Top Shelf International Holdings Ltd (TSI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Top Shelf International Holdings Limited FY '22 Full Year Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Adem Karafili, Executive Chairman. Please go ahead.

Thank you very, very much. Welcome all. Thank you for attending the public call for the Top Shelf International's FY '22 Full Year Results Presentation. It is our first full year as a public company, it's the second result season. So we welcome you all, and we look forward to looking through the presentation. Good morning. Joining in the room with me here is Drew Fairchild, the CEO; Ben Kennare, the CFO; Matt Slade, our Investor Relations Head; Ryan Buckle, Sales and Marketing Director. I'll shortly hand over to Drew Fairchild, who will run through the presentation. We will take questions at the end. That will be moderated, and we'll do our best to get through in the allotted time of 1 hour. And of course, if there's any residual questions that we unable to answer, we look forward to responding to those post the call to the relevant people. With that over to you, Drew. I'll hand over to Drew Fairchild.

Thank you, Adem, and thank you to all those shareholders that have joined us on the call today. Of course, it gives us great delight to present status update as to where Top Shelf is at, certainly on our journey to be coming, if we're not there already, Australia's preeminent Australian spirits portfolio. Ben Kennare is sharing the slides with me. Hopefully, everyone can see those slides. Obviously, the announcement in the slide deck itself is now loaded on the ASX. I think just from a process perspective, today, we'll obviously, as Adem mentioned, work through the presentation, have time for calls, et cetera. I think it's also worth noting that on the 12th of September, there will be a second public call. At that point in time, we'll work through and present our Australian spirits brand portfolio, including a reveal of the Agave brand. So I just draw that to people's attention that, that will take place on the 12th of September. And of course, we're very excited about that milestone. But of course, this is today's presentation is very much focused on what did we achieve over the last 12 months. And how are we placed in terms of realizing our ambitions as we look forward to FY '23. I will invite both Ben and Ryan to participate in this presentation as well. And of course, Adem and Matthew are available for any questions that may arise. From the get-go, I think I'm terribly excited to, firstly, obviously call out the fact that both NED and Grainshaker are Australia's fastest-growing spirit brands in their respective categories, and that's a fantastic milestone. Of course, when you look at the alcohol categories in which we have chosen to play, obviously, in this instance premium spirits and RTD, as you can see there, that we've very much chosen the right categories from an alcohol perspective, in which to participate. And of course, when we drill down further into, of course, bourbon-style whiskey, vodka and agave, they clearly are the most popular and fastest-growing categories in alcohol as well. So from the get-go, we're very much playing in the right market, of course. As our shareholders can certainly who have been part of the journey for some time, and of course, more recent shareholders, it does take a lot of effort, confidence and indeed an ability to execute to build a platform to avail ourselves, if you like, of the momentum in and around the category of spirits. But of course, from an Australian spirit's perspective, it really takes foresight and confidence in order to be able to invest ahead of the curve. And having done that, we really pinch ourselves to find ourselves now in the right place at the right time. And part of that, of course, is COVID and the impact that COVID has had on international supply chains. So for us to be in a position where we have a vertically integrated business, where we now have access to whiskey, where we've got line of sight on Agave, puts us in a fantastic position to realize the growth in terms of our own brands off the back of, obviously, the spirits and their role that they're playing in the broader alcohol category. I think just in terms of, obviously, looking back over the last 12 months. Now again, for all of us, it's been a challenging 12 months in terms of clearly COVID. COVID lockdowns really continued in the Eastern states of Australia right through to November. So 7 months -- sorry, 5 months of the year was very much impacted by COVID. And of course, Omicron also impacted the results in January as well in terms of -- particularly our ability to trade within the on-premise. So there was windows of opportunity throughout the year. And I think if we look at the revenue growth, in particular, to be able to achieve what we did, particularly also given the fact that we had to patiently wait for whiskey to be able to be accessed at scale and the quality, has been, I think, a remarkable achievement on behalf of the team. As I look here at the platform, and we'll go through that in a little bit more detail, but in terms of what gives us great confidence around, and again, having invested ahead of the curve, clearly, our focus is very much on revenue and gross margin in order to be able to realize the operating leverage that we have in place, and we'll step through that in some detail. And of course, understand the revenue trajectory is key to having confidence, if you like, in the business model that we have created and built. And Ryan will go through some of the velocity and distribution numbers in more detail. But you can see there to see that 96% growth half-on-half from a branded perspective, 72% growth from Q4 to Q3. And as we sit here today, having started FY '23 for July and August to be 184% up in terms of branded revenue on the prior period in FY '22, it's just a great foundation as we look forward to FY '23. Just in terms of referring to the next slide, just a little bit more detail about our Australian spirits platform. And of course, it's very much a model that underpins this in terms of distribution, velocity, et cetera, which we'll talk through in a bit more detail. But in terms of what is this platform, of course, shareholders that have been part of the journey for some time are quite okay with the platform. But for those that are recent new shareholders to Top Shelf, this really, again, articulates what we've invested in over now gusting on 7 years. But really, it's about our brands. And clearly, our shareholders have been patient in terms of our articulation that NED brand has always worked and will continue to work. Now we're able to demonstrate in market performance, and Grainshaker having launched essentially into COVID, for it to achieve what it has achieved is actually quite remarkable. And for us to be on the cusp of launching our Agave brand, it's amazing when we turn to the next slide how comfortably those brands sit together as a portfolio. And within that, we'll talk a little bit about assets in a moment. But clearly, as I mentioned, at the get-go, we have invested in an asset base and allows us to realize our ambitions. And that not only in service of our brand, but just also in terms of realizing market opportunities, particularly around agility, new product development, et cetera. The ability to bring a product to market either to effectively identify market opportunity or respond to a customer need, I don't think anyone could do it with such a short cycle time is what we can do on Top Shelf. And of course, I spoke earlier about the categories in which we have chosen to play, thanks for that. A portfolio is very much a portfolio when you have 3. Of course, we had one, and we're continuing to build out the brand architecture as it relates to NED. And as Ryan will talk a little bit more detail, we couldn't be happier with how the NED brand is now being received and elevated within market. Grainshaker has had a fantastic start in certainly the on-premise, building momentum in the off-premise and without peer as we look at festivals and events. And of course, to be able to play in Agave when we look at the fact that the Agave spirits category, if you like, will double in size globally over the next 5 to 10 years, the fact that we've actually built the farm and actually harvested out First Pina puts us in an incredible position to actually realize the opportunity around the Agave brand. And of course, as our shareholders will know, we've welcomed [indiscernible] to the team, who has been leading the execution of that strategy. So we've got great confidence that we've found the best person on the planet to lead the launch of our Agave brand in terms of not only what's been developed to date with the commercialization of that over the next foreseeable future. When we look at our assets, and again from a distillation perspective, we've got globally scalable and relevant assets. When we think about our bunker distillation capacity dark spirits, and of course, when we look at effectively our maturing spirit profile, the Agave and volume that we've effectively got in ground. So all these assets are now effectively reaching a certain level of maturity. Of course, from the Agave perspective, we're 70% of the way through building out the farm. That puts us in the largest estate outside of Mexico. Of course, as mentioned, we've harvested our First Pina, just a great indicator of the fact that we're on the right track, the fact that, that Pina was 19.5 brix, which is the sugar levels in the actual plant itself, and our target is 25% to 26%. So when we talk about the execution of the build-out of our distillery at the farm, and of course, the launch of the brand, that gives you great confidence about the trajectory that we're on in terms of the agronomy side of the equation. And also to contemplate harvesting that in an automated way. Again, we're well placed in order to be able to do that. And of course, our production capacity at Campbellfield, there we continue to see great demand from third parties for access to that. And the team there are doing a fantastic job in terms of building out the, not only our own product profile, but of course, in support of those opportunities. I might just move through to the results themselves. So that is a synopsis of the platform in which we have -- synopsis of the platform that we've built. When we look at the results, what are the key highlights? Of course, on the left-hand side, it is very much about moving from a production business to promises being made about how the brands will perform in market to evidence that the brands are performing in market and no greater evidence than the call out of NED brand, the #1 Australian whiskey brand. And of course, the same applies also for vodka. And of course, with no key when it comes to Agave, playing in that category, of course, that will also be the #1 brand in that category when we launch it. Revenue, again, I mentioned some of the challenges around navigating COVID, which, as I said, lockdowns plus omicron was basically half the year. Notwithstanding that, we still managed to deliver a 39% increase on our revenue from FY '21. And really pleasingly, when we looked at half-on-half and the branded product revenue was up 96%. And if you look at quarter-on-quarter, you'll certainly see that even on quarter-on-quarter was up 72% in Q3 to Q4. And that again really reflected the fact that we then have whiskey available to supply. Our gross margin is clearly -- we'll talk will be about different lens on gross margin through this presentation as gross margin that clearly is top of our mind in terms of the -- whether it be the product mix and the introduction of new, for example, good, better and best strategies that relates to NED. And of course, the continued build-out of the Grainshaker brand architecture, focusing on gross margins is clearly a key priority for the team. We continue to invest, obviously, ahead of the curve and realize those investments. So that's obviously laying down whiskey, building out the farm, and of course, in the brand itself. And in the presentation, we'll actually flow through to -- Ben to talk a little bit about the intangible and the brand asset value that we actually have within the business, which, of course, doesn't sit on our balance sheet, it's inherent in the iconic brands that we've actually brought to market and continue to bring to market. You can see there on the left-hand side, of course, our maturing spirit portfolio. I think it's into the 350-plus now in terms of net sales value in hand. So that's a significant number. And of course, that excludes vodka. That's just whiskey and agave. You can certainly see here relative to our enterprise value that the assets that we actually have in use in the business, and we should give great confidence to shareholders at the money that we raised and invested has actually gone into the business in terms of building the platform itself to allow us to realize our ambition. And of course, very pleased to say that the quality of our asset base is reflected in the confidence of our lender increasing the facility, whether it be whiskey or whether it be the farm itself. And of course, when we think about, particularly even last the farm, the build-out of a medium plants, the spirit that we have access to, we've got great confidence that, that is a single asset in its own right will be incredibly meaningful and valuable in time. Moving next through to the next slide, and I'm just going to pass over to Ryan. Ryan will very much, as I mentioned, focus on our branded side of the business. And that's clearly where we're now -- we have now arrived at that juncture and in-market performance. Ryan?

