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

Good morning, all, and thanks for joining us today for the LARK Half Year 2025 Results Presentation. My name is Peter Kopanidis. I am LARK's Investor Relations Adviser. Presenting today will be LARK's CEO, Sash Sharma; and CFO, Iain Short. We are recording this meeting for the benefit of those, who cannot attend today, and the webcast will be available on the company's website shortly. At the conclusion of the presentation, there will be a Q&A session. 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 early as you can. Shareholders wishing to ask questions, please take note of the following instructions. Please select the Q&A icon located at the bottom of your screen. Type your questions in the Ask a Question box and press the send arrow. Your questions will be addressed at the appropriate time. With that, I will now hand over to Sash.

Thanks, Peter. Good morning, everyone, and thanks for joining us today for our H1 results presentation. Joining me today is our CFO, Iain Short, you've already heard from Peter in Investor Relations. At the conclusion of our presentation today, Iain and I will take your questions submitted through the webinar platform. Moving to Slide 2. Our ambition is to make LARK a leader in new world whisky. This is an ambition the entire LARK team is energized by, committed to and are progressing with making a reality. LARK will lead Tasmanian whisky, and we're taking giant leaps to make this happen, 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 whisky. There are plenty of reasons outlined here that give us this unwavering belief. And as we undertake the restage of our brand, we will capture these, distill them down and ensure we differentiate ourselves from the competition and remain Australia's #1 luxury single malt. Moving to Slide 5 to our key highlights for the first half. Net sales was $7.9 million. This was up 7% or $0.5 million on PCP. The increase in net sales was driven by growth in D2C, GTR and export, partially offset by lower net sales from the domestic B2B channel. The growth in D2C, which includes our e-commerce and hospitality business was a highlight this half, up $0.6 million. Gross margins were 63.6% for the first half, down from PCP. This was primarily due to channel mix, including the expected impact of the new domestic B2B sales model that we transitioned to on August 1st. Importantly, disciplined cost control again delivered savings in operating and overhead costs to the tune of $0.2 million versus PCP. This was despite the ongoing inflationary environment in which we operate. After consideration of planned acceleration in marketing investment, this has resulted in an operating EBITDA loss of $1.2 million. Our net operating cash flows in half 1 reflect the planned acceleration in marketing investment in line with our strategic priorities, which includes our exciting brand restage that I'll cover later on. Moving to our balance sheet. Post our successful placement during half 1, we are very well capitalized with -- sorry, $23.6 million of cash and cash term deposits, a $5 million undrawn committed bank facility in place to January 28. And as previously called out, Bothwell was surplus to requirements with the sales process taking place. This has now concluded, resulting in a further $4.1 million before selling costs expected to be received from the sale of property, plant and equipment in March. Our high-quality Whisky Bank remains steady at 2.5 million liters, underwriting future sales growth. Our LARK portfolio and brand restage is well progressed and on track for completion by the end of the financial year. And today, I'll introduce our new blended malt whisky from the House of LARK, KURIO. Moving to Slide 6. We shared our strategic priorities with the market at our Investor Day in Hobart way back in October '23. Importantly, they remain unchanged and core to our ongoing growth plans. I'm pleased with the progress we've made against each of these strategic priorities, which I'll cover off now. Our first strategic priority is to create long-term brand value by establishing LARK, as a globally recognized and differentiated luxury whisky brand. The LARK brand restage is well advanced and on track for completion in late FY '25. I'll also cover off our exciting brand partnerships, the success of our Wilderless (sic) [ Wilderness ] collection and our personalization program. 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 and -- sorry, tangible and exciting progress with our direct export business in Asia. Our focus is on activation initiatives to drive depletions. And we've also appointed an Asia-based brand ambassador in Q2. The transition to spirits platform for our domestic B2B business was made on the 1st of August and is progressing well. We continue to see strong growth in GTR in only our second year of operation. Our third strategic priority is cash and capital discipline. We have now embedded cost and capital disciplines within our business, and we will deploy new capital against targeted and value-accretive work streams. This includes marketing investment relating to our critical brand restage and important brand-building support to drive awareness, trial and depletions. We've taken steps to execute our road map with respect to our stable of assets with Bothwell sold and due to settle in the coming months. In addition, the transition from Cambridge to Pontville is progressing well. Importantly, these strategic priorities will create long-term and sustainable shareholder value. Moving to Slide 9. LARK continues to grow its global reputation with medals