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

Good morning, everyone. Welcome to LARK's '24 Half Year Update. We are recording this webinar for the benefit of those that cannot attend today, and the webcast will be made available on the company's website shortly. Today's webinar will be hosted by our Investor Relations adviser, Peter Kopanidis. I'll now pass to Peter to explain the Q&A procedure.

Thanks, Sophia. Good morning, everyone. 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 questions or comments coming to our attention. Should you wish to ask a question, we request that you type them in a succinct manner. We also encourage you to lodge questions as soon 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 the send arrow. Your questions will then be addressed at the appropriate time. With that, I'll now hand over to Sash.

Thanks, Peter. Good morning, everyone, and thanks for joining us today for our 2024 half year results presentation. Joining me here today is our CFO, Iain Short, and you've already heard from Peter in Investor Relations. At the conclusion of our presentation today, Iain and I will take your questions submitted on the webinar platform. Moving to Slide 2. Our ambition is to make LARK a leader in new world whisky. This is an ambition that the entire LARK team is 100% committed to, and we are progressing well on our journey to make this a reality. As we said at our recent Investor Day, bold statements must be backed up by unique and ownable building blocks. LARK will lead Tasmanian whisky as we create and solidify our role on the global stage. We truly believe Tasmania will be the next epicenter of quality whisky following in the footsteps of scotch and Japanese. There are a number of things which give us this belief. 30 years of history as Tasmania's first and oldest single malt, an unparalleled story, unquestionable provenance, and the right environmental conditions to create the finest whisky. We have the sole rights to a Central Highlands Tasmanian peat bog, which helps contribute to our wonderful house style, coupled with access to some of the best casks in Australia with our long-standing partnership with Seppeltsfield. We have a great team of experienced executives ready, willing, able, and importantly, excited to take LARK to the world. Importantly, we created the Tasmanian whisky category, and it's continued to grow. In addition, we have the freedom to innovate and push boundaries. We have the ability to scale now and into the future underpinned by our whisky bank and stable of assets. And today, we can say we are proudly Australia's #1 luxury single malt. If we move to Slide 5 and our highlights for the half. Net sales revenue was $7.4 million, down $2.2 million against PCP. This was due to cycling of older limited releases, which were previously called out to the market, and a slowdown in the legacy indirect export channel. Pleasingly, we again saw positive performance on the core LARK signature range, up 13% on PCP. Gross margins were 66%, down slightly from 68% due to channel and product mix. Importantly, disciplined cost control has delivered a saving in overhead costs. This was despite ongoing inflationary pressures. Together, this has resulted in an operating EBITDA loss of $0.4 million. Moving to our balance sheet. We remain well capitalized with $5.5 million of cash at 31st December, a $15 million undrawn committed bank facility in place, which has now been extended to January 2028 and is fully available to be drawn. Our high-quality whisky bank remains at 2.4 million liters, underwriting future sales growth and allowing us short-term flexibility in our immediate production planning. Important progress has been made in Asia over the last 3 months to 4 months with distribution agreements concluded in Indonesia and Singapore and MOUs to be converted in Malaysia and the Philippines. Moving to Slide 6. We shared our strategic priorities with the market at our Investor Day in Hobart in October, less than 5 months ago, and I'm pleased with the progress we've made against each of these priorities. Our first strategic priority is to create long-term brand value by establishing LARK as a globally recognized and differentiated luxury whisky brand. Today, you'll hear about some of the great awards we've picked up, our exciting partnership with Peter Gilmore, and the important -- and the introduction of a halo skew to elevate our brand equity. Our second strategic priority is to create international sales momentum and cement our domestic leadership position by creating repeatable diversified revenue streams across markets and channels. We've made tangible progress with converting MOUs to distribution agreements. Sales have taken place in in-market distributors. Growth continues in GTR and domestically, our core range continues to perform well. This is all against a challenging background of economic and business conditions. Our third strategic priority is cash and capital discipline as we prioritize cash generation and ensure we're measured in our capital deployment decisions. Today, you'll hear about the positive evolution of our facility with NAB, our stance with respect to Bothwell, and our ongoing decisions with respect to production. Importantly, these strategic priorities will create long-term and sustainable shareholder value. Moving to Slide 9. As we look ahead to our future brand architecture which we shared at our Investor Day last year, we've sought to create absolute clarity about what our brand propositions will be. And collectively, there is no question that jewel in the crown is and will continue to be LARK single malt. Supporting this master brand will be whiskies from the house of LARK in Forty Spotted Gin. As we stated in our Investor Day, this restage will take place by the end of FY '25. Moving to Slide 10. It was another bumper season for LARK in the leading spirits competitions as LARK continues to stand out on the global stage. Building on the success of the last 2 years, Symphony No1 blended malt whisky has secured the title of Australia's Best Blended Malt Whisky for the third consecutive year. This is an important message for the trade and consumers alike with Symphony No1 leading the pack right here at home. Also, we took out Australia's best non-age statement single malt whisky at the highly regarded World Whisky Awards with the disruptive LARK and Garage project IPA Cask, firmly making our mark in the new world of whisky on the other side of the world. Overseas, in the China Wine & Spirits Awards, we, for the first time, entered our new signature range, Tasmanian Peated and Rebellion Chinotto citrus cask. These yielded 2 gold medals and were backed