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China poses challenge for Scotch, Artisanal Spirits Company says

22 July 2024 By Eloise Feilden

Trading in China continues to be challenging for Scotch, according to a half year trading update from the Artisanal Spirits Company, owner of the Scotch Malt Whisky Society.

The Edinburgh-based group, which operates in some 30 countries worldwide, cited China as a particularly challenging market in a trading update for the six months ended 30 June 2024.

China, the country with world’s second-largest economy, has struggled to regain momentum since the COVID-19 pandemic. Economic growth fell to 4.7% in the last quarter, but remained at the government’s target rate of about 5% for the first half of the year.

In a move announced today, China’s central bank has cut key interest rates in a surprise move aimed at injecting new life into its ailing property sector.

As a result of a challenging economic backdrop, Scotch whisky is also likely to suffer.

The latest figures from the Scotch Whisky Association (SWA) reveal that Asia-Pacific was Scotch whisky’s largest regional market by value in 2023, as in the previous year.

Figures from the organisation released in February even show record value exports in China, a market up 165% on 2019. However, SWA figures relate only to exports and not to depletions, a representative of the Artisanal Spirits Company told db when asked to comment on the discrepancy.

Value exports also saw a 19% uplift in Singapore in 2023, SWA reported, and an 8% improvement in Taiwan. The Scotch Malt Whisky Society owner has invested in the Taiwanese market, opening a subsidiary in August 2023.

The Artisanal Spirits Company said in its trading statement that the decision to focus on Taiwan, as well as other developments of the business with the acquisition of Single Cask Nation (SCN) in January and development of its members’ cask sales programme, have enabled the group to “mitigate the Group’s exposure to any given market, such as China where trading continues to be challenging”.

The statement continued: “With a larger, more diversified business, China is increasingly proportionately smaller for the Group.”

Despite trouble in China, the group confirmed that the positive profit improvement momentum which characterised H2-23 has continued through H1 FY24, with a c£1m year on year increase in EBITDA vs H1 FY23.

Andrew Dane, CEO of Artisanal Spirits Company, commented: “While trading conditions remain challenging in a few markets, we are pleased with the ongoing improvement in year-on-year profitability in H1 and remain focussed on delivering the full year consensus EBITDA expectations of £1m and ensuring sustainable profitability over time. ASC’s proven strategy of investing in whisky stock has built an impressive inventory which will satisfy our requirements well into the next decade, as well as delivering a significant uplift in value creation, and whilst we have an independent expert valuation estimate of just over £100m today for the casks, the business is focussed on generating maximum value creation through maturing and bottling these premium whiskies which ultimately delivers a multiple on the cask value, with estimated future retail value in bottles of almost £0.5 billion.”

“Furthermore, with our cask levels now reaching an optimal level, we have reached a turning point in the cash investment requirement in the business. Historic levels of investment in whisky stocks are no longer required as we transition to purchasing on a replacement basis to satisfy future growth demands, representing a very positive inflection point for the cash profile of the Group.”

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