The Artisanal Spirits Company plc (ART) Earnings Call Transcript & Summary

Over to you Dave Ridley, CEO, for the presentation.

Thanks very much, Hannah. Welcome, everybody. I'm David Ridley, the Managing Director of Artisanal Spirits and…

I am Andrew Dane, Finance Director, here. Thanks, for taking the time to hear from us this afternoon.

So we look forward to your questions as we go through the presentation. We'll take those at the end. But by way of introduction in terms of The Artisanal Spirits Company, in simple terms, we mature, we create, and we sell outstanding, high value, limited edition whiskeys for a global audience. And really, that is about Artisanal Spirits Company, building a high-quality direct-to-consumer business model, again, for a global and worldwide distribution. Within that, we've been able to grow our online sales to be above 80% of our overall sales and 70% of those sales are outside of the U.K. And really, our ambition is to create a highly profitable, cash-generative business in the long term. And that is really about the key attributes of our business being high margin, high growth, really targeting the most premium fast-growth scotch whiskey markets in the world and delivering that in a package of experiences, but ultimately, the Scotch Malt Whisky Society are very good at doing and the heart of the business today is the ownership of the Scotch Malt Whisky Society, a long-established group of whiskey lovers who are paying members, and we've got now over 35,000 of those members globally, just under half of those in the U.K. with balance in international markets as well. And it's important to understand this real stickiness with membership, but also something that we'll touch on in a moment is, importantly, we have a day 1 payback with regards to our membership model. We're also expanding beyond that as far as Artisanal Spirits companies concerned into a group of new brands well. And late last year, we launched J.G. Thomson, a brand that is focused in on small batch, blended malt whiskeys and a range of other whiskeys as well, and we'll touch on that in a little bit more detail further into the pack, but also plans to well progress in terms of launching an American whiskey proposition that utilizes all of the skill sets that we have developed around the SMWS, that being membership subscription, single cast whiskeys. But this time, a focused proposition in the U.S. for the domestic consumer and more on that in coming slides, but an opportunity for us in the early part of 2023. Hannah? What would like to really sort of encapsulate in terms of how we tackle the unique and exciting opportunities that we see for the business is really across 3 sections. First and foremost, we have a pioneering model we have, an absolute, sticky, loyal, growing global membership. I touched on that day 1 payback. But also, we have very high lifetime values with regards to the members, and Andrew will touch on that in a moment. But a really engaging proposition that it revolves around a constant stream of award-winning products and our relentless focus in terms of innovation, but we deliver experiences. We're not just a whiskey company. We're delivering also that personal touch with respect to membership and also the experiences there. I touched on the fact that we're highly direct-to-consumer through our e-commerce sales. So we know the consumer. We know the member, but also the content is delivered through a digital format. So we also know what the engagement levels are with those members. And really, those attributes really do create that pioneering model for us. That gives us the opportunity to really tackle that long-term growth opportunity that you see there presented on the page. Perhaps if I sort of take it in a slightly different order to the way it's presented. We really have a significant and growing addressable market. And you'll be shown the details about USD 5.8 billion market and how quickly it is growing. And we're positioned to take advantage of the premiumization that's really driving that growth and also the shift towards e-commerce as preferred channel in which to buy your premium spirits. And I touched on the fact that we'll be growing a portfolio of small batched spirit brands, again, leveraging off our existing skill sets and not heading off in different directions. We feel that is a really clear white path to our ambition for doubling sales by 2024 and importantly, delivering meaningful profits in the medium term. And really, that sets us out with a really robust business model that's primed to deliver on that ambition. So strong financials that Andrew will cover off in the results section of this presentation. fact that we are ultimately seeing ourselves as a spirits producer in terms of the way we've amassed a huge amount of costs that give us a long-term coverage with regards to fulfilling growth demand into the future. You can see there that in order -- sorry, we've got 100% cover to satisfy our future forecast demand through to 2028 and [indiscernible] 5% stock cover all the way through to 2033. And underpinning that is really an experienced team that is passionate and engaged about what we do. And I'll hand over to Andrew, who will cover off the results and some of the key metrics of the business.