up by gold medals for both of these SKUs in the Global Spirits Masters awards. This is again important recognition for our portfolio, reinforcing both their quality and innovation. In exciting news, we're delighted to appoint the first long-term brand partner for LARK and Peter Gilmore, executive chefs at Sydney's award-winning key and Bennelong restaurants. This is a strategic investment in building long-term brand value, working with a highly regarded and incredible partner, Peter, who shares the values, ethos, and passion for Australia, Tasmania, and indeed LARK. This partnership will drive brand awareness, capitalizing on Peter's reach and reputation, and will introduce a broader audience to the brand, further building on LARK's engagement with an appropriate strategic target. Throughout the year, Peter's authority on flavor and out-of-this-world experiences will be translated into campaigns in more unexpected and memorable moments for the LARK brand and its consumers. Moving to Slide 12. The 1911 Para Vintage Tawny cask release is a revelation and it absolutely blows you away with its complexity, flavor profile, and incredible story. A cask, which was created in 1911 and has sat patiently waiting to be married with our wonderful whisky, and the result is an absolute showstopper. Thanks to our unique long-term relationship with Seppeltsfield, we gained access to this amazing cask, and we're able to launch the most luxurious whisky in the brand's history and consequently kicked off our rare and remarkable collection. This release plays a key role in creating a halo effect for the brand. It creates brand equity whilst also introducing products that will, in time, likely move into the auction and secondary market space further building on the brand's credibility and hype. Importantly, this halo effect builds positive association right through the entire LARK portfolio. As we move to Slide 14. Growing in international markets is a key strategic priority, and we're setting ourselves up to drive international sales momentum by creating repeatable and diversified revenue streams with appropriate foundations. We recognize that this area of our business will be increasingly important with the softer consumer confidence both internationally and in domestic markets. We've made good progress in the last 3 months to 4 months with Southeast Asian distributors, with MOUs in place in Malaysia and the Philippines with Luen Heng and Booze. In Indonesia, we've now progressed to the execution of a distribution agreement with PMP with the first orders now shipped. Additionally, as we flagged on the 24th of January in our 4C, we're delighted that we've executed a distribution agreement with Velocity Wines & Spirits, a premier distributor in Singapore with shipments expected in early March. I referenced earlier legacy indirect export. For clarity, these are sales made to Australian-based customers selling to individual purchasers who then export overseas, primarily to China. The indirect channel has seen a significant slowdown contributing to our gap in H1. We expect this to continue in H2 in the magnitude of $1.7 million. This makes the progress we are making with direct export expansion with in-market distributors who will grow our brand equity even more important, and we expect to offset at least half of the H2 expected decline in legacy indirect export sales. Moving to Slide 15. Global travel retail 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 deliver conversion and loyalty. We view GTR as a vital channel, and we firmly believe in our ability to cut through as Australia's #1 luxury single malt whisky. This same belief has been echoed by the 2 biggest Australian airport retailers, Heinemann in Sydney and Lotte in Melbourne. In the first half of the year, we grew LARK's presence in key Australian airports and the team has been very active with our GTR partners developing joint business plans with a focus on building visibility and activation typically supported by brand ambassadors. Walking through airports over the half, you would have seen Christmas Cask, Lunar New Year and 1911 come to life, driving wins for our consumers, customers, and indeed LARK. Pleasingly, through this activity and partnership, our nascent GTR business is showing good operating momentum, driving an increase in net sales, which was up $0.5 million versus PCP. Moving to Slide 16. I'm pleased to report that despite challenging domestic trading conditions, our core LARK signature range continues to perform well with net sales growth of 13% versus PCP, supported by additional ranging of LARK Tasmanian Peated and LARK Rebellion Chinotto citrus cask. While there were green shoots, the domestic wholesale channel suffered from the impact of cycling limited releases from FY '23. In addition, our Tasmanian hospitality venues were impacted by lower tourism compared to the PCP with international travel commencing. The team continues to innovate in e-commerce, activating the distinctly yours campaign, leading into the key consumer trend of personalization. In addition, it's fantastic to see important collaborations that build advocacy and credibility with our trade partners, such as our recent collaboration with world-renowned Baxter Inn as part of our ongoing bar series. This was significantly oversubscribed through a ballot system we used in order to drive fairness. Now moving to Slide 18. LARK retains important financial and capital flexibility with long-term committed bank funding now extended to January 2028, and optionality over Bothwell, which I'll cover in the next slide. Our disciplined cost control actions are driving a reduction in net cash used in operating activities. We achieved an overall improvement of $2.2 million in the half year versus PCP. These actions extended to operating and production cost savings, and we remain committed to achieving breakeven operating cash flows from the FY '26-'27 period. Moving to Slide 19. We made the decision in late FY '23 to consolidate production at our Cambridge Distillery. This decision allowed us to optimize production costs, leading to real cash savings, which we continue to actualize in our results. The decisions to consolidate production operations at Cambridge, coupled with the additional available capacity we have means that our historic Bothwell distillery located in the Central Highlands, some 81 kilometers from Hobart is no longer required for current needs. While we have financial flexibility in the short to medium term with our extended NAB facility, we will look to explore options available to divest Bothwell. I'll now hand over to Iain to take us through the half year financial results in more detail.

