REG - Artisanal Spirits Co - Preliminary Results
29/03/2023 07:00
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RNS Number : 5985U Artisanal Spirits Company PLC (The) 29 March 2023
29 March 2023
The Artisanal Spirits Company plc
('Artisanal Spirits', 'ASC' or 'the Group')
Preliminary Results for the year to 31 December 2022
Another strong year of delivery, with double digit revenue and membership
growth, margin expansion and positive progress on our clear path to sustained
and growing profitability.
The Artisanal Spirits Company (AIM: ART), curators of the world's favourite,
single-cask and limited-edition spirit brands for a global movement of
discerning consumers, and owner of The Scotch Malt Whisky Society ("SMWS"), is
pleased to announce its preliminary results for the year ended 31 December
2022. The Group has delivered another year of significant progress in which
the strategic plan has continued to be executed and the objectives outlined at
IPO to achieve long term sustainable growth continue to be met.
Reported today are results which slightly exceed market consensus expectations
with 19% revenue growth, 12% membership growth and adjusted EBITDA* improved
by £1.0 million. Alongside this, the Group delivered double digit growth in
whisky stock and value appreciation.
Consequently, the Board remains confident in delivering its ambition of
doubling revenue between 2020 and 2024 and building on the progress made in
2022 towards delivering sustained profitability.
Highlights
o Continued improvement across all key financial and non-financial metrics,
demonstrating profitable growth, supported by a loyal, growing and highly
engaged global membership, underpinned by a substantial high-quality asset
base
Financial highlights:
o Revenue increased 19% to £21.8 million (2021: £18.2 million) ahead of
expectations+ with significant revenue growth in China and UK venues and
strong membership growth in Europe, Australia, the US and Japan
o Gross margin of 63.6% up by 2.1ppt from 61.5% in FY21
o Gross profit increased 23% to £13.8 million (2021: £11.2 million)
o Continuing our path to profitability, adjusted EBITDA* in positive territory
with £0.4 million achieved (2021: loss of £0.6 million)
o Loss before tax of £2.1 million (2021: £2.7 million loss)
o Around £5.5 million of further investment in both cask spirit and wood
(c£3m), taking the total number of casks to 16,500 (2021: 15,300) as well as
completion of the new state-of-the-art, multi-purpose Supply Chain Facility at
Masterton Bond (c£2.5m)
o Stock-in-cask at 30 December 2022 increased its notional retail sales value by
15% to approximately £493 million (31 December 2021: £430 million)
o ASC's current whisky stocks are sufficient to satisfy demand through to 2028
and beyond
o Well-funded to continue to invest in growth for the medium and long term with
an increased facility to £21.5million with RBS agreed in H2
* Adjusted EBITDA defined as earnings before interest tax, depreciation,
amortisation and non-underlying costs (see note 7)
+ The Board of The Artisanal Spirits Company considers that current consensus
revenue expectations for the year ending 31 December 2022 are £21.6 million
(2021: £18.2 million) and consensus adjusted EBITDA expectations for the year
ending 31 December 2022 is £0.1 million (2021: negative £0.6 million).
Operational highlights:
o SMWS membership growth increased by 12% to over 37,400 (2021: 28,700). This
included robust growth in European members since the launch of the new EU
route to market towards the end of FY21
o Annual contribution per member rose by 11% and retention maintained at an
all-time high level of 77%
o Lifetime value per member rose to £1,457 (2021: £1,445)
o Our member venues recovered from the disruption of the pandemic and recently
recorded a record month in December 2022
Global membership
December 2022 December 2021 % change
UK 18,029 16,445 10%
US 6,058 5,207 16%
China 1,659 1,732 (4%)
Europe* 4,327 3,349 29%
Australia 1,659 1,337 24%
Japan 1,809 1,496 21%
Rest of World 3,875 3,761 3%
Total members 37,416 33,327 12%
*Europe represents direct sales markets within continental Europe, but
excludes franchise markets in Denmark and Switzerland which are shown within
Rest of World
Current trading/Post period insights
o Revenue in Q1-23 broadly flat year on year vs the exceptional growth
experienced in Q1-22. Growth phasing in line with management expectations to
deliver full year consensus forecasts for FY2023
o YTD growth in UK & EU, offset by Covid impacted performance in China in
the early part of the year, with signs of recovery in China now emerging
o Continued strong performance in UK venues with the record December 2022
performance followed by new records for January and February in 2023
o Continued membership growth +10% year-on-year
o Successful change of leadership in January 2023, with David Ridley stepping
down as Managing Director and Andrew Dane appointed as CEO
o Further consolidation of production, with around 70,000 bottles now produced
and on target to achieve full operations at new Masterton Bond Supply Chain
facility early in Q2
Andrew Dane, CEO of The Artisanal Spirits Company, commented:
"Our ambition is to create a global, premium business which is highly
profitable and cash generative by delivering the world's best whisky
experiences.
We have a pioneering model, a long-term global growth opportunity on which we
are primed to deliver. We are making significant strategic progress with
strong membership growth and delivery of another strong year of profitable
growth supported by improvement across all financial and operational KPIs.
Over the last year we have continued to make investment for the future in
further spirit and wood, as well as our own supply chain facility, and while
the rate of cash spend on this has peaked, we will continue to invest, with a
focus for FY23 on IT and technology to deliver and accelerate our growth even
further.
Our markets benefit from underlying structural dynamics which have increased
our addressable market. We are seeking to exploit this opportunity by growing
our international footprint, including in South Korea and Malaysia.
The new financial year has begun well. We remain on track to meet our 2024
revenue target of £30m and deliver significant progress on our path to
sustained profitability."
Sellside analyst presentation
Andrew Dane, CEO and Billy McCarter, Interim Finance Director, will host an
in person presentation for sellside equity analysts, followed by
Q&A, at 09.30 hours BST today, 29 March 2023. Analysts wishing to join
should register their interest by contacting:
artisanalspirits@instinctif.com (mailto:artisanalspirits@instinctif.com)
Investor presentation
In addition, management will host a live online investor presentation and
Q&A at 14.00 hours BST tomorrow, 30 March 2023.
