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Preliminary results 2014

Stock Spirits Group PLC, a leading Central and Eastern European branded spirits producer, announces its results for the year ended 31 December 2014.


  • Total revenue €292.7 million (2013: €340.5 million)
  • Operating profit  €53.6 million (2013: €47.7 million)
  • Profit after tax €35.8 million (2013: €8.9 million)
  • Interim dividend of €0.0125 per share paid in September, proposed final dividend of €0.025 per share
  • Adjusted EBITDA* €66.4 million (2013: €83.7 million)
  • Adjusted free cash flow* of €29.3 million, 44.2% of Adjusted EBITDA*


  • Poland
    • Market disruption resulting from 15% Excise Duty increase
    • Consumers have accepted duty driven price increases
    • Supply chain disruption continues but is expected to improve during the course of 2015
    • Completion of ‘Project Polar’ initiative to install 20,000 fridges in traditional off-trade stores
    • Czysta de Luxe now 7th best-selling vodka in the world (IWSR 2013)
    • Strong performance in first year of Beam Suntory relationship with significant value and volume share growth being recorded
  • Czech Republic
    • Strong growth of Fernet brand following rejuvenated brand building investment
    • Growth in value and volume share of Diageo Captain Morgan brand in first year of relationship
  • Italy & Other markets
    • Strategy delivering strong profit growth
    • Imperator integration largely complete in Slovakia, benefits now being realised
    • Exclusive new distribution contracts signed with Beam Suntory in Croatia and Bosnia
  • Continued focus on NPD - Further successful new product launches including Stock Prestige limited edition, new flavours of Lubelska, and Bozkov

Chris Heath, CEO of Stock Spirits Group, commented:

“Whilst 2014 has been a very challenging year for the Group following the 15% increase in excise duty in Poland, we have remained faithful to our strategy and achieved several important goals. We have continued to invest in our brands and our production capability and launched a number of successful new products. We are also delighted with the first full year of our distribution agreements with Beam Suntory in Poland and Diageo in the Czech Republic which have helped deliver significant value and volume growth. In the past year we have also signed new distribution agreements with Beam Suntory in Croatia and Bosnia, paid our first dividend and renegotiated a reduction in our bank margins.

We expect trading conditions in Poland to remain difficult moving into 2015 but expect more normal trading patterns will resume during the course of the year.

Our underlying performance and cashflow are strong and the Board is pleased to propose a final dividend of €0.025 per share. We remain confident in the future of the Group which is well placed to capitalise on the opportunities available in the Central and Eastern European Region. ”

* Stock Spirits Group uses alternative performance measures as key financial indicators to assess the underlying performance of the Group.  Details of the basis of calculation for Adjusted EBITDA, Adjusted EBITDA margin and adjusted free cash flow can be found in Note 6.

Management will be hosting a presentation for analysts at 9am on Thursday 12th March at:

1 Angel Lane

There will be a simultaneous web cast of the presentation via with a recording made available shortly thereafter.

For further information:

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

Chris Heath, Chief Executive Officer

Lesley Jackson, Chief Financial Officer

Andrew Mills, Investor Relations Director

Bell Pottinger:
Clinton Manning                                                                                      +44 (0) 20 3772 2560

The 2014 Annual Report and Accounts will be available on on 8 April 2015.

This press release contains statements which are not based on current or historical fact and which are forward looking in nature. These forward looking statements reflect knowledge and information available at the date of preparation of this press release and the Company undertakes no obligation to update these forward looking statements. Such forward looking statements are subject to known and unknown risks and uncertainties facing the Group including, without limitation, those risks described in this press release, and other unknown future events and circumstances which can cause results and developments to differ materially from those anticipated. Nothing in this press release should be construed as a profit forecast.

Notes to editors:

About Stock Spirits

Stock Spirits, one of Central and Eastern Europe’s leading branded spirits and liqueurs businesses, offers a modern premium branded spirits portfolio, 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 40 other countries worldwide. Global sales volumes currently total over 125 million litres per year.

