Stock Spirits Group PLC
Preliminary results for the 9 month period ended 30 September 2018
A period of good growth and significant brand investment
5 December 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 nine month period ended 30 September 2018 and its proforma unaudited 12 months results.
Financial highlights:
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Proforma unaudited results*: |
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Reported results*: |
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12 mth to Sept 2018 |
12 mth to Sept 2017 |
Year-on-year growth |
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9 mth to Sept 2018 |
12 mth to Dec 2017 |
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Volume (millions 9 litre cases) |
13.3 |
12.9 |
+2.8% |
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9.1 |
13.1 |
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Revenue (€ millions) |
282.4 |
259.8 |
+8.7% |
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193.8 |
269.8 |
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Revenue growth at constant currency |
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+6.9% |
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Adjusted EBITDA1 (€ millions) |
59.4 |
53.2 |
+11.5% |
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35.8 |
56.3 |
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Adjusted EBITDA growth at constant currency |
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+8.1% |
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Operating profit** (€ millions) |
48.7 |
41.7 |
+16.8% |
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28.2 |
44.8 |
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Profit for the period (€ millions) |
33.2 |
29.2 |
+13.8% |
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19.3 |
11.3 |
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Basic EPS (€ cents per share) |
16.72 |
14.74 |
+13.4% |
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9.71 |
5.72 |
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* All figures have been restated for IFRS 15
**Operating profit for the 12 months to December 2017 is Operating profit before exceptional expenses
· Net debt of €31.6 million at 30 September 2018 (December 2017: €53.1 million), resulting in leverage of 0.53x2 (31 December 2017: 0.94x)
· Proposed enhanced final dividend of 6.01 €cents per share3 (2017: 5.72 €cents per share), giving a total dividend in respect of the 9 month period 2018 of 8.51 €cents per share (2017: 8.10 €cents per share), an increase of 5.1%
Operational highlights
· Solid share and value growth in Poland led by premium brands
· Investment in premium products providing resilience in Czech Republic
· Extended third party distribution agreements, including with Beam Suntory in Czech Republic and Slovakia
· Commenced distribution of The Dubliner and The Dublin Liberties Irish whiskey brands across all markets, building on the 25% investment in Quintessential Brands Ireland Whiskey Ltd
· Appointment of new Independent Non-Executive Director, Kate Allum, on 1 November 2018
Commenting on the results, Mirek Stachowicz, Chief Executive Officer, said:
"This has been a year of good growth for Stock Spirits, and today's results show that our strategy of focusing on premiumising our range and increasing the use of digital channels in order to engage with millennial consumers is working. We are pleased with the increasing strength and resilience of our core Polish business, and also with the way in which we have combatted the headwinds experienced earlier in the year in the Czech Republic. Given the positive momentum in our underlying business and our portfolio of strong brands that are responding well to our ongoing programme of investment, we remain confident of being able to achieve further growth in the future."
ENDS
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:
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Stock Spirits Group: Paul Bal
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+44 (0) 1628 648 500 |
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Powerscourt Rob Greening Lisa Kavanagh Sofie Brewis
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+44 (0) 207 250 1446 stockspirits@powerscourt-group.com
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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 Limoncè, 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 proforma year ended 30 September 2018 it delivered total revenue of €282.4 million and operating profit of €48.7 million.
For further information, please visit www.stockspirits.com
Chairman's Statement
As Chairman of Stock Spirits Group PLC, I am pleased to present our Annual Report and Accounts for the 9 month period ended 30 September 2018. This reflects our adoption of 30 September as the Group's new accounting reference date.
Following on from the results of 2017, I am pleased to announce another period of growth, reflecting the continued turnaround of the business, particularly in Poland. The results reflect the early positive impact of the reformulated strategy of focusing on premiumising our range and increasing the use of digital channels in order to engage with consumers, especially the millennial cohort.
While it was very encouraging to see real progress in our two largest markets of Poland and the Czech Republic, Italy, however, remained difficult.
With regards to mergers and acquisitions (M&A), we continue to assess a range of acquisition opportunities that would deliver enhanced growth and shareholder value for the future.
Dividend
I am pleased to announce an 'enhanced' final dividend for the 9 month period. We are proposing a final dividend that is in excess of what would have been declared based on the 9 months of profit generated in the period. Effectively, it is a full final dividend as though we were reporting for a full 12 month period. Hence, the final dividend proposed of 6.01 €cents per share (12 month to Dec 2017: 5.72 €cents) represents growth of 5.1% from the prior year final dividend. Shareholders are therefore not only receiving the full 'enhanced' final dividend, but are also receiving this three months earlier than in previous years.
This dividend represents the continued approach, as outlined previously, of a progressive dividend policy which can be supported by the ongoing strength of the Group's free cashflow conversion. It also does not preclude pursuit of M&A opportunities, and allows us to retain a solid balance sheet which is important in the current economic climate.
Board and people
As announced in September 2018, Kate Allum joined the Group as an Independent Non-Executive Director, being appointed with effect from 1 November 2018. Kate brings a wide variety of experience in both human resources and supply chain management, and from within Central and Eastern Europe, which will be hugely beneficial as the Group continues to develop. Kate has been appointed to the Audit and Remuneration Committees and we are delighted to welcome her to the Board.
The success of any company is down to the quality of its leadership and is reliant on the skills and talent of the team working throughout the organisation. On behalf of the Board, I would like to thank all of the employees of Stock Spirits for their continued hard work, commitment and dedication.
Corporate governance
The Company complies with all applicable laws and regulations, and the Board adopts the UK Corporate Governance Code as part of its culture. A statement relating to compliance with the Code is included within the Governance section within our Annual Report, which also sets out the processes which have been put in place to deliver long-term success.
The Board and its various Committees have met regularly throughout the year, and an internal Board evaluation exercise took place during the period which showed continued progress in overseeing and guiding the business.
Looking ahead
The possible implications of Brexit on the Group will continue to be closely monitored but, as previously reported, the likely effect is not considered to be material as we do not produce in or export from the UK.
We now have an enhanced Board, a stable management team that is working to a clear strategy, and a portfolio of brands that are growing in strength. Notwithstanding the continued competitive environment in our main market of Poland, we remain confident of being able to achieve further growth in the future.
Chief Executive Statement
Group financial performance
Given the change in our accounting year to 30 September, we have presented summarised proforma results for the 12 months to 30 September 2018 along with proforma 12 month comparatives. On this basis, we have delivered growth in volume, revenues and profitability, and the balance sheet has strengthened further as net debt was reduced.