Thanks, Drew. Good morning all. As you alluded to, the hypothesis we've had for a while is now coming to fruition, and we are primed for delivery and acceleration as we move into FY '23. So first and foremost, we alluded to the local industry tailwinds. So certainly, a megatrend in the spirits industry at the moment is the ability to buy in local, being compounded by the fact that it's very difficult to get things in from overseas, particularly at the cost that you were used to pre-COVID. So that is certainly supporting our quest and fantastic to be in an industry that has tailwinds. The second part of our growth philosophy is growing distribution channels. So I'll reference the chart on the right of the page at the top, but that just shows our distribution point growth since Q4 FY '21, an increase of over 300% as we forecast into Q1 FY '23. A reminder for those on the call, a distribution point is a product in a store. So fantastic to see the growth in distribution points through FY '22 and into FY '23. In regards to growing channel velocity, so that is just making sure that our products are beating -- our first meeting are beating our competitive set in terms of how they perform from a rate of sale perspective. We shared a brand performance stack a few weeks back where we were showing our comparable rates, so which you can reference after the call. But we are delighted with our own lofty standards and how we're meeting those from a rate of sale performance. Growing portfolio and premiumization. We're always looking to get a higher NSR per meter for our portfolio. So there's some good evidence that's come through in FY '22, but what's your space in terms of what's coming in FY '23. And then lastly, which is probably the most important part alongside the distribution points is building brand and activation. So we'll skip through each of the results for both Grainshaker and NED, but we're really pleased with the amount of eyeballs we are now getting in front of, whether it be through TV, out-of-home or events. I think it's also important to reference you can see the respective growth that's NED and Grainshaker versus total dark spirits and total white spirits in the AU liquor off-premise landscape, 7x the growth. So that sort of supports the underlying growth model, and the results of the study to see in market. So a fantastic set of growth numbers there, long way, they continue.

