Investment Case
Unique, award-winning products
SMWS is focused on providing premium single cask spirits. With an average whisky cask yielding around 250 bottles each time, each release is by its very nature a limited edition with exclusive characteristics.
The Group’s objective is to bring together spirits from some of the world’s best spirits producers, add value by managing the maturation process and provide exclusive access to a vast and unique range of outstanding single cask Scotch malt whisky and other spirits to The Scotch Malt Whisky Society’s global membership.
In the last three years, SMWS’ Scotch malt whisky and other spirits have been recognised with a total of almost 200 awards from seven of the leading industry bodies including the ‘Best in Show’ win at the Luxury Masters, the Scotch Whisky Masters, top awards in the International Wine and Spirits Competition, the International Spirits Challenge, the Ultimate Spirits Challenge and the San Francisco World Spirits Competition.
Proven track record of growth
The Company has a track record of consistent growth. Between FY16 and FY19, revenues almost doubled from £7.6 million to £14.6 million, representing a CAGR of 24%. In FY20 revenue growth excluding sales from UK venues and events, which were significantly impacted by the Covid-19 pandemic, was 22%.
Loyal and growing membership base
At the heart of SMWS’ unique market positioning is its subscription-based membership model. A key driver of the Group’s financial performance has been The Scotch Malt Whisky Society’s expanding global membership, which has grown at a CAGR of 7%. since December 2016. There are now approximately 28,000 members of The Scotch Malt Whisky Society across the globe.
At December 2020, average UK member retention was at 75%. in relation to all members and at 85% for those members renewing after more than one year of membership. Since 2002, the average membership tenure for UK and European members is nine years. Membership loyalty not only provides a strong platform from which to recruit new members and develop brand awareness, but also generates a predictable recurring revenue stream in the form of annual membership fees.
Creating value and high margins
In contrast to conventional spirits retailers and resellers, the Group engages in both spirit and cask selection and in active management of the maturation process, which accounts for a significant proportion of the flavour profile of the finished product, in the same manner as a distillery.
However, the Group is not a primary producer of spirits and so is able to create award-winning products without the burden of the additional capital investment required to operate a distillery. This value-added proposition combined with an e-commerce led business (over 86% of sales online and over 95% of sales made through D2C channels in 2020) generates high margins. During FY20, the average selling price for a 70cl bottle (excluding VAT) was £76 which generated approximately £49 of gross profit per bottle (excluding US tariff costs).
The Directors believe that there are a number of opportunities to further improve the margin profile of the business, such as purchasing younger stock, sherry cask finishing and in-sourcing some elements of the Group’s supply chain.
Strong e-commerce metrics
SMWS’ D2C subscription membership model and heavy concentration of online sales affords the opportunity to provide a rich suite of customer and financial data which is used to inform both sales and marketing activity, membership recruitment and strategic business development planning. The Scotch Malt Whisky Society exhibits strong membership metrics. Key metrics for the financial year ended 31 December 2020 were as follows:
Average annual
revenue per member
Global member
retention rate
Average lifetime
value (‘LTV’)
Average member
acquisition cost (‘CPA’)*
Average LTV/CPA
ratio
*CPA has been estimated using a dataset of around 4,500 new UK members recruited during 2019 and 2020 which the Directors consider to be a good proxy for CPA across the global membership.
International footprint
The Group has successfully developed The Scotch Malt Whisky Society brand internationally and it currently has approximately 28,000 members spread across 30 countries. International members (being those resident outside of the UK) comprised 51.6% of the total December 2020 membership base, yet represented 68.5% of the Group’s total FY20 sales and therefore represent the most profitable demographic.
Importantly, SMWS has a presence across a number of key international whisky markets including the US, China and Japan as well as a number of major European markets such as France, Germany and Sweden.
Quality assurance
Both the selection of cask spirit from distilleries and the maturation process are carried out under the supervision of the Group’s Spirits Director with a view to ensuring that the final outturn represents the finest quality spirits and flavour profiles.
Vast stock holding
As at 31 December 2020, the Group had over 14,000 casks (equivalent to approximately 4.3 million standard 70cl bottles) of whisky in its reserves. To put this into context, this is approximately 26 times the volume sold during FY20.
This extensive stock base not only provides mitigation against any potential shortages of supply but, when coupled with SMWS’ approach of producing limited edition spirits, represents the potential for over 14,000 new product lines. This provides the Group with greater flexibility as it is not constrained by requirements to reproduce a particular age or flavour profile of spirit.
As at 31 December 2020, the Group’s spirit stock had a book value of £18.7 million (principally reflecting the initial purchase cost of the spirit but also including related costs such as storage). Management estimate, based on the FY20 average SMWS selling price (excluding VAT) per bottle of £76 and the 4.3 million standard bottle equivalent held in stock, that the implied retail value of the Group’s current spirit stock is approximately £330 million.
The Group maintains a complex spirit stock purchase model designed to balance stock purchases with projected demand from The Scotch Malt Whisky Society’s global membership over the long term. The model demonstrates that the Group already holds in stock a mix of spirits of the right age and flavour profiles to fulfil 95 per cent. of all future bottlings implicit within an illustrative growth scenario which builds to £40 million of revenue in 2026 (with headroom to continue to grow thereafter).