Continued growth in Poland
For the 9 month period to 30 September 2018, revenue for Poland was €105.6m, (12 months to 31 December 2017: €147.5m), with adjusted EBITDA of €27.5m (12 months to 31 December 2017: €37.7m).
For the proforma years of 2018 and its 2017 comparative, revenue was €152.6m, an increase of 8% from €141.2m in 2017. Adjusted EBITDA also increased 16% from €34.9m in 2017 to €40.4m. In 2018, this division represented 54% of Group revenue (2017: 54%).
Our Polish business continued to grow from the foundations that have been re-laid in recent years. Given it contributes some half of Group revenues, success in Poland is critical.
The economic environment remained favourable, and the total vodka category was stable, with welcome growth in premium segments. Total vodka category growth is still driven by the flavoured sub-category, with clear vodka seeing a small decline. Trade channel dynamics were also stable, notwithstanding some regulatory changes in retailing. Against this backdrop, we were able to capitalise on rising consumer affluence by continuing to strengthen our portfolio with attractive premium brands.
Stock out-performed the total vodka market, continuing to grow volume and value share. Our total vodka volume share grew from 25.2% last year to 27.0% this year, and value share grew from 26.2% to 27.4%4. In recent months, both our volume and value growth rates outpaced our key competitors.
A significant contributor was the continued strong growth of our leading premium brand, Stock Prestige, which is the number one brand in premium vodka in Poland. In the top premium segment, our Amundsen Expedition grew volume well ahead of that segment's volume growth. Our leading mainstream brand, Żołądkowa de Luxe, was relaunched and also achieved volume growth, outperforming its segment. In the economy segment, our Żubr and 1906 brands grew their combined volume strongly, benefitting from pack size innovation. We also grew total flavoured vodka volume and value versus last year, led by Stock Prestige flavours and Saska flavours.
We are building on our progress in flavoured vodka to achieve our longer term aim of growth ahead of that sub-category. Our revised flavoured strategy will entail an increasing focus on our top flavoured brands: Żołądkowa Gorzka, Lubelska and Saska.
We continued to grow whisky category share via the Beam Suntory portfolio. Our co-operation with Synergy Brands, which has been in place since July 2016, also generated positive results as Beluga grew value in the fast growing ultra-premium vodka segment.
The strengthening of our sales capabilities continued with a significant programme of store re-layouts in traditional trade channel, which improved results at point-of-purchase.
Overcame headwinds in the Czech Republic
For the 9 month period to 30 September 2018, revenue for Czech Republic was €49.2m, (12 months to 31 December 2017: €67.7m), with adjusted EBITDA of €13.6m (12 months to 31 December 2017: €21.8m).
For the proforma years of 2018 and its 2017 comparative, revenue was €73.2m, an increase of 13% from €64.6m in 2017. Adjusted EBITDA also increased 5% from €20.6m in 2017 to €21.6m. In 2018, this division represented 26% of Group revenue (2017: 25%).
The Czech Republic is the Group's second largest market. We have held spirits market leadership for over 20 years5, leading in the three key spirits categories of rum6, vodka and herbal bitter liqueurs7. The Czech economy is also performing well, and with higher consumer incomes we see an increasing desire for premium products, which in turn drives value growth8. The total spirits market grew value and volume despite reduced levels of retailer promotional activity7.
Given our scale in these categories, Stock was heavily impacted by the shift in retailers' promotional strategy, resulting in only marginal total volume growth. Despite this, the combination of our premium innovations, benefits from previously-acquired brands and the addition of new distribution brands delivered value growth, maintaining our market leadership and achieving value share of 33.1%7.
Stock grew value share in the biggest spirits category, rum, through the outstanding success from the Q1 launch of Božkov Republica. This has achieved 24.5%7 value share of imported rum. Captain Morgan, which we distribute on behalf of Diageo, remains the number one international rum and also achieved solid value growth.
In the highly competitive vodka category, the Bohemia Sekt spirits brands that we acquired in 2016 helped maintain our category leadership despite massive growth of retailer private labels.
Our established partnership with Diageo, coupled with the new distribution agreement with Beam Suntory, have created the strongest whisky portfolio in the market. We grew whisky value share to over 10% despite significant price reductions by some leading competitors.
Success in rum, vodka and whisky outweighed a decline in herbal bitters value share, driven primarily by the changed retailer promotional strategy, coupled with aggressive price-discounting by Jagermeister. Our new premium herbal bitter, Black Fox, which was launched late last year, increased its value share of the premium segment counteracting, in part, the decline of Fernet Stock in the mainstream segment.
EU Commission deliberations on the use of rum ether concluded that the aroma will not be banned in domestic rum (Tuzemak) for five years. Our team managed this challenge without significant business implications. A new debate that has opened between the EU Commission and the Czech Ministry of Agriculture and Food Inspection regarding inclusion of milk in egg liqueurs carries no material risk to Stock.
We continued to develop our sales and trade marketing capabilities, achieving step change in category management. We also stay focused on price management and promotional efficiency, as price competition remains strong, especially with the growth of private label. Our Czech business has a demonstrable ability to deliver value growth through focus on premiumisation, both of our own core brands and by working with our distribution partner brands.
Tough trading conditions in Italy
For the 9 month period to 30 September 2018, revenue for Italy was €17.6m, (12 months to 31 December 2017: €26.2m), with adjusted EBITDA of €1.7m (12 months to 31 December 2017: €6.3m).
For the proforma years of 2018 and its 2017 comparative, revenue was €25.8m, a decrease of 1% from €26.0m in 2017. Adjusted EBITDA also decreased 27% from €6.0m in 2017 to €4.4m. In 2018, this division represented 9% of Group revenue (2017: 10%).
Italy is our third largest market in terms of revenue and EBITDA. The market is highly fragmented, with several mature spirits categories including bitters, vodka, brandy, whiskey and liqueurs. Whilst Stock has a relatively small overall share of total spirits, with 6.0% volume share in our main focus area of the modern off-trade channel, we hold leading positions in several key categories - including number one brands in the clear vodka, vodka-based liqueurs and limoncello categories, and the number two brand in brandy.
Trading conditions remain very tough as a result of high levels of unemployment and consumer consumption being impacted by rising inflation. As a result of these trends, the total market declined slightly in value in the period.
