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

Thank you very much all for coming along this morning and chance for Billy and I to talk about full year results. Thanks for coming and, hopefully, a chance to chat and go through some questions later on. When we do get to the Q&A session later on, there is a microphone, so we'll hand out to make sure that people can hear the questions. So I start by introducing our results for 2024 and a chance to remind you just briefly about who we are. So The Artisanal Spirits Company creates and sells outstanding limited-edition whiskies and experiences around the world, and we primarily do that through the Scotch Malt Whisky Society. Forty years old or just over now, it's a direct-to-consumer e-commerce business, selling exclusive limited-edition whiskies to a global fee-paying membership of just over 42,000 members as well as operating 4 outstanding member rooms here in the U.K. So 1 in London at Greville Street, 2 up in Edinburgh and 1 through in Glasgow. Alongside that, we've been building out our portfolio with the addition of Single Cask Nation start of last year, which I'm pleased to say has gone very well, as well as a few other pieces, J.G. Thomson, which was launched at the end of November 2021, and using our supply chain facility at Masterton Bond to grow our footprint, offering cask services, bottling services, et cetera to third parties. And underpinning it all, the bit that binds them all together is a focus on quality, outstanding quality in the liquid and everything that we do and a desire to go after a global community of whiskey adventurers, people who are on a flavor journey. So in terms of this year's results, headlines are our first material EBITDA delivery since IPO and guidance that shows that improving trajectory. It also represents the record profits for the ASC since it was created 10 years ago to acquire the Scotch Malt Whisky Society from LVMH, where it was owned at the time. We've also been taking major steps to unlock our U.S. potential with Single Cask Nation acquisition and recent investment in SMWS America, all focused on delivering profitable growth, cash generation, and with our substantial asset backing. What we've seen this year is continued revenue diversification, achieving overall revenue growth of 0.4% despite economic headwinds, particularly in China, which was down 34% year-on-year. And it's a more manageable risk as it's fallen from around 1/4 of the business to just over 10% of the business now. Memberships continue to grow and aspirations to deliver a step change in membership as we go ahead with membership rates holding up and supported by that strong acquisition of Single Cask Nation, which actually outperformed our stretch targets for the year. So that's been a really good addition to the family. And strategic delivery of other areas of focus as well as the acquisition for cask sales, for example, product portfolio innovation, which we talked about in the RNS Reach a few weeks ago, particularly a new range called the Creators Collection, which has landed very well. And then continued expansion and good success full year results for relatively new markets for us in Korea and Taiwan. And the next market to come is Vietnam, which will be opening in the coming months. So that's the headlines on 2024's results. And then I think it's important to mark that since IPO, we were talking about approaching an inflection point. And it's really pleasing now to basically have been on a path to profitability and cash generation and now have reached it. We've delivered a record profit for the business in what were, fair to say, more challenging economic conditions for consumer businesses, and that reflects the strength, depth, and diversity of our business model. So having now delivered that as well as managing our assets means that we are now cash generative. So net debt peaked in June of last year and is now on its way down with a net debt reduction of GBP 1.5 million in the second half of last year, but we still have a substantial asset backing underpinning the business. So we own over 18,000 casks of whiskey, which were valued in July at over GBP 100 million. As Billy will talk about, that represents a substantial multiple of any relevant metric, net book value, net debt, enterprise value, et cetera. And then if we flip on -- and I'll just touch on one more thing before I hand over to Billy, is reflecting back on the progress that's been made since the IPO in the summer of 2021. And as I mentioned a moment ago, we've made good progress. And certainly, when you look at the share price, it can be easy to forget the substantial progress that has been made. So since the IPO in early 2021, both revenue and membership are up 57%, and the book value purchase cost of the Spirit is up by 44%. And I say Billy will go into detail on what that current position means and what it reflects. But I just want to point out that, that is a reflection of the long-term strategy of the business. Over the last 10 years, one of the key focus areas, including use of IPO proceeds was to invest in Cask Spirit, and that part of the strategy has been exceptionally successful. Those assets that we invested in are now worth 4x what we paid for them, and most of those have been acquired in the last few years. And that's been demonstrated not just by the independent valuation, but of the GBP 5 million worth of casks that we have sold over the last 2 years, on average, we've generated almost 5x book value for those. So it has been a very successful part of our investment strategy to date. Okay. Billy, I hand over to you.