across leading international awards programs. These awards and accolades continue to elevate our position in the global landscape, reinforcing LARK's reputation for unparalleled quality and innovation. It's wonderful independent and global recognition for Chris and the entire team that we are making some of the best whisky in the world. In addition, our recent gold medal for the LARK 1911 single cask made by using an incredibly rare Seppeltsfield cask highlights the enviable position we find ourselves with our exclusive and long-term partnership with Seppeltsfield. Moving to Slide 10. Driving our luxury credentials and awareness via meaningful partnerships allows us to build long-term brand value, providing fame and appeals to a broader audience, who are being exposed to our brand. Our partnership with the Art Gallery of New South Wales allows us to showcase LARK with new audiences, whilst increasing domestic awareness. Our partnership with Spirits platform allows for brand activations at members and private events supported by their Spirits Academy ambassadors to drive trial and recruitment. We continue to work with artists and luxury brand collaborations such as Archibald winning artist Del Kathryn Barton. Next, moving on to Slide 11. Our NPD strikes the balance of new news, occasion-led and repeatable releases. The new product development that we undertake delivers layers of storytelling and provides an opportunity to continue to demonstrate our ability to innovate and delight. Looking at the images on this slide, I'm sure you'll agree that our teams have done a wonderful job in stepping up our execution. In addition, gifting remains a key driver for LARK, and we've targeted some key occasions such as Christmas and Lunar New Year. This type of NPD continues to resonate well with consumers with our D2C, e-commerce and GTR channels particularly benefiting in the first half. Moving to Slide 13. Growing international markets via a sustainable direct export business with our distributor partners is a key strategic priority for LARK. For H1, we reported direct export sales of $0.5 million through reorders from Indonesia, Singapore and the Philippines. In the first 12 months since launching, we have reported sales of $1.4 million. In FY '24, we executed distribution agreements with in-market partners in Asia. In FY '25, our focus is on driving awareness, distribution and depletion momentum for reorders. In H2, we are accelerating and upgrading our activation programs with our distributor partners. To assist with this increase in activation, in Q2, we appointed a regional brand ambassador, which allows us to educate and mentor both consumers and trade in a more meaningful way. It also shows our partners that we are committed to growing our brands with them and investing in the right areas to make it happen. Discussions continue with partners in new markets with modest shipments expected in half 2 to seed the brand ahead of an accelerated entry in FY '26, supported by increased marketing investment behind the restage LARK brand. Moving to Slide 14. 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. As Australia's #1 luxury single malt whisky, the GTR channel is important in the seeding of LARK to consumers, both domestically and in international airports, as they go about their travel ritual. Our GTR presence continues to grow at key Australian airports with Adelaide added during Q2. The team has been very active with our GTR partners developing joint business plans with a focus on building visibility and activations, typically supported by brand ambassadors. During Q1, our activation was focused on Dark Lark in Heinemann, Sydney, driving sales and visibility, while sampling over 5,000 consumers. If you're traveling within the next month, you will experience Lunar New Year activity live in Sydney with a tasting bar activation scheduled for Melbourne in Q3. We now have permanent visibility in place for LARK in Sydney, Melbourne, Adelaide and Hobart Airports. Importantly, these initiatives continue to drive wins for consumers, customers and of course, LARK. Pleasingly, through this activity and partnership, in only our second year of operations, our GTR business continues to show good operating momentum, achieving net sales of $0.8 million in half 1, up 18% versus PCP. We are also planning for overseas expansion as the LARK brand is rolled out to export markets. Moving to Slide 15. Our internally managed D2C business performed strongly in H1. Sales were up $0.6 million, driven by strong performance in our e-commerce and hospitality venues. In addition to being a sales driver, our D2C channel plays a crucial advocacy role, enabling us to offer exclusive products that complement our B2B range. Our hospitality and distillery sites engage and delight consumers, as well as trade and distributor partners, creating an immersive LARK brand experience. Our e-commerce channel saw the benefit of initiatives to drive increased visitors to our site and the extension of channel exclusives through the personalization of Christmas cask and the introduction of the Wilderness single cask program. The LARK hospitality venues continue to perform well with H1 net sales growth reflecting increased tour offerings and an enhanced visitor experience at the Pontville Distillery. The lease for the Forty Spotted Gin Bar in Hobart was not renewed with all activities successfully transferred to The Still with no impact to visitor numbers or revenues. In addition to LARK's own e-commerce D2C channel, work has been ongoing with the Whisky Club to develop LARK Rare Seppeltsfield Tawny Cask, the first in a range