Last year was a record-breaking one for the Scotch whisky industry. It was recently announced by the Scotch Whisky Association that exports grew to £6.2 billion for the first time in history.

Despite a remarkable year and whisky remaining as one of Scotland’s top exports, it has been reported that two-thirds of more than 130 whisky producers in Scotland have expressed fears of rising operational costs. Like many other industries, Scotch whisky is facing challenges with increasing production and storage costs as a result of rising inflation and energy prices.

This poses a risk to many operating in the sector trying to grow and innovate, with scarce warehouse storage also having an impact on current assets. On top of this, decisions must be made with the final product age in mind. Distilleries are having to make scrupulous decisions to ensure the industry remains buoyant.

From the day whisky is casked, distilleries take careful consideration into the ageing process, balancing the need to consider demand well into the future, while making investment judgments today. It was decisions that were made in 2013 that impact the availability or not of 10-year-old products hitting supermarket shelves this year.

The fate of Scotland’s whisky industry is being written now. In order to mitigate any risk to the supply chain, careful financial planning must be taken into consideration.

To accelerate growth, distilleries must be equipped with sustainable solutions that limit risk to current assets. Asset-based lending (ABL) takes a holistic view of a business’s assets to optimise its working capital and enjoy flexible financing potential.

ABL provides businesses with structured cash flow lending to drive their business growth, providing an alternative to bank loans and overdrafts. By using ABL as part of a finance strategy, distillers and producers can achieve greater liquidity to de-risk current asset investment, shifting the power back to the business to pursue new growth opportunities.

Kilchoman Distillery began working with Barclays Corporate Banking in December 2021. The distillery, which is based on Islay, identified a need for further investment in its supply chain in order to maintain the number of products casked and eventually bottled for market.

Through careful consideration of the supply chain process, along with current assets, Barclays implemented an ABL strategy with Kilchoman Distillery. ABL has given the whisky producer flexibility in decision-making, and complete control to make strategic choices within its supply chain.

The funding has lowered the risk to current assets and enabled the whisky producer to invest in the likes of storage warehouses, as well as day-to-day working capital investments.

The ABL strategy has ultimately given power back to the Islay whisky producer to ensure the product meets the demand of growing exports for years to come.

As Scotland’s whisky industry navigates its way through uncertain territory, producers must be supplied with the appropriate banking solutions to accelerate growth plans and minimise disruption to distribution channels. If our clients can take these appropriate steps on board, the only liquid lost will be to the angel’s share.

Douglas Brown is Relationship Director at Barclays Corporate Banking

 

For more information on Barclays asset-based lending, see www.barclayscorporate.com/solutions/corporate-banking-solutions/financing/asset-based-lending/