I think just, Ryan, from my perspective, in terms of presentation of this model and certainly the next few slides, this will become broad in many ways. So every time we come back to our investors, there will be an update, if you like, on the application of this model. And so again, from all our perspective to arrive at this juncture, which we're very much focused, obviously, on the model itself and the application of that and the flywheel, if you like, in delivering economic returns, this will be the model that we, of course, repeat ad nauseam with the addition, obviously, of Agave over the course of calendar year FY '23.

Thanks, Drew. So moving into NED, as we alluded to, 105% sales growth in the latest 4-week read, sort of compounding the numbers we spoke about, half 2 and half 1, and Q4 on Q3. Also July, August versus [indiscernible] as well. So we're certainly seeing the same performance for NED, being underpinned a lot by distribution growth of 236%, as I alluded to earlier. We are the #1 Australian whiskey. We pinch ourselves that we've got to that junction in a relatively short period of time. A lot of news about Australian whiskey at the moment. But to take that mantle is a fantastic performance and reflective of all the work that we're doing.

7 years, right?

7 years [indiscernible], but it's also riding on some -- right after that change. #1 fastest growing Australian whiskey as well, which is an awesome performance, again, we expect it to accelerate through FY '23. Important also to call out the industry Spirit competition award. So why these are important as they provide a great platform for credibility and PR for the consumer and also the customer, but also to be recognized within the industry is delivering great quality juice is an important milestone. So some fantastic awards there, including 2 golds for NED Wanted Series. As I alluded to earlier, we've reached a lot of households this year. So if you have been driving around Australia recently, and you would have set it out of home either on the side of a rotor in a 7-Eleven. If you live in regional Australia, we've delivered over 700,000 eyeballs in TV integration through live sports. So lots of opportunities for people to see. And also our Supercars partnership, which is the third largest broadcast sport in Australia. Lots of mentions and visibility in that as well. And then most importantly, the last bit, which is new products and new brands that people don't understand, a great way for them to get used to them is to experience them in an event. Families and friends attending Supercars and other events in regards to NED, but they are powerful ways to build memory structures when you're having a great time with family and friends. Moving to the next slide, which we'll talk about Grainshaker. Again, another really strong set of numbers, 157% sales growth in the 4 weeks, over 5,000% distribution growth. We have to add at this slide to make sure it all looks nice because it's hard to get a quadruple digit percentage growth number into this. But again, a fantastic result, #1 Australian vodka, #1 fastest-growing Australian vodka. Again, a similar thing with NED, fantastic recognition from the industry in relation to the quality of the spirit that we are producing with Grainshaker. Again, households being reached by out-of-home advertising is very high, and we will actually see more events with Grainshaker present through FY '22, main drivers being obviously the Australian Open, but also a fantastic festival book that we've got lined up for this summer in terms of cans in-hand and great events. I'll hand back to Drew for the FY '23 outlook.