Against this backdrop, Stock's total volume share was slightly down to 6.0%, with value share slightly down to 5.7% in the modern trade channel9. Stock held overall volume and value share in its four key categories, with slight gains in brandy, but as a result of the softening market and strong growth of private label, there were slight losses in flavoured vodka-based liqueurs, limoncello and clear vodka.
Looking ahead, continuing economic challenges and political uncertainty are expected to constrain consumer confidence and disposable income, with a continuing negative impact on overall spirits sales. There is also a possible VAT increase from 22% to 24.2% on 1 January 2019, with further smaller increases possible in 2020 and 2021.
Despite this, in the early summer we relaunched the Keglevich fruit flavoured range, supported by new packaging and a programme of investment in a new 'Pure Vodka, Pure Fruit' campaign using both digital and traditional media. Early indications point to a positive consumer response.
Our iconic brandy, Stock 84, which was refreshed last year, achieved value and volume share growth, to which our premium XO variant contributed significantly.
We continue to carry out focused brand-building in selected premium on-trade outlets for Syramusa, the premium sub-brand of Limoncè limoncello, which was launched in late 2017. The brand is also now listed in travel retail.
Finally, our distribution brand range expanded further with new distribution agreements with Nuove Distillerie Vicenzi, Dictador rum and The Dubliner Irish whiskey.
Other markets
Other markets includes Slovakia, Bosnia, Croatia and other export activities. For the 9 month period to 30 September 2018 revenue was €21.3m, (12 months to 31 December 2017: €28.4m), with adjusted EBITDA of €2.8m (12 months to 31 December 2017: €4.9m).
For the proforma years of 2018 and its 2017 comparative, revenue was €30.9m, an increase of 10% from €28.1m in 2017. Adjusted EBITDA also increased 24% from €4.6m in 2017 to €5.7m. In 2018, this division represented 11% of Group revenue (2017: 11%).
Continued strong results in Slovakia
Our Slovakian team delivered another strong performance, growing both volume (+4.9%) and value (+3.9%) ahead of the market10. Stock maintained its leadership in herbal bitters, with growth supported by the Fernet Stock grapefruit flavour extension, coupled with revised price-positioning of Fernet Stock Grand11. The continued roll-out of Black Fox added a premium dimension to our bitters portfolio, whilst in vodka, Amundsen achieved double digit volume and value growth12.
As in other markets, NPD also drove premiumisation. Božkov Republica was rolled out, and we entered the borovička (Juniper) category using the premium Golden Ice brand.
Stock's second highest value growth in Slovakia came from whisky. Having begun distribution of Beam Suntory's range in May 2017, Jim Beam's value share was increased to 7.5% from 3.6%, with strong growth in sales13. The distribution brands portfolio was expanded to other growth categories through adding the Quintessential Brands gin range, The Dubliner and The Dublin Liberties whiskeys, and Barcelo premium rum.
These initiatives contributed to overall volume and value growth for Stock in Slovakia, and reinforced our position as the second biggest spirits company in the off-trade11.
Other export
In Croatia we grew volume and value14, primarily through an increased focus on the on-trade, supported by the relaunch of Stock 84, and an increased range of distribution brands from Beam Suntory plus Beluga, Botran Rum and Lucas Bols.
In our export markets, reorganisation of our route to market in Germany was completed successfully, and contributed to a strong volume uplift. New distribution in Taiwan for Hammerhead Single Malt Czech Whisky also generated high margin incremental sales.
Innovations
We continued to build our core brands via a focused programme of NPD. In addition, a new online NPD process flow was implemented to streamline and speed up this critical process.
In Poland in clear vodka, we relaunched our leading brand by volume, Żołądkowa de Luxe, with a new, smoother taste and impactful new packaging. The relaunch was supported by awareness and trial building activity, including an innovative digital campaign and a Guinness Book of World Records entry winning the largest ever linked-arms toast.
We also introduced an evolutionary update of Stock Prestige's packaging to retain consumer appeal in the fast evolving premium vodka segment.
In the flavoured category, a strong package of consumer activation on Lubelska and Saska, coupled with the launch of two new Lubelska flavours and three new Saska flavours contributed to volume growth. We continue to have a strong NPD pipeline in flavoured vodka.
Building on our history of successful flavour innovation on Božkov, and with the ambition of premiumising the brand, we launched new Božkov Republica imported rum in February 2018 in the Czech Republic. It has achieved outstanding growth, growing the overall rum category. Božkov Republica is fast becoming one of the most successful NPD launches in Czech spirits history.
A full review of the Keglevich flavoured range in Italy resulted in the launch of a new improved liquid. The new recipe uses six times distilled grain vodka coupled with 100% fruit juice. The range was also relaunched with new packaging. Keglevich clear vodka has also been relaunched, again with an improved quality six times distilled liquid and more impactful packaging. It has outperformed the category in both volume and value growth.
In Slovakia, Fernet Stock Grapefruit won the Consumer Choice Award 2018, which is awarded to the most successful innovation in the spirits category by Slovak consumers.
Božkov Republica was also rolled out in Slovakia, and we entered the borovička (Juniper) category using the premium Golden Ice brand.
Operations and supply chain
Smarter purchasing strategies coupled with new systems tools delivered encouraging results, and helped to mitigate adverse market conditions in certain categories of inputs.
Digital and technology
We are enhancing our marketing and sales capabilities with the latest technology to deliver enhanced brand experiences. Digital communications played a leading role in our Keglevich relaunch in Italy, where we pilot tested a new smart e-commerce tool which links our social media activation directly to opportunities to purchase.
In Poland, Stock established the first ever virtual bartender league, along with tools to encourage brand advocacy and increased consumer engagement.
In the Czech Republic we began working with our customers to develop our reach beyond the established 'bricks and mortar' channels into the emerging e-retail arena.
In respect of our IT infrastructure, we have consolidated and strengthened our network architecture which will facilitate us running more Group-wide software solutions in future.
Our people
We made senior Marketing and Sales appointments in Poland and the Czech Republic. We also invested in our Italian marketing team in order to support the Keglevich relaunch.
A number of updated health and safety initiatives were put in place across the Group, the improvements from which have been recognised by third party auditors.
The results from our very first employee engagement survey have been acted upon, providing a base-line from which to create an engaged, agile culture.
Our partners
The integration of the distribution brands with Stock's leading local brands has brought significant benefits to the combined portfolio, further strengthening our overall offering to customers and consumers.
