Interim Results 2015
Download the full Interim results statement (PDF 0.92MB)
Stock Spirits Group PLC, a leading Central and Eastern European branded spirits producer, announces its results for the six months ended 30 June 2015.
- Total revenue €108.0 million (2014: €137.7 million)
- Operating profit before exceptional costs €5.2 million (2014: €23.2 million)
- Profit after tax €0.2 million (2014: €16.8 million)
- Basic EPS €0.0012 per share (2014:€0.084 per share)
- Interim dividend €0.0125 per ordinary share
- EBITDA before exceptionals €10.8 million (2014: €28.6 million)
- Total volume 4.9 million 9 litre cases (2014: 6.8 million)
- Ongoing market disruption in Poland leading to very poor quarter 1 but much improved quarter 2
- Management focus on Poland turnaround and ongoing premiumisation of the portfolio, including core brand packaging upgrades and new product development (NPD)
- Other markets' performance in line with expectations
- New warehouse opened in Poland to provide flexibility and efficiency in supply chain operations
- Positive start with new distribution agreements with Beam Suntory in Croatia and Bosnia
- Further 6 international spirits awards won, reflecting the high quality nature of the Group's products
Chris Heath, CEO of Stock Spirits Group, commented:
"As reported at the time of our AGM in May, the disruption in the supply chain and aggressive competitor pricing in Poland following the excise tax increase in January 2014, resulted in a very poor first quarter for the Group. Trading in Poland improved significantly in the second quarter, but not enough to fully offset the poor first quarter. All other markets have traded in line with our expectations. Therefore as expected, the Group's overall results for the first half of the year 2015 have been disappointing. In line with our strategy we remain committed to managing for value and margin rather than chasing uneconomic volume market share and therefore continue to focus on new product development, premiumisation of the portfolio and effective customer and channel management. Whilst there are risks facing the business from continuing aggressive competitor pricing and erratic customer ordering patterns, we currently believe that our full year EBITDA will be within the range of €60m to €68m.
Having come through a very difficult period, we have put the building blocks in place to ensure that the Group is well placed to capitalise on the opportunities available in the Central and Eastern European region and the improved trading conditions we experienced in quarter 2 have continued into the start of quarter 3. We continue to view the future with confidence and the Board is therefore pleased to announce the payment of an interim dividend of €0.0125 per share to shareholders."
Management will be hosting a presentation for analysts at 9.00am on Thursday 20th August at:
1 Angel Lane
There will be a simultaneous web cast of the presentation via www.stockspirits.com 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
Bell Pottinger: +44 (0) 20 3772 2560
A copy of this interim results announcement ("announcement") has been posted on www.stockspirits.com
This announcement 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 announcement 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 announcement, and other unknown future events and circumstances which can cause results and developments to differ materially from those anticipated. Nothing in this announcement should be construed as a profit forecast.
Notes to editors:
About Stock Spirits Group
Stock Spirits Group, a leading branded spirits and liqueurs business in Central and Eastern Europe, 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 in 2014 totalled approximately 130 million litres.
Stock is the market leader in spirits in the Czech Republic and has a strong market position in Poland, 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 leading vodka brands in Poland, Italy and the Czech Republic.
Core Stock Spirits 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 Spirits was created through the integration of two long-established businesses, Eckes & Stock and Polmos Lublin, in 2008 and floated on the Main Market of the London Stock Exchange in October 2013.
Stock Spirits supports and is active in the promotion of responsible and moderate drinking. For further information please visit: www.stockspirits.com
INTERIM MANAGEMENT REPORT
The first six months have been a very difficult trading period for the Group. We saw a continuation of the supply chain disruption experienced in 2014 in Poland after the excise duty increase in January that year, together with very aggressive competitor pricing resulting in loss of market share and a very poor financial result in the Polish market. Trading in quarter 2 showed a significant improvement, compared to quarter 1, with the re-emergence of more normal trading in Poland. However this was not enough to offset the poor performance in quarter 1, resulting in a significant reduction in the half year financial results for the Group versus last year.