Thank you, Andrew. So what I'd like to go through over the next few slides, just in a bit more detail the revenue and ultimately, the EBITDA we've delivered over that time. So as Andrew mentioned, we've delivered 57% revenue growth since 2020. And if I flick on just to talk about that in a little more detail. Diversification remains key for us. So over the last few years, one of our biggest challenges against the kind of growth trajectory that we've had has been China. So China had its economic headwinds in 2022. So in 2024, the revenue from China for ASC Group is 50% less than what it was in 2022, which is significant. And for any company, that's really difficult and it's really driven by the economic impacts in the market. Our ability to grow from '22 to '23 and then keep -- achieve a marginal increase in '24, we're pleased with, not only from the ability to show an element of those, but ultimately diversification. Now the key reason for us being able to do that is delivering some of the strategic items that we've delivered in the past couple of years. So those items being cask sales, which as you can see on the screen, in 2023, trade cask sales was GBP 2.3 million and GBP 3.7 million this year, alongside our new market in Taiwan, which we began in H2 2023 and the franchise in Korea, which has been absolutely fantastic. Andrew mentioned some of the stats, but membership in Korea up over 50% year-on-year. So we're really pleased with how our strategic items have delivered. In 2022, the view would be that, that would be additional to the stability in the base of the business. But China has dealt us a tough headwind there. But to be able to deliver growth over the last couple of years, albeit this year marginal and deliver EBITDA against that, we're really pleased about. It's key to note that in China, the economic headwinds, we don't see them being extinguished immediately. We've got our internal forecast and expectations in China are relatively prudent. We don't expect levels of 30% decline as we've seen in the last 2 years. We expect an element of stability this year, if not a marginal decline in our expectations. And then over the next 2 to 3 years, as that stabilizes and, hopefully, some of the impetus in the market improves the Chinese economic outlook, we are well placed to take the up as easily as we took the down. So diversification is a key to our revenue delivery, and we're well placed to continue to grow that over the next few years. Before we go to EBITDA, I've talked about marginal revenue growth in 2024. So ultimately, it's managing our cost base that's helped us deliver that GBP 1.6 million EBITDA improvement prior year. Now that improvement in cost base is essentially across all our core components. So on the table to the right, you can see commission, we saved GBP 0.5 million a year, and marketing GBP 0.8 million, and other overheads GBP 0.7 million with a small increase in payroll of GBP 0.4 million. All of those are fantastic achievements resulting in us coming back to pre-IPO levels of cost base as a percent of revenue. So that left-hand side, you'll see it did increase. We've just gone through IPO. We're investing heavily in people and systems to deliver the growth we wanted to, which we have done. It's that investment in those people and system, which will really help deliver some of the key efficiency over the last year. So we have a stable, experienced people team -- sorry, not people team, but people within our business. And we've been able to utilize the system efficiencies to really drive so much more automation in what we do, so much more insight in what we do. So in 2020, 2021, we brought in our ERP system, which has been fantastic. We brought in Masterton Bond a couple of years ago to do our bottling, and we've now invested in improving our warehouse management system. So all of these things, these early investments have helped us achieve that. And to be clear going forward, those levels of where it is now, the 57 and 59, those are the levels we will stay at. And therefore, what we're ultimately saying is we achieve that revenue growth, more of it falls through to the bottom line. There is no heavy investment required to achieve that growth. That's already been done. We've now achieved efficiencies so we can deliver more of that growth to the bottom line in the future.

It's worth noting that even that payroll increases bonuses...

Correct.

Given that there wasn't one paid the prior year. So actually underlying payroll costs were...

Was flat.

Flat.

Managing to offset around 3% inflation. So what that ultimately means is we achieved our first significant EBITDA position this year of GBP 1.1 million. And the table to the right, the purple line is EBITDA, the blue line being adjusted EBITDA. In prior years, we have quoted adjusted EBITDA because we have had some significant non-recurring costs. This year, there haven't been any EBITDA. EBITDA is the number, there is no adjusted EBITDA. But we're really pleased in that growth. It's clear that where we've had challenges both in the industry and the economy that our revenues only increased marginally, but our ability to recognize that and deal with that as a cost base through efficiencies is pleasing, noting that going forward, there won't be savings of GBP 1.5 million in cost base. It's investment and growing the revenue to deliver to the bottom line. That's where we want to go.

Yes.

