Preliminary Results 2017

07/03/2018

Download the full Preliminary Results statement (PDF 1.19MB)

Stock Spirits Group PLC

Preliminary results for the year ended 31 December 2017

A year of stabilisation and turnaround

7 March 2018: Stock Spirits Group PLC (“Stock Spirits” or the “Company”), a leading owner and producer of premium branded spirits and liqueurs that are principally sold in Central and Eastern Europe, announces its results for the year ended 31 December 2017.

Financial highlights

• Revenue up +5.2% to €274.6 million (2016: €261.0 million), and +3.0% on a constant currency basis
• Adjusted EBITDA¹ +9.7% to €56.3 million (2016: €51.4 million)
• Profit for the year €11.3 million (2016: €28.4 million), following exceptional charges relating to Italian business impairment of €14.9m and Polish deferred tax of €4.7m
• Basic EPS €0.06 per share (2016: €0.14 per share)
• Adjusted basic EPS +14.3% to €0.16 per share (2016: €0.14 per share)
• Closing net debt of €53.1 million (2016: €59.7 million), with leverage less than 1x
• Proposed final dividend of 5.72 €cents per share² (2016: 5.45 €cents per share), giving a total dividend in respect of 2017 of 8.10 €cents per share (2016: 7.72 €cents per share, excluding the special dividend)

¹ Stock Spirits Group uses alternative performance measures as key financial indicators to assess underlying performance of the Group. Details of the basis of calculation for Adjusted EBITDA, Adjusted EBITDA margin and Adjusted free cash flow conversion can be found in note 5. Adjusted EPS can be found in note 9

² Subject to shareholder approval at the AGM on 22 May, the final dividend will be paid on 25 May based on the record date of 4 May 2018

Operational highlights

• Total sales volume increase of 6.5% to 13.1 million 9 litre cases (2016: 12.3 million)
• Poland performance stabilised, although market remains highly competitive
• 25% Irish whiskey investment in Quintessential Brands completed in July
• New distribution agreements signed with Beam-Suntory (Czech and Slovakia) and  Beluga Group (Croatia and Bosnia)
• New product launches included Black Fox premium herbal bitters brand in Czech, and flavour developments for the Saska range in Poland
• Appointment of new CFO, Paul Bal, in November 2017

Commenting on the results, Mirek Stachowicz, Chief Executive Officer, said:

“2016 has been a year of significant change for Stock Spirits, and we have emerged from it in a much stronger position than we were in this time last year. Trading has remained challenging in our core Polish market, where there have been several significant changes in the competitive landscape. Against that backdrop, we are pleased to have made tangible progress across a range of strategic initiatives that are aimed at improving the long-term performance of the Group. Furthermore, we are now starting to see signs of stabilisation in our Polish business, as reflected by the market share gains that we achieved in both value and volume terms during the second half of 2016 versus the first half.

We have a strong portfolio of award-winning brands, an exceptional distribution network, well-invested production facilities, and an outstanding and committed team at all levels of the organisation. These factors, as well as our ongoing restructuring activities and cost control measures, leave us well positioned to achieve sustainable long-term growth and as a result we look to the future with confidence.”

Analyst presentation

Management will be hosting a presentation for analysts at 9.00am today at Numis Securities, London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. If you would like to attend, please contact Powerscourt on the details below.

A webcast of the presentation will also be available via www.stockspirits.com and a recording made available shortly afterwards.

For further information:

Stock Spirits Group:                             +44 (0) 1628 648 500

Paul Bal

Powerscourt:                                         +44 (0) 207 250 1446

Rob Greening                                          stockspirits@powerscourt-group.com
Lisa Kavanagh
Sofie Brewis

A copy of this preliminary results announcement ("announcement") has been posted on www.stockspirits.com.

Investors can also address any query to investorqueries@stockspirits.com.

About Stock Spirits Group

Stock Spirits is one of Central and Eastern Europe’s leading branded spirits and liqueurs businesses, and offers a portfolio of products that are rooted in local and regional heritage. With core operations in Poland, the Czech Republic, Slovakia, Italy, Croatia and Bosnia & Herzegovina, Stock also exports to more than 50 other countries worldwide. Global sales volumes currently total over 100 million litres per year.