We will soon complete our fourth year as exclusive distributor of Diageo's core brands in the Czech Republic, where we are delighted with the continued value growth that has been achieved on Captain Morgan, Johnnie Walker and Baileys. The addition of the Beam Suntory range to our Czech portfolio made a material increase to our total whisky share, and we also began distribution of The Dubliner and The Dublin Liberties whiskeys from Quintessential Brands.
In Italy, the Vicenzi range of liqueurs from Nuove Distillerie Vicenzi was introduced from 1 January 2018. The distribution brand range expanded further with the addition of two new distribution agreements with Dictador rum and The Dubliner Irish whiskey.
In Slovakia, we began the distribution of Beam Suntory's range in May 2017. The distribution brands portfolio was further expanded to other growth categories, adding the Quintessential Brands gin range, as well as its whiskeys, The Dubliner and The Dublin Liberties, and Barcelo premium rum.
Outlook
We are pleased with the increasing strength and resilience of our core Polish business, and also with the way in which we have combatted the headwinds experienced earlier in the year in the Czech Republic. While challenges remain in certain parts of our operations, most notably in Italy, we believe that the strength of our brands and the fact that our four pillar strategy is starting to deliver tangible results means that we are well positioned for further success.
Chief Financial Officer Statement
Change of year-end and the proforma results
As previously announced, we have now adopted 30 September as our accounting year-end. The transition to this has been achieved without any major issues or business disruption. Given there is very limited comparability between the results reported for the 9 months to 30 September 2018, and the results for the 12 months ended 31 December 2017 ('2017'), we have presented certain additional proforma financial statements and notes in this Report and Accounts. The proforma financial statements cover the 12 months ended 30 September 2018 ('2018 proforma') and the 12 months ended 30 September 2017 ('2017 proforma'). We have also set out the basis on which these proforma financial statements have been compiled, and provided reconciliations to the reported financial statements. The proforma financial statements are not audited.
In the 9 months to 30 September 2018, we sold 9.1m 9 litre cases (2017: 13.1m). In 2018 proforma, volumes were up 2.8% as we sold 13.3m 9 litre cases (2017 proforma: 12.9m 9 litre cases).
Total Group revenue was €193.8m for the 9 month period (2017: €269.8m as restated for IFRS 15). On a proforma basis in 2018, revenues were up +8.7% to €282.4m (2017 proforma: €259.8m) and up +6.9% on a constant currency basis15.
Revenue per litre16 in the 9 month period was €2.36 (2017: €2.33). On a proforma basis it was €2.37 (2017 proforma €2.24), reflecting the progress in improved sales mix as our focus on premiumisation gains traction.
Costs of goods per litre16 rose during the 9 months to 30 September 2018 to €1.22 (2017: €1.16). This reflects the impact of inflation as well as the premiumisation focus, including the increased proportion of distribution brands volume in our sales mix. Reported gross margin therefore slipped from 49.1% to 48.2%, although this was distorted by the shorter reporting period and the seasonality of Group sales. On a proforma basis, gross margin improved to 48.9% (2017 proforma: 47.3%), and cost of goods per litre were held to general inflationary levels.
As previously communicated, we invested more on the development and marketing of our brands and products than in recent years. This included several New Product Developments (NPDs) during the period. Whilst this increased investment is not apparent in the reported results selling expenses (9 months 2018: €42.5m, 2017: €56.0m), it can be seen in the proforma results (2018 proforma: €57.7m, 2017 proforma: €54.9m).
Other operating expenses, whilst lower in the reported results (9 months 2018: €22.0m, 2017: €29.6m), were higher on a proforma basis (2018 proforma: €30.1m, 2017 proforma: €25.1m). This largely reflects higher people costs, particularly in Central Europe, and also includes higher variable reward costs as a result of the stronger performance across the business as a whole during the period. Underlying corporate costs reflect inflationary increases only.
Adjusted EBITDA for the 9 month period was €35.8m (2017: €56.3m). Proforma adjusted EBITDA was 2018: €59.4m (2017 proforma: €53.2m), up +11.5%; or +8.1% on a constant currency basis15.
The change in year-end has implications for our Financial Calendar, notably in respect of results announcements and dividends.
As reported previously, the Group does not expect a material impact from the UK's proposed exit from the European Union. This position will continue to be monitored, as will all of the principal risks that the Group faces.
Finance income and expense
The decline in net finance expense in the 9 months to 30 September 2018 of €1.7m (2017: €2.6m) as reported, is lower principally due to the shorter reporting period. On a proforma basis, the increase in net finance expense (2018 proforma: €3.1m, 2017 proforma: €1.7m) was primarily due to interest payable on settling historic tax issues, and higher interest rates in the Czech Republic.
Taxation
The income tax expense, as detailed in note 8 of the summary consolidated financial statements below, reflects a number of factors, primarily being the tax expense for the current period; changes in provisions for taxation relating to prior years and movements in deferred tax. The higher reported effective tax rate of the Group at 27.3% (2017: 26.7% excluding exceptionals) primarily reflects the settlement of prior year open tax issues. A small increase in the effective rate is also seen on the proforma basis (2018 proforma: 27.1%, 2017 proforma: 27.0%).
Group tax provisions totalled €8.0m at 30 September 2018, an increase of €0.5m from 31 December 2017. As set out in the principal risks and uncertainties, the Group is exposed to a number of tax risks in the countries in which it operates. There have been a number of developments in the period with respect to the Group's unsettled tax years in several countries which are detailed in note 8 of this statement. This includes in Poland where in recent years the Group has noted the Polish authorities increasingly adopting a more aggressive approach towards the interpretation of tax laws and regulations. Taken as a whole, and in common with other companies operating in Poland, this increases the uncertainties relating to the treatment of historical tax positions. The Group takes professional advice, and has undertaken a review of potential tax risks and current tax assessments, and whilst it is not possible to predict the outcome of any pending enquiries, adequate provisions are considered to have been included in the Group accounts to cover any likely or expected future settlements. Nevertheless, in some circumstances the Group may have to pay over sums assessed as due by the authorities and then seek their recovery as appeals processes run their course.
Further details are set out below in note 8 of the summary consolidated financial statements.
Exceptional items
There are no exceptional items arising in the 9 months to 30 September 2018 (2017: €14.9m Italian impairment charge and €4.7m deferred tax charge).
During the year-ended 31 December 2017, there were two non-cash exceptional items. First, there was an impairment charge against the carrying value of the Italian business, of €14.9m. Second, there was a one-off deferred tax charge of €4.7m in respect of Poland resulting from changes in tax legislation whereby tax deductibility of intangible asset amortisation is no longer allowed.