Other markets have performed in line with expectations. In Czech and Slovakia new product launches and additional investment in core brand equity activity have proven successful in building value growth in key categories.
In the first six months of this year, management has focused on the turnaround of Poland and the ongoing premiumisation of the portfolio, including core brand packaging upgrades and NPD.
In Poland a number of changes have been implemented including changes to the management team, a restructured sales force, the launch of a number of new products, the upgrading of packaging for several of our core brands and the careful rebuilding of customer relationships.
In April, the Group appointed Michael Kennedy, the former Chief Executive of Drambuie, as the Managing Director of Italy and International.
The Group is cautiously optimistic about the expected performance in the second half, given the results in Q2 and the actions that have been taken to turn around the Polish trading performance. Further exciting new product launches are planned in quarter 3 and quarter 4 which include innovative new product concepts for consumers. We are however mindful that aggressive competitor pricing and erratic customer ordering patterns could remain a challenge.
Total vodka market volumes declined by 2.7% in the 6 months to the end of June 2015, showing an improvement in the trend compared to the same period last year, which declined 3.6%. The Discounter channel bucked the downward volume trend by achieving growth of 10.2% in H1. This growth has been achieved at the expense of the Traditional Trade channel, having been strongly supported by aggressive competitor activity.
Whilst both regular vodka and vodka based liqueurs were in volume decline during the period, the value of the vodka market increased by 0.8%.
After a period of consecutive monthly declines, Stock's value share returned to growth in May and June, ending at 31.4% (34.6% on 12 month MAT basis).
The actions, referred to in the overview above, are beginning to have a positive effect upon performance which is expected to continue into the second half.
In July 2015 we opened a new purpose built warehouse near to our factory in Lublin. This will provide greater flexibility and efficiency within our warehousing and logistics operations. In the transition from the old warehouse to the new one we increased our levels of inventory to ensure that we could meet customer service requirements during the said transition. This has resulted in higher levels of inventory over the half year which we expect will reduce during the second half.
As previously communicated, issues in the supply chain have continued into 2015 together with very aggressive competitor activity and significant destocking in quarter 1 by a number of customers. Quarter 2 showed a significant improvement in both trading and financial performance versus quarter 1, EBITDA for H1 was €9.2m against €25.3m for last year.
Overall spirits market volumes continued to grow, up 7.9% in H1, driven by the improving economy and growing consumer confidence. The total value of the spirits market increased by 9.9% in the same period.
Our portfolio has grown faster than the market with particularly strong growth in herbal bitters and rum, supported by upweighted advertising spend and NPD. Our overall value share has grown in the 6 months to June from 31% last year to 33.4% this year.
During the first half we launched 2 new flavours of Fernet, pear and mint, both of which have performed well and secured growth of our value share in this important category from 41.6% to 42.3%. The launch of two new flavours of Bozkov have resulted in the growth of our value share in this very large domestic category from 45.4% to 53%. (Sources: Nielsen)
In financial terms our H1 results have reflected the higher advertising spend, with only part of the benefit accruing in the first half. Despite this, our H1 EBITDA increased from €6.6m in 2014 to €6.7m this year.
Despite the 10% excise duty increase posted on the 1st January 2015, overall market trends have shown a slight improvement versus last year. Volumes have continued to decline but the rate of decline has slowed and value is growing. In three of our four most important spirits categories value and volume trends have improved, however the brandy category has been adversely impacted by retail price increases resulting from the increase in raw material prices, and the accumulated impact of successive duty increases posted over the last 2 years. As brandy category market leader we have been impacted by this more than competitors.
Despite these headwinds, Stock Italy has recorded an EBITDA of €2.8m compared to €3.4m in the same period last year.
Overall performance was in line with our expectations for our other markets, which include Slovakia, Bosnia & Herzegovina and Croatia together with our export operations. The performance in Slovakia has been very positive following several new product launches in line with our growth strategy for this market. Succesful new product launches have included new flavours in the herbal bitters, fruit distillates and vodka categories, supported by increased advertising spend. The market is in growth and we have continued to increase our value share in this market.
The recently signed new distribution agreements with Beam Suntory for the distribution of their brands in Croatia and Bosnia are performing well.