of Seppeltsfield releases. Moving to Slide 16. We successfully completed the transition to Spirits Platform for our B2B business on the 1st of August, albeit this was set against the backdrop of the challenging trading conditions. Spirits Platform are the domestic market leader in ultra-premium and above single malt. LARK and Forty Spotted are a strong portfolio fit, as the only Australian brands alongside prominent global brands such as the Macallan and Remy Martin. As a reminder, the partnership with Spirits Platform provides us with access to a commercial team more than 5x larger than LARK's previous team, increasing coverage, particularly in the independent channel. Iain will cover off the change in our accounting disclosure and economics during his presentation. In summary, the Spirits Platform margin is included in LARK's selling price. This reduction in net sales has been more than offset by the associated internal cost savings from our previous sales team. The performance in selling in the first 5 months of our partnership with Spirits Platform was broadly in line with our expectations. We were pleased to see the benefit of Spirits Platform's enhanced commercial coverage during Q2 with distribution growth in the wholesale channel, where LARK historically has under-indexed. Unfortunately, industrial action at Endeavour Group's Victorian distribution centers in December impacted important depletions to trade, leading to in-store out of stocks on some key SKUs over the crucial Christmas selling period. This was despite strong consumer and promotional programs in trade. This will impact LARK shipments in Q3. LARK is a core brand with Spirits Platforms portfolio, ensuring appropriate distributor focus. Working jointly and utilizing their portfolio strength and commercial reach, we're confident that our partnership with Spirits Platform will drive both brand equity and sales growth in market of LARK's current and future range. Moving to Slide 18. Post the successful placement that occurred during H1, LARK has a strong balance sheet and cash position to support our growth ambitions. We have cash and cash term deposits of $23.6 million at 31st December, with sale proceeds to be received from the sale of Bothwell in March. Our NAB $5 million committed debt facility continues to be available to January 28. We're focused on measured capital allocation to support our growth plans through to our positive operating cash flow target during FY '27. As we outlined as part of the placement, we will allocate capital to the following strategic priorities: investment behind the LARK brand restage; investment in awareness driving activities in current and new markets, including GTR; Pontville distillery developments as required to support our growth; cellar door investments to drive brand experience; and importantly, continuing to lay down whisky for maturation to support growth, while utilizing our existing whisky bank. Moving to Slide 19. We've been very focused on the efficient utilization of our stable of assets, and I'm pleased with how the team has taken steps to execute against our road map over the last 18 months. Work is ongoing to develop Pontville, as the home of LARK, one which is reflective of Australia's #1 luxury single malt. Key equipment and processes have been transferred from Cambridge, providing continuity of our new make house style for our award-winning whisky. We are taking steps to ensure distilling, coopering, storage, blending and finishing, bottling, tourism and back office are all on one site. Importantly, the current upgrades to Pontville are supported by the existing government grant, which include a capacity increase to more than 0.5 million liters at 43% ABV. Transfer and installation of key Cambridge assets, as well as automation and equipment upgrades to increase efficiency. In addition to this, there will be upgrades across the site in blending, filtration and cooperage, as well as safety and aesthetics improvements. We anticipate that the current development will be completed and commissioned in coming months with a further $2.5 million to $3 million in CapEx, the majority of which will take place in Q3. As we've previously said, the Bothwell site is excess to our requirements with the sale process to be completed in March. Cambridge will continue to be utilized for maturation. With that, 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. In my section, I'll take you through our half year 2025 financials and our whisky bank. I'm on Slide 21. As Sash outlined earlier, our reported net sales revenue, that is revenue after excise was $7.9 million for the first half, up $0.5 million against half year 2024. With the transition of our domestic B2B business to a distributor model from the 1st of August, there is a change in excise treatment with Spirits Platform now responsible for excise payments for domestic B2B sales rather than LARK. For us, this means lower excise within both statutory revenues and cost of goods. However, there's no change to the underlying economics. To assist with this transition, we've included a slide in the appendix that highlights the different excise treatment in each channel and a reconciliation of statutory revenue and cost of sales. We've also included a slide in the appendix that sets out the unit economics of the route-to-market change for Australia, and this is the same slide that we had in our FY '24 results presentation. I'd be happy to take any questions on this change at the conclusion of our presentation today. The increase in net sales for the half was driven by growth in D2C, export sales via in-market distributors