Absolutely. And it's easy to say. It's another really sector results, and that's the third consecutive set of results [indiscernible] delivering on or slightly ahead of expectation, building on that nonproven track record of success. Well, in the following slide, we'll go to in more detail, but the headlines here are 25% revenue growth, so almost [ GBP 10 million in spirits and GBP 20 million ] times of sales over the last 12 months, underpinned with membership growth, up by 24%, pleasingly, growth in retention [indiscernible] high-spending membership, combining with the high-margin model to deliver that member lifetime value profit [indiscernible] of over GBP 1,700. And on the right-hand side, I'll draw your attention to a new metric in the bottom right, which is a purchasing metric [indiscernible] and it's saying that of all the [ cask ] we own today, over 45% of them were less than 3 years old at the time of purchase. And that really illustrates the evolution that [indiscernible] investment in new [indiscernible] and young spirit, which drives that margin over time. Buying the same quality spirits in the same high-quality distillers, selling it at the same age then buying in younger [indiscernible] and capturing more of that value. We turn over to the next page. We'll go to that revenue split. Overall, 25%, as I mentioned, we really standout performance in China which grows with actually over 60% revenue in that period, leveraging off the really fantastic 57% membership will achieve during 2021. I -- we also saw good performance in the U.K., in particular, brand new sales. We were competing against the COVID-impacted H1 '21 as well as a small element of transfer of sales is members buying in person rather than online as expected. In Europe, really good delivery there, particularly relating to our significantly improved post-Brexit route to market that we implemented at the tail end of last year, and that's been very well received both in terms of member spend, but also membership [ goals ]. Now obviously, on the page, you can also see the U.S. performance. And it's important to note here that we recognize U.S. sales on a shipment basis rather than our depletions and in-market sales basis, just as a reflection of the route to market there. And those shipments can be GBP 0.5 million or GBP 1 million per shipment. In 2021, sales of those shipments were very front-end loaded. So the vast majority is in H1. This year, it's going to be more H2 sales. So [ end markets see ] membership growing and that member should growth accelerating into Q3. And our intention is to ship more by the end of Q3, then we will have done in all of H3 2021. So that position will change materially by the time we get the full year results. To go over into the next page and look at that wider P&L impact. You can see that revenue growth converting gross profit growth, which is great. The margin point, H1 last year versus H1 this year is a reflection of those U.S. shipments that I just talked about. And overall, as we said before, we focus at this date remains in growth in reinvestment with a very clear goal of returning to positive EBITDA in the very near term and delivering that proper bottom line profitability in the medium term exactly as we set out at the time of the IPO, so no change there. In the meantime, starting to incur some costs in association with [indiscernible]. If we now see, move on to the next page, bringing to life a bit more of that variety to run like member lifetime value across all the markets. And really pleasingly, we're seeing growth in retention in the U.S. and China, which is helping to drive up like the values in those markets. And I will pick just on the China membership number there, where you can see that the [indiscernible] membership we grew very strongly in 2021. We continued to grow in Q1. As a result of the impact of the COVID lockdowns in China in Q2, we saw a small step backwards in membership during that very short period of lockdown. That's returned to this in Q3. So a short-term blip from a membership perspective but [ no ] concerns overall to the performance of that market. Then if we now move on to the way the balance sheet and cash flow. Really the key message here is we are fully funded to deliver the growth plans through to 2024, the other point that we will come on to you later. Let's talk about debt and to make it very clear that, that debt should be considered in the level in the context of our significant stockholding and remains a very sustainable long-term part of our capital structure. Okay. I hand back to David to talk a bit more about that great business model that underpins and deliver on results.

