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

Thanks, Dom. It's now 11:00 AM, you may start the meeting.

Good morning, all. My name is Domenic Panaccio, and as Chair of Lark Distilling Company. It is my pleasure to welcome you to today's general meeting. I would like to start by acknowledging and paying respect to the traditional owners and custodians of the land wherever those participating at this meeting are located. Today's meeting is being held in a hybrid format, allowing shareholders and their representatives to participate in person or via the Webinar Forum. The company secretary has advised that we have complied with the relevant requirements for convening this meeting and that a quorum is present. As the time is now 11:00 AM, I formally declare the meeting open. I am joined today by my fellow Nonexecutive Directors: David Dearie, Warren Randell and Laura McBain. Also in attendance is our Chief Executive Officer, Sash Sharma; our Chief Financial Officer, Iain Short; and Company Secretary, Melanie Leydin. The notice of meeting has been given in accordance with the company's constitution, and copies have been distributed to all shareholders. Unless there are any objections, I intend to take the notice of meeting and attached explanatory statements sent to shareholders as read. The format of today's meeting will be a brief Chair address from myself, a presentation by our CEO, Sash, followed by consideration of the formal business on today's agenda. Following the presentation by Sash, we will provide an overview of the Q&A and voting procedure for today's meeting before moving on to the formal business. On conclusion of the formal business, there will be a Q&A session, giving all shareholders the opportunity to ask questions in relation to the resolutions presented at today's meeting. As previously noted, this is a hybrid meeting, and shareholders will be able to ask questions and cast direct votes at the appropriate times whilst the meeting is in progress. Questions that are received during the meeting, which are of similar nature will be grouped and answered at the appropriate time. If you have any questions which you feel were not addressed at today's meeting, we invite shareholders to contact the company via phone or e-mail. Let me say upfront that I am honored to be Chair of Lark Distilling Company, having assumed the role in January and thank my fellow directors for their support. Before I ask our Chief Executive Officer, Sash, to provide an update on the company's operations, I would like to say a few words on behalf of my fellow directors. While the past year presented macro challenges, including a difficult economic and market landscape, we are pleased that the company has made significant progress in several areas, including exciting green shoots in the crucial direct export and GTR channels. The Board believes these developments and our focus on continuing improvement across the business provides a strong foundation for Lark's future success. Importantly, Sash and the team have good operating momentum and are executing against the company's strategic priorities, namely focusing on: building long-term brand value, delivering international sales momentum and maintaining our domestic leadership position, and underpinning these priorities with capital discipline. The strategic partnership with Seppeltsfield Wines is an exciting and important milestone for Lark. This partnership and successful equity raising supported by strong demand from our retail shareholders under the share purchase plan provides Lark with the capital to allow us to drive growth and accelerate investment in brand marketing and international expansion. We will maintain a disciplined approach to capital allocation, ensuring our strategy delivers long-term value for our shareholders. As I look ahead to 2025, I'm excited about the Lark brand redesign work that has commenced and for the modest development that is planned for Pontville, the long-term home of Lark. Before I hand over to Sash, I would like to take this opportunity to thank all Lark employees for their dedication, passion and commitment to Lark. I would also like to acknowledge and thank all of you as my fellow Lark shareholders. The strong support received as part of the recent equity raising, together with our partnership with Seppeltsfield will help us achieve our vision of making Lark the leader in new world whiskey. Now please let me invite our CEO, Sash Sharma, to provide an update on the company's operations.