Yes. Thanks, Ryan. And again, the fact it's in many ways, from a brand in-hand perspective, that's on festivals and events that we've got over 3.5 million people expected to have a can in hand over the course of the next number of months is particularly exciting, again, well, not only for us, of course, but through Australian Spirits having a ride. Thanks for that. And of course, I think probably just a couple of key callouts is when we look at how we've activated the brand or and indeed focused on amplifying the brand in terms of reach, it's actually been very targeted through our post-COVID strategy, particularly in terms of regional TV, very much focused on value for money. So we can certainly assure shareholders that we're very much focused on getting our greatest bang for the buck, and I think it's really pleasing that when we look at the actual depletions, whether it be an ALM or indeed sales from Scandar and Coles. So we can certainly see that investment actually paying off in spades. So that's fantastic. As we look to FY '23, again, we've arrived at the juncture at the right time, right place. We sort of pinch ourselves that, I guess, some of those geopolitical macro forces have actually gone in our favor. When we look at, again, whether it be scarcity of American style whiskey or bourbon, and the ability -- some of our competitors to actually land that in Australia, and of course, if you look at the explosion of Agave, certainly in the U.S., but also internationally, and to see many of the customers here on allocation, puts us in the right spot. So we're pretty happy about that. When we think it -- when we look at the FY '23 outlook, we'll go through some of the numbers, which obviously talk to turning brand success, if you like, into financial outcomes in a moment. But clearly, on the left-hand side, we're delighted to look to the 12th of September to reveal our Australian Agave brand and in a moment Matthew will just provide a little bit of a heads up as to where we're at and how we'll go about that reveal, et cetera. So where does Agave fit. Ryan captured it, but again, we're really pleased that we can actually tell shareholders that the start to this financial year has been fantastic. Now again, we're very focused as we closed our financial year that we weren't seeking to effectively bank revenue in FY '22. We're very much focused on effectively not selling in, but selling out when it comes to depletions and indeed sales ex-Coles. So it's very much focused on making sure that it's not just a revenue gain, but it's a gross margin gain. And then to see effectively the revenue number versus the prior period, but also to look at effectively the production book in-hand gives us great confidence about the foundations for this financial year. And of course, when we look at the economic model around our Australian spirits platform, velocity is everything, whether it be Father's Day, NED Father's Day or would be the activation of the V8, or whether it be any number of events, we're really happy to be calling out the velocity that we're building, which obviously goes to the strength of the brand. From a brand activation perspective, getting in many ways, we're sort of without peer increasingly when it comes to brand activation, and this is not necessarily at the cost of equity in terms of having invested in those brands and activation, of course, we don't apologize for building iconic brands. We actually think that that's a foundation stone in terms of the portfolio that we have created, and Ben will talk a little bit about what's not in our balance sheet in terms of the value of those brands. But of course, when it does come to festival and events to actually have consumers drinking our products out of festival and events and be paid to do so, it's just a fantastic thing for us to achieve in terms of having built that model. And why can we do that? Well, it comes back to, again, owning our supply chain. The fact that we can service those customers direct, the fact that we can take stock back, the fact that we can then redeploy that stock, all those sorts of elements in terms of delivering on the customer value proposition with operational excellence and being able to respond with, for example, at one standard drink in a can in order to be able to service a particular market, that's why we win when it comes to brand and activation. And as I said, it's a positive contribution margin, in many ways, it's the most profitable part of our business. So we're delighted that, that talks to the brand, but also talk to the performance. We've spoken probably at length about the category, so I won't talk a little bit more about that. The funding, Ben is happy to take further questions around funding. But as I said earlier, that's the confidence that our provider has in the choices that we've made about our platform. Our shareholders should take great confidence in that as well. Particularly whether it be whiskey or the iconic [indiscernible]. And of course, when we think about leveraging our platform, we'll talk a little bit about that at the moment. But again, having made the investments, having look to grow revenue, et cetera, we certainly recognize the absolute focus on making sure that that's been reflected, that operating leverage is reflected in our financial results. And of course, we have built a platform. We've invested in the capability. And as we contemplate Agave coming into that platform, there's actually not much in the way of additional cost that we actually have to incur from a sales, marketing and certainly overhead perspective as we build out that portfolio. So I'll move through to the financials. And so from a revenue perspective, now, again, you can certainly see here, as mentioned, best part of 6 months were impacted by COVID. Notwithstanding, and obviously access to whiskey, notwithstanding that, you can certainly see the trajectory from a branded revenue perspective and certainly see that half-on-half to call out the fact that the sort of 96% growth there is quite remarkable. And of course, 7% up on Q4 versus Q3. So we've got whiskey. We've got improving quality of whiskey. We'll be further building out our brand architecture, which obviously talks to the margin, et cetera. So it gives us great excitement that we've moved beyond the sort of hard hand amount the existence and now we can execute, and you can see us execute our brand strategy with absolute confidence. Obviously, of course, having access to whiskey means that we're now advancing both international conversations about markets in which we will serve, particularly with a focus obviously into the U.K., the U.S. and Asia. And of course, the opportunity now to build out at scale further domestic distribution routes to market, whether it be off-premise or indeed on-premise. Our contract packaging asset, again, is very much in demand from a whole range of customers with the alcohol and nonalcohol. Pleasing to see our Espresso Martini in a can make it last won one of the leading awards in the U.S. just this week. So there's not too many people that have the capability that we have in terms of bringing products to market. And of course, that also underpins our brand architecture when we think about, again, the increasing traction, for example, that our NED Whiskey dry in a keg is actually receiving an on-premise and indeed Grainshaker on tap. When we look at the profit and loss to go through some key callouts there, of course, we presented this in a half-on-half for FY '22 and then through to FY '21. As we have engaged with shareholders in the past, our focus is obviously around building out positive operating contribution margin, recognizing that we have made investments in terms of the brand. As you know, those investments talk to the V8 Supercar, talks at the Australian open, et cetera. Of course, we very much focused on making sure that, that level of that investment, again, one, delivers the right outcome; and two, reflects the opportunity itself in terms of either brand building or delivering on a revenue and gross margin promise. And then, of course, we move through to sort of the group support costs and an underlying EBITDA number. So you can see there that, of course, the underlying EBITDA, again, first half clearly impacted by COVID, second half, we, again, continue to invest in the business itself. You do see that operating loss result of $14 million. What gives us confidence in terms of the financial performance of the business as we look forward, clearly it's very much focused on building out our revenue and margin, but also controlling our costs. So if you look at the key elements here, and perhaps I'll just draw your attention to these. So firstly, when you look at the NED excise gross profit margin of 39.8%, so again, why is that an important number? Well, it's clearly evident that we've built a platform. We've got increasing demand for our brands. Clearly, we manage excise to pass through and to take confidence that beyond the statutory gross margin, that there's certainly the gross margin available to us. And of course, that gross margin is actually higher for branded and less for contract packaging. But you can certainly see that, that gross margin that's available to us obviously supports the business as we move forward to realize our revenue ambition, and of course, build that gross margin, which obviously then makes its way through the P&L, whether it be to contribution to the bottom line. So that's a key call out. I think the other key call out is you can see there that the product cost. So again, product costs, second half versus first half, product cost, again, when you think about operating leverage within our gross margin, product cost is a really important number for us as well. So product cost, again, we make -- is an absolute focus for us in terms of reducing product costs. How do we actually go about doing that? Clearly, there's a focus on procurement, procurement savings that we look to realize. As people will know, we've invested over $1 million in further automation and process efficiency at Campbellfield. So we moved to implement our own multi-packet, for example, which is very much, again, ahead of the curve in many ways in terms of different product formats that are going into different retailers. And of course, there's great demand for bespoke product formats. And so to be able to automate that will be a great outcome for us in terms of reducing costs. Both from a cost and an ESG perspective, we're very much focused on working with local manufacturing to produce our own, particularly glass for Grainshaker, indeed for Agave, and prospectively, indeed for whiskey. So reducing both the carbon miles, if you like, but also the absolute cost in terms of our cost of packaging. And of course, as we build efficiency in terms of production at Campbellfield, whether it be third parties for us, again, our overhead is obviously defrayed across a broader cost base, I guess, in many ways. And of course, as we've built out our -- particularly a NED bottle, and the demand from NED bottle, automating that on the line, having gone from -- and obviously, in the first instance, it was hand filled to now automating on the line. Another key reason why we continue to reduce our product cost. And as our shareholders will know, even when we think about, for example, distillation and whiskey and NTD Grainshaker, particularly on the vodka side of the equation, to be in a situation where we distill that just effectively stored on-site and it goes straight to a can or a bottle, we've got a very low cost base for that, and it doesn't -- there's no incremental layer involved as well. So we're very much focused on what actually allows us to realize operating leverage and in the cost line. And then, of course, at the group level, sorry, the operating level and the group level, yes, we've invested in key people, and we can't realize the ambition in terms of having made that investment. But of course, you can see the stabilization of that level of investment. And that's manifested, if you like, in the reducing percentage of revenue in terms of our operating and group costs. Are we there yet? No. We have made some significant changes in terms of people as we move to the next horizon, both in terms of exiting a number of people, but also welcoming a number of people. And of course, very much focused coming back to our Australian spirits platform and that economic model, very much focused on how we actually get operating leverage within the business. So I think perhaps one of the other key call outs that we haven't captured yet, but I know that this is very much top of mind for, again, it's just the operating rhythm that we've established in the business, whether it be visibility around daily sales reports, whether it be visibility and able to drill down on daily cost of sales information on margin, utilization, et cetera, the technology dimension that we've welcomed into the business gives us absolute control, and we really do have a strong rhythm that we have created within the business, right across the team in terms of production interfacing into marketing and sales, ensuring that we're very much focused on realizing that cost that we've invested ahead of the curve. So we will continue to keep our shareholders very much appraised of how we're going. We actually look at this contribution margin report by channel. And we're very much focused on each of those channels, delivering on expectations. And certainly, that's cascaded right down the business in terms of whether it be the direct-to-consumer channel or the independent channel or the Coles channel, et cetera. Absolute expectation in terms of how each of those channels contributed positively to this business. So there will be further work to do, of course, in terms of some rightsizing, but we're very much focused, obviously, also on growing the brands and realizing the gross margin dollars. I might just pass to you, Ben, to pick up the next 2 or 3 slides, and then to Matthew in terms of Agave, and then we'll welcome questions.