Stock holds the market leadership positions in spirits in both Poland and the Czech Republic, where it has invested in what is believed to be state of the art production facilities, and is one of the world’s leading vodka producers. This includes having the number one leading vodka brands in Poland, Italy and the Czech Republic. Core Stock brands include products made to long-established recipes such as Stock brandy, Fernet Stock bitters and Limonce, as well as more recent creations like Stock Prestige and Czysta de Luxe vodkas.

Stock was created through the integration of Eckes & Stock and Polmos Lublin in 2008 and floated on the main market of the London Stock Exchange in October 2013.

Stock supports and is active in the promotion of responsible and moderate drinking. For further information please visit our responsible drinking page.

Chairman’s Statement
Jack Keenan

Overall, we faced a challenging year, primarily because of the 15% duty increase in Poland. However, what pleases me most about the year is that we continued to invest in our strong leadership brands in Poland, the Czech Republic and Italy. These leading brands finished the year with strong market share and consumer loyalty.

I am also encouraged by the success of our new product development (NPD) programme. This strength in NPD continues to be a major asset for the Group and demonstrates our understanding of consumer trends as well as underscoring our strength in innovation and the scale of distribution in the markets in which we operate.

That distribution scale has also won us agreements with Beam Suntory, Inc. in Poland and with Diageo plc in the Czech Republic. These agreements have benefitted the brand owners and ourselves as we have achieved significant value growth in the first year of our relationships. It is a testament to our delivery that we have signed a new agreement with Beam Suntory, Inc. for the distribution of their brands in Croatia and Bosnia.

Significant work has been undertaken on reviewing opportunities for the development of our business in new markets. We have not been able to conclude a transaction during 2014, but will continue to pursue a number of opportunities in which we are currently engaged.

The Group undertook a partial refinancing during the year and this has resulted in considerable savings on finance costs. We also completed the corporate restructuring, as laid out in our IPO prospectus, to bring the Group in line with other PLC organisations.

The Group enjoys support from a diverse group of shareholders, and we have continued to engage actively through investor events and meetings during the year. I have met with a number of our major shareholders during the year and I am delighted with the support they provide. We remain committed to returning value to our shareholders and have begun paying dividends as envisioned in our prospectus. I am delighted that we are recommending a final dividend of €0.025 per share for approval at the Annual General Meeting.

I would also like to take this opportunity to personally thank Karim Khairallah and Oaktree Capital Management, who fostered the creation of Stock Spirits Group, for being such supportive shareholders for over seven years until partial divestiture at our IPO. Karim served as a Non-Executive Director after the IPO until the full divestment by Oaktree in April 2014.


I would like to recognise the commitment of all our employees and thank them for their contribution to the Group’s performance and support during this challenging year. There have been no changes to the remuneration policy which was approved at the AGM in 2014, details of which are contained within the Corporate Governance section of this report, and the interests of Executive Directors and senior managers remain completely aligned to shareholders.


The Group is committed to high levels of corporate governance, and I personally place great emphasis on this area. The routine of the Board and its sub committees has settled since the IPO and evaluations have been undertaken of the Board and all the committees, and I thank the Executive and Non-Executive Directors with whom I serve for their support and insight in helpingto run the Group.

I commend to your attention the special section on Corporate Governance as well as the reports from our committee chairmen of Remuneration, Audit and Nomination.

The Board receives input from a number of external advisors who have been invaluable in helping to shape our policies and processes. I would like to thank EY for the service they have provided as our external auditors for the last eight years, and their support throughout the IPO process. We look forward to working with KPMG, our proposed incoming auditors, subject to the approval of our shareholders.

Looking ahead

In spite of the difficult environment we have navigated our way through in 2014, I firmly believe that the outlook for Stock Spirits Group is very promising. We have the right strategy, exceptional brands, a strong financial structure, leading edge production capability and distribution and a proven executive team, to lead the business forward.