The Group is committed to ensuring that there are appropriate communication
channels for all elements of its shareholder base so that its strategy,
business model and performance are clearly understood.
The presentation is open to all existing and potential shareholders. To
register to attend, please use the link below:
https://www.equitydevelopment.co.uk/news-and-events/artisanal-fyresults-presentation-30march2023
(https://protect-eu.mimecast.com/s/75QRCKrRYt8rwxyIM9nf_?domain=equitydevelopment.co.uk)
A recording of the presentation will also be made available via the Group's
website following the webinar.
For further information, please contact:
The Artisanal Spirits Company plc via Instinctif Partners
Andrew Dane, CEO
Billy Mccarter, Interim Finance Director
Singer Capital Markets (Nominated Adviser and Broker) 020 7496 3000
Sandy Fraser
Phil Davies
George Tzimas
Asha Chotai
Instinctif Partners (Financial PR)
Justine Warren 020 7457 2020
Matthew Smallwood
Joe Quinlan
Notes to Editors:
The Artisanal Spirits Company (ASC) are curators of the world's favourite,
single-cask and limited-edition whisky.
Based in Edinburgh, ASC owns The Scotch Malt Whisky Society (SMWS) which was
established in 1983 and currently has a growing worldwide membership of just
over 37,400 paying members.
SMWS provides members with inspiring experiences, content and exclusive access
to a vast and unique range of outstanding single cask Scotch malt whiskies and
other craft spirits, with current stocks sourced from over 100 distilleries in
20 countries and expertly curated with diligence and care.
Since producing the Society's very first cask, we have created around 10,000
different whisky releases, producing a constant flow of unique and exciting
one-of-a-kind whiskies.
With proven e-commerce reach and new brands like J.G. Thomson, ASC is building
a portfolio of limited-edition and small-batch spirits brands for a global
movement of discerning consumers - delivering c.£20 million in annual
revenues with over 80% of revenue generated online and over 65% from outside
the UK, with a growing presence in the key global whisky markets including UK,
China, USA and Europe.
ASC has a pioneering business model, a substantial and growing addressable
market presenting a long-term global growth opportunity and a strong and
resilient business primed to deliver growth.
Chair's statement
I am delighted to report that 2022 has been another year of significant
progress in which we have continued to execute the strategic plan and
objectives outlined at IPO focused on our disciplined investment programme and
range of operational initiatives to facilitate the Group's long-term,
sustainable growth.
The global whisky market continued to deliver compound growth in 2022,
maintaining a trend which has now been established for many years with the
Ultra-Premium and limited-edition market, in which we almost exclusively
operate, being a stand-out performer. Alongside this, our member venues in the
UK have benefitted from more normalised trading for the majority of the year,
with a record December most recently bringing unique and memorable experiences
to our members in the Group's four member venues in Edinburgh (Queen Street
and Leith), Glasgow and Farringdon in London, and enabling marketing and
member recruitment events in the UK to return in earnest.
Our model is unique and brings many benefits. Membership, which differs
markedly from subscription, is synonymous with exclusivity, embedded customer
engagement, relationships and community. This, combined with our powerful
direct-to-consumer ("D2C") e-commerce platform, creates a global stage from
which to promote and market our limited-edition portfolio of curated whiskies
and precisely focus our sales efforts.
Alongside membership, the heartbeat of our proposition, is our focus on
unique, high-quality whiskies that we purchase, curate and release in
limited-editions. In 2022 we further added to our world beating stock of
whisky, deploying funds from the IPO to ensure that we have forward stock
cover well into the next decade.
ASC continued to substantially develop and progress its infrastructure in
2022. We further invested some of the proceeds raised at IPO in our own
state-of-the-art, supply chain facility at Masterton Bond, near Glasgow, to
bring elements of production, cask storage, bottling, fulfilment and
distribution capabilities in-house. Opening on time and within budget in Q4
2022, we expect to see the subsequent anticipated margin benefits of this
facility during the course of 2023 and beyond.
The combination of our loyal and engaged members and our unique business model
mean that we have managed to increase gross margin by over 2 percentage
points, despite the impact of inflationary pressures seen across the wider
economy in areas such as labour, raw materials, glass and storage. ASC is
fortunate to have a model with high gross margins and a product where the
price is relatively elastic.
Our brand continues to grow in awareness and desirability. This year has seen
ASC achieve more accolades and global recognition for our outstanding,
limited-edition whiskies having now won almost 300 awards in the last few
years. We also continually strive to provide a unique and immersive experience
for our SMWS members.
To have grown the business in the challenging conditions of last year is
nothing short of exceptional and is testament to the quality of our product
range and wider membership proposition. To help deliver this growth, we
produced in 2022 around 1,000 different limited-edition whiskies, improved our
e-commerce platform by continuing to make it even more engaging for our
members, grew our recently launched brand, JG Thomson, and hosted hundreds of
events worldwide for membership and recruitment.
In addition, SMWS continues to expand its global footprint into new growth
markets. We furthered our international reach with a new franchise agreement
in South Korea and a new partner, Alliance Drinks, in Malaysia - adding to our
existing presence in the fast-growing Asian markets in our sweet spot of the
Ultra-Premium Scotch malt whisky sector.
ASC is conservatively financed and has more than sufficient funds to continue
to invest in and grow the Group for the medium to long term. In order to
continue to provide additional headroom, we have extended our revolving credit
facility with RBS, demonstrating the strength of our asset base which is now
worth almost half a billion pounds at retail prices today. Our owned stock of
spirit, ageing in casks, provides us with all of the liquid required to
satisfy our demand beyond the end of FY28.
Our team has continued to develop; without their dedication and hard work, we
would not have delivered these excellent results. In turn, the Group strives
to deliver an outstanding working environment for its employees, together with
the flexibility and respect which enables everyone to thrive. The Board wishes
to express its heartfelt thanks to the entire ASC team.
Over the last year the Board has also continued to pursue exemplary standards
of corporate governance and we strive to drive the ASC values across the
business, particularly the uncompromising approach to keeping the interests of
our loyal SMWS members firmly at the forefront of everything we do.
