Dingwall Whisky Distillery Trust

Plans and Financing

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Introduction

The cost of building a new whisky distillery

Financing a new whisky distillery is an extremely expensive business and would not have been possible without the considerable personal investment, upfront, by John Mackenzie (with Bank of Scotland holding security) between 2013-2016. He financed everything during this period, including reinvesting all profits, up until building work officially began. Read the joint statement between John and the distillery from 2021 on this subject (also, link on GlenWyvis site).

Thereafter, the money raised by GlenWyvis members (initially through two hugely successful Crowdfunding campaigns (Campaign #1 and Campaign #2) and currently, a third campaign, helped to reduce the financial burden.

Below you'll find useful information and documents about the planning and financing of GlenWyvis Distillery.

Feasibility Study

The viability of creating a new distillery

This is a report prepared for John Mckenzie by Stuart Nickerson on 8 Nov 2014 to assess the feasibility and viability of creating a new Single Malt Scotch Whisky Distillery On Scroggie Farm, Dingwall.

The report assesses the viability of building a distillery and visitor centre and the feasibility of creating a successful and sustainable business. It includes a financial summary of the costs to construct a new distillery and provides a 10 year financial projection for the business.

Table of Contents

Executive Summary

The whisky industry is growing globally with Scotch whisky continuing its position as the pre-eminent, largest seller and most aspirational of all whiskies. Within the Scotch category single malt Scotch whiskies are the most sought after and highly prized and it is no surprise therefore that as more countries around the globe aspire to western lifestyles that single malt Scotch whisky sales continue to grow.

There is a demand for new whiskies and a demand for whiskies that have a link with the past, whether that is through a link with an old brand name or a link with a well-known disused distillery or distilling area.

A new distillery at Dingwall would fit this criteria as the area has a long tradition of distilling and has always been considered as producing excellent quality whisky. In addition there are well known distilleries reasonably close-by, Dalmore and Glenmorangie, which have helped to confirm the area as one which produces top quality whisky.

It is planned to produce the whisky from green energy with the main boiler being a biomass boiler and all other energy requirements coming from the existing on-site energy generating units; micro-hydro, solar panels and wind turbine.

The distillery proposer and driver of the project, John Mckenzie, is a pilot who can count many celebrity and high net worth individuals among his clients and so is ideally placed to be able to make contact with potential customers of the new whisky. He would also be able to create a unique form of visitor tours utilising his skills as a helicopter and aircraft pilot.

The difficulty with any new start distillery is financing the building of the distillery and the wait until it can legally be sold as whisky, 3 years, and the even longer wait until the consumer perceives that it has reached an acceptable age to be a good single malt, which means minimum 8 years but more likely 10 years.

There are a number of plans to reduce the impact of the continual outlay in building maturing stock and these include installing a gin still and making gin, which requires no maturation period. There is also a small market in bottled new make whisky spirit and bottled spirit which has matured for less than three years, and a range of products will be developed for this category as well as creating a new spirit liqueur. A small number of casks will be sold to private investors, which will remain maturing on site.

The financial projections indicate that this could be a successful venture with profits possible in year 1 of the project and throughout its lifetime. However there will be a continuing need for investment until 2022 and the distillery not breaking even until 2026. This though is typical of all malt whisky distillery operations and once the product is 10 years old the businesses tend to become good cash generators.

Overview

The Malt Whisky Company was commissioned by John Mckenzie to undertake a feasibility and viability investigation into creating a new single malt distillery near to the town of Dingwall.

The Dingwall area has a long association with distilling, dating back to the 1600’s when the name Ferintosh was regarded with reverence throughout the whisky drinking community and in 1785 when the area lost its special privilege to distil free from duty, with Burns being moved to write a poem titled Scotch Drink about the demise of the special status.

Real Ferintosh Disteillery Whisky Pure Highland Malt

More recently there have been two distilleries operating either within or close to the town, Ben Wyvis, and Glen Skiach however neither of these distilleries operate any longer and the distillery buildings have either been converted for other use or demolished.

In recent years there has been a trend of whisky enthusiasts searching for whisky which was produced from closed / demolished distilleries such as Banff and Port Ellen while closed distilleries have been re-opened; Glenglassaugh and Glen Keith to name two. While in terms of branding companies have created whiskies that supposedly mimic an original product, Shackleton and Stronnachie are two examples. These examples demonstrate the opportunity that exists for Glenwyvis with its geographical background and John’s strong family links.