and travel retail, partially offset by lower net sales from domestic B2B, as well as the legacy indirect export channel. As I just mentioned and as outlined in previous briefings, the domestic B2B comparatives are impacted by the change in the sales model with a distributor margin now included in net sales price. This distributor margin has been fully offset by overhead savings from the removal of our internal domestic sales team in the first quarter. As expected, the shift towards a distributor-led sales model in both domestic and export markets has contributed to a decline in gross profit percentage with a reduction of 2.5 percentage points to 63.6% for the half year. Sash has already referenced the planned increase in marketing expenses, which increased to $2.2 million, which is 27% of net sales in the half year '25. This was up $1.1 million versus the PCP, comprising the investment made on the LARK brand restage of circa $0.5 million and increased brand activity, including e-commerce DTC advertising spend, as part of the successful Christmas gifting period. Operating costs were $4.9 million, down $0.2 million, supported by savings from the removal of the domestic B2B sales team. Moving to Slide 22. Following the recent placement that raised a net $24.4 million, total cash was $23.6 million at 31st of December, comprising cash of $16.6 million and a 6-month cash term deposit of $7 million. The recently announced unmarketable parcel campaign that will complete in April 2025 will modestly reduce cash position in the second half by up to $0.3 million. Trade receivables at 31st December were impacted by the transition to a distributor-based sales model, which changed the timing of receipts through changes in order patterns and payment terms. This change resulted in the historical increase in Q2 receipts from sales across the Christmas period being pushed into Q3 with receipts of $0.9 million collected in the first week of January, as the receivables became due. Prepaid assets at the half include insurance and other annual costs that are expected to unwind substantially across H2. Total inventory at cost was $64.7 million (sic) [ 64.8 million ], up $0.6 million or 1% versus June '24, and this provides strong asset backing and underpinning of future growth with maturing inventory in barrel at cost of $59 million, up 2% versus June '24. Property, plant and equipment included $0.2 million of additions relating to the ongoing development of Pontville, as our primary production facility and land, buildings and property, plant and equipment at the Bothwell site have been classified as held for sale at the 31st of December. On the borrowing side, LARK remains debt-free with an undrawn $5 million committed facility with NAB. This matures in January 2028. Moving to Slide 23. Net operating cash outflows were $2.6 million for HY '25 versus $1.1 million in the PCP. Our focus on cash and capital discipline continues in the business with net operating outflows in the first half, reflecting the planned acceleration in marketing investment in line with our strategic priorities and the timing of receipts following the transition to a distributor-based sales model. As I mentioned on the P&L slide just before, under the revised domestic sales model, alcohol excise payments are now the responsibility of Spirits Platform, and this has reduced excise collected within customer receipts with a corresponding offset in payments. Government grants and tax incentives received relate to the excise rebate as well as the Australian government R&D tax incentive with the increase versus H1 last year due to timing with the R&D payment received in Q3 of last year. Investing cash flows include $7 million of equity proceeds invested in a 6-month cash term deposit and payments for PPE were $0.2 million related to the ongoing Pontville development with CapEx spend on this project primarily being in Q3 in the lead up to commissioning. Financing cash flows reflect the successful placement I mentioned earlier, which raised a net $24.4 million. And turning to Slide 24, I will cover the Whisky Bank. The size and quality of our Whisky Bank is a competitive advantage for LARK, supports long-term growth plans by underwriting future sales. LARK's whisky under maturation at 31st of December was 2.5 million liters at 43% with a book value at cost of $59 million. The scale of our Whisky Bank has again allowed us to optimize production in the first half and more closely aligned to current sales with the size of the bank remaining broadly steady. When looking at the profile of the Whisky Bank, it is important to consider various factors in our stock model, ensuring continuity of supply of different whisky profiles to support our planned growth. We have a well-balanced stock profile in the Whisky Bank, whereby younger whisky represents the largest volume, and this profile provides sufficient volume of mature whisky in the short term to meet growth aspirations, future availability of whisky to support planned acceleration of export growth and flexibility to consider age statements in time. A core component of the LARK brand restage is strategic portfolio alignment and ensuring long-term whisky supply matches our expectations of future demand. This portfolio alignment includes scalable consumer-driven expressions of LARK single malt whiskies for optimal commercialization, new fillings and a versatile wood maturation program to sustain future growth and whisky for KURIO and other blended malts, leveraging a mix of in-house and white label production, driving cash generation into the business. With that, I'll now hand back to Sash.