Stock has production facilities in Poland, the Czech Republic and Germany, and its core brands include products made to long-established recipes such as Stock 84 brandy, Fernet Stock bitters and Limonce, as well as more recent creations like Stock Prestige and Żołᶏdkowa de Luxe vodkas.

Stock is listed on the main market of the London Stock Exchange. For the year ended 31 December 2017 it delivered total revenue of €274.6 million and operating profit before exceptional expenses of €44.8m.

For further information, please visit www.stockspirits.com

Chairman's statement

David Maloney

After a year of great change in 2016, the Group entered 2017 with a significantly strengthened and experienced Board and Executive team who have a strong commitment to turning round the fortunes of the business. 2017 was a year of stabilisation for Stock Spirits, embedding the significant changes accomplished in 2016 whilst continuing to address the competitive challenges that remain in our markets, particularly that of our largest market, Poland. We believe we have stabilised in this market and the local management team continues to drive through change and improvements.

While the Board’s major focus remained on returning our Polish business to growth, we also considered the Group’s future wider priorities. A comprehensive review of the Group’s strategy was carried out in the latter half of the year. The chief conclusion from this process was that our strategy as outlined at the time of the IPO remains as relevant as ever. However, to achieve our goals we need to respond better to developments and changes in our key markets; to execute those plans more effectively and to focus more on the ultimate consumers of our products, rather than just on internal KPIs. The major focus of our updated strategy, therefore, is to concentrate on our largest value drivers, our brands.

Given our operational progress we are better able to return to the other key element of our IPO strategy which is growth through mergers and acquisitions (M&A). During 2017, we continued to review ‘bolt-on’ opportunities and we were pleased to announce our 25% investment in premium Irish whiskey brands, The Dubliner and The Dublin Liberties in July this year. Now that Poland has been stabilised, we return to looking at larger, more strategic opportunities to deliver enhanced growth and shareholder value for the future.

Dividend

I am also pleased to announce our proposed final dividend for the year of 5.72 €cents per share (2016: 5.45 €cents per share). This takes the total dividends paid for the year to 8.10 €cents per share (2016: 19.62 €cents per share, which also included a special dividend of 11.90 €cents per share). The adjusted free cash flow conversion of the company continues to be a strength and at 86.3% (2016: 94.1%) remains robust. The dividend policy has been revisited and the Board is moving from the 35% of net free cash flow (free cash flow after investments) approach outlined at IPO, in favour of progressive dividends where cash flow permits. We also reiterate our commitment to return surplus cash to shareholders should no meaningful capital investment or M&A opportunities arise.

People

At the time of our interim results, we announced that Lesley Jackson, our Chief Financial Officer (CFO), would be retiring and would be replaced by Paul Bal. I would like to personally thank Lesley for her hard work and dedication to Stock Spirits; she took the company through the IPO and has worked tirelessly over the years. Paul took office in November 2017 and has made a great start and I look forward to working with him more in the future.

Randy Pankevicz, Non-Executive Director, yesterday notified the Board of his resignation as a Director of the Company to enable him to focus on his personal investments. He does not intend to seek re-election at the forthcoming AGM.

The Board would like to thank Mr Pankevicz for his contribution to the Company over the last 2 years and wish him well for the future.

Governance

The retirement of Lesley and the appointment of Paul as CFO was the only Board change in the year.

Following the more extensive changes to the Board in 2016, the new members have been fully engaged not only in the strategic review process but have also made significant and valuable contributions in all Board matters. I am pleased with the results.  All Board Committee compositions are fully compliant with the Corporate Governance Code. The Board and its various Committees have met regularly throughout the year and an internal Board evaluation exercise was undertaken during the year.

Looking ahead

As I have mentioned previously, the implications of Brexit on the Group are not considered material at this stage, but we will continue to monitor progress on the negotiations currently taking place.

With a stable Board, senior management team and award-winning brands, I am looking forward to delivering on our refreshed strategy to ensure growth and increased shareholder returns.