Yes. So I earlier highlighted 3 parts to the structure of the presentation and the pioneering model. And I think importantly here, the pioneering model gives us the ability to create substantial value, particularly through the whole chain of the vertical integration that you can see on the top half of the page and the horizontal integration that we have at the bottom of the page, you can see on the left-hand side of the vertical, the current attributes that, that vertical has at the moment and where we're moving to from a future state point of view. And Andrew and I will touch on those in a little bit more detail as we go through this. But it's important to note that we are increasingly buying newly made spirits straight off the [ still ], putting it into our own casks and putting it into storage. And we're very active with our maturation with regards to looking at how the risks are maturing. And in particular, one of the initiatives that we've got is putting more of the whiskey in [indiscernible] because we know that our members love the [indiscernible] influence and increasing that proportion quite significantly and putting an investment behind that. As a brands, we really recognize the quality of what we want to deliver to our members. And therefore, we put it through every whiskey through taking panel assessment. And you can see there, we've won over 270 awards in the last 3 years, really demonstrating that our pacing panel are acting like any other international whiskey competition and only bottling the very best of what we have. We're currently using third parties to do our bottling and labeling and we'll be bringing that in-house as a result of the investment in [indiscernible] and bonds. And I think there's a really important transition with regards to our experience with regards to the gross margin achievement, and there are 3 key initiatives behind pushing that to a [ circa ] 70% gross margin. That vertical is really important in terms of capturing quality margin and then we go into our controlled membership are horizontal. So you can only buy a product if you're a member. So again, that day 1 payback really comes about from the fact that members are buying not only the membership but also their first bottle in that first transaction, and that gives us coverage of the approximately GBP 60, GBP 65 CPA. And then we obviously have the owned multichannel delivery within that horizontal. But in particular, that importance around the e-commerce where we've got over 80% of our sales. In the U.K., we have 4 venues. So it's another channel that some of the members can use, but extensively anywhere in the world, we're offering events. And again, anywhere else in the world, we're offering the award-winning unfiltered magazine online, plus other experiences that members can engage with as well. And that really gives us that really tight margin capture from start finish all throughout our own channels. And I'll hand over to Andrew to look at some of the comparators in the market.

And that fantastic [indiscernible] also unique [indiscernible] is difficult. So we've drawn a few really powerful capacity metrics here. First of all, gross margin. And when you look at some fantastic businesses, like the [indiscernible] generating in the 40% margins on a like-for-like basis with our 63% margin in the period. The second area around the book value, purchase sales essentially of our maturing stock as of last week, that represented almost 50% of our market caps. In other words, half of our market cap is underpinned by the purchase price of the stock we've got with this. And obviously that appreciating asset. We'll talk later on about a significantly higher retail value leading the current market values in that level. Then finally, from a premiumization perspective, there's not too many public data points available here. But if we look at Diageo as an example, their super premium plus portfolio, that's the luxury and grow by over 30% this year and now contributed just over 1/4 of their sales at contrast, 100% of our sales are in that space. And actually, not just super premium, 100% of our sales are in the ultra-premium price points and above. So really so well placed to take advantage of that premiumization. That's on [indiscernible] on the next page you can see another core element of our proposition. And we've already touched on some of these great metrics around that loyal, valuable growing global membership -- but another element, I'd just like to bring to light [indiscernible], we've talked before about the substantial value that we've got captured in stock. We'll talk more about that later on. They hear the substantial value of those members. And on an aggregate basis, in other words, take a lifetime number, multiply it by the right-hand number. We've got over GBP 60 million worth of aggregate global member lifetime value, the really fantastic value that exists because our members are super engaged in the proposition and how we lower and just how important it is for us to get that proposition right, which we continue to do in [indiscernible], at fantastic membership and [indiscernible].