The trade-mark for Ben Wyvis is owned by Whyte and Mackay and although they have been approached with regard to selling the name, it is unlikely that there will be a decision on this any time soon, particularly since the company has just been sold and the new owners will be assessing their purchase. The trade mark for Glen Skiach is owned by a company who are building brands using the trade-marks of closed distilleries and so have been reluctant to sell this one.

However John has now registered Glen Wyvis as a trade mark which is a perfect combination of two well-known names in the industry as well as being the geographical area where the distillery is sited.

As both of the old distilleries and the location have connections with his family these links can be built upon to create a unique selling point for the whisky.

The agreed scope of the project was:

  1. An assessment of the whisky market and the feasibility of creating a new entrant to this market
  2. The practicalities of setting up a whisky distillery to a sufficient enough scale to make the project commercially viable
  3. The economic impact of a project of this nature with specific reference to the job creation prospects, the attraction of visitors and the generation of overseas exports
  4. A full chemical analysis and assessment of the suitability of the water supply at Scroggie Farm for whisky manufacture
  5. Open and progress discussions on the possibility of purchasing the trademark "Ben Wyvis" from the owner, Whyte & Mackay Limited

During the course of the investigation there have been some changes to the criteria framework with the addition of certain constraints:

  1. For financial reasons John will act in a non-participative role in the business but will still aim to provide support and guidance to the business
  2. There is a desire to have the distillery operating without any fossil fuels and so the energy requirements require to be met by renewable energy
  3. It is unlikely, at least in the early stages, that there will be facilities for the general public to visit the distillery and so potential income from this side is greatly reduced
  4. The trade-marks of Ben Wyvis and Glen Skiach were already registered to other companies and although approaches were made to both of these companies it became apparent that it would be unlikely that either would be available to purchase in the near future, if at all. John therefore registered the name of Glen Wyvis which was thought to be a suitable name for the new distillery and new whisky

Capital Expenditure

The scope of the capital expenditure is solely focused on producing and storing whisky and does not include buildings, roads, landscaping or any costs associated with co-product treatment or effluent disposal.

The scope can be represented by this schematic of the logistics:

diagram showing the input/output of the distillery

It is envisaged that due to the small scale of the distillery, malted barley would be purchased in 25 kg bags from Inverness Malting and manually fed into the malt hopper. The process water would be sourced from a new bore-hole which has been created on the farm and the cooling water from the confluence of the Tulloch Spring and the Docharty Burn.

The final spirit is likely to be filled into cask at the distillery and either warehoused there or elsewhere in the vicinity of Dingwall.

It is planned to use the by-products produced either at Scroggie Farm or elsewhere in the local vicinity with the draff being utilised as cattle food and the pot ale spread to land while the spent lees and washing waters will be discharged to sewer.

The capital cost of the equipment from malt intake through to cask filling is circa £2,181,000, which includes a woodchip boiler as the main source of providing energy in the form of steam, and the renewable heat incentive (RHI) calculator is included as an appendix. The wood chip boiler is capable of providing the energy required to operate a distillery, however as these boilers are not capable of quickly moving from low demand to high demand, which is required in the distillery, the system will include a steam accumulator.

Additional expenditure will be required for warehouse racking and cask lifting equipment for the warehouse. The cost and type of cask lifting equipment will be dependent upon the type of warehouse which is finally agreed. An estimate of £80,000 has been included for the cask racking which should be sufficient for around 4 years cask storage.

Two additional fermenters are required, one at the start of 2019 and the other at the start of 2023, which will allow increase in production from these years.

It is not necessary to mature gin which, after being produced, can be bottled and sold immediately. There is a growing demand for new gin in a similar way to the growth in demand for new whiskies and although it was not part of the original remit, it is now planned to install a gin still as the first part of the project, which will assist with cash flow.

Gin is produced by rectifying (re-distilling) neutral alcohol which has been produced elsewhere with botanicals and then reduced in strength for bottling. The capital requirements for this operation are relatively small and £41,000 has been allowed for the equipment including necessary instruments.

Location

The location chosen is at Scroggie Farm, which lies just outside, to the North of Dingwall.

map showing the location of the distillery

The key factors when choosing a distillery location are, (1) access to good water supply (quantity and quality), (2) access to utilities (electricity and fuel for steam boiler), (3) ability to sell, disperse or otherwise process the co-products and waste material, (4) access for vehicles , (5) space for the required buildings.

With regard to the first element, Scroggie Farm is ideally located with a good water supply from the confluence of the Tulloch Spring and Docharty Burn. The volume of this water would be sufficient to provide both the cooling and process demands of the distillery however there is also a new borehole being drilled which could also provide the process water.

The water from both sources is moderately hard and is likely to have the potential to make excellent Single Malt Scotch Whisky, assuming that the rest of the process is designed and operated correctly.