Chief Executive Officer’s Statement
Chris Heath

It has been a very difficult year for the Group, primarily due to the disruption created in Poland, our largest market, as a result of the significant increase in excise duty posted by the Polish Government on 1 January 2014. Whilst this has impacted the Group’s financial performance and resulted in us having to revise our full year EBITDA forecast lower in November 2014, we are clear that the impact has mostly been restricted to our customers’ supply chain, combined with aggressive activity of competitors. However, the consumer environment remains robust as consumers appear to have accepted the increased prices resulting from the duty increase. Whilst we anticipate it may take a little longer for the supply chain to settle down, we expect more normal trading will emerge during 2015.

Despite continued tough trading conditions in our other markets, our results there have been in line with or slightly ahead of expectations. The excise increases posted in Italy and the growth of private label products in the Czech Republic added to the headwind we were facing but, against this backdrop, I am greatly encouraged by the commitment of our people and the underlying strength of our brands in those markets. With regard to our brands, in Poland, Żołądkowa Czysta de Luxe continues to hold the leading position in the clear vodka market. Stock Prestige, supported by a new “limited edition” black pack, performed ahead of the premium category during 2014, growing its share of both volume and value. Also in Poland, the new orange and peach additions to the Lubelska flavoured vodka-based liqueur range have added further consumer choice to the existing range of flavours for this market leading brand. We were also active on Żołądkowa Gorzka, the second biggest flavoured brand in Poland, where we launched a new Black Cherry flavour which has been very well received by consumers and exceeded our expectations. In the Czech Republic, our recent media advertising campaign “Nevy Meknem” (“We won’t give in!”) has helped to inject growth into our Fernet range, which has grown share in this important category. In Italy, Keglevich has continued to outperform the market in both volume and value terms.

I continue to believe that given the very strong positions we enjoy in our core markets, the leading positions of our brands, our success in new products and the underlying strength of our production capability, we are well positioned to take advantage of the continued strong demand for spirits in the region in which we operate.

We completed Project Polar in 2014 with the final installation of over 20,000 branded refrigerators in the very important traditional trade channel in Poland. The speed of execution of this project, in around 12 months was a clear demonstration of our ability to take first mover advantage. The results of this initiative remain very positive and have greatly assisted the retention of our core brands’ leading positions in difficult trading conditions, in addition to providing a great platform to showcase our new products and communicate with consumers at the point of purchase.

2014 was the first full year of our new distribution relationships with Beam Suntory and Diageo. The transition from their previous distributors to our business was well executed and we have seen excellent results after the first year. In Poland, whisky is a fast growing and important emerging spirits category. We have been able to outgrow the market in both value and volume for the Beam brands. Likewise, in the Czech Republic, Captain Morgan the leading brand in Diageo’s range there, has outgrown the market in both volume and value in the rum category. In the summer of 2014, we signed a new distribution agreement for the exclusive distribution of the Beam Suntory brands in Croatia and we subsequently agreed to extend it to cover Bosnia, so we are now working in partnership with global spirits leaders in four of our six markets. Our performance to date serves to validate the success of our strategy and demonstrate the confidence of these leading global spirits companies in the quality of our distribution platforms. These agreements support the strategic drive to strengthen the premium elements of our brand portfolio further.

Group financial performance

We fully expected our results to be impacted by the Polish excise duty increase, however the impact, financially, was more significant than we had anticipated. In spite of the trading conditions we have remained loyal to our strategy to grow value ahead of volume and, where necessary, concede unprofitable market share. We have grown average net selling prices per case by over 4% despite being unable to fully implement planned price rises, and maintained our cost of goods per case at broadly the same level as last year.

We have executed amendments to our borrowing facilities which resulted in a reduction in our borrowing costs, have now completed the corporate restructuring we documented at the time of the IPO, and in September we paid our maiden interim dividend.

We highlighted last year that we estimated the impact of the Polish excise duty increase to have increased our EBITDA for 2013 by €5m and would reduce our EBITDA in 2014 by the same amount. In addition to the estimated impact of excise duty, we have also been impacted by movements in foreign exchange, primarily arising from the devaluation of the Czech Koruna which has further reduced the 2014 result versus 2013 by €1.7m. Our 2014 adjusted EBITDA of €66.4m shows a decrease versus last year of €17.3m.