So really a unique and award-winning product range that we have on offering. There's really 6 attributes that really drive demand and interest in these products. First and foremost, there's limited edition. So each cask will typically yield about 250 bottles, and that's at cask strength, now one to 250 bottles sold, they're sold forever, and we want to repeat that particular product wide variety. So we're offering over 1,000 different whiskeys a year to our members across 12 different flavor profiles to help the member navigate ultimately that [ fast ] variety. But again, on the basis of that limited addition, -- there is the fear of missing out. So when these products get released, there is high demand for members in order to get access to that variety. And we continue to innovate and provide original products with a real level of individual personality in the way we actually offer those to the market. We touched on the outstanding quality of our products. And you can see there, it comes from a wide range of international wines and spirits competitions from around the world. And we also offer a great range of price points in terms of accessibility at GBP 45 all the way through to GBP 2,500 depending on your budget and circumstances. It's underpinned also by the high desirability of the range that we have, whether it be through the age, whether it be through the proportion that we have on offer with our ex-sherry cask program, but also we know that [ pated ] whiskey is highly desirable, and we have a very good mix of a pated Whisky there. Because there's so many aspects for which a member will come back to look at how the product is different and repeat purchase. And we're doing a very good job of that. And moving on to the next part, just a couple of attributes in terms of some research that we've done recently with members, just to highlight, there in the center of the page, we know that our members love our members' room, very positive responses with regards to that, but also very positive response around the quality of our tastings. We're all about providing the world's most colorful whiskey experiences. So it's more than just simply a tasting of whiskey. It's also about the entertainment and other education that we can provide with regards to a tasting. And if we also move on to our direct-to-consumer aspects on the next page. It's really important for us to have a data-rich environment by which we can get to know the members but also provide that digital content. I touched on earlier that more than 80% of our revenues are now generated online, but also our members love their award-winning [ until magazine ] and the content and the education that, that also provides part of their membership as well. If I move on now to look at how that pioneering model translates into the long-term global growth opportunity or just outline briefly our strategic framework. And in the more immediate sense, our focus is on doubling sales through to 2024. The process that we have is really centered around what we've been discussing in the previous slides, offering a unique and outstanding range of whiskeys and captivating a global community of whiskey ventures. That is our core focus in terms of how we're going to drive that business forward. And we're very, very focused with regards to that purpose. And that proposition then ties into what I've been saying and Andrew has been saying about creating, curating and selling outstanding limited edition whiskeys to that audience. As we're moving forward with post IPO, our ambition now extends further beyond 2024 and really to create a highly profitable, cash-generative business by utilizing the attributes that we've touched on, but we're a global organization, we are premium, we are high quality, high margin. And as a business, we offer great whiskey experiences to keep our members engaged. And certainly, the Scotch Malt Whisky Society is a key part of that long-term ambition and that short-term ambition in order to double sales, in order to build scale through to 2024. We've touched on those strengths across middle there, and we're really focused around 5 strategic pillars, and that's growing membership, growing our digital experience for members and driving both value and volume of liquid. We touch on the new brands and sort of extending our audience reach and making sure that ultimately, we have the best team to deliver with regards to our ambitions. If I move ahead in terms of just outlining a little bit more detail around that enormous addressable market that we have I think importantly here, what's driving that is premiumization. It's the consumer driving that premiumization. And what are they seeking? On the left-hand side there, you can see that authenticity and status is a key attribute to drive the premiumization and we really see that scotch whiskey aligns very well with authenticity and status, particularly our own product, where the individual nature of the distillery, the cask, the days of product was distilled absolutely falls into that category very, very strongly. And we can see other attributes that are also then starting to evolve the size and scale of what we have defined as ultra-premium and above price points. And you can see on the right-hand side, the orange box there. Anything above GBP 35 according to the International Wine and Spirits Research is defined as ultra-premium and the price points above that ultimately are worth USD 7.6 billion, and they're growing fast and in fact, in 2021, the growth has accelerated there. So very attractive market to go out after with that consumer premiumization. And if I move on to the next slide, we can give you a little bit more detail about how that is defined from an addressable individual market perspective. What we've done here is with to find our addressable markets across a number of areas. So first and foremost, it's only scotch whiskey. It's those price points that we referred to in the earlier slide of ultra-premium and above. It's domestic markets only, so we have cut duty-free out. But it's also only markets that we have a presence in, and we can actually drive sales in those markets. And you can see there that the top 8 of those markets represent almost 80% of the overall opportunity in order to achieve that addressable market, but also an important amount of other markets there to make up that overall $5.8 billion, which is -- you can see there on the top left-hand side, has grown by over 200% and in more recent times, quite accelerated growth there as well. The significant presence across the key markets, U.S. being [ $1.75 ] billion, e-commerce, really strong driver of that growth. But also, we're finding that in addition to the convenience of e-commerce, that consumers are ultimately pay higher prices through e-commerce channels. [indiscernible] is already almost a USD 1 billion market for us, and we're active across a range of e-commerce platforms such as Tmall and JD.com and the U.K. and Europe are sizable markets also fast growing at $1.5 billion as well. So quite an exciting market where we have relatively low market share. So we see that there's ample growth opportunity within the addressable markets. I move on now in order to cover off those additional brand opportunities that we touched on earlier. In November 2021, we launched J.G. Thomson. Its focus is around creating small batch blended malt whiskeys, plus a range of other spirits that really hold true to J.G. Thomson as a company. And J.G. Thomson relates to the [indiscernible], where Scotch Malt Whisky Society today is based. And that ultimately, Scotch Malt Whisky Society purchased the volts from J.G. Thomson, a very renowned blender of whiskeys, and we have resurrected that brand. And in terms of -- I touched on sort of leverage of our existing skill sets with the expansion of brands, you can see there that we've also got the award-winning approach that we take to creating whiskeys where we've won awards across a number of international competitions. But so far, good momentum across the U.K., where we initially launched late last year. We've had our first order through France. We have [indiscernible] whisky doing the distribution there and have an extensive range of [ caves ] to go see new listings with and discussions are well progressed with regards to expanding