The owner of The Scotch Malt Whisky Society has hailed a “creditable” performance in challenging markets as it narrowed losses in the first half.

The Artisanal Spirits Company (ACS) declared its growing membership and moves into new territories had helped it offset a downturn in China, where major distillers have seen Scotch whisky exports toil as economic growth has slowed.

Edinburgh-based Artisanal made a loss of £3.1 million before tax for the six months ended June 30, compared with an interim loss of £3.5m last year, and underlined further progress in its drive to profitability.

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An independent valuation carried out in June showed Artisanal's inventory of whisky casks is now worth more than £100m, which has been held up as a key development for its “cash profile”.

The company now only needs to buy stock on a replenishment basis. Investing in whisky stocks was a key part of the growth strategy put in place when Artisanal was floated on the Alternative Investment Market in 2021, and since then has spent £25m to boost its inventory.

The company aims to create value from its casks of whisky in the long-term when the spirit matures and can be sold in bottles to society members around the world.

Speaking to The Herald, chief executive Andrew Dane said the company remains “a few years out from true bottom-line profitability, but the cash position will change now”.

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“Net debt has peaked [at £27m on June 30],” Mr Dane said. “We are now moving from June 30 into a cash generation mode, even with interest costs as they are. And that is a key point around the whisky stock investment profile.

“We have turned £25m into £100m, but now don’t have to fill the warehouse at quite the same rate. We have managed to build that stock holding and now we can move to a replacement model.”

The Scotch Malt Whisky Society has member rooms in Leith, Edinburgh, Glasgow, and London, and offers its 40,300 members worldwide access to more than 18,000 casks of mainly single malt Scotch whisky from 150 distilleries. It operates a direct-to-consumer, primarily e-commerce model to some 30 countries.

Artisanal’s performance in the first half broadly mirrored trends seen across the wider Scotch whisky industry. It reported a 30% fall in revenue in China, despite membership growth, which means the country now accounts for just over 10% of its business, having previously commanded around one-quarter.

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However, the company said it had been able to offset this with growth in the new markets of Taiwan and Korea, alongside growth in cask sales and the acquisition of Single Cask Nation in the US, which completed in January. Single Cask was acquired to help Artisanal expand its own presence across the Atlantic, and to introduce an American whiskey offer to society members. It now has more than 17,000 members in the US, following growth of 17%.

First-half revenue at Artisanal dipped by 1% to £10.1m, with conditions in the UK, US, and Europe described as “stable”.

Mr Dane highlighted Vietnam and Nigeria, included in the IWSR (International Wine and Spirits Record) top 10 markets for ultra-premium Scotch whisky, as potential new territories for the company. “I think we’d be able to act much faster on Vietnam, [as] a shorter-term target,” he said. “Nigeria is a little more out of our wheelhouse [but] there is no reason we can’t get in. It might take slightly longer to get at that market.

“There are plenty of others on that list. If you go further down you have got places like Brazil, India, Argentina which are places we will look at but in the slightly longer term.”

On the outlook for the second half, trading to date has seen the firm consolidate the improved profitability it saw in the first half. Alongside the expected delivery from core markets at similar levels to last year, planned US shipments, and continued cask sales, Artisanal said it remains on track to meet its full-year consensus on underlying earnings.

Analysts at Panmure Gordon trimmed its sales expectations for the full year to growth of 3.1% from 6.5%, but kept its forecast for adjusted underlying profits unchanged at £1m.

The company plans further international expansion in the second half, when it will introduce two new Scotch malt whisky distillery releases. It will also refresh its range with new releases such as the inaugural Creators Collection alongside the Winter Series collection.