EBITDA for the period was €0.9m, versus €1.1m in 2014.
The Group H1 results are disappointing following a particularly poor quarter 1 in Poland.
Customer destocking, loss of market share, market decline and very aggressive competitor pricing contributed to a very difficult first quarter in Poland. This in turn impacted the overall Group results in that quarter. A restructuring of the sales force in Poland together with a slightly improved market position, renegotiated commercial terms with customers and the launch of new products resulted in a significant improvement in the second quarter's results for Poland. New product launches and further investment in brand building activities assisted strong performance in our other markets and a much better outturn for the Group financially in quarter 2. On a reported segment level, cost of goods have remained relatively flat. The change in market and product mix has caused an increase in the average cost per case. Selling expenses reflect the higher investment in advertising and promotion required to support the launch of new products in markets such as Czech and Slovakia, where regulations permit advertising and therefore costs are proportionally higher in these markets compared to dark markets such as Poland. As a consequence EBITDA for H1 was €10.8m, a decline of €17.8m versus €28.6m last year.
In line with expectations the Group has not recorded any exceptional costs in H1. Last year a small residue of exceptional costs were incurred relating to the Group restructuring as a consequence of the IPO and renegotiation of a number of terms with the Groups' external debt facility.
Finance costs have benefited from a reduction in the margin paid on our bank debt following the re-negotiation of our bank facilities during H1 last year. The decline in EBITDA together with increased inventory levels to support the transfer to the new warehouse in Poland contributed to a slightly higher level of net debt than last year. Net debt at the end of June 2015 was €92.0m with a leverage of 1.90x.
Foreign exchange did not have a material impact upon the translation of operating profits and arose primarily from movements in the Euro: Sterling exchange rate. There has been a material translation impact upon the balance sheet principally arising from the movement in the Swiss Franc exchange rate (following the change implemented by the Swiss central bank to delink the Swiss Franc from a capped Euro exchange rate), and the Czech Koruna, resulting in an increase in the carrying value of intangible assets.
The Group has recorded a reduced profit after tax of €0.23m versus a profit of €16.8m last year.
Basic earnings per share are reported as €0.0012 for the half year.
Whilst there are risks facing the business from continuing aggressive competitor behaviour and erratic customer ordering patterns , we currently believe that our full year EBITDA will be within the range of €60m to €68m.
The Group now publishes on its website the Vuma Consensus from a number of the independent analysts who provide coverage on the Group for further references, if required.
The Group remains focused upon cash generation and has generated an adjusted free cash flow of €2.0m in the first half.
The Board of Directors have agreed an interim dividend payment of €0.0125 per share. The dividend will be paid on 25th September 2015 to shareholders on the register at close of business on 28th August 2015. The Euro : Sterling exchange rate will be fixed on the record date. The shares will be quoted ex-dividend on 27th August 2015.
After making enquiries, the Directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the consolidated financial information of the Group.
Principal risks and uncertainties
The principal risks and uncertainties affecting the business activities of the Group remain those detailed on pages 38 to 41 in the Stock Spirits Group Annual Report 2014, a copy of which is available on the Company's website at www.stockspirits.com. In the view of the Board there is no material change in these risks in respect of the remaining six months of the year.
Responsibility statement of the directors in respect of the half-yearly financial report
We confirm to the best of our knowledge:
- The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU
- The interim management report includes a fair review of the information required by:
a. DTR 4.2 7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
b. DTR 4.2 8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Board of Directors
David Maloney was appointed Chairman of the Board following Jack Keenan's retirement in May. Recruitment of a new independent non-executive director has commenced and an announcement will be made once an appointment has been confirmed.
The Board of Directors as at 20th August 2015 is as follows: David Maloney (Chairman), Chris Heath (Chief Executive Officer), Lesley Jackson (Chief Financial Officer), Andrew Cripps (Independent Non-Executive Director) and John Nicolson (Independent Non-Executive Director).
For and on behalf of the Board of Directors:
Chris Heath David Maloney
Chief Executive Officer Chairman
20 August 2015
Download the full Interim results statement (PDF 0.92MB)