There is access for renewable energy as Scroggie Farm already benefits from generating its own electricity through micro-hydro, solar and wind power schemes. This generated electricity will be capable of supplying the electricity load required for the motors, lighting and any space heating.

However it is not capable of generating the requirements of a steam boiler which would require 780kW and so the current options would be to either purchase this electricity from nearby green producers such as Dingwall Wind Co-op or to install a biomass boiler capable of generating the required amount of steam at the required pressure.

It is envisaged that all of the draff and pot ale will be fed to the existing cattle herd thus reducing the need to buy or bring in cattle feed as is currently the case.

Initial discussions which have taken place between John and SEPA have gone very well, with their offices overlooking the site and they are supportive of the project.

The distillery location is close to the town of Dingwall and relatively close to Inverness where the nearest malt supplier is located. It is therefore not envisaged that there will be any problems in supplying raw materials and other supplies or removing final products and co-products.

The distillery is planned to be a small boutique distillery and there is sufficient room for a distillery, excluding warehouse, which requires a foot print of less than 400 m2, although it may be laid out to be larger than this. It is not essential to have all or indeed any of the maturation warehouses on site although there is sufficient room for at least one small warehouse.

The distillery building can be similar to any agricultural shed and will fit well within the existing farm business as a diversification project.

People

The distillery will initially produce 4 batches per week which will all be produced during a normal 8 hour shift on Monday, Tuesday, Thursday and Friday with only one person required per shift. In addition to the plant operations there will be less frequent work including cask filling, equipment cleaning, intake of raw materials and admin duties. It is planned that both persons employed will be trained in all areas and therefore fully capable of performing all tasks.

Distilleries operate on a 24 hour cycle seven days per week as fermentation is a process that is continually taking place, although it does not require constant attention. However as there will always be an operation taking place it means that there is some flexibility as to what time of day the activities that require operator control, mashing and distillation, occur. If there are business needs then these operations could occur on a day shift, back-shift or night shift.

Two production people have been allowed for, each with a salary of £25,000 and these costs are included in the cost of goods sold / production costs. It is anticipated that one of these persons will be recruited in 2015 on a part-time basis to operate the gin still.

There will also be a requirement for a manager who in addition to being fully responsible for all on-site activities and complying with all HMRC,SEPA and other regulatory bodies requirements, will act as a brand ambassador and company representative at sales events, as appropriate.

Wage inflation has been set at 3% per annum.

A pension allowance of 5% of gross salary has been included.

Market and Competition

Scotch Whisky continues to sustain its dominant position in the global spirits industry and is the sought after drink of choice for discerning drinkers in mature and emerging markets.

In 2013 there was another slight rise in volume of whisky sold, rising by slightly over 2% to over 1,316 million bottles per annum or just over 150,000 bottles per hour. In terms of single malt the global annual figure is over 105 million bottles per annum equating to over 12,000 bottles of single malt Scotch Whisky sold per hour.

This continuing growth is seeing unprecedented investment by the major industry players in new production facilities and/or increased capacity at existing distilleries with Diageo, Pernod Ricard, Wm Grants, Edrington all investing in new distilleries or increased capacity.

There is also a growing trend of new small distilleries being established by new entrants to the industry and while this trend will increase competition it will also mean that to remain successful all of the new entrants will need to find their own unique selling point and target market.

A recently published forecast from the International Wine and Spirits Research, stated The global market for single malt Scotch hit a new high in 2012 – selling some 7.8m cases (domestic and travel retail combined). The market has gained by some 46.7%, or 2.48m cases, over the last 10 years (2003-2012).

Europe remains the largest consuming region at just under 3m cases, although it is the only major region to experience a decline in volume over the last five or 10 years. North America enjoyed a very healthy 6.3% compound annual growth rate (CAGR) over the last 10 years. Asia has witnessed the fastest growth over the last decade, posting a very dynamic 20.2% CAGR to 1.5m cases. Most of that growth took place in Taiwan, although most countries in the region are experiencing healthy growth.

The craftsmanship, authenticity and luxury cues associated with single malt Scotch are very much in keeping with the zeitgeist of the age. The recent financial crisis led many consumers to seek out more authentic products with both provenance and heritage rather than bling products.

Malt also ties in with the premiumisation trend that is so evident today across many markets. Many consumers in Western markets view single malt as the top of the whisk(e)y pyramid and thus is highly aspirational, even in markets such as the US where blended Scotch (perhaps until recently) has struggled.