For the purposes of comparability, these exceptional items have been completely excluded from the proforma results.
Earnings per share
The basic earnings per share (EPS) for the 9 months to 30 September 2018 was 9.71 €cents per share (2017: 5.72 €cents per share). On a proforma basis, the basic EPS for the 12 months to 30 September 2018 was 16.72 €cents (2017: 14.74 €cents).
Cashflow and working capital
The Group continues to generate strong cashflow from operating activities. Using a measure by which we judge our underlying operational cashflow, the Group generated free cashflow of €47.9m in the 9 months to 30 September 2018 (2017: €48.6m). This represents a conversion rate from Adjusted EBITDA of 133.6% (2017: 86.3%), and reflects the reversal of the high level of trade receivables at 31 December 2017. On a proforma basis, the Group generated free cashflow of €54.3m in the year to 30 September 2018 (2017 proforma: €52.8m). This represents a strong conversion rate from Adjusted EBITDA of 91.5% (2017: 99.1%).
Dividend and reserves
The Board has proposed a final dividend to shareholders which, when combined with the interim dividend, represents a significant enhancement over the progressive underlying dividend that would have otherwise been paid for the 9 month period to 30 September 2018.
The Board proposes a final dividend of 6.01 €cents per share for the 9 months to 30 September 2018 (2017: €5.72 €cents per share). In effect, the Board has proposed what would be a 12 month dividend that was progressive versus the 5.72 €cents final dividend paid for the year ended 31 December 2017.
When combined with the interim dividend of 2.50 €cents per share paid in September 2018 (2.38 €cents interim dividend paid in September 2017), this totals 8.51 €cents per share for the 9 months to 30 September 2018 (2017: 8.10 €cents per share), and represents an increase of 5.1%. Besides the enhancement of some 3.41 €cents, there are two further benefits for our shareholders: the final dividend is to be paid some three months ahead of last year as a result of the year-end change; and the 8.51 €cents total dividend becomes the base for future dividends under our progressive dividend policy.
If, through the combination of continued strong cash generation and limited M&A activity, the Group finds itself with an inefficient capital structure, the Board will consider making additional shareholder distributions.
During the period, the Company undertook a Reduction of Capital. This involved the cancellation of £155,428,080 standing to the credit of the Company's share premium account. This correspondingly increased the Company's distributable reserves by the same amount. The Reduction of Capital itself did not involve any return of capital to shareholders, or any reduction in the Company's net assets. The rationale for the Reduction of Capital was to increase the Company's distributable reserves, providing the Company with greater headroom and flexibility in the future for the paying of dividends.
Net debt and maturity profile
The Group's Revolving Credit Facility (RCF), which was taken out in 2015, was amended and extended in 2017, and now expires in 2022. Debt can be drawn and repaid at the Group's discretion without penalty or charge. At 30 September 2018, €10.6m of the RCF is used to back excise duty guarantees in Italy and Germany. We also retain a factoring facility capability of €50.0m.
The continued strong cashflow during the 9 month period to 30 September 2018 resulted in Net Debt of €31.6m at 30 September 2018, a decrease of €21.6m from 31 December 2017. Leverage fell to 0.53x (calculated using the proforma Adjusted EBITDA for 2018 not the 9 month reported Adjusted EBITDA) from 0.94x at 31 December 2017.
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 continuing to be the Polish Złoty and the Czech Koruna. Details as to how the Group manages this risk is outlined below. At 30 September 2018, there were no formal hedging instruments in place.
A net positive foreign currency exchange gain of €0.8m was reported within the Adjusted EBITDA over the 9 month period to 30 September 2018. This has arisen on the appreciation of the Polish Złoty and the Czech Koruna versus the Euro.
Changes in accounting policies
The Group adopted IFRS 15 (Revenue from contracts with customers) from 1 January 2018.
The Group adopted IFRS 9 (Financial Instruments) from 1 January 2018. As previously communicated, there was no 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 the 9 month period to 30 September 2018. This remains at 200 million issued shares with a nominal value of £0.10 each.
The Company purchased 1.2 million of its shares in the period, at a cost of €3.5m, to settle future obligations under its share-based reward schemes. These shares provide a natural hedge to the P&L charge arising from the various share schemes in place under IFRS 2 (Classification and Measurement of Share-based Payment Transactions).
Proforma consolidated income statement (unaudited)
for the year ended 30 September 2018
The proforma consolidated income statement has been provided as additional information to the 9 month statutory reported requirements to illustrate the performance of the business on an annualised basis, given the importance of the fourth calendar quarter. This information is unaudited and does not form part of the audited annual financial statements.
Selected income statement information has been extracted from the Group's management accounts for the two comparative years. Further notes to show the segmental analysis and certain assumptions used to calculate the proforma income statement are outlined below.