Yes. Thanks, Drew, and good morning, shareholders. Moving to the net asset position of our business at 30 June '22, really reflective of many investments that Drew and Ryan have spoken to this morning be it our continued investment in maturing NED whiskey, our Australia Agave project, the agronomy, the distillery, the brand work. It's reflected in our balance sheet, as is the integrated supply chain capabilities that we've built. And all of these are long-term investments with high barriers to entry. But important for us to note, and we'll come to it when we talk about intangible asset valuation, that our balance sheet reflects all these investments at book value as we do carry our investment in our NED Whiskey at cost, whereas the co varieties on the page of 2 million liters of whiskey under maturation. The future NED sales are approaching $150 million in hand is reflected on our balance sheet at the moment. So at 30 June, we have capital and use to deploy of over $50 million. We have cash in banks of over $20 million. And as Drew mentioned, with the recent extension of our long reach credit facility, provides us with available funding of over $37 million as we enter FY '23 to continue on making investments that we've spoken to this morning inclusive of continue with the brand portfolio build and the Australian Agave distillery project [indiscernible] last year. As we move to the next page, our cash flows reported for FY '22 really are accumulation of the investments that for accounting purposes, we recognized through the P&L and also through the balance sheet, be that the investment in our brands in acquiring the national sales force capability that we need to take our brands to the next level or be that in our hard assets in relation to laying down more whiskey building out the Australian Agave opportunity. It's also reflected in our cash flows, where the accounting, obviously, booked that through the P&L and balance sheet. And sometimes, that's obviously not clear in terms of the immediate realization of value that we're driving or achieving as we recognize that for can through our P&L and balance sheet. So as we approach year-end, to assist with our refinancing process, we did engage with a third-party independent value in average. And as I turn to the next page, what we really wanted to understand and confirm in our beliefs in terms of the value that we're creating here as a business, beyond not only the capital, the hard capital in use of $50 million that we deployed to date, but we also believe the capability that we're building out at Campbellfield in terms of our ability to service our brand, but also our third-party contract packaging customers. What we're building up aimlessly, the relationships that our sales guys, the marketing guys are developing with all the independents, the Coles Liquor is really just needs to recognize, hence the undertaking of a third-party valuation, which effectively concluded that at 30 June 2022, we have over $150 million of assets in use. And so that's an really insightful for us and great confirmation of the investments and the work that we've been untaken and gives us great confidence moving into FY '23 that we have over -- I would say, over $150 million of value deployed and executable to realize the group ambitions going forward.

I think just on that, Ben, again, of course, again, you've mentioned that underpinning that intangible value, of course, is the inventory that allows the brand expectation, of course, allows us to turn that inventory into cash flows, and that's 1 can call out. So many ways, whilst it's intangible, it's sort of a hard asset dimension to that, of course. And I guess, going way back in time, we fished ourselves, of course, that we managed to come across the NED trademarks, to win that in the federal court. And of course, we've always been fighting to build a branded spirits portfolio company. And as I said, we'll have a little bit more to say about that on the 12. But to get to that juncture, to go from sort of a narrative and conversation around hard assets and production capacity and so on and so forth to a branded company, this particular lens with which we present is a fantastic position to arrive that from a company perspective. And really, from a shareholder's viewpoint, I'd like to think when you look at the strength of the NED brand, that will be an iconic Australian spirits brand. Our Grainshaker brand will be an iconic Australian Spirits brand. And of course, taken on trust, Agave as well. So when we look at others who are looking at us, the envious position within which we have a preeminent Australian spirits portfolio, but of course, the hard assets that allow us to realize the ambition, that's what we've created. That's what we've created. So great piece of work Benny in terms of building out that particular lens on the business, and of course, being able to walk shareholders through, of course, the cash flows, but where are those cash flows gone in terms of the value of this business. So we'll take -- of course, we'll take more questions on that in a moment. But what we might do is to try with the society just to pick up the Agave, the next step in Agave side. And then we'll throw it back to Adem to facilitate questions at that are more funny.

Thanks, Drew. Good morning, everybody. Conscious that we've been speaking for the best part of 45 minutes, so I will keep this brief. Investors on the call will be part of Top Shelf for a period of time. We'll know that we've spoken at length about the opportunity that we believe exists for the creation of an Australian Agave category in this country and globally. And we've also spoken to you periodically about the brand development work without ever really giving too much away. But we're now really pleasingly at the point in that process where we're looking forward to sharing the reveal of that brand with investors in the week of the 12th of September. And as Drew mentioned, as well as the Agave brand development work, we've also been doing some work on the positioning in the presentation of our Australian spirits portfolio. Some of the flavor of that has made its way into today's deck, but we're really looking forward to revealing that its fullness at the same time as the Agave brand development. I'm not going to steal [indiscernible] on the 12th of September by giving too much away, but the Agave brand sits very comfortably within our portfolio. It's got a distinctiveness and an attitude that is uniquely ours and something we're very proud of and excited by. Certainly, the market research that we conducted a month or so ago on the brand because it's great confidence that it will resonate with not only customers, but also consumers. Clearly, the brand is just 1 piece of the bringing of this opportunity to life. There's also a significant amount of work going on in the background to integrate the brand into our model, which we'll update investors on in due course. And we will have some more to say on that during the brand reveal process. But we are obviously very excited by the opportunity, first and foremost. We're really excited where we've landed with the brand, and we're extremely excited with how we are starting to position our Australian Spirits portfolio and how we're starting to position Top Shelf as a branded Australian premium spirits company. So look, I won't say any more than that, except to say that we're really looking forward to the 2 weeks' time where we can further share the fruits of our labor with our shareholders.