Thanks, Iain. I'm now on Slide 26. We'll continue to come back to and track our progress against our strategic priorities. I'll cover progress for Phase 1 of our growth plan shortly. Importantly, we believe, and we are confident 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 27, where I'll share an update on the exciting brand restage, a critical component of building long-term brand value. We first talked about the LARK brand restage at our Investor Day in October '23, the delivery at the end of FY '25. This has been a significant amount of work for the entire team, including our creative partner, the highly credential team at [ Love Design ]. We know that great brands don't materially change year-on-year. Their foundations must be done right and done once, meaning this will be one of the most significant steps in brand evolutions we take in the history of the company. The restage has 6 clear areas, which we've identified and are executing against. Positioning, which means unpacking the key attributes that will resonate on the global stage. Portfolio, which will see us delivering the portfolio architecture and a simple navigation use for consumers. Product will see us getting the right attributes, callouts and format of our portfolio. Brand identity and pack, we will deliver standout distinctive brand assets and a captivating tone of voice. Range, pricing and a phasing plan. This will mean we will deliver the right sequencing of market entry, as well as ensuring we're clear what value pools we're attacking with our offering. Finally, go-to-market tools and assets will provide the guardrails to our partners and teams about how we show up and the tools to tackle key brand challenges such as awareness, distribution and trial. The end result, a globally differentiated luxury whisky brand with a clear positioning and proposition, rich depth and layers of story to discover, leading with an evocative sense of place. In turn, appealing to a broader audience with striking standout, delivering against export consumer format expectations, i.e., 700 ml, while providing an easy-to-understand navigation and architecture. And finally, arming our partners with the tools to win in market. I'm delighted to confirm that we're on track for completion of the restage by the end of FY '25 with the first shipments planned for early FY '26. Our consumer testing of our proposition has resonated, delivering outstanding results. We started engagement with customers in Australia and overseas, and the initial feedback has been incredibly positive. In late Q4, we will share our final outcomes with the market, having incorporated consumer and customer feedback. Now moving to Slide 28. This is the slide we shared back at our Investor Day in October '23. Back then, I emphasized the need to have absolute clarity about what our brand proposition will be. And I was clear that the jewel in the crown is and will continue to be LARK single malt, supported by whiskies from the House of LARK and Forty Spotted Gin. Importantly, we've not deviated from this. And today, we are sharing the first whisky from the House of LARK. With that, let's move to Slide 29. The team and I are delighted to share with you today our first new release from the House of LARK, KURIO, a Tasmanian blended malt whisky that comes in a 700 ml bottle with a 40% ABV and an RRP of $120. KURIO is whisky for the curious by the curious for those in search for the new and exciting. KURIO Crimson Jam, blends exceptional Tasmanian single malts, uniquely finished in Tasmanian cherry and sparkling wine seasoned casks, showing our ability to innovate and differentiate in a crowded and evolving category. The initial launch is set for April '25 through Endeavour Drinks and Independents, with full national ranging confirmed in Dan Murphy's and Tasmanian BWS stores. We thank our trade partners for their enthusiasm and feedback and can't wait to see KURIO on shelf. Importantly, KURIO expands audience and consumer occasions. It commercializes the Whisky Bank, prioritizing cash generation and its flexible production provides