Thanks, Sash, and good morning, everyone. I'm on Slide 21. As Sash outlined earlier, our reported net sales revenue, that is revenues after excise was $7.4 million for the half year, down $2.2 million against the PCP. At a headline level, sales performance was impacted year-on-year by the following items: lower limited release sales, as previously guided, with the PCP, including significant sales of older and discontinued limited releases left over from previous years. Half 1 performance was also impacted by a slowdown in the legacy indirect export channel, as Sash has just outlined. These significant headwinds were offset by positive performance elsewhere in the business, however. Travel retail continued to perform well. And despite the more challenging trading conditions domestically, we saw positive performance of the core LARK signature range with net sales up 13% year-on-year, supported by additional distribution and ranging of both LARK Tasmanian Peated and LARK Rebellion Chinotto citrus. Gross margins remained strong at 66%, down slightly from 68% in the PCP due to lower net sales per liter of $257. This decline in net sales per liter was impacted by both product and channel mix through a lower relative contribution from a limited release sales and also hospitality venues where we sell direct to consumer. As outlined in our October Investor Day, going forward, as we expand into and see growth from direct export markets, we can expect to see lower net sales per liter as we will be servicing these markets through in-market distribution partners and, therefore, paying a distribution margin in the value chain. Importantly, as I also outlined in October, while we received lower net sales per liter and therefore, reported gross margins decline by working with distributor partners and using their sales and marketing teams, we will not require significant overhead expansion as we expand internationally. Marketing spend, as shown in selling and distribution costs on the face of the P&L was lower in the half than the PCP, with advertising and promotion spend weighted to the second half of the year to support new market launches for sustainable export expansion and brand architecture development. Pleasingly, disciplined cost control has delivered a small saving in overhead costs year-on-year despite inflationary pressures and less production-related costs capitalized into inventory due to the planned lower production volumes. The renewed focus on cost control, including the benefits of the restructure that was implemented in June 2023, has allowed us to offset the impact of investing in new hires into future growth areas, including our priority in Asia exports. Moving to Slide 22. The balance sheet and capital position remain sound, providing LARK with important financial flexibility. The cash position was $5.5 million at the end of December, with a further $15 million available via our committed facility with NAB. The full facility is available to be drawn. And as Sash mentioned earlier, this facility has now been extended to January 2028. Our ongoing and extended relationship with a top-tier partner in NAB is highly valued and provides us with important financial flexibility in the short to medium term. We've been able to put this significant extension in place through greater engagement with NAB to allow a more expansive understanding of the business. Net operating cash outflows were $1.1 million for the first half. This represents a $2.2 million improvement versus the PCP or $1 million improvement adjusting for the impact of one-off cash flows in the prior corresponding period. The impact of lower receipts from customers year-on-year of $3.2 million due to lower indirect export and limited release sales was more than offset by savings in other operating cash flows of $4.2 million compared to the PCP. Importantly, these savings were achieved through a renewed focus on cost control and exercising cash and capital discipline in distilling production by consolidating production out of Cambridge Distillery and more closely aligning distilling production levels with current demand. Turning to Slide 23 and our high-quality whisky bank. The size and quality of the whisky bank supports long-term growth brands by underwriting future sales and also allows us to deploy capital discipline and flexibility in production. As previously outlined, the size and quality of the existing whisky bank has allowed us to make the decision to consolidate production at our Cambridge site and taper production levels to around 100,000 liters per year. This more closely aligns the current demand and previous production levels. And as such, we can expect to see only modest increases in inventory in the short term. Importantly, our Cambridge site has production capability up to 300,000 liters, which gives us short to medium-term flexibility to increase production as export volumes grow. Let me just now take this opportunity to address a common question we receive on minimum age and age statements generally. New make spirit needs to be aged for a minimum of 2 years to legally be called whisky. While LARK's whisky products do not carry an age statement, they are generally aged significantly more than this minimum legal age and are selected for bottling based on taste and flavor profile with a mixture of ages in each marriage of whisky blended for bottling. As Sash outlined earlier -- sorry, as Sash outlined in October, age statements are an important attribute for consumers of whisky in overseas markets, with around 60% of our source of business competitors using age statements for consumer reassurance and navigation, we are there factoring in age statement into a long-term stock modeling to ensure flexibility and the likely introduction of age statement releases in future plans. This means we have seen and we'll continue to see an increase in the average age profile of the whisky bank in time. I'll now hand back to Sash.