Post the year end, David Ridley and the Board agreed that he would step down
as Managing Director of ASC following six years with the Group in that role,
during which time the business delivered sustained revenue growth and, in
2021, successfully IPO'd on the London Stock Exchange under his stewardship.
The Board would like to thank David for his leadership and significant
contribution. He leaves ASC in excellent shape and leaves with our very best
wishes for the future.
ASC has a strong and able successor to David in Andrew Dane who was appointed
as our new CEO in January 2023. Since joining as Finance Director in 2020,
Andrew has demonstrated strong strategic and operational credentials in
addition to his proven financial skillset. He knows the business and ASC's
wider market structure and has been instrumental in developing and
implementing the Group's growth strategy in conjunction with the wider
Executive team. These qualities equip him well to provide continued leadership
as ASC progresses its strategy to unlock its significant future growth
opportunity. Billy McCarter, formerly Group Financial Controller, has been
appointed as Interim Finance Director and a search process, comprising both
internal and external candidates, to identify a long-term CFO is well
underway. Shareholders will be updated on the outcome of this process in due
course.
Looking to the future
We have a clear strategy focussed on taking advantage of our global
opportunity and achieving and delivering sustainable, profitable growth. This
is primarily driven by developing and growing our membership base, enhancing
the breadth and depth of our whisky stocks, further domestic and international
expansion, continued enhancement of our e-commerce platform, increasing
margins and delivering value. Our long-term future is underpinned by
fundamental structural tailwinds: convenience, premiumisation, collectability
and rarity value, as well as digitalisation, none of which show any sign of
abating.
2023 will not be without its challenges. However, we are optimistic that
economic conditions will improve and confident that our business will navigate
whatever headwinds we may face. That said, we benefit from a diversified and
global membership who are resilient and mostly affluent. We remain confident
that they will continue to enjoy the exclusive benefits and products that
membership of SMWS affords.
We submitted our response to the Scottish Government consultation on
restricting alcohol advertising and promotion. We share the Scotch Whisky
Association's concern and support the view that the Scotch whisky industry
already follows a robust marketing code which regulates how brands are
advertised globally.
Similarly, we agree with the Scotch Whisky Association that "many concerns
remain unanswered" in relation to the proposed Deposit Return Scheme in
Scotland. While we continue to prepare for its scheduled launch in August of
this year, we share the wider industry concerns around the impact of this
scheme.
We are increasingly well positioned to take advantage of our global
opportunity and to achieve our self-imposed goal of doubling revenue from 2020
to 2024. We therefore anticipate further revenue growth in 2023 as we pivot
towards growing and sustainable profitability. As we do this, we are committed
to doing so responsibly, working within the Scotch Whisky Association's
Sustainability Strategy, focused on striving for best practice. ASC is on a
journey in this regard, and we continuously seek to improve.
We continue to see a significant opportunity in the American Whiskey segment
for ASC. The Board has agreed that some additional time is required to
evaluate the various options open to us to ensure we optimise both the
structure and our approach in this exciting market. Our enthusiasm for the
American Whiskey opportunity remains and we look forward to updating
shareholders on our plans in due course.
We have invested in our business and have whisky stocks to satisfy demand into
the next decade hedging inflationary costs in our supply chain. Our cash
intensive investment phase has now peaked as we enter into a new stage and
move towards positive unadjusted EBITDA for 2023 and positive profit before
tax for 2024 and remain well positioned for further profitable growth
thereafter.
I am grateful to all shareholders for their continued support in a difficult
year for the markets. ASC is a long- term business and whilst I believe we
have played our part to date by consistently delivering on the goals and
aspirations set out at IPO, we will continue to be totally focussed on
endeavouring to do so again this year and beyond as we grow this unique
business.
Chief Executive's Review
Another strong year of delivery
In our first full year as a listed business, we have successfully delivered on
our promises. We have achieved both strategic development, most notably
the new supply chain facility at Masterton Bond in Scotland, as well as an
impressive financial performance, once again ahead of market expectations,
with 19% revenue growth, growing margins and positive progress on our clear
path to profitability.
We have a pioneering model, a long-term global growth opportunity and we are
primed to deliver. We are making significant strategic progress with strong
membership growth and delivery of another year of profitable growth supported
by improvement across all financial and operational KPIs. Over the last year
we have continued to make investment for the future in further spirit and
wood, as well as our own supply chain facility, and while the rate of cash
spend on this has peaked, we will continue to invest, with a focus for FY23 on
IT and technology to deliver and accelerate our growth even further.
Delivering profitable growth
I have had the pleasure of helping to build our current strategy and help set
our clear ambition to double revenue between 2020 and 2024. It is now my
privilege to have the opportunity to lead the business towards achieving that
ambition and to report on the success to date on delivering that.
In 2022, we have made good progress, achieving revenue growth ahead of market
expectations and adjusted EBITDA improving by £1.0 million.
We continue to deliver against our strategic framework and successfully
execute our strategy to build a unique portfolio of curated, limited-edition
spirit brands for a global movement of discerning consumers, operating in a
significant growing market globally with underlying structural change taking
place. We also continue to meet, and in many cases exceed, the financial
metrics and KPIs put in place at the time of the IPO.
To achieve our ambition, we operate a pioneering model with a loyal and
growing membership who can exclusively purchase unique, award-winning,
limited-edition whiskies. We aim to innovate relentlessly and deliver our
members an outstanding experience through our direct to member platform,
generating rich data which provides the Group with detailed customer insight
to continually improve and target ever more effectively.
Underlying structural dynamics growing the addressable market
ASC is positioned to benefit from fundamental changes which are driving
significant growth within the spirits industry. Scotch whisky remains a highly
desirable category on the international stage. We operate primarily in the
global Ultra-Premium segment which has seen substantial growth over the last
decade and continues to do so as repeatedly reported by the leading spirit
brands.
Trends such as premiumisation and experiential demand - with consumers seeking
authenticity, status and exclusivity, the drive for increasing convenience and
continued global digitalisation - combine to play to ASC's strengths as a
limited-edition producer with our D2C model.