for scalability through both own and third-party distilled whisky. Let's turn to Slide 30 that sets out our growth plans. This is the growth plan we've previously shared and is broken into 3 key phases. To recap, in the first phase, we have made good progress, which I'll cover off in more detail on the next slide, and it represents the period up to FY '27, where we'll establish our beachheads. In the second phase, it's all about building on and embedding foundations. As we look to Phase 3, we'll accelerate revenues and brand equity. Together, this growth plan will see LARK achieve its ambition of becoming a leader in new world whisky. Moving to Slide 31. This is our scorecard for Phase 1. We use this scorecard to capture and report against our KPIs. For our first strategic priority, build long-term brand value, the LARK brand restage is well progressed and is on track for launch by the end of FY '25. For our second strategic priority, international sales momentum and domestic leadership position, we've taken steps, and there is good momentum against all KPIs. Distributors are in place in Southeast Asia with upweighted activation activities and marketing investment planned for half 2. Total direct sales of $1.4 million in the first 12 months of operations has taken place. Our GTR business continues to grow strongly in only its second year of operation with sales up 18% in the first half versus PCP. We are planning for Asian airport expansion supported with an in-market brand ambassador. Domestically, we've transitioned our B2B business to Spirits Platform, and our D2C business is growing in both e-com and hospitality venues. For our third strategic priority of cash and capital discipline, post our successful $24.4 million equity raise, our strong balance sheet provides the platform for an acceleration of marketing investment during FY '25 and '26 and for the modular transition from Cambridge to Pontville that is well underway. Our capital position is further supported by the sale proceeds from Bothwell during March and our undrawn $5 million NAB bank facility. We remain committed to and are confident of achieving positive operating cash flows during FY '27. Turning to Slide 23 -- sorry, 33 and our perspectives for FY '25. As we look ahead to the remainder of FY '25, 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. We're exiting the first half with good momentum, making tangible progress against our KPIs. We're doing what we said we would, and we're walking the walk as we execute our strategy to build the correct foundation to generate long-term shareholder value. For our first strategic pillar, build long-term brand value, the LARK portfolio and brand restage will be completed by the end of FY '25. There will be increased investment in A&P, including finalization of the LARK brand restage to support Asian export growth and to build brand awareness in all markets. We will also undertake enhancement to LARK's cellar door offering in Hobart, ensuring it's reflective of our long-term aspirations. For our second strategic pillar, international sales momentum and domestic leadership position, net sales growth is projected in half 2 versus PCP. This will be achieved through GTR, D2C, the Whisky Club and export with Spirits Platform providing the springboard to domestic growth in time. Upweighted H2 trade activation programs agreed with export partners are focused on driving awareness and depletions. There will be modest shipments to new markets expected in half 2 to see the brand prior to an accelerated entry in FY '26 with upweighted marketing investment behind the brand restage. Finally, our third pillar, cash and capital discipline, will see us transition to Pontville, becoming LARK's long-term brand home. Continued capital discipline will be employed, as we utilize proceeds from the recent $24.4 million equity raising. Accelerated marketing will impact operating cash flows before moving to positive during FY '27. With that, I'd like to thank you for your ongoing commitment and support to LARK. And I'll now open to questions. Peter, over to you.