In terms of cash, Andrew has mentioned that we've reached -- we're pivoting with regards to our cash. We peaked at GBP 27 million net debt in the first half, reducing to GBP 25.5 million. And a key reason for that is that operational cash flow improvement. Clearly the EBITDA growth is a big reason for that. But one thing we're really pleased about is the improvement in our net working capital. So the key reasons in that GBP 1.7 million improvement would be our U.S. debtor timing. So we have one significant U.S. debtor through the tier agreement. So we've improved the timing on that as we've seen shipments over the year more phased rather more back-ended where we finished the year with debtor. Trade creditor timing cost savings, so looking to utilize a little bit more trade creditor days, still keeping around the commitment in most cases to achieve by end of month, no more than -- not many more than 30 days. So we're keen -- we're a small company. We know the importance of cash flow, but it's utilizing some opportunity that we've got. And dry and finished goods inventory is a big one. So we have -- we've talked about the challenges within the industry. So what we had was we started bottling based, for example, in '22 based on a higher demand scale. What we ended up with, therefore, last year was a larger inventory. We've managed to utilize that inventory this year, and we will continue to do that. Part of that is also from the opening of Masterton Bond. Our bottling is now all in-house, so we can take greater control on how we manage that and we've been doing that well, and that's credit to the supply chain team. Asset backed. Now this is a slide that is very important to us. As Andrew mentioned, our current share price, we do believe undervalues us, but people could argue about what people pay, but that's why we're here to kind of state that story. The purpose for doing the asset valuation in July '24, the first time we've ever done it was ultimately to define, do we believe that we are undervalued and more importantly kind of substantiate that view? That's what this helped us. We're not looking to sell GBP 102 million worth of cask right now. The core business model is to put them in bottles and sell them as bottles, which brings about, based on the current volume, 5 million bottles of whiskey, GBP 500 million of retail value, GBP 300 million of gross profit. However, it's important to note the inherent value that sits within our business. And alongside that those bottle sales, we will always look to release value. So as Andrew mentioned, the cask sales we've achieved over the last couple of years per the earlier slide of about 7 million, we've achieved a 5x return on average. We will continue to do that. Sales of cask about the same level over the next few years as a 4 million of shares will remain. That will continue to allow us to understand the inherent value within our business and be able to show it to shareholders and investors. And lastly, for me, while we talk about cash and our asset backing, I wanted to touch on capital allocation. The key point here is it's a balanced approach. So on this slide, you'll see some of the key considerations of what we do with our profit that generates cash. And one of the key things for us right now is to continue to make that directional reduction in net debt. Our net debt is roughly at a level we're comfortable with, given it's 1/4 of the asset valuation, but we are really confident we can start to bring that down after years of having growth. So that will show that we have a commitment to cash generation. And then as we look wider and what else we could do, the left-hand side is really the operational use, sort of growth marketing to really drive that increased membership, bring more members into the business to buy more bottles because that's a core business model. And Cask Spirit, that has pivoted a little bit. We have been buying to fill the demand gap that existed because of the reset of the industry. It's much more now on a replenishment basis, but that's always a consideration for us. If there are some unique valuable really good Cask Spirit opportunities that come up to buy where we know the inherent value is 2x, 3x, 4x more, that's a key consideration for this business as you mentioned [indiscernible]. And CapEx, expected not a huge amount over the next few years, but things like that could include new venues, and other opportunities like that. Then as we go to the right-hand side, it's being ready and available to take advantage of any M&A opportunities that come up and paying particular reference to Single Cask Nation, which has been -- we're delighted with the success in the first year there. So something similar to that. And shareholder returns -- sorry, shareholder returns, we're not yet stating we're giving a dividend. It's not the right time in our journey to do that. We aren't making any share buybacks currently. But these are things that are always worth consideration and something we could look to do when we start to continue to drive profit and cash generation. Those are kind of the 6 key elements that we think about as we generate cash.