Thanks, Dom. I'll just take us through some of the key highlights that we presented recently as part of our annual results. Our net sales revenue was $14 million, in line with our trading update and down 3.1% against FY '23. This was due to cycling of older limited releases and a slowdown in the legacy Chinese indirect export channel, both of which were previously called out to the market as we reset the business with sustainable revenue growth. Pleasingly, we again saw positive performance of the core Lark signature range, up 11% on FY '23. Gross margins were 68%, down very slightly from FY '23 due to channel and product mix. Importantly, disciplined cost control has delivered savings in operating and overhead costs despite the ongoing inflationary environment in which we operate. Together, this resulted in an operating EBITDA loss of $2.8 million. Moving to our balance sheet. We remain well capitalized with $2.4 million of cash at 30 June. Pro forma cash post the placement will see this increase to approximately $27 million at 30 June, and we continue to have a $15 million undrawn committed bank facility in place to January '28. Our high-quality whiskey bank increased slightly to 2.5 million liters underwriting future sales growth and very exciting progress was made in Asia with distribution agreements concluded in Indonesia, Singapore, Malaysia and the Philippines with shipments taking place in half 2. Our GTR business achieved sales of $1.1 million in FY '24, again, showing those green shoots Dom referred to. Moving to the next slide. The importance of casks can't be underestimated in the whiskey-making process. As new make spirit is placed in cask, the cask and spirits interact over time, with the wood providing flavors, colors and aromas to the whiskey while also removing unwanted traits. We believe more than 60% of Lark's whiskey product character is influenced by this reaction. The strategic partnership with Seppeltsfield Wines will secure access to premium oak barrels for Lark, providing certainty over Lark's future maturation requirements. Seppeltsfield was established back in 1851, matures 6,000 barrels of Ports and Sherries, including the longest unbroken lineage of single Vintage Tawny in the world, making it the largest repository of premium fortified wine and casks in Australia. It is for this reason Seppeltsfield is referred to as Australia's premium fortified house. The continued of supply of the highest quality cask creates a competitive advantage for Lark, and is one where there are notable precedents internationally, including with the #1 single mouth in the world, the Macallan’. The key terms of the strategic partnership with Seppeltsfield are as follows: a 10-year agreement with a 10-year option for extension by Lark, exclusivity with respect to selected fortified barrels over 5 years, first rate of refusal over all other fortified barrels with no minimum order requirements going into this agreement. Exclusivity on name rates and usage in relation to whiskey products, joint R&D trials and importantly, a heads of agreement is in place with a contract to be signed, subject to the conditional placement today. Moving to the next slide. We announced our equity raise in strategic partnership with Seppeltsfield on the 29th of July. The planned equity raising comprises of a $15 million conditional placement, which is subject to shareholder approval today, a $6.5 million institutional placement has already successfully concluded and a share purchase plan. Strong demand for the SPP saw almost 5x over subscription. This has resulted in a decision to scale back total demand. However, upsized the original SPP size, stood like from $1 million to $3.5 million. Together, this resulted in an overall equity raise of $25 million. Proceeds of the raise will provide balance sheet flexibility to be used to invest in the brand and facilities. Brand and marketing investment targeted and restaging the brand to drive increased cut through as a differentiated luxury whiskey brand, along with upweighted investment in key markets and channels. Capital investment will be allocated for further development of the Pontville site, which will see increased production and storage capacity along with enhancements to the Lark's cellar door offering in Hobart. Working capital for general corporate costs include future inventory laydown through to cash flow breakeven in FY '27. I'm excited by the position we find ourselves after the conclusion of this equity raise. We have had a clear signal from our shareholders that they back our strategy, our teams and our ambition to become a leader in new world whiskey. We can now get on with executing and accelerating this vision. Moving to the next slide. We shared our strategic priorities with the market at our Investor Day in Hobart in October '23. They remain [ thoughts ] of our ongoing growth plans, and I'm pleased with the progress we've made against each of these strategic priorities. As we move to the next slide. Our first strategic priority is to create long-term brand value by establishing Lark as a globally recognized luxury whiskey brand. We've continued to pick up great roles. Our brand partnerships are exposing us to new audience, and there's been great success behind our Lark [ bar ] activations. Our brand restage is in progress with the delivery of this to be by the end of FY '25. 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 and exciting progress with the execution of 4 agent distribution agreements and sales have taken place in-market -- 2 in-market distributors in half 2. We continue to see strong growth in GTR and domestically, our core range continues to perform. We've appointed Spirits Platform, Australia's leading independent spirits distributor as our exclusive domestic partner, and we're excited by the opportunity this provides us in our home market. Our third strategic priority is cash and capital discipline as we prioritize cash generation and ensure we're measured in our capital deployment decisions. We've now embedded cost and capital disciplines within our business, and we'll deploy new capital against targeted and value-accretive work streams. We've also articulated a clear road map with respect to our stable of assets. Importantly, these strategic priorities will create long-term and sustainable shareholder value. With that, let me again say thank you for your support, and let me pass back to Dom.

Thank you, Sash. Our Company Secretary will now outline the question and poll procedure for today's meeting.