As these trends continue, this underpins the growth of the Group's addressable
market. The global Scotch whisky market for Ultra-Premium price points
(£35/bottle and above) was valued at $7.6 billion in 2021 having grown by 32%
since 2020. Of this, $5.8 billion is in markets where we already have a
well-established presence. In these markets, ASC has a market share of only
0.3% currently.
Strong SMWS growth
Revenue continued to grow impressively underpinned by the growth in global
membership, combined with increasing spend per member.
SMWS Membership
This year saw us grow global membership of SMWS once again, up 12% to 37,400
at the year end. A further benefit of our global reach is that we have a
diversified geography with markets performing at different rates of maturity
and growth. 2022 experienced particularly strong membership growth in Europe,
Australia, the US and Japan. This was driven by a material acceleration of
membership sign-ups supported by strong returns on marketing campaigns, as
well as effective targeting in those territories to potential new members.
This was also supported by high levels of loyalty from our existing members,
delivering recurring revenues with retention rates maintained at last year's
historically high level of 77%.
SMWS Revenue
From a revenue perspective, there were standout performances for a few areas
in the year.
Firstly China, where revenue grew 28% despite the very strict Covid lockdown
restrictions which impacted the business - in the context of membership
recruitment in particular from April 2022 onwards. This result is testament to
both the size of the opportunity that exists in this geographic market, as
well as the outstanding quality of delivery and service provided by the ASC
team.
Secondly, a strong performance from the UK member venue rooms helped drive the
27% revenue growth in the UK. The Group's four outstanding member rooms - in
Edinburgh (Queen Street and Leith), Glasgow and London - rebounded following
the easing of UK Covid restrictions in the early part of 2022, finishing the
year strongly with record sales in December.
Thirdly, I was pleased to see the positive response from European members
following the establishment of a warehouse in mainland Europe in December 2021
to mitigate the Brexit-related logistical challenges which occurred during
2021. This helped to deliver impressive membership growth of 29% (the fastest
of any market) and 18% revenue growth.
In the US, membership grew strongly in the period (up by 16%), albeit market
depletions were down slightly year on year as the level of bottle sales per
member unsurprisingly reduced from the higher levels experienced during the
Covid lockdown periods of 2020/21 to their pre-pandemic levels. The revenue
effect of these was offset by the timing of shipments and positive movements
in FX rates meaning that the total value of revenue grew by 6% in the period.
SMWS International Expansion
Over the past year we have continued to enhance and extend our international
reach in some of the fastest growing markets in the world to take advantage of
growth opportunities in those geographies. This follows our entry into Mexico
and South Africa in recent years.
In October 2022, the inaugural franchise agreement in Korea, the world's 10th
largest market for Ultra-Premium Scotch malt whisky, was signed with F.J.
Korea (a market leading distributor). We also strengthened our presence in
Malaysia with a new partner, Drinks Alliance, which provides a new route to
market and reinforces our footprint in that region.
The Group will continue to seek opportunities to extend the international
reach of SMWS with further partnerships and franchise agreements.
First year of trading for J.G. Thomson
We continued to grow our new suite of superior quality spirit and
complementary brands under the heritage moniker of J.G. Thomson which is
available both to SMWS members and through selected independent retail
channels.
The first full year of J.G. Thomson helped deliver over £200,000 of
additional revenue to the Group, with most of that arising in H2 through
initial exports to La Maison du Whisky in France, as well as cross sales to
SMWS members.
We continue to market and build the brand's presence through innovative events
such as Fringe by the Sea, an Arts Festival in North Berwick, and at Hamlet by
Ian McKellan in partnership with influencers such as Bross Bagels.
The American Whiskey Opportunity
We continue to see a significant opportunity in the American Whiskey segment
for ASC. To that end, we remain focused on exploring the various options open
to us to enter and maximise our opportunity in this exciting market. In order
to take the right approach to launch and sustainably grow our operations in
this market for the long term, the Board has agreed that some additional time
is required to evaluate the various options open to us.
Whilst this will require more time than originally anticipated to ensure we
optimise both the structure and our approach; one positive impact of this
extension is that short-term EBITDA drag which a launch would be expected to
incur would be avoided in FY23. Our enthusiasm for the American Whiskey
opportunity remains and we look forward to updating the market on our plans in
due course.
Investing for Growth
ASC is financially strong and fully funded to deliver its stated ambitions.
Its balance sheet is primarily supported by its whisky stock, and we were
delighted to agree the extension to the inventory secured RCF facility with
RBS in December 2022 which provides additional flexibility with regards to our
investment in our strategic priorities.
Overall, we have now materially deployed the IPO proceeds as planned, with key
investments in the supply chain facility at Masterton Bond, continued
investment in expansion of our spirit and wood stocks and marketing spend to
grow membership, as well as ongoing new brand development such as the launch
of J.G. Thomson and exploration of the American Whiskey opportunity and market
expansion in Asia in particular.
The Group has accumulated - and is further investing in - our unique range of
outstanding single cask Scotch malt whiskies. In 2022 around £3 million was
invested in new whisky spirit and wood stocks, increasing the total number of
casks to 16,500 (15,300 at the end of 2021) and investing in more ex-sherry
casks which now represent 25% of all production. The acquisition of new spirit
and the continued appreciation of in-cask whisky will stand us in good stead
to satisfy demand in future years, as well as providing a substantial
inflation hedge against future increases in the cost of whisky. Our current
whisky stocks are sufficient to satisfy our projected demand beyond the end of
2028 and 75% of demand well into the next decade. Stock in cask at the
year-end had an estimated retail value of approximately £493 million (31
December 2021: £430 million), representing further value appreciation of a
further 15% over the period.
In Q4 2022 we began the initial production phase at our new Masterton Bond
multipurpose supply chain facility near Glasgow. With bottling operations
commenced, c20,000 bottles were produced prior to the year end. Since then,
production has continued to increase with c.70,000 bottles produced as at the
date of this report. The facility will provide production, cask storage,
fulfilment and distribution of the Group's whisky and other spirit products in
due course. We are already beginning to benefit from the improved operating
margins (anticipated to be c.2% this year) from this state-of-the-art
facility.