Our adjusted net free cash flow of €29.3m has been affected by the timing of our sales in the fourth quarter and this will result in a higher level of cash inflow in early 2015.

New product development (NPD)

The Group enjoys a very strong track record of developing successful new products and new variants of existing products. 2014 has been no exception and we have continued to launch new products into our markets successfully. The very detailed consumer insight we undertake, complemented by the brand academy initiative we developed in 2013, means that we already have a very strong pipeline of exciting new products for launch in 2015.


I would firstly like to thank all of our employees for their considerable support during 2014. They remain one of our strongest assets in the Group with their professionalism, energy and enthusiasm even when the trading environment has proven to be very difficult. They have remained focused on executing our strategy and growing value ahead of volume.

2014 has also been a year of change from a management perspective, with Marek Malinowski, former Managing Director of our Polish business,  agreeing to re-join Stock on a temporary basis to guide our Czech and Slovakian businesses to their next phase. More recently, Ian Croxford, our very experienced COO, has taken on the additional role of acting Managing Director in Poland pending the appointment of a permanent successor to Mariusz Borowiak, and, following the departure of our Italian Managing Director, Claudio Riva, Steve Smith has taken responsibility for Italy in addition to his role as Managing Director, International.


During 2014 we moved the remaining production at the small Slovakian production site to the Czech Republic. In addition we have invested over €3m to upgrade the storage facilities in Poland to enable the business to remain low cost and responsive to future growth opportunities. We believe we have the best in class production facilities in Poland and the Czech Republic, in addition to the small distillery and production unit in the Czech Republic, and the ethanol distillery in Germany. These facilities continue to provide the business with low cost, consistently high quality products.


Following the disruption in Poland during 2014 we expect this to continue into early 2015, but remain very encouraged by the consumer trends and fully expect more normal trading patterns to emerge as the year unfolds.

In all of our markets we will further strengthen our core brands and launch a number of new products to meet consumer needs. Having embedded the third party distribution brands in Poland and the Czech Republic, we can accelerate the development of our premium offering. Whilst we have been unable to complete an acquisition in 2014 we continue to evaluate a number of acquisition opportunities with a view to deliver further growth.

I believe that we are well positioned to take our business forward in 2015.

Chief Financial Officer’s Review

Lesley Jackson

Our underlying results for both revenue and EBITDA have been impacted by the Polish duty increase. On 1 January 2014 the Polish government increased excise duty on strong alcohol by 15%. This resulted in a number of customers buying ahead of the duty increase and thereby increasing Net sales revenue and EBITDA in 2013 at the expense of Net sales revenue and EBITDA in 2014. We estimate that the impact of the duty buy in was 6% increase in sales volumes for Poland and €5m increase in EBITDA in 2013. This impact reversed in 2014. We expected consumer demand to show some deterioration as a consequence of the increased shelf prices, ,but there has however been a significant amount of disruption in the customers’ supply chain as inventory levels have reduced following the buy in and price increases have been passed through to customers and consumers. As the year unfolded it became clear that the level of disruption was far greater than we had anticipated and this resulted in us having to revise our full year EBITDA expectations lower in November 2014.

Net sales revenue of €292.7m has reduced from 2013 (€340.5m) resulting from lower volumes in Poland, as a consequence of the destock of inventory following the Polish excise duty increase, and some loss of volumes in Italy, due to the increases that have been passed through to consumers for both excise duty increases and the uplift in the cost of wine distillate. An increase in the average price per case of 4% driven by modest price increases and the introduction of new products has assisted in mitigating some of the impact of the volume reduction.

The final transfer of production from the Slovakian production unit to the Czech Republic and continuing careful management of production costs has helped to offset the impact of the increase in wine distillate resulting in the cost of goods per case remaining broadly in line with 2013.

