Ann: FY22 Results Presentation, page-23

Getting depressing now.

Throwing the baby out with the bath water?

Taking a very pessimistic view now and throwing out all prior analysis to form a base case model to support putting my holding I have in the bottom drawer...

Key assumptions in new base case:

1. new distillery isn't built
2. New focus by MGMT to drive volume -
3. NSR falls to $186 per litre (from $269 in Fy2022) to dive volume - And the NEW NSR is based on the wholesale business only, as export and wholesale gets larger, the proportion of DTC sales (Cellar Door and Online Lark Website) falls.
4. GP$ and GP% margin falls accordingly from circa $183 (68%) per litre to $111 (57%) per litre
5. Note - a $186 NSR would be roughly achieved from sales mix of 85% blended / Classic Cask and 15% rare and premium release with the rare release pricing maintained, and the below reduction in RRP to the base product offering..
6. 25% YOY growth as a result of the pricing reset. This would be a shocking result IMO but this a base case scenario..

RRP of Base line as follows (this is RRP per the Lark Online store)

Symphony from $150 reduced to $108 (-39%)
Classic from $200 reduced to $140 (-41%)
Classic Cask Strength and other Base ranges from $250 down to $175 (-42.5%)

This approach - to drive volume by resetting price - would essentially be driven by cutting the Symphony and Classic Cask sales prices by circa 40% and will drive very strong sales as long as the investment and allure of the premium ranges retains the brand status (I have no doubt it will and will open up Lark to a much broader audience in their base range, and on occasion, they will upsell into the premium range), and kick off exports. This would make Lark far more competitive locally too.

An interesting element to support this is that some early broker research was premised on there being another blend launched (at $99 per bottle noting this is based on 2020 pricing) and a product developed specifically for China (AX8 it was dubbed at the time)... This is all 2020 talk for the Export launch in 2023/2024 (export is now ahead of schedule but where are these products???).

That being said, cutting my already long story short, Sales in 2022 was 67.7k litres of whisky at $269 NSR.

If this is done inline with export ramp up I see no reason we cant see net sales increase from $18m to $23m. this requires 121k litres of sales (circa 80% growth in litres sold).

If i then apply a longer term 25% yoy growth in litres sold thereon, I calculate 2030 net sales of $110m (this is based on todays $ and pricing) on 484k litres (still less than the current production capacity of circa 576k litres per annum)... Whisky bank would be circa 3.9m litres in 2030.

Noting TWE ebitda margin is something like 25%,

so that would put Lark at circa $27.5m EBITDA in 2030 (25% of $110m in sales)..

Noting historical EBITDA multiples on spirits transaction of 20 - 40 times... Looking at a target takeover range of $550m to $1.1b) in 7 years...

the current market cap ($170m) is implying a 2030 MKT takeover valuation of closer to $400m (NPV 10%).

Welcome any comments, cheers, happy Friday!