The path to profitability
During the course of 2022 we have made significant investments across our
business, have a clear strategy to drive profitable growth and anticipate
growing EBITDA through 2023 and generating profit before tax in 2024, a goal
set at the time of IPO. Continued growth in membership, prudent and
selective investment in interesting and rare whisky spirit and wood,
conservative financing and international expansion are the embedded
disciplines for growth and sustained future profitability.
Particularly pleasing has been the growth in gross margin which has been
faster than forecast, reflecting both underlying improvements in the cost
structure (despite wider economic pressures) - supporting the strong inflation
hedge provided by ASC's substantial spirit stock - as well as improvements in
pricing driven by both product and market mix.
Overall, this has enabled us to deliver a £1.0 million increased in adjusted
EBITDA, equating to an equivalent incremental EBITDA margin of almost 30%,
lending further support to the significant profit potential of the Group.
Our talent
The Group's key focus is people development and living ASC's values and the
team has come together well following the influx of new staff pre and post
IPO. We have a strong culture which develops pride in what we do and respect
for others in the business. While we are delighted with the results of our
employee survey during the year (and in particular the employee engagement
index score of 81), we recognise there is always more to be done in this area
and we intend to continue to further develop and implement the talent and
organisational development plan originally launched in 2021.
Current trading and outlook
Whilst still early in the year, we remain on track to meet our expectations
for the full year. Revenue to date has seen growth across many territories
including UK and Europe albeit this was offset by the impact of continued
Covid in China in Q1. Overall, revenue is broadly flat, lapping a record Q1
in 2022, and we anticipate further strong growth in sales in the second
half. Encouragingly, membership has continued to grow, including increasing
momentum in China most recently, and both January and February 2023 have seen
venues continue to trade at record levels.
The Group will benefit from £220,000 (net of fees) in relation to R&D tax
credits received in January of this year for 2020 and 2021. We remain on
target for the Group's new Masterton Bond supply chain facility to be fully
operational early in Q2.
We remain focussed on developing and progressing our business through the
continued growth of membership globally, building a sustainable platform for
the future and driving ASC towards profitability which should be achieved in
the near-term. We will continue to benefit from the structural tailwinds of
digitalisation, premiumisation and convenience which underpin our unique
business model and the continued global growth of the Ultra-Premium whisky
segment.
Finance Director's Review
Continued Growth Driving Aim of Near-term Profit Delivery
Another year of exceeding performance expectation and investing in the future
growth of the business
Strong 2022 performance as the basis for future years delivery
It is a pleasure and honour for me to step into the Finance Director role on
an interim basis, following Andrew's move into the CEO role as David Ridley
leaves the business. We wish him all the best in his next endeavour. Overall,
2022 was another strong year of performance for the Group with the headlines
showing we have exceeded market expectations on revenue and ensuring as a
result that we deliver the associated EBITDA profit expectation. Another
period of delivery gives us confidence we are on track to continue to meet our
future profit objectives in the near to medium term.
To further support the strategy long-term, we have made significant further
investment during the year in cask spirit and we also reached a major
investment milestone in completing the fit-out and operational commencement of
our new self-contained Supply Chain Facility, Masterton Bond. The completion,
on time and within budget, allows us to achieve not only margin improvement in
the near-term with regards to operational costs, but also allows us to take
control of operations from third parties.
Continued improvement in Group financial performance
As a Group, we have delivered revenue, gross profit, adjusted EBITDA and
membership growth in the year, this momentum serving to ensure we deliver on
the expectations of our growth journey over the next few years.
Revenue growth of 19%, at £21.8million which was above expectation, has
resulted in a step-change delivery at an adjusted EBITDA level, our gross
margin improvement of 210 basis points a key factor as we manage costs and
drive profitable sales. This gives us significant confidence that alongside
our strategic plans, we can achieve profit in the near-term as expected. Our
adjusted EBITDA achievement excludes pre-operational non-underlying costs
within our Income Statement in 2022, Masterton Bond and American Whiskey
costs, which together represented a £0.6 million investment in the year.
Membership has grown 12% over the year and we remain committed to ensuring our
membership proposition is strong and always looks to seek improvement and meet
member expectations. A maintained retention rate is pleasing in year, and a
key focus of our strategic priorities are geared toward improvement of this -
ensuring members feel engaged in what we offer, part of a 'whisky club' that
has community and togetherness at its heart.
Membership has performed strongly across all regions, with significant growth
in Europe and the US, 29% and 16% respectively, supported by 10% in the UK and
5% across Asia. In the US, we have seen the growth come from a 900bps
improvement in retention and within the UK the growth is mainly driven by new
members. Europe is benefitting from the improved supply following Brexit, and
as a result membership has increased across new and renewing members.
Growing Global Revenue
United Kingdom
As the home of the Scotch Malt Whisky Society, the UK remains our longest
standing and largest global market, with around half of total membership and
around a third of global revenue. In the UK we have a truly omni-channel
approach, with four outstanding member rooms complimenting the online presence
at www.smws.com (http://www.smws.com) . Growth within the UK was a very
strong 27%, predominantly driven by our venues as we recovered from the
restrictions of Covid. Online sales continued with another strong year-on-year
improvement of 5%, with delivery across the region of £7.4 million (2020:
£5.8 million). As a result, the UK business has reinforced its position as
the biggest individual market within the Group having contributed 34% of
revenue in the year. Membership also grew double digit at 10%.
Asia
The Asian markets continue to be a key area of growth for the business, with
China now our second largest overall market after the UK. This is despite the
fact that SMWS China only celebrated its five-year anniversary of launch in
November 2022. This is a testament to both the size of the opportunity that
exists there, as well as the outstanding quality of delivery and service
provided by the team.
China revenue grew by 28% in the year, representing the fastest growth of any
market. However this growth was delivered in the face of some very challenging
conditions in the country with the rate of growth slowing in H2 as a result of
the continued "Zero Covid" policy which was pursued until the tail end of
2022. This impacted both logistics in Q2-22 when some of the strict lockdown
periods in Shanghai began, and also the whisky festivals which would normally
be a key source of recruitment, but which were cancelled in 2022. This meant
that after a record period of membership growth in 2021, and a strong start to
2022, membership at 31 December 2022 was similar to 31 December 2021 at around
1,700 members.