Thanks, Dom. I'll run through 2 separate ones for those in person and one for those on screen. So in person, for those who are voting today, you will have a yellow card. For those who are non-voting, you will have a blue card. Both the yellow and blue cards will allow you to ask questions as well. On to the online. For those shareholders, proxy holders and authorized corporate representatives who are in attendance by the Webinar Forum, take note of the following instructions. Shareholders wishing to ask questions via text, select the Q&A icon located at the bottom of your screen. Type your question in the Ask Question box and press the send arrow. And your questions will be addressed at the appropriate time. If you wish to speak and ask a question, we do have an audio question facility available during this meeting as well. Select the Raise Hand icon and you will be placed on queue and authorized to speak at the appropriate time. Regarding online voting on today's resolution, all shareholders, proxy holders and authorized corporate representatives were entitled to vote will be able to do so via the webinar poll. It is important to note that if you have lodged your proxy form and voted prior to the meeting, you do not need to vote again today unless you wish to change your proxy and voting instruction. For those shareholders, proxy holders and authorized corporate representatives who have not vote apart the meeting, please pass your votes on each of the resolutions when the poll is open. The proxy holders, you will have a summary of proxy votes, which detail the voting instructions, if any, for each of the items of business. By completing the voting via the webinar poll when instruction to vote in a particular manner, you are deemed to have voted in accordance with those instructions. Where the Chair has been appointed proxy on behalf of the shareholder, Domenic Panaccio as Chair of the meeting intends to be voting these in favor of all of the resolutions. With regard to the poll procedures, we'll open voting shortly so that your votes can be cast during the formal business section of the meeting. When the poll is declare open, a poll window will appear. To vote, simply select the direction in which you would like to cast your vote and the selected option will be marked. To submit your vote, simply click on the submit button, and you'll have the ability to change your vote up until the time that voting is closed. Thanks, Dom.

Thank you, Melanie. We will move into the formal business of today's meeting. Firstly, if you have a question on any of the items business, please follow the questions procedure, which was previously outlined by our Company Secretary. We will address your questions after the last resolution. Before opening the poll, I wish to remind shareholders that the poll will remain open for an additional period after we have considered all resolutions. I now declare the poll open. I'll refer you to the first item of business as set out in the notice of meeting, which relates to the ratification of the prior issue of shares under the placement announced to the ASX on the July 29, 2024. The following percentage of proxies have been received for Resolution 1 and are outlined in the presentation. I move that shareholders consider, and if thought fit pass the ordinary resolution. I now refer you to Resolution 2, which seeks approval of the proposed issue of shares to Seppeltsfield Wines Proprietary Limited, a company associated with Nonexecutive Director, Warren Randall. The following percentage of proxies have been received for Resolution 2 and are outlined in the presentation. I move that shareholders consider, and if thought fit, pass the ordinary resolution. I now refer you to Resolution 3, which seeks approval of the proposed issue of shares to Nonexecutive Director, David Dearie. The following percentage of proxies have been received for Resolution 3 and are outlined in the presentation. I move that shareholders consider, and if thought fit pass the ordinary resolution. As this next resolution is a matter concerning myself, I now hand the meeting over to our Company Secretary, Melanie to conduct this resolution.

Thanks, Dom. I now refer to the final item of business, Resolution 4, which seeks the approval of the proposed issue of shares to DRSN Pty Ltd, an entity associated with Domenic Panaccio. The following percentages of proxies have been received for Resolution 4 and are outlined in the presentation. In favor, 95.69%; against, 3.76%; and opened 0.55%. I move that shareholders consider, and if thought fit pass the ordinary resolution. Thanks, Dom.

We will now go to the shareholder questions. Please note, during this time, the poll will remain open to enable you to complete your voting. Mel, have we received any questions?

Nothing received it yet through the audio or through the Q&A box. We did receive some operational questions through our share registry. We'll be dealing with those separately, given we're only taking questions on the resolutions today. We'll just give -- second to see if anyone's got any further questions, we'll keep the poll open during that time. Thanks, Dom. There's no questions in audio or in the Q&A box, nothing in the room at the moment. So you can move to close the poll.

Okay. All right. Given that there are no further questions, this concludes the Q&A session. We will now provide shareholders with an additional 30 seconds for poll voting to be completed. [Voting]

As the additional time is now up, I now declare the poll closed. The company has not received notice of any other business, and as such, concludes the formal business of today's meeting, and I now declare the meeting closed. After the votes have been counted, the results of the poll will be released to the ASX later today. Thank you for your attendance, and we look forward to your continued support.

Thank you, everyone. For those online, I will now close the webinar.