future brand home as possible.

A question in relation to the MalaysIain distributor. One for you, Sash, will there be any minimum volume commitments from the Malaysian distributor?

Yes. As part of the distribution agreement, we'll work through the build. Obviously, you can imagine we're building up from an understanding of the market. And those will be obviously shipping volumes, which will be part of the distribution agreement. But obviously, the ongoing sales will be dependent upon depletions, because we don't want to make sure -- we want to make sure rather that we're driving that repeatable momentum that I mentioned earlier, Peter.

A question in relation to -- can you please advise the debt-to-equity mix of financing, export growth plans? I guess, i.e., will future growth be financed chiefly from debt and not from additional capital raises?

Yes. Look, I'll jump in on that one. I think what we're doing with the export business is ensuring that it's -- I suppose, proportional is probably the right way. So it's pay as you go. We'd like to be able to ensure that, obviously, the sales that we generate and the profits that we generate are reinvested into this important channel. Importantly, we've said we don't want to go to everywhere all at once. We want to do it properly. We will ensure that we grow our equity in our brands. We'll see these brands and then we'll try and grow them over time. But it's really important that you invest behind the sales. And again, it will be an overinvestment at the early stages, but we think it will pay for itself.

And I think an important point to make on that is we will be using distributors for our growth. That means we will be paying a distribution margin, flexible distribution margin as we expand into export channels rather than building significant teams, obviously, so effectively in a pay-per-play model that Sash mentioned rather than something that needs significant overinvestment upfront.

Question on the nonorganic and opportunistic sales in FY '23. Can you please elaborate on those for fiscal '23?

Yes, sure. So we talked about these, I think, at the Q3 update. So these were a number of sales into our noncore channels and included things like investor cask sales, sales to our whiskey subscription business. There was also some bulk whiskey sales in the year and sales into other noncore channels and customers. The majority, about 60% of those sales were in the fourth quarter of FY '22, which we cycle. And hence, as we look at these internally in our management reporting, we sort of back these sales out to get a bit more of a true underlying picture of how we're performing. So that's the background to those sales, basically.

Another question for you, Iain. Does the debt drawdown, does the NAB facility have any covenant restrictions, for example, such as a minimum cash balance?

No. So the debt facility that we've just renewed with NAB previously had interest covenants on it. As we've disclosed in our annual report that had a waiver for FY '23 testing. We've had, as Sash, mentioned earlier, some ongoing -- a really good ongoing engagement with NAB, who were very supportive of Lark. We've just extended that facility out. And as part of that, we've looked at the covenants and effectively that key covenant that I was talking about for FY '24 testing, sorry. We're good on that, too. So we've got that in place.

One more for the NAB facility and probably what about spend. But what do you see as the priorities for the NAB $15 million facility?

Yes. Look, I'll take that. I think the facility is, frankly, optionality. It lets us do many things. I think we're in a fortunate position to fund growth. We're in a fortunate position to decide when and if we sort of invest in more production. But equally, it is about optionality, and it's dictated by the strategy that we built. It underwrites a lot of future choices that we make, but there isn't one hard and fast thing that we'll spend it on. It does provide cash flow, I suppose, optionality, as I mentioned.

Next question. Given a globally competitive landscape and the large buildup in production and maturing inventory, do you imagine a brand and likely price repositioning to enable to sell or to have all the [ prime ] to be sold?

Yes. Thanks, Peter. I think as we sort of mentioned, we're going into an Investor Day, and we've talked about the data-led approach that we've used. And equally, that gives us sort of optionality about that spine I keep talking about, creating the right price architecture as part of that and ensuring that we look at where it is we have a real right to win and a right to play. So price and price points, both up and down are being considered for us to be able to scale into the longer term.

A question on the whiskey bank. How is the whiskey bank volume determined? Does this account for natural evaporation and losses?

Yes. The short answer is, yes, it does. As we talk about the whiskey bank at 2.4 million liters in the system way that has been done in the past. This is 2.4 million liters at 43% ABV. So effectively what we -- the product that we'd be selling out and it captures in maturation losses to the date that we'd expect to sell our liquid. So yes, short answer is yes, it does.

Just to remind if you have any questions to select the Q&A icon located at the bottom of your screen. The next question, when do you forecast sales volumes to come up to 5-year aged whiskey growth rate?

I'm not quite sure why that question was asked Peter, sorry.

Yes, -- it is -- that's how the questions come through. So perhaps if Pat O'Dwyer, if you could just clarify that -- your question, that would be much appreciated. I'll take a question from Nick from Barrenjoey. Net sales value per liter was $280 in FY '24. How should we think about this moving forward?