Chief Executive Officer's statement

Mirek Stachowicz

2017 was a year of stabilisation and turnaround, producing encouraging tangible results. Stabilisation involved embedding changes set in motion since 2016 and some of this change enabled the re-allocation of resource to the front-end of the business. 

Turning around Poland was 2017’s top priority, through a combination of aligned pricing, a restructured sales team and driving efficiencies across the entire organisation. We invested in Poland, and we are seeing positive results.

Group financial performance

Evidence of stabilisation and turnaround is in the results: growth in volume, share, revenues, profitability and cash flow. The balance sheet strengthened further, as net debt was reduced and financing facilities were extended.

Turnaround in Poland

Revenue for Poland in 2017 was €147.7m, an increase of €10.8m versus 2016, with Adjusted EBITDA of €37.7m a growth of €1.8m from 2016. In 2017 this division represented 54% of Group revenue.

Our first focus was embedding the changes initiated in 2016, chiefly under the “Root & Branch review”. This included strengthening and optimising our entire business to better compete in an intensely competitive market. To keep competitive, we had to further engage in the pricing re-alignment that the market has experienced since 2014, as our primary competitor continued an aggressive pricing strategy. Working with customers, we adjusted pricing architecture on selected products to stay competitive in on-shelf pricing. This, along with better execution in the trade, is the major driver of 2017’s results. We continued to grow share in volume and value since December 2016, while monitoring the clearly divergent strategies, not to mention mixed fortunes, of our two main competitors.

Whilst these results are encouraging, we remain vigilant and the market, though stable, remains highly competitive. The economy supported growth, with rising average incomes. Though the Government will restrict Sunday trading in 2018, we expect limited impact.

The vodka market continues to grow and it remains, by far, the largest spirits category. Clear vodka is the main variant. Despite the aggressive pricing in economy and mainstream segments, consumers are up-trading to more premium and prestige brands, reflecting growing affluence. We benefit from this, given our brands’ strong positions in premium price segments. Flavoured vodka has traditionally seen less premiumisation and so represents an opportunity, particularly as it grows ahead of the overall vodka category.

The traditional trade remains the key vodka trade channel, and one competitor’s effective withdrawal from direct involvement in this prominent channel presents another opportunity for us.

In terms of our brands, our priority was distribution-build and consumer-activation over new product development (NPD). Our NPD focused on Saska flavour extensions and re-launching Stock 84 brandy.

Our biggest brand, Żołᶏdkowa de Luxe, returned to growth in sales, out-performing both the overall and clear vodka categories. Most of the growth came from the traditional trade. Żołᶏdkowa Gorzka responded well to activation programmes directed at younger adult drinkers. We continue to strengthen Stock Prestige, for example with the exclusive limited edition Stock Prestige Carbon. Above it, in top premium, Amundsen Expedition continues to grow. We achieved more effective price execution on our economy brands Żubr and 1906, as well as introducing a 9cl variant. In the flavoured vodka sub-category, impressive growth from the more premium Stock Prestige flavours and Saska could not raise our share given slower growth on Żołᶏdkowa Gorzka and the decline in Lubelska sales. Our distribution arrangement with Beluga Group, now in its second year, saw the brand Beluga out-perform the ultra-premium segment.

In the trade, our brands continue to be celebrated, with prizes for the Lubelska range, Lubelska Crtrynówka, Żołᶏdkowa Gorzka, Żołᶏdkowa de Luxe and Żołᶏdkowa de Luxe Peppercorn.

Whisky, though a much smaller category, experienced strong growth and its profit pool now exceeds flavoured vodka. The Beam-Suntory whisky brands, especially Jim Beam, rapidly grew share in the sub-category and beat Jack Daniels to number four position by volume. We see great interest in Irish whiskey and we will exploit opportunities through distribution of The Dubliner and The Dublin Liberties brands.

Following the significant changes in 2016, our Polish organisation benefitted from stable management through the year. We continued to up-skill our salesforce, improving sales execution capabilities. We strengthened our modern trade sales team to work more closely with customers and step up intensity and quality of promotions.