In 2013, other operating expenses included €11.6m of non-recurring expenses, which are detailed in note 6 of the preliminary announcement, and 2014 obviously reflects the non-recurrence of these costs.

As a result, operating profit has increased to €53.6m from €47.7m in 2013 and reported profit from €8.9m to €35.8m.

Given the very significant impact of exceptional costs and non-recurring expenses associated with the IPO and other activities in 2013, the results have also been presented on an adjusted basis to provide transparency of the underlying results for comparative purposes.

For internal purposes, the Group uses adjusted EBITDA to measure the performance of the business, and it is more closely aligned to cash flow which is also a key measure of performance. The adjusted EBITDA for the Group for the full year 2014 is €66.4m, against an adjusted EBITDA of €83.7m in 2013 (see note 6 of the preliminary announcement).

The measures imposed in late 2013 by the Czech National bank to devalue the Czech currency in order to manage deflationary influences, have continued throughout 2014 and impacted our results. We expect these devaluation measures to remain in place during 2015.

On a constant currency basis with 2013, using weighted average exchange rates across the year, net sales revenue would have been €295.5m and adjusted EBITDA €68.1m

Non-recurring and Exceptional Costs

In 2013, we reported within other operating expenses a number of costs which were non-recurring, €11.6m, and exceptional items of €15.1m. These costs were primarily related to the activities involved in transitioning from a private equity owned business to a public company (see notes 6 and 7 of the preliminary announcement).

As expected, these costs have reduced significantly and in 2014 non-recurring costs were €0.6m and exceptional items amounted to €1.1m with the key items being associated with the impairment of the Slovakian production site prior to disposal, amendments to our bank facilities and further costs incurred on the corporate restructuring we have undertaken since IPO, and which were detailed in the IPO prospectus.

The reported EBITDA has been adjusted to remove the impact of these costs and a reconciliation is shown in note 6 of the preliminary announcement.

Finance Revenue and Costs

Finance income of €7.7m (2013: €1.8m) included a gain on foreign exchange of €6.5m arising on intercompany loans and the impact from the devaluation of the currencies that these loans are denominated in.

Finance costs shown within the consolidated income statement of €12.3m (2013: €58.2m) primarily reflect the cost of third party bank debt and the amortisation of bank charges associated with the establishment of the current debt facilities, which are being amortised over the life of the loans.

In 2013, the finance costs reflected the previous capital structure prior to the IPO and consisted of senior unsecured debt instruments which attracted interest annually and were capitalised and not paid out in cash.

The Group undertook an extensive capital restructuring exercise prior to the IPO, which resulted in the senior unsecured debt instruments being partially repaid and the remaining balance converted to a single class of equity shares.


The increase in the tax charge in 2014 to €13.2m versus a credit last year of €17.6m reflects the non-recurrence of the significant deferred tax credit that arose in 2013 as a result of the post IPO corporate restructuring. In addition, further provision has been made against potential tax risks as detailed in note 9 of the preliminary announcement.

Cash flow

The Group’s cash flow is impacted by both the underlying profit performance and the timing of sales in the fourth quarter. In 2014, cash flow was affected by the increase in working capital at the year end arising from sales occurring during the month of December. This has resulted in a delay in the cash being generated during the year and will result in a higher cash flow in early 2015. Adjusted net free cash flow was €29.3m and our free cash flow conversion was 44.2%.

The Group has also commenced the payment of dividends in line with the policy set out at IPO. Accordingly, an interim dividend of €0.0125 (£0.01) per share was paid in September 2014, following the announcement of our half year results.

The cash flow also includes a one-off payment of €40.3m relating to VAT which was paid in January 2014, which arose from the legal restructuring following the IPO. This was purely a timing impact, with the corresponding receipt of VAT having been received at the end of 2013.

Net Debt and Financing

Net debt at the end of December 2014 was €82.4m, an increase of €36.1m versus December 2013, giving a year end net leverage of 1.24 versus 0.55 in 2013. Adjusting for the one-off VAT payment, as discussed above, net debt at the end of 2013 would have been €86.6m with a closing leverage of 1.03 at the end of 2013.

