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 '23 Full Year Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Trent Fraser, CEO. Please go ahead.

Thank you, Lexi. Good morning, everybody. Welcome to Top Shelf's FY '23 results call. As shared, my name is Trent Fraser, the CEO. With me here is Ben Kennare, our Group CFO; and Matthew Slade, Head of Investor Relations and Communications. This morning, it's such a great opportunity to share a bit more anecdotally about what has been happening and more importantly, what are we planning for the next 12 to 18 months ahead. For those that know me, it'll be less reflected and more future forward. Given we posted the presentation this time last Thursday, I'll take most of it as read and just highlight therein on just a few key items and to get stuck into it. So let's go to that first -- next slide, just a few comments from myself. You probably quickly gathered there's two key themes: one, being very action focused; and two, quite consistent and repetitious of their priorities. We've enacted significant change right across the business, full leadership, refresh Board as well big as reductions in labor force as well as the huge vendor scrub and cleanup. We're sitting here in the [ Campbell ] office, which we are actually shutting next week as well to give you an idea. You've heard and seen the cost out. So I won't reiterate. We'll get too much further into that, but this urgent action has been critical to getting some balance sheet repair in order. The last several months have been dedicated to a resetting of the business model that is very much geared to a path to profitability, which you probably saw in a couple of slides' time. Much of that action has been centered around the drivers and drainers, those that are profit serving to the business while eliminating those that are draining cash and margins. So it's been quite a big pivot to be more margin focused and slightly revenue. And to give you an example of that, we made some big calls to eliminate some SKUs that were generating big revenue, but very limited margin. So net-net, the EBITDA line will continue to improve, and that's our new [ broader ]. The flip side is focusing on those areas that are really driving the business, as noted, some massive national distribution wins, the biggest retailers in the country as well as accelerated on-premise, which I'll touch a little later on to give some good news on how the first quarter is looking. As part of the strategic review, we have also identified a number of assets that either may not be core serving or we just simply don't need at this juncture. This could be expensive equipment, barrels [indiscernible] and of course, most notably, some interest around the canning and bottling division of our business. There is a process being run here, so more updates to come around this. Lastly, I have been leading discussions with potential strategic distribution partners for quite some period of time now. We always recognize at some point in the company's history of growth and evolution, it would need support of a partner that has a large sales force and global footprint to accelerate us into the future. And those discussions are going well. We've been engaging with a number of possible prospects and quite openly, three of which have already visited the properties and asset base down to the distillery, the barrel house and obviously up to the Agave farm. So let's move into the '23 dashboard now. Obviously, significant changes occurred in recent months, but I'll ask Benny just to provide some top level commentary on the year that was.

Thanks, Trent, and good morning, all and just a quick summary of the dashboard. Obviously, there are a lot of data points here have been out in the market, and understood for quite some time given the presentation. In our appendix, [indiscernible] which was launched at the end of July. A key -- few key collector on myself in terms of starting with the revenue performance, $31 million for the year on a pro forma basis, branded revenue growth of 74%. And reflecting on that, that was really driven by access to stable supply of mature whiskey from March last year; Coles Liquor Group wine range, commencing in April last year has really underpins that growth. And we look forward to FY '24 with the momentum of additional ranging with Coles, the announcement of NED Whiskey ranging into Endeavour Group and also look forward to Act of Treason coming to market in the second half of the year. Our group revenue is also made up of a contribution from our co-packing business, which was fundamentally reset in the second half of FY '23 pivoting to ServiceOne, a multinational beverage company. This is aiding in improving the utilization, operating efficiency of our operating site at Campbellfield, which is assisting with the improvement in our group gross margin, which as you'll note from the strategic review announcements, that margin improvement was identified as critical lever to business performance. And so the co-packing operating efficiency, coupled with the various brand business margin improvement initiatives that we have on foot, we look forward to continued margin improvement during FY '24. Top Shelf has obviously been heavily involved in an investment phase to date. That continued in FY '23 with just under [ $15 million ] invested in our business. And we're very pleased that we're coming to the end in terms of the investment phase in our platform with the completion of the agave distillery just a matter of weeks away now, which we see business investment expenditures come down notably. Our whiskey bank is now stable in terms of production matching harvest levels. We're continuing to invest in brand, but we will see a number of notable investments in brand launch, sponsorships and the right come off as we move into FY '24, enabling a reduction in that investment moving forward. As Trent touched on, moving through the strategic review and change in leadership, and we've undertaken significant cost-out initiatives and review over the last 4 to 5 months. The organizational structure has been rightsized and reset. And we continue to look for additional opportunities to remove costs and also maintain absolute discipline in terms of discretionary spend where possible. I'll now hand back to Trent. That was obviously quite a brief summary of the dashboard from FY '23. But hopefully, our results are quite well understood given a number of these data points have been in market for quite some time. Thank you, Trent.