Progress in the Czech Republic

Revenue in the Czech Republic for 2017 was €68.8m, an increase of €5.6m versus 2016, with Adjusted EBITDA of €21.8m, growth of €2.2m from 2016. In 2017 this division represented 25% of Group revenue.

Our Czech business delivered another set of robust results, extending leadership in the overall market. The spirits category continues to grow in volume and value, supported by the economy performing well, with earnings rising. This delivered growth, especially in the premium off-trade. The on-trade was impacted by increased smoking restrictions.

We see aggressive pricing across some sub-categories, and monitor positions closely and take actions as necessary, for example where we strengthened category-management in the modern trade.

Božkov returned to growth – strengthened by focus and investment, including new Božkov Tradicni and Božkov Bily variants providing incremental share. The brand won the “Most Trusted Spirits Brand” award for the second successive year. It also delivered better profitability and share growth.

The Pražská, Nordic Ice and Dynybyl brands acquired in 2016, and integrated ahead of plan, significantly contributed to our growth in the  vodka category, as well as to our Czech results overall.

The Black Fox launch was a strategic entry with a new brand into the premium herbal bitters category at a time of intensifying price competition. The launch highlights increased use of digital marketing in our campaigns.

Our important relationship with Diageo delivered well for both partners, and is being extended into 2019, with our leading distribution helping Diageo to be the 2nd fastest growing spirits company in the market. Building on this successful relationship, we gained approval to distribute Beam-Suntory products and to explore synergies that exist between these two complementary portfolios. With the Diageo, Beam-Suntory and Quintessential Brands Irish Whiskey portfolios leveraging our Czech distribution, we will have the strongest range of third party brands covering all segments of the fast growing whisky category.

The impact from a possible EU ban on certain ingredients in rum ether is being managed, and we anticipate limited impact given our plans in hand.

Challenges in Italy

Revenue for Italy in 2017 was €28.1m, a decrease of €1.3m versus 2016, with Adjusted EBITDA of €6.3m a decrease of €0.6m from 2016. In 2017 this division represented 10% of Group revenue.

The Italian market continues to be challenging and high young-adult unemployment continues to impact our brands, primarily Keglevich, but we detect some optimism recently. The overall spirits category grew slightly, mainly through limoncello, gin and aperitifs, with pricing offsetting flat volumes overall.

We launched Syramusa, an ultra-premium Limoncé extension to consolidate our leadership in limoncello. The iconic Stock 84 brandy was re-launched with overt on-trade focus. The premium XO variant performs well, enabling us to remain in 2nd place in the brandy category.

As a result of the challenging environment, the Italian business’ value suffered impairment (further details are provided in the Financial Review), a risk we had highlighted at the half year.

Whilst Keglevich retains leadership in clear vodka and it extended its leadership in flavoured vodka, this sub-category is declining. In late 2017 we brought to market our re-vamped Keglevich fruit variants, to better fit the changing preferences of the young adult consumers. This was the initial step of a multi-year program to strengthen the Keglevich brand.

Nuove Distillerie Vicenze, a liqueur business, was added as a distribution partner in November, as was Nordés Gin. The organisation was further restructured, investing more in the salesforce, especially in the on-trade. Though we made encouraging progress in the modern trade, our insufficient scale hampers results.

Other markets

The regional report for “Other” markets includes Slovakia, Bosnia, Croatia, Baltic distillery and our export activities. Revenue for Other markets in 2017 was €30.0m, a decrease of €1.5m versus 2016, with Adjusted EBITDA of €4.9m a decrease of €0.2m from 2016. In 2017 this division represented 11% of Group revenue.

Strong results in Slovakia

This business delivered to expectation, with solid performance by the Golden Ice range strengthening our position in the premium fruit spirits sub-category.

To penetrate the premium profit pool further, we signed a distribution agreement with Beam-Suntory here also. Combining our distribution capability and Beam-Suntory’s strong investment in Jim Beam, we delivered pleasing results. With the Jim Beam, Distell and Quintessential Brands Irish Whiskey portfolios under our distribution, we now have a range of brands covering the rapidly growing whisky category.

Our relationship with Beluga continued to deliver growth in the ultra-premium vodka sub-category.