Thanks, Sash. So we've got a number of questions here. I'll start off with questions from Nick McGarrigle from Barrenjoey. One of Nick's questions is, what should the second half OpEx base look like in the context of the distributor change, which I presume he is talking about Australia.

Yes. So in a nutshell on that question, we made the transition in August. So our first half is pretty much steady state. There was -- that transition happened in the first month of the year. So we can expect that H2 OpEx to be broadly consistent with where we are for H1, Nick.

Nick's next question is, is production expected to remain modest for the coming year or 2 despite the consolidation of production?

Yes, I can take that one as well. Yes, we previously talked about more closely aligning our production with sales in the sort of short term. So as we accelerate our sales growth, we would look to increase production. But are we going to ramp up production as soon -- Pontville as soon as we've commissioned just because we can. No, we've -- cash and capital discipline is a key thing that we've been talking about, and that continue to be the approach that we'll take.

Thank you. Nick's other question around GTR. How broad is GTR now? And what is the display or shelf space looking like in key airports?

Yes, I'll take that. I think in terms of GTR, we're really, really pleased with the progress we've made. We are in every single airport in Australia. As mentioned, we added Adelaide in the quarter in Q2. That means we've got effectively full exposure to all Australian airports. In terms of where we over-index, it's the 2 key departure points out of Australia, and that's Sydney and Melbourne. That's where we spend, I suppose, a disproportionate amount of our investment, but also get a disproportionate amount of return. The shelf space has been over-indexed because we are working on joint business plans with those 2 key customers, namely Lotte and Heinemann in Sydney. I think it's also really important to call out, we also really want to make sure we own Hobart. That's our home as everyone sort of enters or descends on Hobart, we want to over-index in that space. So we've got good, strong plans with our customers. And over the coming months, we will engage with them as we undertake our restage of our brand, which is going to be another exciting chapter.

Another question on GTR, this is from Martin [indiscernible]. GTR has been very successful and the gift giving of LARK seems to be a major strength. Have you considered extending personalization of gifting to an airport, [ Sydney ], as well to bolster this?

Yes, we have. GTR, again, one of the key attributes that we call out in that channel is Australia's #1 luxury single malt, and it seems to resonate really well. We've definitely thought about the personalization element. A form of that has been the over-index in the tasting bars or displays that we've used in Sydney. And we are considering other ways to increase or propel further revenues through personalization.

Back to some more questions from Nick. Can you talk through the run rate and reorder for export, please?

Yes. So in terms of export, we mentioned we've got some reorders from Singapore, Philippines and Indonesia in the half. I think it's really important. We basically went live this basically half a year ago. So we're getting some good demand signals slowly and distribution is growing month-on-month. It's really, really important to understand that we've got to have a real strong activation plan behind this, and we're accelerating that activation plan, as we go into the half -- second half. But we've yet to get an ongoing pulse of that business, but the fact that we've got reorders should tell us that we're seeing momentum.

Also on export, can you please speak to the demand in export channels for existing LARK product mix [indiscernible]? Does any particular product stand out so far and as most in demand?

Yes. So in that, I suppose it's varied, but as you'd expect, Classic Cask is the key, and that's where we put also our A&P dollars. Our distributors are clear on the core range. I should also add, we've only gone to export markets with single malt. So Symphony is not in export markets, but Classic Cask is the standout.

Other export question from Martin. Other Australian whisky such as Hellyers Road seem to have had good success with the European market entry. What lessons has LARK learned from their market entry strategy? And is LARK considering a European or American market entry in the near future?