into the U.S. The separate opportunity for us, is Hannah if you can go back. Sorry, Depart opportunity for us on the right-hand side is taking and leveraging our experiences with the SMWS into an American whiskey proposition. And it's also a sizable market of USD 1.4 billion for the domestic American whiskey market, again defined by those ultra-premium price points in above. Premiumization, again, as trends driving that growth. And you can see there in those price points that we're targeting over 1,000% growth in the last decade, 5x that of the total American whiskey market and Wigan, focus in on American single mall whiskey, whereby we've got upcoming legislation that will define the category, which will help people really focus what American single malt whiskey is about. We have got upcoming about. We know that we've got an extensive range of ancillaries in which we can buy American whiskey or single malt whiskey from as well. So far, we have done market research that the consumers have really scored very, very highly what the proposition is about and the engagement that it provides. We've gone into now our brand development work, which will be ready by the end of the year, and we're looking for a fun launch for that proposition next year. None of that is in any of the numbers that we've got. So it will be incremental to the opportunities that we have currently presented. Now I'll move on now and hand over to Andrew, who will ultimately pull together all of those factors that we have just covered off and why we've got such a robust business model that primes to deliver for the future. Absolutely. So we've been through that [ tiny ] model. We looked at the long-term growth opportunity. And now as we start looking at the robust business nature, usages lineup on average, the total has over GBP 60 of gross profit to date. So on the page here, a range of initiatives to help drive that up over time. Some of that is around revenue increase, for example, [ Noisecom ], some of that's run cost reduction. And I'll go to each of them in turn on the next page that I'll take you through from a chronological perspective. If we look at the next page, the first one is masterminding supply chain in-house due to the operation in the coming months, that will generate a couple of percentage point margin uplift once through the operational, so we will get that benefit in 2020. Moving on to me in the medium term, ex-sherry, simple terms, buying more ex-shoring costs, which increases the proportion of our bus which has a shape flavor because we know that a flip to our members all love, we won't get further premium price for. So we're moving from around about 15%, having actually included in 2018 due to about 1/3, 35% by 2024, again, generating a margin uplift to that typical price that was around about 10% cap. On the right-hand side, over the longer term, the effect of that process that I mentioned earlier, we were moving more towards buying new makes and young spirit, the same fantastic policy spirit from the same outstanding facilities -- but both younger than slide, so we bring more of our active maturation experience, more of those like sherry cask and flavors to it and capturing more of its [indiscernible]. And that will drive up margins even further over time. And on the following page, another key point around that robust nature of the business is our debt position. But just to make clear that when we're looking at that, it should always be considered in the context of stock well look, our current debt position, loan even intensive forecast of year-end position of 134 million. That is a fraction of the but value of that stock as it stands today. So that's using the bank's valuation that reinstatement value, it's less than half of that value in case and even less -- but more importantly, the cause overexpanding timing business model because of that vertical integration of our business model, as David said earlier, we think to convert that GBP 30 million worth of carpentry into over GBP 450 million worth of retail value in bottle stock through our existing sales channels. So we never repricing of it in that context. And in any way the model, we don't see that falling for less than that debt increasing over half of the spot volume, a fraction of the [ spreading ] tests in place from our debt. So it remains, as we said at the time of A, a long term, sustainable strategic part of our overall capital structure as is common place in the industry [indiscernible] thanks, Andrew. I guess in terms of what's supporting all of that is really an experienced board management team, and that's really helping keep the strategy fresh and on track. But importantly, we've got a really passionate engaged team and a recent employee engagement survey resulted in an employee engagement index of AT1, and that is through the roof in comparison to the U.K. average and the global average. So we're really pleased that the environment that we're creating for the team and what they're doing, they're really passionate about, and that really rolls into the very strong culture that we've got everybody driving behind a single focused approach, but also making sure that we have a sustainable business approach within respect to that we're members of the Scotch Whiskey Association. There's a very strong sustainability strategy. So a lot of the whiskey that we are buying are from member companies through the association who have signed up to the sustainability strategy. So energy savings, et cetera, that we're getting benefit of from buying from those distilleries, but also [indiscernible] in its own right, starts to reduce the moving parts within our business in its own right, being a more sustainable approach but also the amount of recycled and recycled packaging that we're using also into the future. So I'll move on to give you a bit of an update in terms of current trading and the outlook ahead. And certainly, the early part of H2 trading has been very favorable in terms of on track for our financial forecast for this year. Certainly, you can see there on the right-hand side as far as the consensus forecast is concerned, very much on track for $21.6 million. And you can see they're very much on track for that doubling of sales through to 2024 [ mentorship ] a global level has continued to grow into the second half and in particular, we more than 36,000 members and a return to growth in China in this latest quarter. And I guess, as we move ahead in terms of current circumstances, I think it's really important to note that part of our confidence around the 2022 results, the fact that we continue to grow membership into the second half of this year. But also if I can reflect on the statement made by the President and CEO of the [ Penorocar ] Group is that they feel that the premiumization trend will outtake any reduction in purchasing power looking ahead. Now very much that mentioned in the context of a premium audience of consumers, which is very much what we're targeting there. But there is very, very strong momentum around premiumization and that there is a level of immunity with regard to that particular audience and continuing that premiumization trend but, importantly, underpinning that doubling of sales is second half this year will be strongly waste around the U.S. in terms of revenue recognition. And with shipments planned this quarter, we will have achieved more revenues than the entirety of the second half of 2021. So the numbers are very, very close to being achieved already for the second half of this year. We've also got the [indiscernible] bond supply chain nearing operations at the end of this year and obviously having that full effect come into 2023. And then the exciting opportunity for next year with regards to the American whiskey market and the launch of the new proposition there. So I think overall, I think we've made really good progress in H1, and we are really primed to deliver on our longer-term strategy, which is really to deliver that highly profitable, cash-generative business with the near term around doubling the sales to 2024 in order to build scale and build our gross margins in preparation for that profitability and that cash generation. Well, thank you, very, very much for your attention, and I will hand over to Hannah to cover off questions.