Croatia and Bosnia

There was good performance in Croatia. Our focus in the on-trade and distribution was extended beyond the Beam-Suntory relationship to include Beluga, Bertram rum and Bols.

Stock 84 brandy became the biggest spirits brand in Bosnia. It benefitted from the re-vamp, seeing growing appeal amongst young adult drinkers, especially in the on-trade. Bosnia also benefitted from a new Beluga distribution agreement.

Innovations

The Group's NPD process was strengthened during the year in order to help extend our reach in premium and higher price segments. The improved process aims to reduce the number of new launches whilst increasing their impact and speed to market, thus providing a better return from investment.

Operations and supply chain

We continue to develop our excellent supply chain to further leverage our core competitive strengths of productivity, smart cost management and technical talent. This delivered further efficiencies and effectiveness, and contributed to our overall success. We invested across people, facilities, processes and systems. We are now well-invested, and future investment focuses on safety and quality.

Sales and operations planning development was a major enabler of improved performance, integrating all disciplines and markets to drive us forward. Our operations team won awards in Poland: BRC Food and IFS Food Certification (the first spirits producer to gain both accreditations), and ‘Employer – Organiser of Safe Work (from PIP, the State Labour Inspectorate).

During the year we suffered an equipment failure in our Baltic distillery.  Though spirits production was interrupted for a brief period, our businesses were able to operate as normal. The distillery has since returned to normal operations.

Technology

We continue to invest in technology, leveraging prior investments made under the “One Network” strategy. Our cyber security kept the business safe, and we stay focused on security.

We completed the first phase implementation of a software-defined Wide Area Network (WAN), which has improved service levels. The second phase will deliver a “Tier 3” datacentre to house critical technology. As we extend digital capabilities across our business, we will have a technology base and capability underpinning this.

The group-wide Intranet, StockNet, was launched to provide a collaborative platform to quickly share and deliver further digitalisation. A unified communications suite delivers continued savings in travel, whilst enabling more engagement through virtual meetings. Progress to a single group-wide SAP platform continues.

Our people

StockNet is an effective and exciting mechanism engaging and energising us into a more aligned workforce. Through this we leverage the full power of our people wherever they are. StockNet was used to conduct our first ever Employee Engagement Survey. We welcomed high participation and are studying the feedback.

Our partners

The Group's partnership with Beam-Suntory was extended beyond Poland into the Czech Republic and Slovakia and we have mentioned our continuing partnership with Diageo. There is a new agreement in place with the Beluga Group to distribute the ultra-premium vodka Beluga in Croatia and Bosnia. We also changed our route to market in the UK and moved distribution of our brands to Distell International.

Following investment in Quintessential Brands’ Irish whiskey business, we have secured the right, from the owners of our existing whiskey agency brands, to distribute the brands from the investment where the brand range will enrich our portfolios across the Group.

Our strategy

With the turnaround of our Polish business underway, we carried out a comprehensive review of the Group's strategy during the latter half of the year. We concluded that the strategy communicated at the time of the IPO remained valid, but that developments in our key markets since then mean that there is a greater need than ever before to focus on our brands in order to keep pace with the changing needs and tastes of our end consumers. Our focus now is therefore on four pillars of growth: Premiumisation, Millennials, Digital and M&A. These are supported by a foundation of engaged and empowered talent, effective processes, smart resource allocation and world class partners bringing complementary strengths.

M&A

To penetrate faster growing profit pools, a 25% stake was taken in Quintessential Brands Ireland Whiskey Limited, producer of “The Dubliner” and “The Dublin Liberties” whiskies. The former was the world’s fastest growing Irish whiskey in 2016. Quintessential is the second biggest spirits supplier in the UK and has global reach, selling in over 30 countries. We expect our investment to be earnings accretive by 2021, as their new Dublin distillery becomes operational in 2018.

Outlook

With a strengthened team and a more resilient Polish business, combined with a strong balance sheet and cash flow generation, we are well placed to exploit opportunities to expand our business.

Our financial performance in 2017 reflects stabilisation and turnaround. Revenue increased 5.2% to €274.6m or 3.0% in constant currency.