Just a final comment maybe before passing back to Adem. I think perhaps what you alluded to, if you like, was really that we're already selling the portfolio is how I would characterize it. Of course, that needs to make its way into revenue, et cetera. But to be able to have a portfolio conversation and leverage all our brands, to do that now in terms of the way in which we engage with both domestic and international customers, it's a really good position to be.

An updated study that we have been talking for 45 minutes. So I'm conscious of that. So I'll go back to the moderator to see if there's any questions that have been submitted. We'll be more happy to answer them.

[Operator Instructions] Your first question comes from James Ferrier with Wilsons.

Can I, first of all, ask you about the year-to-date sales growth you've recorded to start the new financial year, 184% growth year-to-date on a terrific outcome there. Can you give us a bit of sense of, maybe if you excluded the Coles Liquor Group from that, a sense of what sort of growth you're seeing through the rest of the business?

James, it's Adem here. I'll hand it over to Drew. Thank you for the question.

And we mentioned earlier in the presentation about our investment in sales capability, and we're delighted with the fact that in terms of the execution of that, particularly also supported by sponsorships, et cetera, that we've now got capability in Queensland, Victoria, New South Wales, obviously, down into South Australia, WA, et cetera. So our independent business is growing as fast as Coles in terms of particularly depletions. So we're very delighted, obviously, with that relationship and that partnership, and of course, having invested in that capability. And it's very much supported also by the way that we've interfaced into the trade itself. We've had 4 consecutive months of growth to NED. And so we're just, again, delighted with the trajectory again outside of Coles. So very much getting cut through and the brands are resonating as well as costs.

That's great to hear. Secondly, can we talk a bit about operating leverage. Drew, you mentioned that 40% gross margin, excluding excise, it was encouraging to see that hold at a similar level in the second half despite the Coles Liquor Group account coming on. So a good outcome there. So as far as operating leverage is concerned and thinking about the next sort of 2, 3, 5 years, how much upside do you see in that gross margin? And also looking at the cost lines below it? How much further investment do you need to make there before you really start to see that benefit of contribution flowing through the EBITDA.

Let me just perhaps walk through some of those elements. Really, I guess, in many ways, the 1 variable, of course, when we call out business investment, that's really brand investment. That's really the 1 variable. Of course, you've got to invest in those foundations to get to the brand to a certain level of traction, and then, of course, you have to right size those. So I expect that we will make an investment certainly in the Agave brand. That will be, quite be, a significant in the overall scheme of things, and we've already started our thinking in that regard. And so that's probably the 1 area that we will continue to obviously invest in. But having said that, though, when I look at effectively the balance of those items that underpin the P&L, we don't actually see much in the way, if any, additional investment when it comes to either sales and our ability to distribute that or indeed key management or indeed overhead. So that's, of course, that's a really pleasing position to arrive at. And so we do see Agave and, of course, the margin that we'll realize from that sale, which is obviously, again, margin will be higher and certainly what we realize in both NED and Grainshaker to flow through to the bottom line. So that's one key call out. And of course, even when you look on half-on-half, we have held our cost base, yes? So we are clearly looking in terms of as we grow our revenue and further gross margin, and indeed, even when we look at increasing demand for branded product coming from our Campbellfield facility versus third party, all those elements flow through into operating leverage. So we have held our cost base. And even when you look at overhead. Of course, we're conscious of the fact that we've built an incredibly capable team, a lot of heavy lifting being done to get the organization or build the organization maturity, I should say. And indeed, once you've arrived at that juncture, it's a different skill set that's also required in terms of how we manage the business moving forward. So we will certainly continue to right size our overhead for the business in which we have created, having navigated a hell of a lot of complexity to get to this juncture. So that's very much a focus certainly for Adem in terms of how we move forward in terms of realization of operating leverage. And of course, when you think about the sort of fixed cost base, and this is really evident more so in the cost of sales line, again, our ability to leverage our Campbellfield assets, to run vodka harder, to introduce new products, et cetera. That's a skill we have. So every 1 of those particular levers impacts upon operating leverage. And of course, from a shareholders' perspective and analyst's perspective, the truth, of course, is presenting those numbers and demonstrating that we're actually continuing to realize that.

And add to that, Drew, just when we think about some of the brand investment and marketing spend, we do hold some profitability in the allocation of the spend as well. Obviously, we've made some big investments in order to attract attention particularly through Grainshaker [indiscernible] et cetera. So the overall spend becomes less, but there's certainly opportunities to reallocate some of the spend, particularly as we go core distribution, and as Drew said earlier around our sort of targeted post-COVID strategy, we can sort of -- now that we have access to scan data and know where the price is selling to be much more targeted in the approach, which again talks to holding out our cost of sales on, but we'll grow at the top.

And I think just finally, Adem, I didn't mention that, but pricing, of course, is a further dimension yes. And when we hear about prospective cost increases that, I'll call it, bourbon-style whiskey, American style whiskey, whether it be the cost is imported and then having to repatriate an isotonic, going sort of $3,000 to $22,000, when you look at the increasing demand for bourbon, particularly in America and the prioritization of the Australian market, it's clearly evident that, again, we expect to realize further margin appreciation through price in that.

I think the evidence is that, this last week, Coles $62 per bottle it needs have it as baseline sales with. So sort of growing price as well as growing for you, which is we countersuit. But it just shows the strength of the brand the [indiscernible] product and how it's done.

And the pressure on the competitors.