Thank you to both and we have a number of questions that have come in, are you currently experiencing any challenges with supply of new mix of Spirit?

We write number of new contracts being signed up at the moment. We've been developing new make spirit contracts now for a number of years. You would have seen by the KPI that Andrew highlighted in the earlier slide, amount of newly made spirit that we've been buying already 45% of what we hold. So we're seeing increased opportunity with regards to new make Spirit with regards to, I would say, existing rolling contracts. So typically a 3-year rolling contract is what we signed.

And I'd say, we've got several new contracts waiting to be signed -- and perhaps continue to give in color as well on Wood for Bourbon and Sherry.

Okay. So in regards to Bourbon, with the growth of the American whiskey is absolutely perfect for scotch because the -- ultimately, that the bourbon industry can only use their casks once, and then they have to sell them on. That's where scotch whiskey come along and buy out those casks. And with the growth that they're having, there is more availability. They can't reuse it. So there's no sort of further sort of recycling within their business. So we're getting the benefit of that, and we're seeing slight reductions in the prices of the casks. The sherry cask, we have a very strategic project, and that's dealing directly with the [indiscernible] and having a seasoning program. So a seasoning program is how long the sherry infuses itself within the cask itself. So we have various projects with the [indiscernible]. They enjoy that because we're really partnering with the nature of our products. We give reference to what [indiscernible] we're sourcing the carton a sustainable approach that we have with respect to dealing directly with [indiscernible]as opposed to going through cask brokers.

