10 Questions for Emperador Inc.

Company Overview

Emperador is a leading international spirits player with a deep portfolio of globally recognised, market-leading whiskies and brandies distributed in over 100 countries. The company is the biggest brandy and spirits company in the Philippines. To diversify and internationalise its portfolio, Emperador acquired Whyte and Mackay – the 5th biggest Scotch whisky maker in Scotland – in 2014, and Bodegas Fundador – the biggest and oldest brandy maker in Spain – in 2016. Armed with these heritage-rich brands in its roster, Emperador is now embarking on its next phase of growth.

1. Could you elaborate on the key product offerings and segments produced by Emperador?

• Emperador’s portfolio of whiskies and brandies features more than 300 years of heritage comprising some of the world’s best-selling brandies by volume and some of the most iconic single malt Scotch whiskies.

• Our whisky portfolio comprises some of the most recognised single malts including Dalmore, Jura, and Tamnavulin, which are among the top 20 single malts in the world.

• Our brandy portfolio includes the company’s namesake, Emperador, the world’s top selling brandy by volume. We also have Terry’s and Presidente which are the top brandies in Spain and Mexico respectively. Higher up the brand architecture, we also have Fundador brandy, which is the largest and oldest Brandy de Jerez company.

2. What is the company’s current capacity and are there any plans to expand in the future?

• The greatest input in the production of quality single malts is time. Premium single malts are aged for a minimum of 12 years, and so future planning is important for a single malt company like Whyte and Mackay.

• Our luxury single malt, The Dalmore, has been on allocation since 2018. Supply is currently not enough to cater to demand, and we predict that demand for single malt will continue to grow. Therefore, to accommodate such future demand, we are expanding the Dalmore distillery. The expansion will employ best in class sustainability standards and practices, transitioning the site into a “green energy solution.”

• We have production facilities comprising distilleries, blending and bottling facilities, vineyards, and a glass manufacturing plant located across the Philippines, the United Kingdom, Spain and Mexico.

3. What do you think is your competitive edge in the industry you are operating in?

• We have some of the most iconic, best-selling, and heritage-filled brands in our portfolio. We believe that this level of brand equity is not easily achievable for a new entrant as it takes decades to develop and sustain.

• Among already established players, being an Asian company is our competitive edge. As an Asian company owning Scotch whiskies and Spanish brandies, we can further strengthen our business in Europe, the Americas and other Western markets, and at the same time, successfully bring these products to Asia.

• We believe our Asian identity allows us to understand Asian consumers better and deliver based on Asian preferences as compared to other western spirits giants who brought their brands to China. Our tailored efforts in China and other Asian markets have proven to be successful as we were able to overtake some long-standing brands in just a few years.

4. Are There Any New Customer Segments You Are Targeting?

• We are rolling out our premiumisation strategy globally, with a focus on the US and China markets as these two countries have a large middle-class population, forming sizeable addressable markets for our products.

• China is of particular interest to us as we observed that Chinese young adults, who drink whiskies and brandies during their travels, are becoming more global in their consumption pattern. Brown spirits – particularly whisky – is a rapidly growing segment, providing opportunity for our Whyte and Mackay brands.

• We see great potential for our Fundador brandy in China. The Fundador Sherry Cask Collection is a premiumisation innovation where Fundador brandies are aged in Sherry casks such as Pedro Ximenez, Amontillado, and Oloroso.

5. Describe Your Recent Financial Performance.

• Emperador recorded another exceptional year in 2021 with normalised net profit growing 34% year-on-year (YoY) to PHP10.6 billion, while revenues grew 5.9% YoY to PHP55.9 billion – driven by the brandy (30% net profit growth) and whisky (44% net profit growth) segments.

• Despite headwinds from COVID-19, our stellar 2021 performance was made possible by the strong brand equities of our products as consumers continued to seek out our products.

• Our premiumisation strategy was also a key driver of our performance in 2021. Net profit for both whisky and brandy segments were lifted by improved product mix as more of the premium, higher margin products were sold.

6. How has the Whyte and Mackay acquisition transformed the business?

• Whyte and Mackay allowed us to enter the whisky business, providing diversification from brandy. With Whyte and Mackay’s broad portfolio that includes blended, single malts and luxury single malts, the acquisition gave us a complete whisky portfolio.