Thanks, Iain. I'm now on Slide 25. We'll continue to come back to and track our progress against our strategic priorities. To repeat, we'll build long-term brand value by establishing LARK as a globally recognized and differentiated luxury whisky brand, we'll create international sales momentum and cement our domestic leadership position by creating repeatable, diversified revenue streams across markets and channels and we'll exercise cash and capital discipline by prioritizing cash generation to underpin growth and ensuring we're measured in our capital deployment decisions. Importantly, we believe that these strategic priorities will create long-term and sustainable shareholder value. The executive team and Board are focused on positioning LARK for sustainable long-term growth. And with that, let's turn to Slide 26 that sets out our growth plans. This is the growth plan we shared at our Investor Day and is broken into 3 key phases. In the first phase, which we have already commenced executing against and have good momentum in, it represents the next 3 years to 4 years, where we'll establish our beachheads. This will involve building brand equity foundations internationally, entering identified markets, all while practicing cash and capital discipline. In the second phase, it's all about building on and embedding these foundations, expanding consumer recruitment into our brand portfolio. In addition, we will enter new markets and regions, building and capitalizing on what we have learned and what's worked. As we look to Phase III, we'll accelerate. At this point, the brand foundations would have been set, international markets entered and sales momentum created. This is where we'd see brand value explode building mass reach. Together, this growth plan will see LARK achieve its ambition of becoming a leader in World Whisky. Moving to Slide 28 and our perspective for the full-year. As we look ahead to the FY '24 full-year results, this will be set against the backdrop of an ongoing challenging trading environment where consumers remain cautious. However, we remain focused on executing against our strategic priorities, showing tangible progress and operating momentum on an ongoing basis. We are doing what we said we would, and we're walking the walk as we execute our strategy to build the correct foundations. These actions will reap benefits as we build solid foundations and prime ourselves for growth. For our first strategic pillar, which is build long-term brand equity, we'll focus on our core range with a clear purpose for limited releases. We'll accelerate our investment in A&P in the second half of the financial year to support the launch of our Asian export business to build brand equity and planning is well underway for our restage by the end of FY '25. For our second strategic pillar, international sales momentum and domestic leadership position. We'll fulfill shipments during Q3 to Indonesia and Singapore. We'll convert MOUs for Malaysia and the Philippines into distribution agreements. As we've said previously, our net sales per liter will decline as direct export sales accelerate in the second half of FY '24. And direct exports will offset more than half the expected shortfall of the legacy indirect export channel versus PCP. For our third pillar, cash and capital discipline, we've now extended our $15 million committed NAB debt facility till January '28. We'll explore options to divest the Bothwell distillery, and we remain committed to targeting positive cash operating cash flows by the FY '26-'27 period. With that, I'd like to thank you for your ongoing commitment to LARK, and I'll now open up for questions.