The wider Asian market growth was supported by performance in Japan with
double digit revenue growth supported by over 20% membership growth in the
year, delivered through both growing recruitment and improvements in retention
to an outstanding level of 85%, reflecting the extreme focus by the local team
on member satisfaction.
More broadly, we were pleased to announce in October that SMWS had signed a
new franchise agreement with F.J. Korea ("FJK") in South Korea, Asia's fourth
largest economy and the world's tenth largest market for Ultra-Premium Scotch
whisky. Alongside that we entered a new partnership agreement in Malaysia,
providing a new route to market (the 12(th) largest market within the global
Ultra-Premium Scotch malt whisky sector) and further strengthening the Group's
geographic footprint in South-East Asia.
North America
The North American market is led by the United States which represented around
20% of total global sales for the year. Membership levels in the US grew
strongly in the period, up by 16% in the period and breaking through the 6,000
member milestone. However, in market depletions were down slightly year on
year as the levels of bottle sales per member fell from the higher levels
during the Covid lockdown periods of 2020/21 to their pre-pandemic levels. The
revenue effect of these was offset by the timing of shipments and positive
movements in FX rates meaning that the total value of revenue grew by 6% in
the period. More generally, performance in the Canadian franchise was
positive, with sales up 29% and with a very modest contribution from the
relatively new Mexican franchise which began operating fully in 2022.
Europe
2022 performance built on the progress made at the tail end of 2021- with the
establishment of a warehouse in mainland Europe, enabling the Group to
mitigate Brexit-related logistical challenges and reduce shipping and delivery
times to EU members. This new set-up operated throughout 2022 with the
dramatic reduction in delivery times and increase in level of online and in
person support for membership recruitment and engagement helping to deliver
29% membership growth in the year (the fastest rate of any market) and helping
to deliver 18% revenue growth, with the growing number of members also
increasing their average spend and contribution in the period.
Australia
Strong performance in the Australian market was led by 24% membership growth
in the period, supported by some very strong campaign activations which have
now been replicated both in Australia and other markets. This helped to
deliver double digit revenue growth in the period, as well as giving a strong
basis for further growth in future periods.
Cost base maturation ensuring gross profit delivery and growth delivers EBITDA
As we have invested in our cost base over recent years to deliver growth, we
have built a strong and experienced team within the business who have
ultimately helped us achieve our growth to date, and although we will always
look to invest in skilled employees who bring attributes and new ways of
thinking, that investment level is starting to mature. Payroll costs in the
year (including share options) were £6.0 million (2021: £4.5 million).
Significant further investment has been made in a new Technology Team and
continues to be made on the digital transformation of the business which will
be instrumental in helping us achieve the next stage of our strategic
opportunities.
As we enter 2023, our payroll base is maturing, opportunities being specific
and tactical as opposed to the last few years of growth and expertise
requirement. We will continue to ensure we invest wisely in Advertising and
Promotional spend ("A&P"). This helps to ensure we manage costs within a
high inflation environment, supporting revenue and EBITDA delivery
ambitions. A&P spend saw a 9% year on year increase representing good
management and return against the backdrop of our 19% revenue increase and
£1.0 million additional adjusted EBITDA delivery. Other major costs within
the year include Share Options costs of £0.2 million (2021: £0.3 million),
IT and Systems Costs of £0.7 million (2021: £0.6 million) as we continue to
invest and improve in our IT infrastructure to deliver strategic priorities
and drive efficiencies, including the new Masterton Bond Supply Chain
facility, which itself had £0.3 million of pre-operational cost expensed
within the year. Earnings per share at the end of the year (2.9p) is an
improved closing of 2021: (5.9p) our growth and EBITDA conversion delivering
on our journey to EBITDA and shareholder return over the medium-term.
Initial spend on the American Whisky opportunity of £0.3 million spend in
year (2021: zero) has given the business a good initial grounding on which to
build as we consider our next move.
Share Incentive Schemes
We have followed up the award of share options in 2021 with further options
within the scheme. In 2022, 139,000 new share options were issued, consisting
of time vesting options for central office and venue staff, with senior
management options all performance related, based on Revenue, EBITDA and Share
Price. Further awards under the framework of the existing scheme, with new
targets for the forthcoming years, are expected this year.
Balance sheet strength driven by continued cask investment and asset backed
funding
Our balance sheet remains strong, with net assets of £22.0 million supported
by further investment in year in spirit and wood of around £3 million, as
well as around £2.5 million on our self-contained multi-purpose supply chain
facility at Masterton Bond.
This further investment utilised our RCF facility as planned, as a result net
debt at the end of 2022 at £14.7million, considered well manageable within
the remit of our strong asset backed balance sheet, cask spirit stock holding
at £23million.
These investments during the year give us a strong foundation to allow us to
meet our future strategic priorities, delivering greater EBITDA and cash
conversion as we hold stock coverage for sales through to 2028, and look to
drive efficiencies across the supply chain leading to better cost of our the
finished product through to the end consumer.
Improved inventory secured RCF with Royal Bank of Scotland (RBS)
In Q4 the Group extended its agreement with RBS to increase its existing
revolving credit facility to £21.5 million (previously £18.5 million) and
also lengthened the term of the commitment until December 2025, broadly
extending the term by two years and on better terms saving the Group c.
£40,000 per year. The RBS facility provides additional flexibility to expand
and grow all aspects of the business including membership, whisky stocks and
international reach. As at the end of 2022, the Group had £5 million of
unutilised headroom on this facility.
Cash flow driving investment
2022 has been another year of significant investment, delivering business
growth beyond expectations and plans, with around £5.5 million invested in
spirit and other strategic opportunities, primarily the Masterton Bond supply
chain facility completion, resulting in our ability to not only ensure
coverage of stock until 2028 but also achieve our offering at a more
productive and efficient, self-controlled bottling facility, driving gross
margin benefits to the business for future return against investment.
As a result, during 2022 we have drawn down as planned around £10 million
against our RCF agreement, as the source for the investment required. Our
stock position has grown, as we control risks against changes in supply chain
with Masterton Bond and a short stock position evidenced in earlier years.