Yes. I think the key lesson to learn is that we can't be everywhere. So sequencing is key. As we look to the future, we've got a very clear sort of geographical road map. Will that incorporate considerations of Europe and the U.S.? Of course, it will. And we're always doing due diligence around distributor assessment, value chains, et cetera, but equally being cognizant of the fact that we can't lose focus. And if we're doing things in each market or trying to do things in many, many, many markets, we will lose that focus. The other consideration we've got to consider is the amount of advertising and promotional spend to invest behind these brands is considerably less than global peers. So we've got to be very choiceful in our market entry strategies.

A couple of questions on KURIO have come through. Detail on KURIO ranging. Is it selected stores for Dan's or Australia-wide? Is this exclusive? Is KURIO for the export market aiming to bring into GTR? If so, can you talk to timing, please?

Yes. So let me take that. So it is national coverage, so i.e., Australia-wide for Dan's and in BWS stores in Tasmania. The idea is to also look at export markets. However, that's our current domestic range, and we'll look through range reviews, et cetera. It will not be in GTR at this stage.

A question perhaps for Iain here. Can you please speak to the gross margin expected from KURIO and in general, the House of LARK margin being targeted?

Yes, sure. So as we outlined earlier, our gross margin percentage for the half that we just completed was 63.6%. Now important to recognize that, that's an average of an average. So we've got -- in terms of channels, we've got our DTC channels higher and other channels lower. And in terms of product mix, we've got LARK single malt higher and Forty Spotted lower currently in a nutshell. Now clearly, with the format and recommended retail price of KURIO that we've outlined, KURIO is going to be at the lower end of the scale. So it will be a slight drag on our overall business GP margin. But is it going to be the most significant part of our business in the short term? No. So the impact will be relatively modest.

A follow-up question on production. I think the look through there is expected production looking into '26 financial year.

Yes. So I think in terms of production at the moment, as we decommission our site in Cambridge and go to Pontville, we need to obviously recommission our site in Pontville. So at this very point, are we producing? No. But our expectation is that we will closely align production to sales. And that same logic will apply to FY '26.

A question around marketing and A&P cost to do so, assuming A&P goes to 30% during the second half, the timing impacts to third quarter and fourth quarter? And as a follow-up, A&P split between LARK and KURIO.

Yes, I can take that one. So timing impacts, third quarter to fourth quarter, Andrew, what we're expecting to see is a third quarter heavier than fourth quarter and that's really as we're driving through the spend. On the restage, that's the restage spend, yes, but it's also building tools, assets for -- to give to our distributors to sell LARK once we've launched in the coming months. So likely weighted towards Q3. And the second part of the question, I think, was KURIO to LARK most significantly A&P spend behind LARK. Obviously, we need to support KURIO to ensure that we are getting those turns on the shelf. But as Sash outlined, that House of LARK propositions are there to support LARK, drive cash generation to the business, so significantly over-indexing in LARK versus KURIO or the House of LARK versus Forty Spotted. So hopefully, that gives a bit of clarity.

And the last question from Nick McGarrigle. Has sentiment in NKA changed at all into 2025?

Yes. I think -- I mean, having sort of outlined that in our presentation today, there is definitely some headwinds in trade, and that's been reflected by Spirits Platform across the market. That's not unique to LARK. I suppose our price plan, as I've said previously, is a little bit more resilient, but it's not immune. And there is an ongoing sort of trade down as cost pressures impact, but not probably at the LARK top end of the range. But we do need to stay cognizant of that. And hopefully, as we introduce KURIO and protect LARK, we see that momentum continue.

Sash, that was the last question. I'll hand back to you to close.

Thanks, Peter. I suppose a big thank you for everyone that's been -- that's tuned in, and we're happy to take questions either through Peter and others ongoing. But most importantly, thank you for your support for LARK, and we're really looking forward to showing you the restage and the momentum we have with our brand restage in the coming months. Thanks.