Thanks. Sash, we have a number of questions. There's 2 questions from shareholder Martin Razmoski. Given LARK's strong performance in a mature market like Australia, and strong -- and recent strong performance in GTR, how much potential do we see in this channel? What is the margin differentials with other channels? And how do you consider other geographies for GTR such as the Middle East?

Thanks, Martin. In terms of Australia being a mature market, that's correct. We do see Australia to be a largely mature market, but we still see growth that will come out of this through innovation as well as with the distribution and rate of sale sort of growth that we intend to create. Importantly, I think it's also important to call out that global travel retail is a strong channel for us. And as we work through the margin differential, which we talked about at our Investor Day, which I'll pass over to Iain in a second, obviously, we have clear distinct business channels, one being hospitality and D2C, which is the highest margin as we capture retail margin and distributor margins, where we go to market directly with our sales team, we capture distributor margins. And as we go into export, we will be using a distributor margin and paying for it. In GTR, there is usually a concession paid to an operator. But in total, it adds up to about the margin that would be in a distributor market. We have considered other GTR locations, key locations such as the Middle East or Dubai and Singapore. In general, what customers are actually looking for is first to see an initial growth in the domestic market to be then supported by a GTR presence, i.e. driven by awareness, driven by consumers looking for the products. Now there are some exceptions to that. Middle East is a great example. Singapore is a great example, which is transitions or transit points where you can generally still have some growth without domestic presence. But our plan as we go forward is to first build the domestic markets and quickly follow into global travel retail.

Next question also from Martin. What are the conditions under which LARK would access the lending facility? What trade-offs have you considered with debt versus equity finance growth? Perhaps one for Iain.

As we outlined, the NAB facility has now been extended to January 2028, which gives us a sort of short to medium-term flexibility in terms of our finances. And as we talked through the actions that we've been taking in terms of the capital discipline, we have delivered significant operating cash flow savings, so we can see that coming through. But we can also see that we are still in a net operating cash outflow. We're committed to growing the business, delivering positive operating cash flows by the FY '26 to '27 period. And effectively, we -- it now gives us that flexibility. That facility gives us that flexibility to effectively bridge us to that point as we grow the business and get to that positive operating cash flows. So that's probably on the NAB. And then in terms of equity finance, it's not in our consideration right now. It's not something that's needed in our current growth plans.

Nick from Barrenjoey asked a handful of questions. I'll just sort of take these one at a time. First on the cost base. Well done on getting the cost base under control. How should we think about costs into the second half of '24?

I can pick that one up. Costs into the second half of '24, in terms of -- looking at the P&L, in terms of operating costs, wages, and other expenses, materially, I think we could expect to see that pretty much in line with the first half. In terms of marketing spend, we'd expect to see that weighted into half 2. As Sash outlined, we're expanding into new export markets with distribution partners, and we're going to be working with those partners to launch the brand, drive brand equity, drive pull-through, and grow the brands in those markets for our and the distributor success. So we're going to need to invest in A&P. So we expect to see more A&P in the second half of the year than the first half of the year. It would be a quick summary in answer to Nick's question.

Thank you. Perhaps for you, again, Iain. Production, this is from Nick again, production has been pared back. How do you consider the return to higher production over time?