Looking forward, the level of cash investment, in particular in spirit and
wood, has peaked and the business is expected to begin to generate cash
inflows as profitability continues to grow.
Change of External Auditors
Following a number of years with our previous auditors, and our continued
maturity, we appointed new external auditors in May 2022, Mazars LLP.
Looking ahead to 2023
We remain positive about our ability to meet our strategic goals in the short,
medium and long-term following our achievements this year.
Our investment in spirit and supply chain safeguards our ability to deliver to
our growth plans and, at the heart of all of this, deliver further
improvements on our EBITDA and cash conversion, which we have seen in 2022
with regards to the revenue growth.
Our strategy is working, and we will maintain our confidence in that strategy,
ensuring we continue to understand and invest in our membership proposition,
achieving new and improved routes to market. This will include 2023
opportunities in Korea and Taiwan, as well as growth in key markets,
particularly the US and China. The addressable market is significant ($5.8
billion) and growing, with over 50% of this addressable market in China, US,
Taiwan and the UK. We are well placed to take advantage of this sizable and
expanding market and have the strategy to deliver that growth and look forward
to continuing to deliver that profitable growth ambition.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Notes 2022 2021
£'000 £'000
Revenue 6 21,781 18,237
Cost of sales (7,936) (7,026)
Gross profit 13,845 11,211
Selling and distribution expenses (5,503) (4,046)
Administrative expenses (9,875) (9,694)
Finance costs (576) (348)
Other income 9 37 160
Loss on ordinary activities before taxation 7 (2,072) (2,717)
Taxation 11 359 (631)
Loss for the year (1,713) (3,348)
Other comprehensive income:
Items that may be reclassified to profit or loss:
Movements in cash flow hedge reserve 31 (113)
Movements in translation reserve (59) -
Tax relating to other comprehensive loss - 23
(28) (90)
Total comprehensive loss for the year (1,741) (3,438)
Loss for the year attributable to:
- Owners of parent company (2,010) (3,653)
- Non-controlling interest 297 305
(1,713) (3,348)
Total comprehensive loss for the year attributable to:
- Owners of parent company (2,038) (3,743)
- Non-controlling interest 297 305
(1,741) (3,438)
Basic EPS (pence) 12 (2.9p) (5.9p)
Diluted EPS (pence) 12 (2.9p) (5.9p)
Consolidated Statement of Financial Position
As at 31 December 2022
Notes 2022 2021
£'000 £'000
Non-current assets
Investment property 405 391
Property, plant and equipment 13 10,362 8,377
Intangible assets 2,249 2,420
13,016 11,188
Current assets
Inventories 14 28,303 23,719
Trade and other receivables 3,714 2,968
Cash and cash equivalents 2,331 2,012
34,348 28,699
Total assets 47,364 39,887
Current liabilities
Trade and other payables 3,703 3,949
Current tax liabilities 405 277
Financial liabilities 15 357 392
Lease liability 360 259
Forward currency contracts - 31
4,825 4,908
Net current assets 29,523 23,791
Non-current liabilities
Financial liabilities 15 16,984 6,796
Lease liability 2,959 3,332
Deferred tax liabilities - 563
Provisions 580 407
Total non-current liabilities 20,523 11,098
Total liabilities 25,348 16,006
Net assets 22,016 23,881
Equity
Called up share capital 174 174
Share premium account 14,997 14,938
Translation reserve (76) (17)
Retained earnings 6,685 8,505
Cash flow hedge reserve 8 (23)
Equity attributable to parent company 21,788 23,577
Non-controlling interest 228 304
Net assets 22,016 23,881
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Notes 2022 2021
£'000 £'000
Loss for the year after tax (1,713) (3,348)
Adjustments for:
Taxation charged (359) 631
Finance costs 494 348
Interest receivable (4) (5)
Movements in provisions 10 3
Share-based payments 190 216
Investment property fair value movement (14) -
Lease interest 82 -
Depreciation of tangible assets 1,000 671
Amortisation of intangible assets 259 271
Movements in working capital:
(Increase) in stocks (4,496) (2,068)
(Decrease)/increase in debtors (746) (929)
(Decrease)/increase in creditors 240 252
Cash absorbed by operations (5,057) (3,958)
Income taxes paid (75) (360)
Interest paid (494) (347)
Net cash outflow used in operating activities (5,626) (4,665)
Cash flow from investing activities
Purchase of intangible assets (88) (92)
Purchase of property, plant and equipment 13 (2,911) (1,101)
Purchase of JV China share (359) -
Interest receivable 4 5
Net cash used in investing activities (3,354) (1,188)
Cash flows from financing activities
Share issue 59 14,878
Asset backed lending repaid - (14,823)
Inventory secured RCF facility 15 10,300 6,200
Dividends paid (373) (385)
Loan received - 93
Repayment of loan (148) (145)
Repayment of leases (354) (139)
Net cash from financing activities 9,484 5,679
Net increase in cash and cash equivalents 504 (174)
Cash and cash equivalents at beginning of year 2,012 2,176
Other reserve movements - 10
Non controlling interest movement (185) -
Cash and cash equivalents at end of year 2,331 2,012
Relating to:
Bank balances and short term deposits 2,331 2,012
Consolidated Statement of Changes In Equity
For the year ended 31 December 2022
£'000 Called up share capital Share premium account Retained earnings Cash flow hedge reserve Translation reserve Other reserves Total controlling interest Non-controlling interest Total equity
Balance at 31 December 2020 135 99 12,544 67 (15) - 12,830 163 12,993
Issue of share capital 39 15,579 - - - - 15,618 - 15,618
Share issue direct costs - (740) - - - - (740) - (740)
Loss for the period - - (3,653) - - - (3,653) 305 (3,348)
Adjustment to non-controlling interest - - (252) - - - (252) 252 -
Share-based compensation - - 216 - - - 216 - 216
Dividend paid - - - - - - - (280) (280)
Investment in subsidiary - - (350) - - - (350) (136) (486)
Other comprehensive gain/(loss) - - - (90) (2) - (92) - (92)
Balance at 31 December 2021 174 14,938 8,505 (23) (17) - 23,577 304 23,881
Issue of share capital - 59 - - - - 59 - 59
Loss for the period - - (2,010) - - - (2,010) 297 (1,713)
Share-based compensation - - 190 - - - 190 - 190
Dividend paid - - - - - - - (373) (373)
Other comprehensive gain/(loss) - - _ 31 (59) - (28) - (28)
Balance at 31 December 2022 174 14,997 6,685 8 (76) - 21,788 228 22,016
Notes to the Financial Statements
1) Basis of preparation:
The condensed interim financial information presents the consolidated
financial results of The Artisanal Spirits Company plc and its subsidiaries
(together the "Group") for the twelve months ended 31 December 2022 and the
comparative figures for the twelve months ended 31 December 2021.
