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

Good morning, ladies and gentlemen. I'd like to welcome you to the Annual General Meeting of The Artisanal Spirits Company plc. Now I'd like to welcome shareholders who are participating electronically. I'm Mark Hunter, the Chair of The Artisanal Spirits Company plc and it's now 9:00 a.m., and as we have a quorum, I declare the meeting open. Before turning to the forum part of the meeting, I'd like to just mention a few housekeeping points for our meeting. I'm pleased to inform you that the meeting today is being live streamed and is being recorded so that shareholders and other stakeholders, who cannot attend virtually today can view on the company's website in due course. I'd now like to introduce the Board who are with me here today. So we have Paul Skipworth, Non-Exec Director and Deputy Chair; Andrew Dane, Chief Executive Officer; Billy McCarter, who's Chief Financial Officer; Lesley Jackson, Non-Exec Director and Chair of the Audit Committee; Helen Page, Non-Exec Director and Chair of the Remuneration Committee; Gavin Hewitt, (CMG), Non-Executive Director; and Mark Bedingham, Non-Executive Director. I'd also like to introduce Douglas Aitken, our Company Secretary. Now before starting the formal proceedings, I'd like to read statement on trading that was released to the market by our regulatory information service this morning. Then Andrew Dane will present a brief overview of this year's results, following which there will be an opportunity for shareholders to ask questions for the resolutions are formally put to the meeting. So with regard to the statement that we released earlier this morning. The Board is pleased to confirm that the positive profit improvement -- profit improvement momentum from the second half of 2023 has continued into early financial year '24. With EBITDA in the first quarter of '24, up by over GBP 0.5 million versus the prior year. This performance is slightly ahead of expectations. With the focus on delivering profit, we are actively concentrating our efforts on maintaining a high-quality, committed and engaged membership which will underpin sustainable revenue and profit growth over the longer term. Group revenue was broadly flat in the first quarter of this year, in line with expected phasing for the period. With SMWS membership also broadly stable. We continue to anticipate full year consensus revenue growth of mid-single-digit percentage year-on-year. Single Cask Nation has had a positive start to trading since being acquired by the group in January 2024. Single Cask Nation is both complementary and incremental to our existing business. In addition to being strategically well aligned with ASC's stated ambition to further grow its presence in the U.S. and take greater advantage of the sizable and growing American whiskey market. Single Cask Nation has delivered a very solid sales performance inaugural releases across both e-commerce and retail in the U.S., providing good initial momentum for the business. The positive momentum and delivery to date and expectations of further year-on-year EBITDA improvement in the second quarter and beyond in '24, gives further confidence of the path to profitability. While still early in the financial year, the group remains on track to meet full-year consensus EBITDA of GBP 1 million. I'll now pass you over to Andrew Dane, CEO; and Billy McCarter, the CFO, who will present on the company's full year performance in 2023. Andrew?

Thank you much. As we move on to Slide 6, I'll take you through an overview of our results and the business. As ASC, we are creators of outstanding one-of-a-kind, wisdoms and experiences around the world. And our ambition is to create a high-quality, highly profitable and cash-generative premium global spirits business, and we've made good progress there. Related to that our stable of brands shown on Page 7. Single Cask Nation, as Mark mentioned, a successful acquisition completed in January of this year, adding to the Scotch Malt Whisky Society in J.G. Thomson. Now the Scotch Malt Whisky Society remains the heart of the business. On Page 8, it shows an overview of what the business is. A global direct-to-consumer premium e-commerce business, selling outstanding limited-edition whiskeys to a global fee pay membership. We procure cash for a wide range of distilleries. We mature those only over 17,000 casks, bottle them and sell them under our own brand exclusively to those paying members around the world. But it's about more than just being a great bottle shop. It's the experiences that go with them. Across a global network of partner bars, through our events, tastings and our 4 outstanding member rooms here in the U.K. On Page 9, we can see the progress that has been made since IPO. Where we've significantly grown revenue, membership and margins over the years since IPO. We've also enhanced our e-commerce capabilities and expanded our market reach with new markets in Taiwan and Korea and a significant expansion in the value of the inventory held by the business as well as adding new premium spirits brands beyond the Scotch Malt Whisky Society. And that progress has continued in 2023. On Page 10, we can see some of the key strategic objectives delivered in the year. With new products such as private cask sales program, membership and bottle products and investment in experiences, both physical and digital with the refurbishment of the spiritual home of the society evolves as well as investment in new app that was launched in the U.K. at the tail end of the year. That combines with the new markets launched in the same Taiwan and Korea and making sure we've got the right people to drive forward the business into the future. And just before I hand over to Billy to give some of the numbers for the year. Final point is really pleased to see the significant increase in the value of inventory held by the business, and we create value through 2 stages. First of all, the appreciation and inflation of the asset base of this business, where we have a book value of GBP 25 million but based on the transactions generated in the year of sales and refinancing, the average market value of those was between 4.5 and 4.8x the book value. That value capture has already occurred within the business, even if it's not yet recognized in the accounts. But where the business generates substantial value over the long term is by converting those outstanding casks into bottles and sell them to members around the world. But we can take that same liquid and over time, generate over GBP 300 million worth of gross profit and we're making good progress on that. I'll now hand over to Billy to take you through some of the numbers.