Okay. Thanks, Billy. So hopefully, that gives a good flavor of where we've been, current position, recent trading, which I say, I'm very pleased with. And now as we kind of look ahead, the growth then comes from getting back to double-digit top line growth. So this is a growth business. We've been growing at 20% per annum all the way through IPO through into 2022. That rate of growth had slowed over the last couple of years as the kind of COVID super cycle has unwound, and we now get back into a vision for top line growth, driving profitability long-term. As Billy said, we have done a good job of managing the cost base that we don't expect that cost base to come back substantially, but future profitability growth comes from top line growth. So we're going to talk about where does that come from? Where are we expecting to see growth as we look ahead? But it's worth noting that profitable growth combined with the fact that we've reached this inflection point from a cash investment perspective means we are now cash self-sufficient, cash generative. And that asset backing is relevant for us because, as Billy said, we're not here to sell GBP 100 million worth of casks. We're here to turn GBP 100 million worth of casks into GBP 500 million worth of bottles and generate GBP 300 million plus of gross profit from that same liquid, but we have to take it over time. So it's about driving the top line growth that allows us to leverage profit from that element of the bottle sales part of the business. So I'm going to talk about how we deliver that. And to do so, I thought I'd start by setting out our kind of strategic framework. So this is unchanged as it has been over the last couple of years. So when we look at where are we going to deliver growth, we look at it through this kind of this lens across these 5 areas. Whisky, what we're looking to do is return the focus to creating and selling our own great whiskey. Delivering a step change in membership is a key area of focus for this year, really stepping up the membership, looking at a number of different avenues across online, in-person partnerships, and new ways to recruit. Experiences is something that sets us apart from many in the industry, and it's a chance for us to go big in terms of size and impact in delivering some of the world's best whiskey experiences. From new brands and audiences perspective, as Billy said, keeping an eye open for M&A, looking at new markets like Vietnam as well as investing in a premium private cask exclusive experience and continue to expand our reach. And then from a people perspective, recruiting with training, training the best with a focus on enabling our people to be their best, creating high-performing teams, et cetera. And in addition to that kind of 5 global parts of the pillars, we also have a regional approach. With each of the regions, good leadership, looking at ways that we can grow across each of the regions. And you can see actually when we take an Asian view rather than just a China view, the view there is more mixed with the diversification that's come from successful investments in Taiwan, in Korea, as well as just smaller things like the changes in partners in Malaysia, Singapore, upcoming expansion of Vietnam, allows us to diversify some of the risk away from any individual country. So that's the kind of structure into which we look at growth. And I'm now going to pick a couple of specific examples of focus areas as we look ahead and where we're going to get growth from. So first of all, we're going to talk about whiskey. And a key part of what's driving growth for us is product innovation. Now for us, innovation is absolutely critical to everything we do. We release 1,000 different products a year. So we are used to new ideas, new concepts, et cetera. We undertook quite a substantial range review assessment over the last year to 18 months. And the first parts of that coming out include the Creators Collection, which is in the top left, where we're responding to consumer demands for products with stories, with authenticity, with a connection to the liquid. So we're releasing sets. So the top left there is called the Peat Plant Collection. So exploring the journey of peat and its influence on whiskey, but through a different lens. So this is where peat from different parts of Scotland and how that influences whiskey in different ways, whether it's highland or island, [indiscernible], peak, et cetera, and how those influence the whiskey. Our first release at the tail end of last year, very successful as was the second. And the third release will be coming up in the coming weeks. That's been a really good move, really well executed, great work by the team. And that new Creators Collection sits alongside our other core range. So the signature range, the kind of classic white label bottles, we will be a new approach to those coming at the tail end of this year. Heresy, which is in the bottom left, which are really exciting kind of small batch products that are really well received. We've been ramping up those quite often at quite affordable price points, and it's really outstanding liquid for its price and really impactful labels, really nice presentation as well as things like in the middle, our 50th Cask Club. So that's a chance for members to buy a cask worth of new make spirit, which they will receive as bottles when it turns 10 years old. So very different to whiskey cask investments. We're still well cleared of that. This is about people who want a whole cask worth of whiskey bottles, but they want to be part of the journey. That really feels in line with what we are doing as the society. And quite often, it's groups of friends or syndicates or people doing for the businesses. So that product innovation and driving growth of whiskey sales for us is critical to growth. So that's one key area of focus. Second area of focus is in America. And we've made quite a lot of progress in driving growth in America with acquisition of Single Cask Nation, which is an American-based independent bottler, primarily direct-to-consumer and U.S. retail, but it does have some international as well as in January of this year, investments in SMWSA. But I thought it's worth just pausing and talk about why we think America is still a good opportunity for us. And the first thing to note is, it is far and away the world's biggest ultra-premium scotch malt whiskey market. It's more than triple the size of the second biggest, over $1.5 billion worth of ultra-premium scotch malt whiskey sold there every year, and that's the space in which we operate. And when you look at recent trading results for spirits businesses over the last couple of years, it's easy to look at that snapshot and think of an industry in decline. It's really not. You really have to step out and look at the long-term trends. And on the left-hand side there, you can see the long-term trajectory of alcohol sales. And you can see that actually, maybe will resonate for many of you, people consumed a lot more alcohol during the period of COVID. And what we've seen is that trajectory unwind and return back to long-term pre-pandemic trends. On the right-hand side, it's quite hard because it's orange and sort of yellowy-orange. But essentially, what that graph is showing is the actual U.S. spirit sales compared to what people said it would look like in 2019. So pre-COVID, what did that growth trajectory look like and what did we