Thank you, looking cater the U.S. and in China. Are you -- how are you attempting to minimize risk in terms of opening up there unit by online and local partners as opposed to physical venues.

Okay. So our main focus is around e-commerce. We have a diverse range of platforms that we are present in. So we have the WeChat commerce channel called Usan. We have Tmall, JD.com. -- and also now our TikTok commerce as well. We have a minority joint venture partner is Managing Director of the business, a local Chinese person. So he's very acutely aware of what's always going on with regards to the China market. So we believe that we're very, very close to the market with regards to that. But we're seeing a very stable e-commerce platform for alcohol. And as I say, we've got that diverse range of the different e-commerce platforms that we're on. So we are not…

And in the U.S., certainly the intention is not [indiscernible] impact in the U.S. There aren't any funds for any physical venues in relation to the [indiscernible] of time house local restrictions. So the opportunity in the U.S. for us is enormous and relatively low risk relatively [indiscernible] and execute in that market.

Perhaps the follow-on question. Will it delay overall group profitability this entry into the American market.

The American market in terms of the American Whiskey proposition.

[indiscernible] Yes.

I mean, year 1 does have a profit drag. It gets to breakeven and then to profitability very, very quickly. It's important to understand that the overall model with regards to American Whiskey as opposed scotch whiskey is that turn rate, maturation rate of the whiskey is much faster. So we will be typically selling 4-year-old whiskeys as opposed to 12-year-old whiskeys. So the model in terms of cash requirements, et cetera, is very, very different, and we believe that we can scale this business quite quickly because of the share size of the market and the sort of responses that we've had from the consumer research and also the distilleries themselves in terms of selling casks to us. Yes. So it will have some small degree of profitability drag in the short term. But in short term it changed to [ pass ] the profitability, we continue to be about certain positive EBITDA in the very short term in delivering proper meaningful bottom line profitability in the dunes doesn't change either of those. Might there be a few hundred thousand [ tons at the cost of mental ] Yes, but it doesn't seem to be overall [ past ].

Thank you. A couple of questions around inflationary pressures. One, could you comment one of them more generally? And two, if you have the price of your whiskey already locked in, as you highlighted in the presentation, what additional inflationary pressures but around that, surely, it should make you expect far more price-insensitive.

I'd probably take 2 ends the spectrum in regards to inflation in regards to correctly pointed out that we are inflation proved for the stock that we own. Importantly, we own all of the stock that we need 100% cover all the way through to 2028, and that in the current environment, there is also well, the nature of our products in itself is relatively price elastic. And in an inflationary environment, there is opportunity for price increases, notwithstanding them that the hedge effect of having all of that risky at today's book value already banked. Really, for us, in terms of the inflationary pressures, glass requiring energy. But in the scheme of things, the glass bottle in terms of the values that Andrew was indicating, is pennies in the scheme of things, possibly duty increases again, relatively small portion of the overall GBP 61 versus GBP 34 that we saw that. Within that, albeit duty is a reasonably significant portion of that GBP 34. But in a general sense, I think the inflationary pressures are quite controllable for us, given that they are for bits and pieces of the product as opposed to the whiskey itself moving forward.

Yes. Another thing on the cost save is mean in-house, a lot of that spacing couldn't happen at a better time because we're moving a greater proportion of that from a visible third-party charge, which can be inflated to a much more fixed [indiscernible].

How do you go about valuing your total stock?

So I mean on the first hand, book value is how we're valuing the stock. But from the bank's point of view, from a sort of a valuation perspective, there is an insurable value by which they assess the value of the stock. So Andrew's earlier point, the Scotch whiskey is an appreciating asset. So every year, we're getting an uplift of close to 10%. And whilst we've got a book value of our risky at $20 million, the insurable value is $30 million. And importantly, we see the real value is converting that into a bottle of SMWS whiskey and selling it at the retail value, which at over [ $450 ] million. But definitely, on sort of the accounting side of things, we've already got clear headroom between insurance value and also the book value.