What I think the good news is for us, for Sash and I sitting here is we do have pretty good flexibility. We're pared back to about 100,000 liters in Cambridge right now. Our current production assets and site at Cambridge can produce circa 300,000. So about 3x where we are now, obviously. So that gives us very good flexibility in the short term. And in the longer term, we've got obviously options around Pontville, Cambridge, et cetera. So we do have a lot of flexibility. So as our export business grows and we develop our stock model for the future range architecture, we do have flexibility around that.

Another one for you, Iain also from Nick is GM, gross margin likely to stick around these levels or fall through time as the business improves export sales.

So of course, I just talked you through. So gross margin, in the short term, i.e. H2 is probably going to stick around these sorts of levels at a headline. As the distributor-led export business becomes a bigger and more significant part of our business as we get -- start getting repeat orders for our current markets, bringing new markets on, the mix of business is going to shift towards export customers with a distribution margin. And that mix will pull down the reported gross margins over time in headline.

Yes. I think just to add to that, as we said at the Investor Day, we expect the total revenues to increase, total margins to increase. So while the percentage margins will decrease, the absolutes will increase over time.

Perhaps one for you, Sash from Nick from Barrenjoey. Can you comment on sales progress into the new year in response to new limited releases?

Yes. So the limited releases that we've gone to market with is Christmas Cask. That was into December. Again, what we've done is ensure that we've picked our limited releases into the right channels at the right time, and they've performed really, really well. In terms of Lunar New Year, which was a new one which we didn't have a year ago, a very, very strong response. And again, one that I think we're all very, very excited about repeating on an ongoing basis, learning from the success of this year. And then I think 1911, which I talked to, which is bringing us into a real sort of echelon of luxury, that is not meant to be selling out in day 1, right? That's meant to be there to create halo and being the right channels with the right consumer with visibility in order to be able to drive the whole portfolio and add credence to that portfolio. So as I look to our limited releases, they've done really well. I think the one that I -- has just happened very recently is Baxter Inn, a huge oversubscription. One of the most renowned bars in the world as part of our bar series, a huge amount of advocacy, a huge amount of credibility partnering with a bar such as Baxter in creating a fantastic product, which look, I hope people enjoy that, and I expect to see it on the secondary market at some point, but what an amazing opportunity to partner with a fantastic venue here in Oz.

Last question from Nick. Considering the indirect channel and consumer environment, do you expect net sales to grow in the second half of '24?

Do you want me to take it?

Yes. Sure.

So yes, as Sash called out earlier, we've got that headwind in terms of indirect. Currently estimating, we'd be offsetting at least half of that with onboarding new direct export customers, which still leaves us obviously a little bit less than half of that gap. What we do have in H2 is positive. We're expecting to see continued positive performance in travel retail. As we outlined earlier, our domestic core range is performing well, and we're looking to see where we can to for other opportunities, including with a tailwind, faster export, getting those repeat orders in new markets, et cetera. So we've got that -- at this point in time, we've got that gap, but we've got quite a few positive things that we're looking to bridge that gap with.

Thanks, Iain. Matt Smith's comment/question. Thanks, Sash and Iain. Good presentation. Positive news going forward. While that is good, the share price is languishing, and stagnant, cost cutting is relatively easy. Well, it's not as easy as everybody thinks, but anyway, that does not lead to success. When will investors see some upside in this regard?

Well, look, I think the usual comment on this is we can control what we can control. The share price is a reflection, I hope, eventually, of our long-term plans and what we're putting together as long-term and sustainable business foundations. I think the growth into export -- the proof of growth into export is important, sustainable export. I think the other parts that we're looking at is our operating rhythm and momentum is moving in the right direction. And truthfully, sentiment is something we don't control in terms of consumer confidence, but that's starting to show some green shoots. So a combination of those hopefully reflects in the share price. But as you'll always hear me say, it's not something that we can control. We control what we're doing on the ground every day and delivering things that may seem easy such as cost control, but believe me, it's not in addition to obviously driving sales momentum.

I'd probably just add to that in terms of the cost control. If you think about the actions that we have taken on cost, the primary one is around distilling production levels, so not something which will be impacting our short-term export expansion plans. And the -- we do have a cost saving in marketing investment. As I mentioned earlier, that's a phasing of half 1 to half 2. So where we've seen significant cash savings, I think just to be clear, we haven't been taking out -- taking savings out of growth areas of the business. In fact, we've been investing into growth areas such as innovation as we look into the future of brand architecture development and also into Asia with the appointment of a regional director. So I think it's just important to clarify that on the cost base side.