think 2024 would look like? '24 was bang on the money. Now the question is, are we now back to that super cycle having unwound and the industry is back into growth? And certainly, across the world, what we're seeing is a variety of results, certainly in markets like China, I think it's bottoming rather than bottomed. In many of the markets, we've definitely seen it bottom and start to come back. The U.S. has been slightly distorted, I would say, over the last 3 months as a result of some of the political excitement in the market. So it's hard to get a read. January was down, February was up. It's a bit unbalanced in the U.S. at the moment. But certainly, my view is that long-term, it remains an absolutely enormous opportunity for us because we are so small relative to our equivalent footprint in any other market. If you apply that to U.S., we would be a multiple of the size that we are now. So it's a really big opportunity for us. So that's why we're going after it. Acquisition of Single Cask Nation allows us a new proposition reach. So when we acquired Single Cask Nation, they had a mailing list of about 10,000 people. The Scotch Malt Whisky Society had a paid membership of about 7,000. The overlap between those 2 sets of consumer bases was less than 4%. So it says that the market opportunity for us is substantial, and that's a great extra string to our bow. In addition, in January of this year, we invested in taking greater control or taking control of our marketing and operations of the Scotch Malt Whisky Society in the U.S. Billy referred briefly to the 3-tier system in the U.S. So from a product perspective, it still has to go through a 3-tier compliant model. There's an importer, a distributor, a wholesaler, retailer, et cetera. But actually, the team operations, the marketing views, the operational approach, we control that now directly, and that gives us much better control. The team are energized, ready to go as well as a much, much optimized cost structure. So that's a key area of focus for us as well as the U.S. The other one, which I touched on, which I don't have a slide for, but I do think it is important to note is this membership growth. If we want to sell 5 million bottles worth of whiskey, my view is that the largest driver of that growth will come from membership recruitment rather than selling more bottles to existing members. We will also be doing that as we look to drive engagement. But my view is that membership growth is the biggest driver for the Scotch Malt Whisky Society. And we're spending a lot of time and focus this year on how do we drive membership growth. Some of that is as we see market conditions improving and the U.K. is probably 9 months of steady improvements in our U.K. sales, starting to loosen the tap a little bit on marketing investment, not to a huge extent, but starting to invest in areas where we are seeing growth. Second is taking new approaches. We are working on quite a number of partnerships, taking some of the learnings of places where we've been successful, for example, in Australia, where an Amex partnership was very successful, trying to apply that into the U.K. So a number of those are under development and will come through this year. As well as looking at how we perhaps engage in new channels and new ways of recruiting. We have quite a diverse cost of membership acquisition cost ranging from 0 for member referrals. It's actually a really good recruitment tool as members referring their friends, really good quality recruits, low or no acquisition cost. Through to traditional digital channels like Meta, where we have seen customer acquisition costs increasing pretty steadily. So actually, we've been taking new approaches to those and looking at partnerships with a number of -- or new partnerships and new channel approaches as a way of driving membership recruitment. And again, test and learn. We're doing a number of different things, 3, 4, 5 different ideas, see which ones work, see which ones don't, put lots more money into the ones that are working, drive growth over the course of this year. So those 3-whiskey product innovation, U.S. membership step change are probably 3 of the big ones I would draw attention to. Later on this year, we'll talk about the growth of launch and growth of the new exclusive premium cask experience piece as well as strategic areas of focus for driving further growth as we look ahead. So that's where, overall, I see the drivers of that future growth. And ultimately, what they should deliver is profitable growth with a more stable, lower sustainable cost base, allowing us to leverage more of that revenue growth. Then that profit growth, combined with the better cash model means we can turn profit into cash generation and the whole time having this substantial asset backing sitting behind the business. And that allows us to go after those areas of growth that I've talked about, market opportunity, membership growth, product innovation, and market expansion. So I'll finish up with a bit around current trading and outlook. I'm pleased to say it's been a strong start to 2025, achievement of double-digit revenue growth in Q1 '25 versus Q1 '24. So getting back to double-digit growth, as I've said, and that's on track after the first few months. And that's been led by bottle sales in Europe, supported particularly by further success of this new Creators Collection range as well as early success in delivering against our full year cask sales targets, and that's really profitable growth with the growth in profits in Q1 more than offsetting the GBP 0.5 million investment in the U.S. So even despite that one-off non-recurring cost in January, profits are still up. So that's been a really good start to the year. We've also seen good response to the investment in the U.S. The team are really excited, really motivated, really driven, delivering some really good early initiatives. Everything from member favorites in the U.S. like flat rate shipping to better quality comms, targeting, and more to come in Q2. That's another place where I think we are going to put a bit more marketing investment to support the new approach in the U.S. And we'll see targeted direct campaigns, I think, in Washington and L.A. in Q2, where we're doing a combination of above-the-line marketing spend and product packs, a little like those, but big round of sample packs to get liquid in hand of people because we know that -- so obviously I think it is the best liquid in the world. So getting that in people's hands early on helps drive not just recruitment, but then subsequent engagement and retention of those members. Last couple of points. As I started at the beginning, underpinning everything we do is a dedication to quality, and we continue to win awards, awards across the group. And that's 200 something, almost 300 awards across Scotch Malt Whisky Society as well as Single Cask Nation has won Independent Bottler of the Year Award in the U.S. for the second year running, been really pleasing. And then finally, sensible other initiatives. So for example, we previously owned 2 residential properties above the venues in Leith. We've now sold both of them, one at the tail end of last year, one in this year. That's GBP 0.5 million of extra cash generation as we just look at sensible balance of capital allocation. So overall, good start to the year and remain on track for delivering full year targets for this year. Thanks.