Thanks, Benny. Looking forward again to the year ahead, I might just move forward to the 2024 priority. And I'd be remiss not just to touch on a few of those slides before. It's with great pride, our commitment to product excellence continues, both [indiscernible] Grainshaker cleaning up the award circuit. Hopefully, you've seen that. We're not talking about little regional shows. I mean, powering gold medals at the most prestigious, notably San Fran and London International Wine & Spirit Show. So without question, it's the most important in the world. So on to the priorities in the first 67 days of this year, bring some fantastic news. You've seen the new around, extended Coles range. So 2,900 new ports of distribution on net 200 ml [indiscernible] 1 litre -- [ 600 to 700 branch ] -- store, which is new; Endeavour finally coming on now, which is great 2,300 new points, last win in last month. I think -- onboarding last week and this week into Dan's and BWS. The early signs for those stores that have taken it in, it's been very encouraging, and reorders have already taken place. Apparently, a very robust Father's Day around the whiskey, which is great. A really powerful launch partnership is in plan with loads of immersion, training, promotion for -- really to introduce and propel the brand correctly. So an exciting couple of months coming up. Albeit not reflective across the country, our on-premise business is actually flying with more partnerships coming across with key groups is leading. And a lot of suppliers out there are starting to see a big downturn there. But fortunately, we're having some great wins there. A big festival season is also upon us, and the team is well out in front here in terms of commitments. So all in all, really pleased to share that July, we hit plan; August, we hit plan. And Q1, with new ranging as well as mines in the fire, bullish share, a very good start to Q1, which is great. Already, we're drawing our attention to Q2 to ensure we keep fueling that momentum at the year-end to be quite honest. From a margin perspective, it's a critical topic just making sure we're making strides here. And pleasingly, our COGS mostly around glass supply in both brands as well as being run on the line, contributing steadily to our target much of which is kicking in right now, actually. Price/channel mix, of course, longer-term contributions, not to mention the international opportunity to capitalize on profitability per case. All lines and most certainly on Australian agave project has been for a few years now. And I was up there last week, again, to share the facility is in full-blown construction mode and excitingly nearly done. The connectivity piece is the only part required now before we can actually start harvesting and cooking. So turning our attention very quickly to the actual liquid self and profile for Act of Treason. One little hidden gem, we did submit some initial trial liquid, R&D liquids for both London and Melbourne to gain some color treatment for the judging. And in fact, we actually got a bronze and gold, respectively. So gives us great confidence that we're on the right track here in very early days. The route to market is where most of our time has been spent and invested more recently to dedicated strategic on-premise rollout, really to drive that influence and advocacy and launch. Right places, qualitative image accounts, there's a lot of excitement, particularly around the Australia margarita, which the cool bars and restaurants are on to. Much of the first batches I've already spoken for but do stay tuned as we get closer to a first hit towards the end of November. There will be a more accelerated plan when more yield comes forthcoming, which will be sequenced at Feb, March with the inclusion of the Reposado and retail expansion. I might just stop there as I've touched on the other ones. Hopefully, this gives a bit of a flavor to the enormity of work that has occurred in the past 6 months being very much about action, relatively focused on limiting the cost base, which Ben obviously talked to as well and propelling our brand forward with margin delivery. So I might just stop there. I think probably it's a good time to hand it back to the moderator -- to Lexi, just to feel if there's any questions whether on the phone first and then maybe web, second.