Well, we can see that '23 was another year of growth for ASC. Notably, revenue of 8%, gross profit growth of 9%. And not only is that fantastic in terms of the achievement of growth in here, but the diversified range of our revenue. And all this on top of a loyal engaged membership base with high levels of retention that has grown 10% year-on-year. So we move on to the more financial aspects on Page 13. I think it's worth noting the momentum that we delivered in half 2. So the outturn of adjusted EBITDA of GBP 0.1 million a year is on the back of almost GBP 2 million of adjusted EBITDA delivery in half 2. Again, that's on growing revenue, diversified revenue and also, as importantly, and managed cost base. Our cost base in terms of our marketing payroll and overhead spend, key costs of this business have all reduced year-on-year in the second half versus the first half, and that momentum will continue in the second half as we look to deliver this year and consensus forecast.

I'll just wrap up the fact summary on Page 14. So pleased to see the acquisition, positive acquisition of Single Cask Nation at the start of the year. Supporting a positive start to 2024, with that Q1 EBITDA up by over GBP 0.5 million versus the prior year as we maintain confidence in our ability to deliver the full year EBITDA expectations and our longer-term path than low to high single-digit EBITDA margin over the next 3 years. Thank you.

Thanks, Andrew. Thanks, Billy. So with your permission, ladies and gentlemen, I should like to proceed by dealing with all questions from shareholders on any matter relevant to the business of the meeting at the outset before we move on to voting on the resolutions themselves. Questions will be moderated before being sent to me as Chair. This is to avoid repetition and to ensure the smooth running of the meeting. Multiple questions on the same topic are received, I may choose to provide a single answer to address member queries on the same topic. I would like to remind you that Andrew Dane, our Chief Executive Officer; Billy McCarter, our CFO; Lesley Jackson, the Chair of the Audit Committee; and Helen Page, the Chair of the Remuneration Committee are also available to answer questions. Firstly, I'll deal with those questions submitted in advance by e-mail and answer any questions submitted via the online platform. If you have a question which you would like to raise, please type into the chat function now.

Chair, we do have one question which has been submitted online.

Okay. Let's deal with those questions being submitted by e-mail to start with. So 2 questions, which I'll take together. The first question was what are the plans to grow our share value that will match or exceed the initial share value at IPO? And second question, which is linked to the company has not paid any dividends and the price of shares has been constantly falling since the listing. Please explain your strategy in the acuity deadline to achieve, firstly, when dividends would start to be paid out; and secondly, the share price recovering to the price at the time of the listing? And importantly, please state the KPIs for financial year '24 to achieve the above the near future? And how we'll be accountable for not achieving the KPIs at the end of financial year '24? So that's a few questions within that question. In terms of the answer, clearly, we're disappointed with the ASC share price performance, particularly over the last 12 months. The Board and the executive team are all shareholders, and as such our interests are aligned with all other shareholders to maximize overall shareholder returns. We're not on an [indiscernible] with a market down almost 40% since the ASC IPO. 2023 clearly proved to be a more challenging year than anticipated. And while we have delivered in almost all objectives set at the time of the IPO with examples being our cash growth, our membership growth, gross profit growth and international expansion, profit delivery is about 12 months behind plan. The team are laser-focused on driving profitability through 2024 and beyond, and we've had an encouraging start to the year in the first quarter. The revenue and EBITDA 2024 broke our estimates for 2024 or GBP 25 million of revenue, and GBP 1 million of EBITDA, and we're focused on meeting or beating those estimates with Q1, as I mentioned, off to a good start. Our role is to run the business to the best of our ability, thereby maximizing its potential and future opportunity and our belief is that the market will recognize this and our performance over time. With regard to our balance sheet strategy, the priorities are really twofold: firstly, investing in the business to expand our stockholding, our number of members, our margins and our international reach and secondly, ensuring that the business is not overleveraged. With regard to the last point on dividends, ASC is a young growth business, and we'll continue to invest in growing the business because we believe this will generate higher returns for shareholders and paying dividends. More details on the company's financial performance and targets are available in the 2023 full year results presentation available on our website and was published back in March of this year. So hopefully, that deals with those couple of questions that came in ahead of time. And then Douglas has another question.

We have 2 questions which have been submitted online. And the first and from [ David Ridley ] is on an apple-for-apple comparison the incremental revenue from Single Cask Nation and Taiwan, how does the main business fare within the mid- to single-digit growth.

Okay. Andrew, do you want to pick that up?