Okay. If there are questions, I think there's a microphone at the back of the room.

Brilliant. Could you just -- you talked about the M&A opportunities. Can you just give me a flavor for multiples in the sector really using some of the metrics you've been talking about, about EBITDA, and also the asset value as well? And then can you kind of give me a flavor of what that valuation would look like to you guys as a consolidator? What kind of premium would that look like? And how would an acquirer use those metrics to value you?

So acquisition multiples at the moment are very problematic. As you see, you look at a business like ours where you see our assets are worth twice our enterprise value. We're not yet bottom-line profit generating. So what's the valuation multiple? We have certainly, as the valuation multiple gone from over 4x revenue multiple when we listed our IPO to closer to 1x. So it's quite hard to say here is the right valuation multiple. What we can say instead is how do we look at what a good quality acquisition would look like? How do we assess what good value looks like? And I think there's 2 parts to that. First is to see what are we looking to get from an acquisition. So it needs to be complementary and incremental to our operations. So it needs to fit with what we are about and it needs to be incremental to what we can already deliver. Then we're looking at things which are already cash generative and at least net neutral or ideally profitable rather than them being a cash or profit drag. So those are some ideas of things that we are looking for. Then looking at what things can we bring to an acquisition. And I'll use Single Cask Nation as a good example there. They had a brilliant brand. They had really good leadership with great reputation in the market. But they did not have access to liquid. So we have an outstanding asset backing, not just from a value perspective, but also the quality of the liquid built from 40 years' worth of industry experience and reputation. So we can get access to liquid from a huge range of distillers and great quality. They really struggled with that because they didn't have that access. So that was something that we could bring to the acquisition. So looking at targets which have distribution, which have good brand quality, brand reputation, but don't necessarily have the asset back and they don't have the financial backing to have the liquid. That's one example. The second is we operate in 30 countries worldwide. We have direct-to-consumer in almost all of those. And even in the others, we have franchise partners who operate a kind of pseudo direct-to-consumer. So we can take brands from any country and help them expand into others. So that's something else we can bring to an acquisition target. So someone who has a really good reputation doing good things in Scotland, but actually, there's an opportunity to expand elsewhere. Or similarly, if you look in the U.S., for example, some people are doing good things in individual states. Can we take that model nationwide? So those are examples of things that we could bring to a target. Ultimately, our sweet spot is direct-to-consumer, e-commerce, whiskey-led. I'm willing to go adjacent in one area. So we can look slightly outside that sphere to see it might not be whiskey if it is premium spirits direct-to-consumer in markets that we understand. So that's the kind of range of things that we're looking at. Does that sort of help answer the question?

Yes.

Just 2 questions from me. First of all, how do you think about the kind of sizable opportunity in the U.S. given any potential tariffs? So any interest here, anything you're kind of doing to mitigate those potentially? And then also interesting to hear about the partnership strategies. Interested just what is the sort of ideal profile for a commercial partnership?

Okay. So let's take them in turn. So first of all, it's worth noting that the conversations around tariffs are obviously rife in every industry at the moment. And that doesn't -- we're not immune to that. It's worth noting that there are no specific currently threatened tariffs on scotch. So it's worth just putting that into context that we're as exposed as anyone else, but there's no specific incremental consideration here. If we were to say an example of the tariffs that applied 5 years ago, 25% import tariffs on scotch whiskey, we think we could mitigate that impact substantially versus its previous impact by changing our route-to-market process that's already underway, meaning that it could be hundreds of thousands of pounds worth of costs. So a pain, problematic but not devastating globally and certainly not enough to put us off the opportunity that exists for us in the U.S. The other thing is it would apply to scotch whiskey imports to the U.S. And actually, we've been growing our domestic U.S. presence, which avoids that too. So there's 2 parts to that strategy. So certainly, I don't see tariffs as something which changes our strategy, changes our view on the U.S. as a substantial opportunity. We'd much rather not -- we are certainly of the opinion as is the SWA DISCUS, which is the industry body in the U.S. that tariffs hurt everybody. So we want to avoid that in both directions, but we could certainly survive any and it wouldn't change the strategy. Is that helpful? The second question was on partnership strategy. Again, we're going with the test-and-learn model. So if we think of the target funnel in either direction you want, so we are targeting both really like-minded people, so like a whiskey magazine type partnership where you know you're speaking to a pretty well-qualified audience, but the size of that audience is reasonably small, but you're getting access to good quality audience through the scale through to people in premium spend situations. So that might be looking at a high-end store experience, so Fortnum & Mason or whatever type opportunity where someone is coming in and they're ready to spend at a high level but aren't necessarily thinking whiskey. Down to a broader end of the spectrum where you think about a more open channel like Amazon, where you've got a huge consumer base, lots of people who are looking for whiskey, but your attrition is going to be pretty high. And thinking across each of those and saying, what would a framework for a global set of principles that have to apply? What are the brand principles that need to apply across all of those? And then what specific case studies can we go and test and learn and use, and then use a feedback loop into different markets? What things have we had good experience of Amex, great partner in Australia? Because they could look at their card database and say, we know which of our Amex members are spending money at the Scotch Malt Whisky Society in Australia. If we apply that to our whole database, then we can target people who share those kind of profiles and you can offer a targeted campaign to them, which was still net neutral at a cost level from our perspective. So those partners really allow us to get at qualified audiences. So we're going across each of those tiers and testing small scales, each of them to see which works and then go and invest in the ones that are most successful. Does that help?