2018
|
€'000s |
Notes |
Statutory reported 9 mth Sept 2018 |
Add: |
Proforma 12 mth Sept 2018 |
|
Revenue |
|
193,766 |
88,631 |
282,397 |
|
Cost of goods sold |
|
(100,374) |
(43,860) |
(144,234) |
|
Gross profit |
|
93,392 |
44,771 |
138,163 |
|
Selling expenses |
|
(42,541) |
(15,190) |
(57,731) |
|
Other operating expenses |
|
(21,968) |
(8,101) |
(30,069) |
|
Impairment loss on trade and other receivables |
|
(501) |
(810) |
(1,311) |
|
Share of loss of equity-accounted investees, net of tax |
3 |
(166) |
(220) |
(386) |
|
Operating profit |
|
28,216 |
20,450 |
48,666 |
|
Exceptional expenses |
2 |
- |
- |
- |
|
Operating profit after exceptional expenses |
|
28,216 |
20,450 |
48,666 |
|
Finance income |
|
249 |
42 |
291 |
|
Finance costs |
|
(1,938) |
(1,458) |
(3,396) |
|
Profit before tax |
|
26,527 |
19,034 |
45,561 |
|
Income tax expense |
4 |
(7,244) |
(5,087) |
(12,331) |
|
Profit for the period |
|
19,283 |
13,947 |
33,230 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Equity holders of parent |
|
19,283 |
13,947 |
33,230 |
|
|
|
|
|
|
|
Earnings per share (€ cents) attributable to equity holders of the Parent |
7 |
|
|
|
|
Basic |
|
9.71 |
|
16.72 |
|
Diluted |
|
9.66 |
|
16.65 |
2017
|
€'000s |
Notes |
Statutory reported Dec 2017 |
12 mth Dec 2017 (excluding exceptionals) |
Less: |
Add: |
Proforma 12 mth Sept 2017 |
|
Revenue |
|
269,837 |
269,837 |
(88,631) |
78,583 |
259,789 |
|
Cost of goods sold |
|
(137,394) |
(137,394) |
43,860 |
(43,407) |
(136,941) |
|
Gross profit |
|
132,443 |
132,443 |
(44,771) |
35,176 |
122,848 |
|
Selling expenses |
|
(56,044) |
(56,044) |
15,190 |
(14,048) |
(54,902) |
|
Other operating expenses |
|
(29,629) |
(29,629) |
8,101 |
(3,589) |
(25,117) |
|
Impairment loss on trade and other receivables |
|
(1,658) |
(1,658) |
810 |
(207) |
(1,055) |
|
Share of loss of equity-accounted investees, net of tax |
3 |
(331) |
(331) |
220 |
- |
(111) |
|
Operating profit |
|
44,781 |
44,781 |
(20,450) |
17,332 |
41,663 |
|
Exceptional expenses |
2 |
(14,900) |
- |
- |
- |
- |
|
Operating profit after exceptional expenses |
|
29,881 |
44,781 |
(20,450) |
17,332 |
41,663 |
|
Finance income |
|
681 |
681 |
(42) |
112 |
751 |
|
Finance costs |
|
(3,253) |
(3,253) |
1,458 |
(614) |
(2,409) |
|
Profit before tax |
|
27,309 |
42,209 |
(19,034) |
16,830 |
40,005 |
|
Income tax expense |
4 |
(11,280) |
(11,280) |
5,087 |
(4,612) |
(10,805) |
|
Exceptional tax expense |
2 |
(4,700) |
- |
- |
- |
- |
|
Profit for the period |
|
11,329 |
30,929 |
(13,947) |
12,218 |
29,200 |
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
Equity holders of parent |
|
11,329 |
30,929 |
(13,947) |
12,218 |
29,200 |
|
|
|
|
|
|
|
|
|
Earnings per share (€ cents) attributable to equity holders of the Parent |
7 |
|
|
|
|
|
|
Basic |
|
5.72 |
15.61 |
|
|
14.74 |
|
Diluted |
|
5.68 |
15.51 |
|
|
14.64 |
Notes to the proforma consolidated income statement (unaudited)
for the year ended 30 September 2018
The following notes provide detail on further assumptions applied in deriving the financial information presented in the proforma consolidated income statement:
1. Accounting policies and critical areas of judgement: The accounting policies of the Group are applied to the statutory period presented within the financial statements and accompanying notes. The financial information provided for the proforma 12 month period has been derived from this information by extracting selected information from the Group's quarterly consolidated management accounts for the quarters ended December 2016 and December 2017.
Revenue: proforma revenue has been extracted from source accounting records without adjustment. A certain degree of estimation is applied in determining volume rebate deductions from revenue. These estimates are revised each month such that no further adjustment to revenue is necessary for the purposes of the proforma revenue. Revenue rebate adjustments were reviewed, to the extent significant, at both the December 2017 and December 2016 year-ends and no further adjustment to revenue was necessary for the purposes of proforma revenue figures.
In the context of the Group's critical accounting judgments and key sources of estimation uncertainty, the following considerations were made:
a. Taxation: a thorough review of tax risks and exposures has been carried out in June and December of each reporting period, and again as at September 2018. A review of significant judgments and estimates made in the quarterly periods ended December 2016 and December 2017 was undertaken to identify any that would have had a significant impact on September balances. No adjustments were determined to be necessary to the methodology applied as per note 4 below.
b. Impairment of goodwill and indefinite-lived intangible assets: annual impairment reviews were performed as at 31 December of each reporting period prior to current statutory period, and then as at 30 September 2018. The impairment charge recorded against goodwill in the year to 31 December 2017 has been excluded from the proforma financial information as it was classified as an exceptional expense. Given that the annual impairment review required under IAS 36 was performed in each of the proforma periods, and no indicators of impairment were identified in either of the last three reporting periods, no further assumptions were made regarding impairment for the derivation of the proforma financial information.
There are a number of other estimates and judgements made on a routine basis that are not considered significant for the financial statements taken as a whole. No adjustments have been made to September 2016 and September 2017 balances to reflect these.
2. Exceptional expenses: in the year to 31 December 2017, two exceptional non-recurring items were expensed. As they are non-recurring in nature, they have been excluded in the proforma income statement to illustrate underlying comparative performance.
3. Share of loss of equity-accounted investee: on 17 July 2017, Stock invested in a 25% shareholding of Quintessential Brands Ireland Whiskey Limited (QBIWL). Information has been gathered from the management accounts of QBIWL for the year to date September 2017 since acquisition to provide information for the proforma year September 2017. No indicators of impairment was identified during the period since acquisition, and therefore the balances recognised in the proforma periods represented only the share of loss for the relevant period. No adjustments were recorded to the fair value of contingent consideration during the period since investment.
4. Taxation: as the effective tax rates for the Group do not materially change year-on-year, for the period of October to December 2017, the effective tax rate (excluding exceptional tax expenses) has been assumed to be the same as for the reported rate for the year to December 2017, 26.7%. For the period of October to December 2016, the effective tax rate for the year to December 2016 has been assumed, 27.4%.
5. Adjusted EBITDA and Free cash flow: The Group defines adjusted EBITDA as operating profit before depreciation and amortisation, exceptional items and the share of results of equity accounted investees. A reconciliation from profit before tax per the proforma consolidated income statement to adjusted EBITDA is as follows:
|
2018 €'000s |
Statutory reported Sept 2018 |
Add: 2017 |
Proforma 12 mth |
|
Operating profit |
28,216 |
20,450 |
48,666 |
|
Share of loss of equity-accounted investees, net of tax |
166 |
220 |
386 |
|
Depreciation and amortisation |
7,466 |
2,845 |
10,311 |
|
Adjusted EBITDA |
35,848 |
23,515 |
59,363 |
|
Adjusted EBITDA margin |
18.5% |
26.5% |
21.0% |
|
2017 €'000s |
Statutory reported Dec 2017 |
12 mth Dec 2017 (excluding exceptionals) |
Less: 2017 |
Add: 2016 |
Proforma Sept 2017 |
|
Operating profit |
29,881 |
44,781 |
(20,450) |
17,332 |
41,663 |
|
Share of loss of equity-accounted investees, net of tax |
331 |
331 |
(220) |
- |
111 |
|
Depreciation, amortisation and exceptionals |
26,112 |
11,212 |
(2,845) |
3,103 |
11,470 |
|
Adjusted EBITDA |
56,324 |
56,324 |
(23,515) |
20,435 |
53,244 |
|
Adjusted EBITDA margin |
20.5% |
20.9% |
26.5% |
26.0% |
20.5% |
The Group defines free cash flow as cash generated from operating activities (excluding income tax paid), plus the proceeds from the sale of property, plant and equipment and proceeds from the disposal of intangible assets less cash used for the acquisition of property, plant or equipment and for the acquisition of intangible assets. Adjusted free cash flow conversion is free cash flow as a percentage of Adjusted EBITDA.