Correct.

Yes. That's great. And 1 last one, a pretty quick one. With Agave, to date, have you made any commitments around exclusivity with any customers? Or have you got a blank canvas in front of you still?

No. Blank canvas, James. Of course, whether it be on off-premise or on-premise, we're engaging with customers that we have relationships with, both domestically and internationally. But again, the strength of the Agave brand will stand on its own 2 feet, as does NED and Grainshaker. Of course, we are in a fantastic position. When you think about probably coming back to your previous question about operating leverage, when you're actually selling the portfolio into those customers, of course, that presents as an exciting opportunity. But we don't have to, if you like, play a portfolio gain in terms of one supporting the other. So we haven't entered into any sort of exclusive relationships per se.

Your next question comes from Allan Franklin with Canaccord Genuity.

I mean, a couple of my questions were answered through those responses. But just interested in a bit more context on the distribution side. I mean, just to be clear, can we delineate what you're talking to on the distribution expansion away from what you're doing on-premise in festivals or just in terms of -- it does feel like there's a material step-up and access to festivals and events through the next period. And not necessarily talking to on-premise specifically, presumably there's still more upside from that element as we set through summer.

That's exactly it. Allan, Ryan speaking. I'll answer the question. The chart we referred to in the presentation is off-premise distribution only. So on-prem and festival will be in addition to that.

Yes, perfect. And then just -- yes, just I mean maybe any specific callouts on the sort of festival and events. I mean, it does feel like a material step up from prior period. I mean, perhaps just sort of staging of when the key events are, obviously, ex AO and the large ones we'd be aware of, but are they sort of falling second quarter, third quarter demonstrably so?

I'll go through each of the partnerships very quickly, Allan. So Supercars, you're heading into the business end of the season, so to speak. So you've got New Zealand in a couple of weeks, then you end on [indiscernible] Gold Coast and Adelaide, which we'll see upwards of 750,000 people attend those events for both drinking NED and Grainshaker, whether it be in a bar or [indiscernible]. So that's fantastic. We will share some more information about our festival season later in probably at the start of Q2. That's really when it starts to kick off. We're in contract phase at the moment with a lot of them. So nothing major to share. All I can size, an example would be the Art Center, where we had probably 25 events last year, it will be up in 50 this season being a contracted customer of the out center, so that's fantastic. We're anticipating to be massive at the start of Q3. So a normal year of the [indiscernible] 800,000 people, last year was sort of half that capacity. So with COVID restrictions now forgotten theme, we need to make sure that we really execute precisely. And that's what the true power of aisle that brings is the ability to enhance and deepen the experience of the brands. That would be the headline summary, Allan.

Yes. Perfect. Just a touch point on price. I mean, presumably those price increases went through in August on the back of the excise lift as well. But just in terms of how to think about the flow-through of pricing are presumably commencing from August and/or do you have any flexibility to shift pricing between now and, say, Feb, March?

Yes, tweak pricing. The next CPI will be February, which is the next sort of line in the same moment. So that's the thing we'll be working towards as we understand cost base through half 1. And then what we'd like to do in February, also will be reflected in what the competitive landscape is doing.

I think just on that point, Allan, one of the great things, of course, with access to scan data is we've got very much a greater understanding of elasticity and to be able to trial and measure that. And of course, and people may have certainly seen Coles has released yesterday about the performance of their liquor business. And the key call out there was, again, Australian spirits. And so it's fantastic for us to be able to see firsthand how price on shelf and elasticity relative to other competitors allows us to optimize across the business.

Your next question comes from David Meehan with Moelis Australia.

Just the first one is, are you able just to speak to the difference between what exactly the marketing spend is compared to the business investment stand? And then with the release of the Agave brand upcoming, how should we be thinking about the growth that your brand spend for that product? Would it be similar to your investment historically in Grainshaker and NED? Or would there be further investment required because it's going to be mainly focused in the export market?

Thanks, David. I'll take the first part of the question in terms of delineation between marketing and brand investment. So brand investment is only a marquee sponsorships and the brand development where we're doing in relation to our Agave brand. And then all other marketing, which is one of the better ordinary course that new product development our in-house marketing capability is reflected in that marketing line, including trade and so on and so forth. You see that the business development line, as again I spoke to it earlier, it's not necessarily a recurring feature of our business longer term. It does have an element of upfront investment at the moment, which is why we specifically call it out.

And then just how should I be thinking about the Agave brand and the spend associated with that?

Yes. Great question. So the Agave, obviously, we have been investing in that brand and a lot of the brand work already. So I think some of the cost is already reflected. I think we then think about the actual go-to-market strategy. And I think, we'll be talking a little bit further about that when the time is right. But we certainly are talking with local distribution networks and international, then have a specific route to market and go-to-market plan that tailors that. The wonderful thing with this is, obviously, there's been a bit of a lead up, and we would expect to be able to sort of manage the growth and manage, I guess, the marketing cost and profile through the upfront sales and with the full distribution plan. I think we all have some -- definitely have some line of sight through the Agave as we get closer to it going to market. It is a category of wine. So we already have a market position that allows us to talk to that. I think we've mentioned already about the fact of being a portfolio companies. So when you think about all the investment that's gone into sales teams, networks, distribution relationships, et cetera, both on and off-premise and international, the Agave sort of slipped into that. So it's not new and it's not new spend per se. It's just sort of bolt-on to some of the investments we've made.

Yes, perfect. And then can you just provide an update on any of the potential government grants that could help fund the development of the Agave distillery? Has there been any update on that?

Yes. The question, of course, change of government means that some of the existing grant programs get revisited, including modern manufacturing brands and so on. And so I think particularly relevant with the change of government, of course, I'm sure that they'll have more to say about grants, et cetera, after the budget in October. I think it's fair to say, speaking on behalf of you of, Adem, that the level of engagement with the new government has been first class. We've had multiple representatives out to our Campbellfield facility. We're in anticipation of welcoming them to the farm. And of course, that's from a Top Shelf perspective, but more broadly, the industry is certainly on the front foot in terms of engaging with governments about obviously, the industry itself, and of course, on the first page of our presentation. I think there's a general recognition that Australian spirits is [indiscernible] that, if supported, will very much follow the trajectory of the Australian wine industry. And I think there's a good understanding of that. Specifically, as it relates back to Top Shelf, first of all, we'll just pat ourselves on the back by saying that we were mentioned in Federal parliament by a new member for the local area. So that was a good thing. But we are certainly on the front foot, particularly as it relates to energy and clean energy. And that's a well-established program. So we'll be submitting our grant application for that over the course of the next number of -- sorry, months, if not, weeks.