Yes.

[ Matt from Allenby ]. A few questions. Just on the tariffs, you mentioned changed the route to market. Is that doing something sort of tariff mitigation with Single Cask Nation?

No, it's not. It's the way our supply chain is currently set up. We've changed a lot in the last couple of years. For example, we have an ASC entity in America. And so we changed the route to market, ultimately, therefore, reducing the tariff impact. But we're talking levels of 70% to 80%. The channel we've got right now works where there's no tariffs. As soon as tariffs come in, we have to implement something different. But most of that is setup ready to go if tariffs were called in. As Andrew says, the -- it's the one tariff that hasn't been mentioned a lot over the last few months. Doesn't mean anything because you can wake up one morning and say they decided to do that. But we are pretty confident and there are -- I won't call them backup plans as such, but things in place to be able to move quickly to significantly reduce any impact to that.

We also have 9 months' worth of stock in the market, so...

Yes, which is another good point.

Helps to mitigate if there was an immediate shock. And just to be clear, the changes that we are talking about in this context are not changing any of the partners. It's changing at what point the value transfer happens in what way. So overall, you still capture the full value, but you do a different point of the process that helps offset some of the tariff impact. And it's actually unwinding an idiosyncrasy of our current model to match what most people already do rather than us moving to something unusual to try to avoid...

And it does. So for example, what we moved to is how do I do and the big guys do it, but they're impacted because they're so big. Our impact is lower because we're a lot smaller, but we're well placed to make that happen where there'd be a significant risk reduction there.

Because the last time the 25% came in, that was under Trump, wasn't it? So he has done it before.

Yes.

And again, if we're going slow, it's currently suspended through to 2026. But last time that was in place, the impact was something like $1 million a year. As Billy said, we think we could offset 3 quarters or more of that impact by changing that.

Back then, there was no change in the route to market. So it was 25% of a higher number.

Yes.

We didn't change anything then. Thankfully came away. This time, we would be ready to react.

And 2 other questions, if I can. On the income statement, the commission payable, who are you paying commission to? What is that?

That was predominantly to the U.S. So when Andrew says we've taken greater control, we have a partner in the U.S. We've taken greater control of driving membership growth in there and targeted marketing. A lot of that would cover what the partner did in terms of marketing and membership growth, the employees to do that plus an element of profit for themself or themselves. What we've done is we -- for example, we brought these employees in-house now. They now work directly for ASC. So there is a -- this year, there will be a reduction in commission and an increase of payroll costs. But net-net, there is an upside. There is a small upside because you can imagine it's only taking the partner margin out, which is ultimately where we get some savings. But that the commission number at the end of this year, for example, will be significantly smaller because most of it relates to what we are paying to the U.S. partner.

There are some other small ones.

Correct.

China, because the way it works, you don't have your own website, you have an app in a shopping mall, Tmall, JD.com, [indiscernible] et cetera, and you pay a couple of percent of revenue commission to that kind of mall owner, but the vast majority, 90-plus percent of commission was the U.S., and that has now ended and that's now in-house.

And then final one is more just sort of big picture on the whiskey industry. I mean demand, we never know where it's going to go. But supply, I guess, you have quite good visibility. And I was just wondering, and I know it's different to gin, but gin has suffered from massive supply coming on. Is there anything you see in the whiskey industry, be it distilleries or a lot of product being distilled 10 years ago that's about to hit the market, anything that could lead to an issue glut of stock over the next few years?

An interesting one, what we're currently seeing is 2 things. One, big distillers actually trying to buy back their stock for the COVID years when they weren't producing. So they are -- there's not enough stock of those years. I think overall, it's fair to say that distilleries were producing at a rate assuming higher sales rates. And we are seeing opportunities to buy from distilleries, which haven't been selling over the last few years, new and old distilleries. You are seeing some people close down or reduce production at some facilities, Glenglassaugh, Brown-Forman's facilities and some others as well as some distilleries actually shutting. Not many in the scotch space, but adjacent spaces in Waterford in Ireland, yes, so [indiscernible] in Sweden, et cetera. So I would say there is definitely some availability, and that's why when Billy alluded to spirit investment strategy for us. We are keeping a bit of money sort of in our pocket for opportunities for once-in-a-lifetime pockets of stock. We're seeing a couple of those. So we're taking advantage of those because it might be a decade, it might be 2 before an opportunity to pick that stock up again happens. But overall, nothing kind of existential that we're seeing. I would say what we're seeing is normal cyclical readjustments rather than anything structural. We'll probably get a year, maybe -- yes, maybe a year, 18 months' worth of opportunities to pick things up before their own cash cycles come back. And it's interesting to make the gin point, particularly for some of the newer, younger distilleries, part of their business model had been predicated on gin sales in the short-term while the whiskey is maturing because you need to be at least 3 years of production before you can make the first whiskey. And if you want it to be good, you might be talking 5 years to 8 years before their first whiskey. That's an awful lot of cash tied up. And if your gin isn't as successful as Harry's gin is, then cask sales are a way of generating cash in the short-term. So those opportunities are coming up from other distilleries. Anything else? Anyone else?