Production and Sales

The company intends to purchase a small gin still and ideally locate this in an existing building on site, or perhaps a temporary building, given the size of the still which is maximum 2.5 metres tall (including support legs) and around 0.5 metres diameter and is electrically heated.

As gin requires no maturation period, it can be bottled and made available for sale as soon as possible after being produced which makes it an ideal product to generate cash and start building the brand name.

It is envisaged that sales of 3300 bottles can be achieved in year 1 with a steady growth of 10% per annum thereafter.

Once the whisky distillery becomes operational in 2016 the company is planning to sell new make spirit in the early period of production to the three year point when the spirit can be deemed whisky; hence sales in the first three years are relatively modest. There is a small market amongst whisky connoisseurs for new make spirit and spirit which has aged for less than 3 years and it is planned that a range of young products (termed Spirit Drinks) would be developed by the distillery.

During this period and subsequent the Company also intends to sell a liqueur (commencing with annual sales of 800 bottles, rising by 5% per annum).

Once the Company has a mature product (2019), it will be released as an un-aged single malt Scotch whisky, and is projected to sell at 5,000 bottles per annum of both un-peated and peated versions. Projections anticipate sales increasing by 30% in each of the next five years (through to 2024) as the product is introduced to new markets with the number of markets increasing each year. In addition the company will introduce different styles of each of the two main variants.

At eight year old the product will reach an age of maturity where the age can be put on the label and it is anticipated that sales of 40,000 bottles of each of the two variant streams is achievable and again at 10 years old it is anticipated that sales of 6,000 cases or 72,000 bottles of each of the variants is achievable.

The Company also expects to sell casks to private consumers and this income stream is shown separately in the projections. There is a great interest in private cask ownership and with all of the established distillery companies now stopping direct cask sales to customers, there are opportunities for the new small distilleries to build sales in this area.

Financials

The profit and loss statement shows that it would be possible to make a profit in the first full year of trading.

This small profit is achieved by producing and selling gin.

During 2016 the whisky distillery will come on stream and new make spirit will start to be sold, as described above and casks filled for personal consumers too. This will help to generate income and to provide an operating profit.

Although profit is being made throughout the projection period from 2015 until 2027, there is still a need for investment throughout from 2015 until 2022 and the business does not produce a cumulative positive cash flow until 2026.

The business requires a total spend of £2.474M in 2015 for equipment purchase and other outlays and from 2016 onwards requires investment to fund the purchase of raw materials and casks to fund the maturing whisky stock build programme.

The total investment required peaks at £2.630M in 2020.

There are a number of issues that will significantly impact on these figures can which can alter them either positively or negatively.

  • It is assumed that RHI payments will continue at the forecast rate but if this changes then it will have an impact on the cash-flow of the business. For simplicity the RHI payments are only included in the cash flow sheet and not elsewhere in the financial figures
  • The Sales volume are based on trends of other new start distilleries, however the allowance for marketing is not particularly large and so other innovative ways may be required to ensure that the business achieves these sales volumes. On the other hand the sales volumes could be exceeded dependent upon consumer acceptance of the product
  • There is no allowance for a visitor centre and although there are no plans to include one at this time, it should be considered as these can be good income generators and also help to build the brand among consumers
  • There is no allowance for financing costs within the business plan, including loan financing or bank charges
  • The business plan does not include for any buildings or infrastructure requirements as both are outwith the boundaries previously outlined

Regulatory Framework, Trademarks, Approvals

There are a number of regulatory bodies that will need to be involved in the planning process and a number of approvals to be sought. In terms of production these can be summarised as follows but these may not be exhaustive:

SEPA

  • Controlled Activity Regulations - under these regulations most abstractions from and discharges to water courses require a licence
  • Requirement to obtain exemption from paragraph 7 of the Waste Management Regulations allowing spreading of pot ale to land

HMRC

  • Rectifiers Licence
  • Approval of gin plant entry
  • Trade Facility Warehouse Approval
  • Distillers Licence
  • Approval of whisky distillery entry
  • Maturation warehouse approval
  • Warehouse-keeper authorisation
  • Owner of goods in warehouse approval
  • Registration with Excise Movement and Control System (EMCS)
  • Requirement to satisfy the Scotch Whisky Verification Scheme
  • Approval of Financial Security for Premises Guarantee and Movement Guarantee
  • Registration for VAT

Health & Safety

  • Legal requirement to have a safety policy
  • Legal requirement to have a fire risk assessment

Contact Us

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Enquiry Details

Address

Dingwall Whisky Distillery Trust
c/o GlenWyvis Farmhouse
Upper Dochcarty
Dingwall
Ross-Shire
IV15 9UF

Dingwall Whisky Distillery Trust