Ahead of the IPO in 2013, a partial refinancing was undertaken to bring our debt facilities to terms more aligned to a public company. In 2014, we negotiated additional changes to a number of clauses and covenants, in addition to reducing the margins that the banks charge on our debt. These changes were effective from July 2014, and reduced margins on all our debt at all leverage levels by 150 basis points. The Group has also benefitted from reductions in underlying interest rates for debt, and by expiration of the fixed interest rates charged on a proportion of its debt.

There remains sufficient headroom within the current bank facilities to support both our organic and inorganic growth opportunities. All debt is drawn in local currency to provide flexibility in facilities and a natural hedge for cash flow and balance sheet protection.

During the year, the hedging that was previously in place to cover a portion of the finance expense in Italy and the Czech Republic with a fixed interest rate, and to provide a cap on the level of the central bank lending rate in Poland, expired and, following a review, has not been renewed.

Debt maturity profile

The Group’s bank facilities consist of long term loans of €164.8m provided by a club of eight banks, together with a revolving credit facility (RCF) of €70m.

The RCF is utilised to back excise duty guarantees in a number of our markets. This utilisation reduces the available balance of the RCF but does not constitute drawings against the facility and, as such, this utilisation is not disclosed as a liability in the balance sheet.

At 31 December 2014 there were no drawings against the RCF and the level of RCF used to back excise duty guarantees was €6.5m.

The Group did not utilise its factoring facilities in Poland at the year end.

Foreign Exchange

The Group is exposed to the impact of foreign currency exchange, with the major currencies being the Polish Złoty and the Czech Koruna. The Group, where possible, aims to match currency cash flows, liabilities and assets through normal commercial business arrangements. An example of this is that all external third party debt is drawn in local currency. There are no hedging instruments in place to manage transaction exposure, where this arises.

The Group will continue to monitor its foreign currency exposures and, where necessary to manage risk appropriately, will implement hedging arrangements.

In early 2015, there has been some devaluation of the Polish Złoty and the Czech Koruna as a result of the removal of the fixed Swiss Franc exchange rate mechanism with the Euro, by the Swiss National Bank. It is currently unclear if this devaluation will remain longer term and therefore this currently represents a risk to our performance in 2015.


  Dec 2014
closing rate
Polish złoty 4.29 4.18
Czech Koruna 27.74 27.55


The average rate above is the weighted average of the monthly average rates calculated on Group monthly revenue.

Equity Structure

There has been no change to the equity structure of the business in 2014 and there remain 200 million shares in issue with a nominal value of £0.10 each.

Earnings per share

On a fully diluted basis, the adjusted earnings per share at the end of December 2014 was €0.18 per share versus €0.05 per share in 2013. Excluding foreign exchange gains in finance revenue of €6.5m in 2014, and foreign exchange losses in finance costs of €12.6m in 2013, adjusted earnings per share would have been €0.14 per share in 2014 and €0.12 per share in 2013.

Extract from the Audit Committee Report

During the second half of the year, Polish management found evidence of transactions which did not comply with Group policies relating to marketing support and sales agency contracts. Our internal audit team and external advisors were appointed to investigate the evidence and to recommend remedial action. The investigation has shown evidence of alleged fraudulent payments having been made within the Polish business in the current year, which may amount to €1.2million in 2014, and similar amounts in each of the four preceding years. The amounts are not material in the context of Group's financial performance and no restatement of prior periods was deemed appropriate. Adequate provision has been recorded in the financial statements for the costs and related taxation connected with this matter. The necessary actions and internal control improvements that were identified are in the process of being implemented.

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 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.

Jack Keenan, Chairman
Chris Heath, Chief Executive Officer
Lesley Jackson, Chief Financial Officer
Andrew Cripps, Independent Non-Executive Director
David Maloney, Senior independent Non-Executive Director
John Nicolson, Independent Non-Executive Director

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