• Furthermore, as whisky is consumed globally, the acquisition allowed us to grow our presence to more than 100 countries. Whyte and Mackay also provided access to a new customer base, thereby increasing our reach in the spirits market.

7. How do you see revenue and profit tracking for the year?

• Emperador is looking to record another banner year in 2022. Despite the macro headwinds in 1Q22, with COVID- 19 lockdowns globally due to the Omicron variants, supply chain and logistics disruptions, the Russia-Ukraine conflict, and inflation, we still managed to deliver a good set of results. Hence, we are confident that our performance in 2022 will not disappoint.

8. Could you elaborate on the future direction for the whisky and brandy business?

• We believe that premiumisation is the future of the brandy and whisky markets. As consumers become savvier and seek out better drinking experiences, they now better understand the value of premium liquor and are willing to pay a premium for superior quality.

• In our view, whisky premiumisation has put single malt on center stage. Since our acquisition of Whyte and Mackay, we have been focusing on the single malt business.

• This has led to the outstanding performance of our products where Dalmore, Jura, and Tamnavulin are now among the top 20 single malts in the world, with Jura being the top selling single malt in UK. Tamnavulin and Jura are also the world’s fastest and second fastest growing single malts respectively in the past 2 years. The Dalmore has also enjoyed strong demand, with the product being on worldwide allocation since 2018. Our premium single malt whiskies have seen strong growth in the past few years, and we expect demand to continue to grow.

• Fundador sits in a unique position as a Brandy de Jerez (or Sherry Brandy), which is protected by the Regulatory Council of Jerez Brandy. This makes it one of three regulated brandies in Europe, similar to Cognac and Armagnac. We believe that with more education on Brandy de Jerez, Fundador will lead the premiumisation of brandy.

9. What is Emperador’s value proposition to its shareholders and potential investors?

• We believe that few companies are like Emperador. We dominate the brandy segment in our home market, the Philippines, while also owning some of the world’s most luxurious, iconic, well-renowned and best-selling brands. Aside from being the largest brandy producer in the Philippines, we also own Whyte and Mackay – the fifth biggest Scotch whisky maker in Scotland, and Bodegas Fundador – the biggest and oldest brandy maker in Spain.

• Our track record shows that our management is capable of successful execution. Since the acquisitions of Whyte and Mackay and Fundador, our company has been making profits and continues to grow. With banner years recorded despite the COVID-19 pandemic and global headwinds in the early half of 2022, we believe 2022 will continue to be a strong year for the company.

• The company’s first phase of growth was in the Philippines. The next phase of growth is the rest of the world.

10.Sustainability and ESG have increasingly been a key focus, how is Emperador committed to sustainability?

• Environmental – We monitor our emissions to ensure compliance with regulatory requirements. As water is integral to our production, we manage our consumption using water conservation systems and proper wastewater treatment methods. Emperador’s vineyard in Spain employs the latest viniculture technology to grow grapes sustainably, with sensors and computers that were used to calculate exactly how much water and fertilizer are needed to avoid wastage. Click here to watch a feature (Earth with John Holden) on Emperador’s sustainable and environmentally friendly practices.

• Occupational Health and Safety (OHS) – Emperador ensures the continuity of the business and prevents accidents (zero fatalities in 2021) and subsequent fines through high standards of OHS. This metric is measured through KPIs, the observation of minimal, low-severity incidents, and health and safety audits.

• Customer Safety – The safety and health of customers is top of mind for us in both the development of our products and marketing. Emperador keeps track of the health and safety of its customers through incident reports, feedback, and internal review mechanisms. In 2021, there were zero reported incidents of non-compliance concerning the health and safety impacts of Emperador’s products and services.

• Community Engagement – Emperador’s operations span several countries and regions where its plants and offices impact local communities through local hiring, economic activity, and the physical sharing of resources such as water and land. Emperador puts importance in fostering a harmonious relationship between the company and local communities where it operates.

10 in 10 – 10 Questions in 10 Minutes with SGX-listed companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

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For more company information, visit www.emperadorbrandy.com

Click here for Emperador Inc’s FY2022 1st Quarter Earnings Announcement.