Chief Financial Officer's statement

Paul Bal

Volume growth at 6.5%, was driven by Poland and the Czech Republic. Although revenue per litre at €2.33 per litre (2016: €2.35) was impacted by pricing alignment in Poland, cost of goods per litre remained at 2016 levels. Therefore whilst overall gross profit increased 3.7%, the margin slipped a little to 50.0% (2016: 50.7%).

New product development (NPD) was more targeted on premiumising selected brands. As such, this is reflected in the slight decline in selling expenses by €0.5m to €60.8m.

Other operating expenses increased marginally, due to increased people costs, partially offset by savings elsewhere. The increase was mostly driven by higher staff incentive awards and bonuses triggered across the business by the year’s stronger performance.

Much of the cost-saving restructuring initiated over recent years impacted corporate costs. Consequently, corporate costs include costs of restructuring of €1.7m (2016: €3.1m).

Underlying corporate overheads, excluding PSP, share based payments and restructuring costs have declined by more than 26% year-on-year on a constant currency basis, delivering on commitments made previously.

For performance management purposes, the Group uses Adjusted EBITDA as a key measure. The combination of improved revenue performance and benefits from the restructuring initiatives reflect delivery of the turnaround plans outlined over the past two years; Adjusted EBITDA rose 9.7% to €56.3m (2016: €51.4m).

As reported previously, the Group does not expect a material impact from the UK’s exit from the European Union. This will continue to be monitored similar to all primary risks that the Group faces.

Finance income and expense and taxation

Net finance income and expense was broadly similar to the prior year at an underlying cost of around €2.6m as the financing facilities are unchanged. However, in 2016 there was a foreign exchange gain on intercompany loans of €1.5m which resulted in the reported net cost of €1.0m.

The income tax expense reflects a number of factors, primarily being: the current year tax expense, changes in provisions for taxation relating to prior years and movements in deferred tax.

Group tax provisions total €7.5m for the year, an increase of €0.2m from 2016. Post-IPO the Group completed corporate restructuring transactions involving intangible assets which gave rise to a significant deferred tax asset which was being amortised over a five-year period. Due to tax legislation changes in Poland, from 1 January 2018, amortisation of these intangible assets is no longer deductible for tax purposes. This has resulted in an exceptional tax charge of €4.7m.

Exceptional items

Profit for the year at €11.3m (2016: €28.4m) declined in the year due to two exceptional items.  At the interim announcement we referred to continuing challenges facing our Italian business, namely impacting Keglevich, our vodka-based flavoured liqueur brand. Whilst the Group is investing in the brand, the continued decline of the business has resulted in a non-cash impairment charge against the carrying value of the Italian business of €14.9m.

The second exceptional item was the one-off deferred tax charge of €4.7m in Poland as outlined above.

Both items are non-cash adjustments.

Earnings per share

The basic earnings per share for the year to 31 December 2017 was €0.06 per share versus €0.14 per share in 2016. Adjusted basic EPS, eliminating the effect of the exceptional items in the year, was €0.16 per share, an increase of 14.3%.

Irish whiskey investment

In July 2017 the Group announced a 25% investment in Quintessential Brands Ireland Whiskey Limited (QBIWL) for cash consideration of up to €18.3m, with €15m paid initially, and the balance deferred dependent on certain future performance conditions. The deferred consideration has been treated as a discounted contingent consideration. We are pleased to announce that we have secured, from the owners of our existing whiskey agency brands, the right to distribute the QBIWL brands in our markets.

Cash flow and working capital

The Group continues to generate strong cash flow from operating activities. Using a measure by which we judge our underlying operational cash flow, the Group generated free cash flow of €48.6m (2016: €48.3m), representing a conversion rate from Adjusted EBITDA of 86.3% (2016: 94.1%). The lower conversion rate reflects us leveraging our cash flow strength to gain competitive advantage in Poland, without which conversion would have exceeded 100%.

As stated in previous years, the peak trading period just prior to the year-end can make material differences to cash flow. Due to a combination of increased trading levels in Poland, and leveraging our cash flow capability for commercial advantage, we saw increased trade receivables at year-end. This increase has been largely offset by an increase in payables due to a focus on using the Group’s scale in negotiating better commercial terms with our suppliers everywhere.