Yes. Okay. Jump in Iain if you want to. I think, as Iain outlined, we've been impacted by channel mix -- positively impacted by channel mix I should add towards our hospitality and D2C channels, where we capture both retailer and distributor margins. As we're aware of domestically, we have a distribution company and a distribution. Therefore, we own our distribution and not -- and don't pay the distributor margin for it. Where that sort of comes out in the bottom, is we have overheads. Over time, those overheads will be sitting within the distributor and those distributor margins will be embedded into the net sales value. So as Iain mentioned, net sales value over time will obviously decrease as our export business increases. However, the absolute quantum obviously should increase at a greater amount.

Yes. I think it's fair summary. So Nick from Barrenjoey has 2-3 questions. The next question, one for you, Iain, gross margin was up on FY '23, but is there further movement higher on that with scale?

If I'm reading the question correctly, I think as we scale, as Sash just referenced there, as we scale, we will be targeting to scale in international markets. What that does mean is in international markets, we will be working with distributors rather than putting our own feet on the street, so to say, within those international markets, we'll be using distributors and paying them a distribution margin. That will mean a relatively lower net sales value per liter in international markets. And as we scale, that will mean a greater way towards those international markets with a distribution margin, which will naturally mean that our overall net sales value per liter and effectively margin will decrease, as our overall cash margin and cash net sales increases.

Pat O'Dwyer has come back. So the question is, what volume do Lark sell each quarter? That's the first question. The second question is what volume of Lark ages to 5 years each quarter?

Okay. So my apologies, I don't have all of those answers on me, but we'll come back to you on that. Just to answer the volume each quarter, we released those every quarter. I don't have that on me. But the key is, it will probably differ significantly going forward as we open up export markets and export customers. It's almost a just-in-time model when you're in a domestic market, whereas in an export market, you're shipping quantities and then depleting them. So I think it will differ over the long term, and it will be largely more catchy with the domestic market staying quite stable. Our trading period won't come as a surprise, Christmas and the summer and also a spike in July, which we've seen -- June and July, which we've seen traditionally. But it's not a great indication for the future. I don't have the 5-year each quarter on me, unfortunately.

A question on the macro. Due to declining macro situation in Australia over the second half of '23, it was expected to see a decline in luxury expenditure. In sense, the decline may be slightly less severe than expected. Can you advise what management's expectations are on domestic recovery consumption expenditure likely to look over FY '24?

Okay. So I think in short, we're pretty mature in the market that we're in. And I think, particularly with luxury -- luxury tends to be a lot more resilient, as I did mention. I don't know what -- I don't have that crystal ball, but 2024 in the domestic market will largely be [indiscernible] in line with the total category as we are quite mature here. I don't really have an answer on that. I do think that our ongoing luxury products and the luxury price points have remained quite resilient, and I think they will continue to do so.

Couple more from Nick. How has sell-through been to date in global travel retail?

Fantastic. It's probably the best way that I could answer that. I'm really, really pleased with our engagement with our customers. We're really excited about the prospect of -- and you will see over the next couple of months for those that are traveling, you'll see us up in lights. Global Travel Retail, as I have mentioned, will be an incredible shop window for us. And we are Australia's #1 luxury single malt, and we have a right and a real reason to be within the airport space, where you do have allocation for people that can take something with them as they go abroad, and obviously, higher price points that are both in our interest and that of our retailers. As I sort of also mentioned in terms of sell-through, every month, we've seen an increase, which -- or I should say every quarter, we've seen an increase, and we expect that to continue, especially as we move towards those joint business plans and a longer-term horizon in our planning process.

Another question from Nick, perhaps for you, Iain. How have costs been redistributed in the business to focus on growth?

Yes. So I think probably the most -- the most obvious places, as Sash mentioned earlier, we've got -- we're delighted to have Alfred joining us very shortly, based up in Singapore, with Asia being such a key focus area for our international sales for FY '24 and beyond, being able to bring someone of a caliber of Alfred on board is great news. But obviously, we needed to fund that additional expansion. So that's probably the main or the most obvious place that we've seen in that redeployment. And elsewhere, we're very conscious that there is inflation around. We're all aware of that. And we're looking to manage our cost base, to not see significant year-on-year increases. So there's an element of redeployment, the likes of Alfred and a couple of areas that we're working on. But as well, it's making sure that we are not significantly increasing our overhead base in the future.

Yes. I think the only other thing to add to that is, just we're also bringing the right caliber of people on and ensuring that we've got sort of that -- if we want to go international, we want to make sure that we've got some international experience. That's why Iain and I are on board, and I think that's where we will focus our future sort of hires, et cetera.