The Group's consolidated financial statements have been prepared on a going
concern basis under the historical cost convention; in accordance
with UK adopted International Accounting Standards.
This statement does not include all the information required for the annual
financial statements and should be read in conjunction with the Annual Report
& Accounts.
The financial information set out above does not constitute the company's
statutory accounts for 2022 or 2021. The statutory accounts for 2021 have been
delivered to the Register of Companies, and those for 2022 will be delivered
in due course. The independent auditor has reported on these accounts, their
reports were (i) unqualified, (ii) did not draw attention to any matter by way
of emphasis without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
This announcement was approved on behalf of the Board on 29 March 2023.
2) Accounting Policies:
The accounting policies applied in preparing the condensed consolidated
financial information are the same as those applied in the preparation of the
Annual Report and Accounts for the year ended 31 December 2022, and those
applied in the preparation of the Group's Historical Financial Information
included within the Company's Admission Document.
3) Going concern:
The Directors are, at the time of approving the financial statements,
satisfied that the Group and Company have adequate resources to continue in
operational existence for a period of at least 12 months. Thus, they continue
to adopt the going concern basis of accounting in preparing the financial
statements.
The Group meets its day-to-day working capital requirements from a revolving
credit facility of £21.5m together with cash balances. The revolving credit
facility was renewed in December 2022 and is not due for renewal until January
2025. The revolving credit facility has quarterly leverage and covenants
relating to minimum stock holding level as a percent of the facility drawn
down, the 'springing test', which requires 135% of eligible inventory holding
against the RCF balance, reviewed monthly. Secondary covenants of EBITDA and
Net Assets (excluding Intangibles) exist if the springing test isn't met. The
Group did not make use of government backed borrowing facilities such as the
Coronavirus large business interruption loan scheme.
The Group remained compliant with its banking covenants throughout the year to
31 December 2022.
In the context of the above, the directors have prepared cash flow forecasts
for the period to 31 April 2024 which indicate that, taking account of
reasonably plausible downside scenarios, the Group will have sufficient funds
to meet its liabilities as they fall due for that period.
The Directors have assessed the potential on-going impacts of the Covid-19
pandemic and have modelled scenarios as follows:
1. A base cash flow forecast. The 2023 figures in this forecast are based on
the Group's 2022 budget, which is based on board approved forecasts and
reflecting current performance, expected revenue growth and membership
retention. The 2024 figures in the base cash flow forecast are taken from the
Group's 3-5 year long range planning. Cost inflation has been considered and
additional costs have been included to account for increased wage inflation.
2. A severe, but plausible downside scenario. The directors have also
prepared a sensitised forecast which considers the impact of certain severe
but plausible downside events, when compared to the base case. This scenario
assumes a return of a covid-19 outbreak modelling the impact of a full
national lock-downs of one month duration as a result of government-imposed
restrictions together with an associated reduction in global online sales.
In this scenario, capital expenditure has been reduced to run-rate
expenditure. This scenario demonstrates that the Group would remain within its
facility limits and in compliance with the relevant covenants.
The Directors are mindful of the potential impacts to macro-economic
conditions and further risk of disruption to supply chains that the conflict
in Ukraine presents, but after assessing the risks do not believe there to be
a material risk to going concern. Based on the above, the directors are
confident that the Group and Company will have sufficient funds to continue to
meet their liabilities as they fall due for at least 12 months from the date
of approval of the financial statements, and therefore the directors believe
it remains appropriate to prepare the financial statements on a going concern
basis.
4) Principal risks and uncertainties
The principal risks and uncertainties affecting the Group are separately
disclosed in the Annual Report & Accounts.
5) Dividends
No dividend was declared or paid during the period (prior period £nil).
6) Revenue
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker; Revenue by geography
and by type.
* Europe represents direct sales markets within continental Europe but
excludes franchise markets in Denmark and Switzerland which are shown within
Rest of World.
7) Loss on ordinary activities before taxation
* Adjusted EBITDA classed as earnings before interest, tax, depreciation,
amortisation and exceptional costs (see note 10).
8) KPIs
1 Contribution is a non-IFRS measure, and is defined by Management as Gross
Profit less Commission paid in on sales (primarily in relation to the US).
2 Expected Years is a non-IFRS measure, and is defined by Manager as one
divided by one minus retention 1/(1-r%).
3 Lifetime Value (LTV) is a non-IFRS measure, and is defined as Annual
Contribution per member, multiplied by expected years.
4 Europe represents direct sales markets within continental Europe, but
excludes franchise markets in Denmark and Switzerland which are shown within
Rest of World.
5 Revenue excludes JG Thomson and cask sales of £0.6m as they aren't
sales related to membership proposition.
9) Other operating income
10) Exceptional items
The 2022 non underlying costs relate to pre-operational expenses in setting up
the Masterton Bond site to be operational by the end of 2022, and the initial
costs of the American Whiskey concept and brand assessment and development as
well as establishment of relevant legal entities. These costs are fully
expensed in the year with no revenue achievement and are therefore separately
shown to make clear the underlying profitable performance of the business.
11) Taxation
12) Earnings per Shares (EPS)
13) Property, plant and equipment
£88k (2021: £96k) of the depreciation charge for casks has been capitalised
as a cost of stock. The remaining balance has been expensed to the Statement
of Comprehensive Income.
Leases are in relation to venues Queen Street in Edinburgh and Bath Street in
Glasgow as well as our new Masterton Bond supply chain facility.
14) Inventories
15) Financial liabilities
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