Thank you. [Operator Instructions] Your first question is from Allan Franklin from Canaccord Genuity.

A couple for me, please. Just the first around Endeavour. And any sort of additional context you can provide, obviously, early days there, but are you finding it's a very similar target audience that you're reaching through that network? And just a bit of a rehash in terms of what you think is actually selling through in terms of the favored products?

Yes. So thanks, Allan. Thanks for the question. So far, it's been a very good start. Obviously, onboarding, the biggest retailer in the country is really important to make sure that's a white glove experience. And getting each one of the sales works, the managers, the floor staff really engaged and excited. We did welcome back to every single one of the stores, which apparently a lot of people haven't seen for a number of years. So we've got great engagement from that perspective. We're really going to have some data around glass at the moment. As I said, RTD is sort of coming online now. But I think 90% of the stores have either already reordered twice, 3x in small instances, 4x for some. So it's been really strong. We've got after it pretty hard. As I shared, though, we've really got a robust next 90 days with them. One around going into the spring, obviously, fully finals and promotion. So they've been a great partner to work with in all honesty. They see -- I don't think it's because our sales team is such great like the team they are. I think when they really see the opportunity to claw back some of that dark spirit volume, which they may have lost in recent times. So thus far, it's been really good. And there's a huge program and promotional plans for the next 60 days on RTD. We've got some big lofty expectations and hopefully some over delivery when I come back to you after the first quarter.

Perfect. And maybe just a quick one around margins -- gross margin and perhaps sort of framing the question around the levers that you have in your control and/or potentially have already made to help drive that sort of margin a bit higher? And then I guess, the levers that aren't in your control and I guess, was probably more down to mix and pricing down the pipe?

Yes, yes. So the most pleasing [indiscernible] is we've been working on this for the best part of the year or not quite a year, but almost that long, and switching some of the glass suppliers and vendors. We've been -- in real terms, as an example, we've been able to save almost $1.50 on the Grainshaker bottle. So per case, you can work out very quickly, but the margin saving on that, you talk about controllables, that's the first thing that we enacted. It's obviously doing a tender to several glass suppliers. And that's actually just coming on now in September. That has cleaned out some of the old stock. And so we're in that transitional period, and that is in our control. We're really pleased. So that's a massive margin win for ourselves and then very specifically on the wine. The labor that's caught up and it's more in a hands-on and manual. It's also in our control with the distillery. So that's another huge win in the big [indiscernible] in terms of savings. So they're probably the two biggest levers that we have at our disposal and they're two very big green ticks. Also in our control, but less, as you say, maybe not -- maybe in the consumers' hands or the retailers' hand is obviously premiumization. There's a big premiumization effort around NED with Green Sash and best holiday coming online at the end of the year as well. So channel mix taking price, those things are working to advance -- emphasis on in terms of opening our Asia Pac and also in the U.S. Some good news just -- product to the U.S. -- half container last week, which is great as well. But I won't touch on the [indiscernible]. That will get me feeling that's not in my control. That does make it a bit more difficult. So that was out of our control, but the other ones that are in our control, really a foot. And I think by January, February, we would have met our full year target.

[Operator Instructions] There are no further phone questions. I'll now hand the conference back to Mr. Fraser for webcast questions.

Thanks, Lexi, and thank you, everybody, for joining me. And I believe there weren't any on the web either. So I might just shut down the meeting. Thank you for those that joined. It's absolutely our commitment to be really open and transparent with you and into the results and performance base from now on. So thanks very much. We'll get back to business. Thank you.

Thank you all for participating. You may now disconnect.