A question on bottle size. Will Lark ever return to 700 ml bottles rather than the 500 ml bottle?

Yes, it's a great question and one that we've been throwing around internally. It's part of our thinking right now. Have we made any decisions on it just yet, no. But fair to say it's not going to happen overnight. But it is -- our production allows us to make those decisions today. We've been fortunate for the decisions that have been made in the past, to let us start and have that in our thinking. So we will come back to you probably more likely towards the Investor Day.

A question from [ Scott Walker ]. Some third-party production has been used in the past. Can you update us on this and how you see the use of this in future production?

I don't think we've used third-party production in the past. I think we have used 3 fantastic sites that we're pleased to own. So we've got -- obviously, for those who sort of know the history of Lark, we've got our Cambridge site. We've got our Boswell site, and we've got the Pontville acquisition. All of those sites give us incredible optionality and they form the vast majority. And if I've missed some production, I apologize, but the vast majority of our production, that 2.4 million is owned by Lark.

A question on marketing. What level of marketing investment is needed going forward to build long-term brand equity?

Yes. So currently, our reinvestment rate. So we look at it now as the industry looks at it. Our reinvestment rate of marketing spend as a percentage of net sales value is around 18%. So reasonable reinvestment rates. That is lags behind lags behind where our peers in the luxury space would be on a global basis, obviously, it depends by company and a level of maturity, et cetera, but we'd expect that to be somewhere probably in the mid-20s over the long-term horizon to have comparable reinvestment rate. Obviously, we're not going to get to that right overnight. It's -- we need to be building the brand equity of Lark overseas. I mean -- and domestically, but as Sash mentioned earlier, it's investing in line with sales. And as I mentioned earlier, it's been really choiceful and targeted about where we put our marketing investment, to make sure we're getting the best return, the best ROI for that in the markets that we choose to play in.

A question on Cambridge. Is there any plans to expand the Cambridge site as growth continues?

So as I mentioned earlier, we've got Pontville. These are the main area of focus for future operations. We're getting to the final design phase imminently, and we'll be able to have a great view on that. We're very excited about Pontville from when it delivers us in terms of capacity, what it delivers in terms of efficiency and what it's going to deliver us in terms of a pretty iconic brand home for domestic and international tourists and to come see that brand home. So we're really excited about Pontville. That's a main area of focus. Over time, once we get that clarity on Pontville, we will be looking at our whole fixed asset base. We're very fortunate that we've got 3 pretty iconic distilleries in Tasmania. Pontville is the main focus and at some point in time, once we've got that good clarity, we'll start firming up what does the longer-term horizon look like for the rest of the sites. But it's probably a bit premature to talk about what the longer-term plans are for the other sites, until we get that good visibility on Pontville.

Similar question from Nick from Barrenjoey given your production [indiscernible], will you sell Boswell for what could that be worth in an upside scenario?

I think probably just what I just referenced in terms of the -- it's a longer-term view. It would be premature to talk about any of our sites right now until we get that good clarity on Pontville in terms of timings, et cetera, et cetera. So potentially in our thinking across all our sites, what do we do with that? But no decisions made as yet.

One for you, Sash, on brand and product, have you had any further thought on single [ malt ] brand versus multi-brand from memory you are considering the NAD brand for lower price point product?

I think maybe for the time. But at the moment, our focus is on Lark. We have a wonderful product in Symphony No. 1, one of my favorites personally. But that's a blended malt. It serves a fantastic purpose for us within our hierarchy. But Lark is where brand value and company value, frankly, accretion comes from and we're going to spend most of our time, most of our effort, lion's share of that on Lark, and that's our focus as of today.

The last question for today comes from Ken Fleming, acquisitions, mergers in your sites? And if so, what would you be looking for? Are there currently opportunities available?

I think, look, mergers and acquisitions are always on the radar. Right now, if we're being brutally honest, we are focused on getting our business up and running, setting the foundations for growth and ensuring that we deliver what we need to first, getting our house in order in short is what we've been talking about. I'm really pleased about the progress we're making, and I wouldn't want any distractions on that. That being said, we will always consider options out there, but it would have to be very, very compelling for us to make that -- something that we do today. Yes. Okay. So lastly, thank you all for your time. Thank you for your ongoing support of Lark. As we've mentioned, the Investor Day is in October on the 17th in Hobart. We look to sort of see many of you out there and outlining our future, and our glide path and our strategies and priorities with you. And again, I really appreciate everyone making the time. Have a wonderful day here. Thank you.