|
2018 €'000s |
Statutory reported Sept 2018 |
Add: 2017 |
Proforma Sept 2018 |
||
|
Cash generated from operations |
51,394 |
10,552 |
61,946 |
||
|
Payments to acquire property, plant and equipment |
(2,449) |
(3,385) |
(5,834) |
||
|
Payments to acquire intangible assets |
(1,075) |
(756) |
(1,831) |
||
|
Proceeds from sale of property, plant and equipment |
33 |
- |
33 |
||
|
Free cash flow |
47,903 |
6,411 |
54,314 |
||
|
Free cash flow conversion |
133.6% |
27.3% |
91.5% |
||
|
2017 €'000s |
Statutory reported Dec 2017 |
12 mth Dec 2017 (excluding exceptionals) |
Less: |
Add: |
Proforma 12 mth Sept 2017 |
|
Cash generated from operations |
53,619 |
53,619 |
(10,552) |
18,944 |
62,011 |
|
Payments to acquire property, plant and equipment |
(3,710) |
(3,710) |
3,385 |
(2,783) |
(3,108) |
|
Payments to acquire intangible assets |
(1,376) |
(1,376) |
756 |
(5,595) |
(6,215) |
|
Proceeds from sale of property, plant and equipment |
98 |
98 |
- |
(28) |
70 |
|
Free cash flow |
48,631 |
48,631 |
(6,411) |
10,538 |
52,758 |
|
Free cash flow conversion |
86.3% |
86.3% |
27.3% |
51.6% |
99.1% |
6. Segmental analysis
|
2018 |
Poland €000 |
Czech €000 |
Italy €000 |
Other Operational €000 |
Corporate €000 |
Total €000 |
|
External revenue - 9 months reported |
105,648 |
49,220 |
17,592 |
21,306 |
- |
193,766 |
|
Add: Oct-Dec 2017 |
46,936 |
23,961 |
8,165 |
9,569 |
- |
88,631 |
|
External revenue - proforma 12 months |
152,584 |
73,181 |
25,757 |
30,875 |
- |
282,397 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA - 9 months reported |
27,477 |
13,601 |
1,739 |
2,846 |
(9,815) |
35,848 |
|
Add: Oct-Dec 2017 |
12,894 |
8,007 |
2,662 |
2,856 |
(2,904) |
23,515 |
|
Adjusted EBITDA - proforma 12 months |
40,371 |
21,608 |
4,401 |
5,702 |
(12,719) |
59,363 |
|
2017 |
Poland €000 |
Czech €000 |
Italy €000 |
Other Operational €000 |
Corporate €000 |
Total €000 |
|
External revenue - restated reported |
147,496 |
67,712 |
26,224 |
28,405 |
- |
269,837 |
|
Less: Oct-Dec 2017 |
(46,936) |
(23,961) |
(8,165) |
(9,569) |
- |
(88,631) |
|
Add: Oct-Dec 2016 |
40,600 |
20,818 |
7,901 |
9,264 |
- |
78,583 |
|
External revenue - proforma 12 months |
141,160 |
64,569 |
25,960 |
28,100 |
- |
259,789 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA - restated reported |
37,738 |
21,818 |
6,317 |
4,899 |
(14,448) |
56,324 |
|
Less: Oct-Dec 2017 |
(12,894) |
(8,007) |
(2,662) |
(2,856) |
2,904 |
(23,515) |
|
Add: Oct-Dec 2016 |
10,045 |
6,824 |
2,351 |
2,553 |
(1,338) |
20,435 |
|
Adjusted EBITDA - proforma 12 months |
34,889 |
20,635 |
6,006 |
4,596 |
(12,882) |
53,244 |
7. Earnings per share: The proforma earnings per share has been calculated for the basic and diluted measures using the weighted average number of ordinary shares in issue as follows:
a. Proforma year to September 2018: as per the 9 month period ending on the same date of the audited financial statements, as there were no material share schemes vesting or purchased into the employee benefit trust in the last quarter of 2017, nor did options outstanding materially differ over that period;
b. Proforma year to September 2017: the weighted average number of shares as per December 2017 as there were no material share schemes vesting or purchased into the employee benefit trust in the last quarter of 2017 or 2016, nor did options outstanding materially differ over that period.
|
2018 |
Statutory reported |
Proforma |
|
Basic earnings per share |
|
|
|
Profit attributable to the equity shareholders of the Company (€000) |
19,283 |
33,230 |
|
Weighted average number of ordinary shares in issue for basic earnings per share (000) |
198,690 |
198,690 |
|
Basic earnings per share (€ cents) |
9.71 |
16.72 |
|
|
|
|
|
Diluted earnings per share |
|
|
|
Profit attributable to the equity shareholders of the Company (€000) |
19,283 |
33,230 |
|
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000) |
199,606 |
199,606 |
|
Diluted earnings per share (€ cents) |
9.66 |
16.65 |
|
2017 |
Statutory reported |
12 mth Dec 2017 (excluding exceptionals) |
Proforma |
|
Basic earnings per share |
|
|
|
|
Profit attributable to the equity shareholders of the Company (€000) |
11,329 |
30,929 |
29,200 |
|
Weighted average number of ordinary shares in issue for basic earnings per share (000) |
198,104 |
198,104 |
198,104 |
|
Basic earnings per share (€ cents) |
5.72 |
15.61 |
14.74 |
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
Profit attributable to the equity shareholders of the Company (€000) |
11,329 |
30,929 |
29,200 |
|
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000) |
199,467 |
199,467 |
199,467 |
|
Diluted earnings per share (€ cents) |
5.68 |
15.51 |
14.64 |
8. Net debt and leverage: Net debt is defined as the net of balances reported as cash and cash equivalents, loans and borrowings and finance leases.