Dividend

The Board has proposed a dividend to shareholders which represents a progressive underlying increase year-on-year. An interim dividend was paid in September 2017 of 2.38 €cents per share, an increase of 4.8% compared to the 2016 interim dividend of 2.27 €cents per share. A final dividend is proposed of 5.72 €cents per share in 2017, an increase on the 2016 final dividend of 5.0% (2016: 5.45 €cents per share). The 2017 dividend pay-out represents an underlying 4.9% year-on-year increase. Given the Irish whiskey investment of €15.0m, a special dividend is not proposed this year. Nevertheless, the total distribution of 8.10 €cents represents almost double the pay-out implied by the Group’s dividend reference point since IPO of 35% of net free cash flow. In the interest of our shareholders, the Board has decided to no longer consider dividends in such terms, and instead pay progressive underlying dividends subject to there being sufficient distributable reserves and adequate cash generation.

Net debt and maturity profile

The Group’s revolving credit facility (RCF), which was re-financed in 2015, was amended and re-stated in 2017, extending the arrangements to 2022. Debt can be drawn and repaid at the Group’s discretion without penalty or charge. At the year-end, €14.3m of the RCF was utilised to back excise duty guarantees in Italy and Germany.

The continued strong cash flow during the year resulted in net debt of €53.1m at the year-end, a decrease of €6.6m from December 2016, despite the €15.0m investment in Irish whiskey. Leverage fell to 0.94x from 1.16x at December 2016. We also retain a factoring facility of €50m. Our relatively low leverage combined with the significant headroom in our bank facilities leaves us well placed to finance our strategic aspirations.

Foreign exchange

The Group remains exposed to the impact of foreign currency exchange movements, with the major trading currencies remaining the Polish Złoty and the Czech Koruna. At the year-end, there were no formal hedging instruments in place, as the arrangements reported at the interim results were fully unwound.

A net positive FX gain of €0.4m was reported within Adjusted EBITDA during the year. This has arisen on the appreciation of the Polish Złoty and Czech Koruna.

Change of year-end

As already announced, the year-end moves to 30 September in 2018.

Accordingly, the Group will report a nine month period for 2018 (from 1 January to 30 September), and thereafter a normal 12 month period, starting from 1 October 2018 to 30 September 2019. However, in order to assist with the understanding of the underlying performance, it is intended to include proforma 12 month reporting (with comparatives) with the 30 September 2018 results. The interim results for the six months to 30 June 2018 will be published as usual.

Changes in accounting policies

The Group will adopt IFRS 15 (revenue from contracts with customers) from 1 January 2018. We have made a preliminary assessment of the impact of this change in accounting policy: if applied in 2017 there would have been a minor reduction in revenue for the Group of approximately -1.7%. There is no impact on Adjusted EBITDA and the change in Adjusted EBITDA margin would have been a small improvement of 36 bps.

The Group has adopted IAS 7 (disclosure initiative) and will adopt IFRS 9 (financial instruments) from 1 January 2018. There is not expected to be any material impact from this adoption. The Group will adopt IFRS 16 (accounting for leases) from 1 October 2019.

Equity structure

There has been no change to the equity structure of the business in 2017, which remains at 200 million issued shares with a nominal value of £0.10 each.

Directors' responsibility statement

Each of the Directors, whose names and functions are listed below, confirms that:

To the best of their knowledge, the consolidated financial statements and the Company financial statements, which have been prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company on a consolidated and individual basis; and to the best of their knowledge, the announcement includes a fair summary of the development and performance of the business and the position of the Company on a consolidated and individual basis, together with a description of the principal risks and uncertainties that it faces.

Directors

David Maloney, Chairman
Mirek Stachowicz, Chief Executive Officer
Paul Bal, Chief Financial Officer
John Nicolson, Senior Independent Non-Executive Director
Mike Butterworth, Independent Non-Executive Director
Tomasz Blawat, Independent Non-Executive Director
Diego Bevilacqua, Independent Non-Executive Director
Randy Pankevicz, Non-Independent Non-Executive Director

7 March 2018

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