Artisanal Spirits Company ups stakes in China, Japan operations

The Artisanal Spirits Company, which owns the Scotch Malt Whisky Society membership service, announced on Friday that it has agreed to increase its equity interests in its subsidiary undertakings the Scotch Malt Whisky Society Japan and the Scotch Malt Whisky Society China, incorporated in Hong Kong.

It said it had agreed to acquire 10% of the equity in SMWS China beneficially held by Christina Leung, for cash consideration expected to be around £0.4m, funded by its existing cash resources.

The AIM-traded firm said following that, SMWS and Christina Leung would hold 75% and 25% of the equity in SMWS China, respectively.

Having led the business since its launch into the new market in late 2017, the company said it had also agreed a new three-year contract to retain Christina Leung as managing director.

The final consideration for the equity interest would be equivalent to 2.5x the operating profits of SMWS China for the year ending 31 December, in accordance with the terms of the call option within the original joint venture agreement entered into in 2017.

Artisanal Spirits said payment was expected in the first quarter of 2022, once the audited results for SMWS China became available.

In the year ended 31 December 2020, SMWS China recorded an unaudited consolidated operating profit of £1.2m, and had consolidated net assets of £1.3m.

The company said it would also amend the China joint venture agreement, so that the put and call options available to the parties would now be calculated on a revised formula, based on a combination of a lower multiple of 1.3x operating profit for the relevant period, plus a fixed fee.

Artisanal Spirits said it expected that the revision would be to the company's advantage in financial terms under realistic growth scenarios.

Additionally, SMWS agreed to acquire the entire 30% equity interest in SMWS Japan currently held by Mark Bedingham, for cash of £25,000.

Mark Bedingham would retain his position as director of SMWS Japan, which the firm said reflected his “depth of knowledge and experience” in the market.

Following the acquisition, the company said it intended to sell 205 of its interest in SMWS Japan to Pei Hong Ong - the newly-appointed local managing director of SMWS Japan - for cash of JPY 4.35m (£20,000).

Following those changes, SMWS and Pei Hong Ong would hold 80% and 20% of the equity in SMWS Japan, respectively.

The Japan joint venture agreement contained a similar put and call option mechanism based on the same operating profit multiple as the China agreement, in addition to a fixed fee.

“With Asia being one of the fastest growing whisky markets in the world, our China and Japan operations will continue to form an integral part of the ASC growth story for years to come,” said Artisanal Spirits Company managing director David Ridley.

“With an established presence in each, we believe that now is the time to take these steps to increase our share of the value created and help support the future growth in both China and Japan.

“We have a wide range of exciting plans in place to enhance the experience of our members in Asia and, supported by these improved terms, we are excited about what the future holds for the Scotch Malt Whisky Society in the region.”

At 1200 GMT, shares in the Artisanal Spirits Company were up 6.25% at 102p.