Just on the Single Cask Nation business. I mean you have said it's doing better than what you had expected. Maybe talk about what's working there? And how different is the recruitment model there compared to the SMWS model? Because I know you don't do membership over there.

Yes.

So is the relationship with the customer a lot more transactional? Or do they tie buy in for the long-term as well? And maybe how developed is the Single Cask opportunity for American whiskey in the U.S.? I mean, is it difficult to pass on this message to the consumer? Or are they well aware of it and the big opportunity?

Okay. So what's going well, what's the recruitment model and Single Cask American whiskey?

Yes. Correct.

I would say Single Cask Nation has -- I would say, what were we bringing to acquisition? We brought availability of spirit, but we also brought commercials and business structures to a business that was basically run by 2 founders, one of whom had a full-time job. So actually giving them time, space, ability to focus on the brand as well as small travel, advertising, promotional budgets, et cetera. We didn't need to set super knockout targets to justify the acquisition. And actually, they were on allocation. They were restricted by their ability to execute, which is why one of the reasons we saw as a big opportunity. So I don't think you're going to continue to see absolutely knockout super performance beyond all our expectations long-term, but it has been a brilliant acquisition and well paid back already. And second is recruitment model. So it's worth noting that it does have direct-to-consumer as part of the model. But if you think of it in 3 chunks, most of the business is in the U.S., but that U.S. business is split, call it, 50-50 direct-to-consumer and classic retail. So that -- and then the other part is international export markets, which are, again, traditional retail. So if you think within the U.S., the recruitment channels, it's word of mouth, they have their own podcast, which has a huge following, very good brand recognition on the podcast called One Nation Under Whisky. They hit the road. They're out and about on the road, meeting people. They are speaker panels. They are featured in a brand-new docu series about independent bottlers, which is coming out now, as is SMWS. So they have got disproportionately good kind of press coverage and reach because they are whiskey geeks. They are seen as people who -- people will go to, to hear about what's going on in the industry, hear good insights and expertise. And then the growth has also come in from retail. And that I think is really worth noting that at a time when most importers, distributors, particularly in the U.S., but in other markets, too, are saying no to new brands and no to more stock because they're overstocked from that kind of post-COVID period, we have managed to grow our footprint of people who are saying yes for the first time as well as growing our sales into existing partners. That reflects the kind of reputation of the brand and the quality of the liquid and the price point, all of which is combining to make sure it's really being well received. And then the third bit was around single casks for American whiskey. Certainly, there is some space. It's a different market. So if you think about a pyramid of -- for scotch whiskey, kind of blended whiskey, you've got single malts, single cask as the sort of pinnacle of kind of scotch whiskey. It doesn't quite work the same for American whiskies. If you go to a liquor store, quite often have their own called barrel select program where they have a buffalo trace for the local liquor store, and they have their own allocation of 250 bottles with their maybe a round or a neck tie or a label or something, but $40 a bottle. That's not an economic model that make sense for us. However, there's 2,000 craft distilleries in the U.S., 200 of them making American single malt. American single malt has just got accreditation. It's the first new alcohol category in 40 years in the U.S., and that was led by Steve Hawley, America Director, who's President of the American Single Malt Whisky Commission. That's a space that has opportunity. The other thing in the U.S. is particularly for craft distilleries is reach outside their state. Because the 3-tier system, distributors, wholesalers don't necessarily want to pick them up. They can't get nationwide distribution. So being able to speak to a consumer base, which is across the country, that has some space. So certainly, there's an opportunity there. The other thing for me on American whiskey is American whiskey as a category, has space for us. And if you think about Heresy, which is the range within the Scotch Malt Whisky Society, small batch blends with a story, kind of come to life. I think that there's an opportunity for that in American whiskey and Single Cask Nation would be a better home for that than the Scotch Malt Whisky Society's American whiskey just makes more sense and also has more sales channel opportunities. So I think that's a better American whiskey opportunity for us. Does that help? Anything else, Billy, you think you should need to?

No.

Anything else in the room?

Thanks for your time.

Thank you very much, all.

Thank you.

Thanks.