In the 2021 account gross profit grew by GBP 2.2 million, but this was offset by an increase in admin expenses to 2.7%. Could you provide some color on the composition of this? And was it one-off or repeatable? And to indicate what we might expect as revenue continues to grow.

Absolutely. So I think the first thing to point to is we are very much in a reinvestment in both phases of the business. We are building a business that can deliver a $30 million turnover in 2 years' time. And part of that does involve a bit of investment ahead of the curve. So in particular, that has involved some investments in people, in systems and the platform to support the business that we now have that's ready to go and deliver a 30 million turnover in just a couple of years. So there is some short-term increase in the underlying cost base. As well as that, there were obviously some one-offs not just the exceptionals associated with IPO, but some other nonexceptional one-offs, et cetera, that were in there that will come out, but there is an underlying step change that we are well through in terms of that cost base. Thereafter, we won't see anything like that level of inflation in the administrative cost base of the business. So we are almost there. We still got a little bit full year effect of those that recruitment and investments still comes to there's a little bit more of that. But basically, as planned to get due to that profitability horizon through to 2024. [indiscernible] So hopefully that provides a bit of flavor around that.

What plans do you have to refurbish the members wins and what with any associated costs being with that?

Yes. I mean, certainly, we've got refurbished plans for the bolts to happen early next year. There's a few hundred thousand pounds of CapEx targeted for that and then potentially longer-term ambitions with regards to that, but also part of the IPO funds was also to consider new venue openings as well, and we're exploring opportunities around that.

Has anyone in the industry got a strategy to deliver the full peated whisky experience without the peat? And if so, what is the time scale?

Very good question. I don't know that there is maybe Campbeltown whiskey, which has got sort of oily coastal characteristics with a bit of spookiness might be an answer to that. But these are whiskeys whiskey, and we know that a lot of members really enjoy it. So I think that the fact that we also have a good share of whiskey puts us in a really good position with attracting new members.

Yes. And I may be reading between the lines of where the question is coming from, but it is certainly a move as part of the way that SMWA, to make sure that, that user is completely sustainable. Yes. So that's where the question is coming from. I think the answer will be as sustainable and continuing sustainable use of people rather than it being artificial [indiscernible].

Yes. But as far as peat usage, the industry uses very, very small amounts. I think the nursery industry is probably needing to address that question.

Thank you. And do you have any exposure to Russia, Ukraine and associated states that might be hit by that conflict?

[indiscernible]

What are the current top 3 risks discussed by the management?

For me regulation is always a risk factor. It can change. And I would say that given that we're in alcohol, a relatively regulated environment, to give you a recent risk that we're at, well, 2 risks were sort of face. It was the imposition of U.S. tariffs -- and I think the industry generally has been able to weather structural changes over a period of time. Fortunately, in the example of the U.S. tariffs is now being removed for the next 5 years, and we would fully expect that to be the case in the much longer term, but nevertheless, it's a postponement 5 years with regard to that. Brexit was a risk for us in terms of treatment of alcohol moving into Europe there as well. But regulation is something that governments constantly look at, and we're ever mindful of where and how they might change.

Well, thank you [indiscernible] number of questions from shareholders who are looking forward to this strong news being reflected in the share price, as I'm sure [indiscernible].

Absolutely.

And we are very much focused on delivering business results on increasing the visibility of the business, speaking to new potential shareholders and increasing the access to these types of presentations, events and videos to build knowledge and understanding in the way the market so that people can see that really fantastic delivery. The great business model with the opportunities I'm underlying it, the continued proven track record of delivery, which continues on and which we are very focused on [indiscernible]. I mean this is our third set of results since IPO, and we have delivered at and above market expectations. So and we're doing everything that we possibly can to our next couple of days is seeing new investors as well. So growing the interest pool with regards to that, but we very much hope that we will continue to focus on delivery of the business performance and hope that the share price is reflected in our delivery.

Thank you to both, and we look forward to an update in 6 months' time.

Thank you [indiscernible].

Thank you all.

Goodbye.