And then just my final question is, can you just provide some color around some of the releases for the NED Whiskey that's coming up in 2023? And just in particular, the focus on the premiumization of the brand and potential increases to the net sales value per liter, x sort of just passing on increases from [indiscernible]?

Ryan speaking. I'll just talk about some of the programs that we're working in regards to NED premiumization. So in Q2, we will release the next tier of NED. So watch the space in terms of name and price points. But importantly, that will be across can and model. So we want to build out a portfolio over the next 12 to 18 months that has multiple tiers to both can and bottle. Obviously talking to the premiumization that we aspire to in both platforms. We also have a number of limited edition releases coming out. So there's a couple in market now, a really exciting one will drop Thursday. So keep an eye on that. If you haven't subscribed to the NED database, I suggest that you do. So you can get the information firsthand that comes off the press. But be looking for a motorsport style. And then I might hand over to Ben from an NSR per liter and on Drew in regard to how that might eventuate through FY '23.

But again, certainly, we recognize the challenge that we've been in terms of supporting the analysts in getting a good understanding of what the revenue trajectory looks like. And of course, excise, non-excise et cetera, we understand that that's can be quite complicated. Certainly, you'll see prospectively for the first time that we're very much called out of excise and very much focused on our gross margin, excluding excise. And so with that in mind, and of course, that will continue in that vein. And you can certainly see it very much is a -- the gross margin in alcohol businesses is very high. So the cost base needs to reflect that net revenue, excluding the excise. And of course, that's the journey that we're on. And so when we look at a net sales value number, which obviously in the past has continued to include an excise number, that's a concept, if you like, that we'll continue to move away from as we very much start to focus on a profit and loss, excluding excise. So we're not going to -- we've effectively rolled over in this presentation the numbers that we've used in the past. Do we expect that we will realize a higher net sales value than that? Yes. Did we call that out in the quarterly update around net sales? Yes, particularly in terms of glass and particularly in terms of international. But in terms of that as a particular number, we're sort of reluctant to put that number out in the future as we start to really change the focus of our P&L to be on a profitable Australian spirits company with a very healthy gross margin.

The next question comes from James Bisinella with Shaw and Partners.

And congrats on the results. Just 1 question from me around sort of the debt package and the upgrade there. Obviously, a pretty big lot of confidence in the business moving forward. Can you just give us a flavor of, I guess, the type of diligence that was undertaken as part of that process?

So it's quite a comprehensive diligent piece undertaken by our long-term partner in Longreach Capital. So they engaged [indiscernible] to independently work through company projections over the next 5 years. I understand the bridge from current performance and current position through to those forecasts. So that core piece of work was reported back to Longreach and then we work through the execution of the amendment need, which has been set out in our annual accounts accumulating in the facility extension of $20 million up to $45 million, which will be drawn in 3 tranches over the next 12 months.

Thanks very much Ben, and thanks team for presenting.

Can I just perhaps make 1 other comment on that, James. I mean, when you think about that particular asset, of course, we own the asset. We have invested in the capital improvement of that asset outside of agronomy. We continue to invest in the build-out of the facility associated with that asset. I mean, that asset is a generational asset. And so when we think about, particularly the debt side of the equation, obviously, one of the other key highlights, and Benny has done an unbelievable job on the financing, is extending that by 12 months. When you think about the value of that asset, supporting refinancing, et cetera, we're very comfortable and confident that the decision that we've made around obviously expanding that facility will be, not only welcomed by shareholders, but seen in the light of day about the value of that asset in time.

Your next question is a webcast question from Sean Monahan with Barrel Stock Buying. This reads, do you expect to get Dan Murphy on Board with selling your whiskey, vodka and other products in the short term? Or do First Choice look ahead a distribution deal with you?

I'll take that question. Thanks for the question. Look, we have no exclusivity agreement with the Coles Liquor Group. Obviously, we're working through the Liquorland still the First Choice and [indiscernible]. We've been in talks with the Endeavour Group for a while. We literally have not had any whiskey to be able to supply a channel that large. And certainly, with our growth to date within the Coles Liquor Group, they've been wonderful support, and so we want to continue to work with them. But of course, we are in discussions around our portfolio, and we'll continue to talk to them. They are obviously the other 50% of the retail market. They have significant holdings in hotels as well. And so we will be talking to them. As I said, we're in constant discussion with them. They will probably get more to say as we get closer to the time.

We wouldn't want Australia fastest growing whiskey.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Karafili for closing remarks.

I just want to say congratulations to the team. I don't want to sound like we're just patting ourselves on the back here. There's been an enormous amount of work that's gone in to get the organization to this point to be able to sit and talk through at the level of detail that we have at hand and see the brands in market. But I will reiterate that we're a restless bunch. We don't settle for the second best at all, and we'll continue to really work hard internally to ensure that we are driving much shareholder value as we possibly can. So there is no resting on our laurels here, even though we do like to take the opportunity and talk about the positive things that are happening and have happened. It's certainly been a journey, and we'll continue to communicate and we'll be on a roadshow in the next couple of weeks. So we look forward to talking further about where we've been, but more importantly, about where we're going. But I just wanted to make that comment, so rest assured that we're not settling here. We'll continue to work really, really hard. We continue to look at everything consistently, whether it's where our revenue is coming from, whether it's our territories, whether it's our cost base, whether it's our cost of goods. And I think the questions that were asked today, appointed and we really respect that. And so we'll continue to work really, really hard to drive the outcome that we all expected and why we're all invested in this organization. So again, thank you all. And on that note, we'll sign off. And we'll see you on the 12th of September. Thanks, Drew. Have a great day. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.