And I should also say, investing in A&P as we launch into these markets to give us the best chance of success, which is important.

A couple of questions from Pat O'Dwyer. That's asking about the status of Pontville first up.

Yes, sure. I can take that. So as I just mentioned earlier, we're currently producing Cambridge with distilling production around 100,000 liters. And we have the existing production capacity at Cambridge to increase that to 300,000 liters with our existing site as export sales grow. As we previously updated, the design phase of the Pontville master plan has now been completed and has also updated the fact that the Pontville build isn't funded, and we don't need the capacity for that in the sort of short term. We'll proceed with any distillery expansion when the timing is right. And in the meantime, utilize Cambridge for distilling production and our Pontville site for warehousing, coopering, bottling, and also tourism.

Thanks, Iain. Question from David Meehan from Moelis. Will you be looking to add new distribution agreements in calendar '24 or will the focus be on embedding the existing distribution agreements?

Yes, good question. I think a bit from column A, a bit from column B. And I think we will definitely be focusing on embedding and getting things right in the 4 markets which we will enter by this financial year as opposed to calendar year. At the same time, we have live discussions with -- as you'd expect, with multiple distributors around the world. But equally, what we don't want to be doing is, I suppose, diverting our focus and doing things poorly across 20 markets rather than getting them right in a few and learning from that success. So long story short, we are doing both. But it's important we pick. #1, we talked about this at Investor Day, pick the right distributors as opposed to pick any old distributor. Our important sort of path forward is we've picked key markets where we want to be, and we need to be able to deliver against that. Equally, there's a risk of, again, resource and focus, which I want to make sure that we're all over.

Some more follow-up questions from David from Moelis. What was the mix of the initial products into export markets? And was Forty Spotted included within these sales?

Yes. Thanks, David. I think important to say, we try to keep it at a very tight portfolio. And we've talked a lot about core and the move to making sure that we get our portfolio and structure right. So it was a narrow portfolio that went into international markets, largely focused on the core range of LARK. With respect to Forty Spotted, Forty Spotted did and will continue to form future orders.

Another question from David from Moelis. In relation to the potential divestment of Bothwell, can you give us any color on how far that's progressed and where you actually are in the process, please?

I can cover that one. In terms of how far that's progressed, we're starting that now effectively. We've been -- a lot of work to understand capacity requirements, et cetera. And we are -- we sort of understood that now, and we'll be doing our work in the coming weeks to sort of assess what the potential options are assuming our hypothesis is validated. Then we'd look to then sort of get into sort of actively marketing the site as appropriate.

Second question from Pat O'Dwyer. Just asking our plans around looking at China as an export market.

Yes. I think, look, China is not coming as new news. China is in probably not the best consumer confidence space at the moment with real estate, the stock market, et cetera, et cetera. That being said, it remains an incredibly enormous market, an important market for us. As we talked about earlier, we've accessed traditionally or through legacy that through an indirect channel. I think the success of China is picking the right distribution partner and the right regions. China is a big country. We are interested in the southeast of China, which is where our source of business is. It's really important for us to pick the distributors that make sense for us in that space and ensuring that we access that market properly. And that means picking market distributors that are in the market to build the brands as opposed to trying to service it from Australia. So how will we do it? The same way we're doing it with every other market in the right way with proper in-market distributors.

And the last question for today's presentation comes from Nick from Barrenjoey. Looking for an update on how House of LARK is progressing.

Yes. House of LARK, part of our total restage, which we'll do by the end of FY '25. But the first product to come out of that is watch your space. It's not far off. It will be part of DARK LARK. So an important sort of offering that will come out of the House of LARK.

Okay.

Okay. Was that all his questions, Peter?

Yes. That was the last question. So over to you, Sash, for -- to close.

Okay. Once again, thank you, everyone, for your time this morning, and again, your support of LARK going forward. And we look forward to, again, showing the progress that we're making against our strategic priorities on our next call. Thank you.

Thanks, everyone, for attending. The webinar will be closed now. Thank you.