Leverage, being net debt divided by 12 months adjusted EBITDA, is an important measure for the efficient capital structure of the Group at a point in time, to support organic and inorganic growth. This is also an important measure for both our banks and shareholders. Leverage at 30 September 2018 has therefore been calculated using the net debt value (€31,583,000) divided by proforma adjusted EBITDA 2018 (€59,363,000) = 0.53.
As leverage has been reported as at 31 December 2017 (0.94, see note 11 in the summary financial statements below), there is felt to be no need for a comparative calculation as at 30 September 2017.
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
Kate Allum, Independent Non-Executive Director
Principal risks
Stock Spirits Group believes the following to be the principal risks facing its business and the steps we take to manage and mitigate these risks. Risks are identified and assessed through a combined bottom-up and top-down approach. If any of these risks occur, Stock Spirits' business, financial condition and performance might suffer and the trading price and liquidity of the shares may decline. Not all of these risks are within our control and this list cannot be considered to be exhaustive, as other risks and uncertainties may emerge in a changing business environment. References to changes in 2018 mean changes in the 9 month period ended 30 September 2018.
Risk 1 - Economic and political change
The Group's results are affected by overall economic conditions in its key geographic markets and the level of consumer confidence and spending in those markets. The Group's operations are primarily in Central and Eastern European markets where there is a risk of economic and regulatory uncertainty. In the Group's experience, the local laws and regulations in the region where it operates are not always fully transparent, can be difficult to interpret and may be applied and enforced inconsistently. In addition, the Group's strategy involves expanding its business in some emerging markets, including in certain Central and Eastern European countries that are not members of the European Union. Political, economic and legal systems and conditions in emerging market economies are generally less predictable.
Risk rating
High
Change in 2018 - no change
We have not been significantly impacted by major economic or political changes in our key markets during 2018, although we continue to monitor the budget dispute between the new Italian government and the EU.
How we manage and mitigate
We monitor and analyse economic indicators and consumer consumption trends, which in turn influence our product portfolio and new product development. The majority of countries that we currently operate in are part of the European Union, and therefore are subject to EU regulation. We monitor the economic conditions within each market and review our product portfolio, route to market and adjust our position accordingly.
Risk 2 - Taxes
Increases in taxes, particularly increases to excise duty rates and VAT, could adversely affect demand for the Group's products. Demand for the Group's products is particularly sensitive to fluctuations in excise taxes, since excise taxes generally constitute the largest component of the sales price of spirits. The Group may be exposed to tax liabilities resulting from tax audits. The Group has in the past faced, currently faces and may in the future face, audits and other challenges brought by local tax authorities. Changes in tax laws and related interpretations and increased enforcement actions and penalties may alter the environment in which the Group does business. In addition, certain tax positions taken by the Group are based on industry practice and
external tax advice and/or are based on assumptions and involve a significant degree of judgment.
Risk rating
High
Change in 2018 - increased
See Note 8 Income Taxes for details of the ongoing tax inspections in Poland and Italy and other tax matters.
How we manage and mitigate
Through our membership of local market spirits associations, we seek to engage with local tax and customs authorities as well as government representatives and, where appropriate, provide informed input to the unintended consequences of excise increases e.g. growth of illicit alcohol and potential harm to consumers. The Group engages the services of a professional global firm of tax advisors and undertakes regular audits of our own tax processes, documentation and compliance. We aim to operate the business in a tax-efficient and compliant manner at all times. We make appropriate provisions where tax liabilities appear likely.
Risk 3 - Strategic transactions
Key objectives of the Group are: (i) the development of new products and variants; (ii) expansion, in the Central and Eastern European region and certain other European countries, through the acquisition of additional businesses; and (iii) distribution agreements with world-class brand partners. Unsuccessful launches or failure by the Group to fulfil its expansion plans or integrate completed acquisitions, or maintain and develop its third-party brand relationships could have a material adverse effect on the Group's growth potential and performance.
Risk rating
High
Change in 2018 - increased
Our new product development (NPD) process has been improved and continues to deliver successful innovations such as Bozkov Republica rum and Black Fox herbal bitter liqueur in the Czech Republic. We continuously seek to strengthen our portfolio. During 2018, we commenced launches across our markets of The Dubliner and The Dublin Liberties Irish whiskey brands, building on our 25% investment in Quintessential Brands Ireland Whiskey Limited. In the period, we extended our partnership with Beam Suntory to include the Czech Republic and Slovakian markets, alongside existing markets in Poland, Croatia and Bosnia and Herzegovina. The recent imposition of EU tariffs on US bourbon imports did not impact us immediately, however, we expect the increased costs will flow through with effect from the start of 2019.
How we manage and mitigate
We continue to seek value-accretive acquisition targets and have an experienced management team capable of exploring, pursuing and executing transaction opportunities swiftly and diligently, however the owners of target businesses may have price expectations that are beyond the valuation that we can place on their business. If we are unable to complete meaningful acquisitions, we will consider distributing surplus cash to shareholders. We also continue to invest significant resources in our NPD process as well as exploring opportunities to extend and enhance our third party distribution arrangements.
Risk 4 - Consumer preferences
Shifts in consumer preferences may adversely affect the demand for the Group's products and weaken the Group's competitive position. A decline in the social acceptability of the Group's products may also lead to a decrease in the Group's revenue. In some countries in Europe, the consumption of beverages with higher alcohol content has declined due to changing social attitudes towards drinking.
Risk rating
Medium
Change in 2018 - no change
Our Keglevich brand in Italy continues to suffer from ongoing changes in its target consumers' habits resulting from continuing poor macro-economic conditions in Italy and we continue to see a general decline in consumption of higher alcohol drinks, particularly by young adult drinkers.
During the period we invested significant resources in digital marketing, with the formation of our new Digital Marketing Group to drive more effective use of digital media and analytics and share best practice across the Group.
How we manage and mitigate
The Group undertakes extensive consumer research and has a track record of successful NPD to constantly meet changing consumer needs. We have developed a range of lower alcohol products and feel confident that we have the expertise to continue to develop products that meet and satisfy consumer needs.
Risk 5 - Talent
The Group's success depends substantially upon the efforts and abilities of key personnel and its ability to retain such personnel. The executive management team has significant experience and has made an important contribution to the Group's growth and success. The loss of the services of any member of the executive management team of the Group, could have an adverse effect on the Group's operations. The Group may also not be successful in attracting and retaining such individuals in the future.
Risk rating
Medium
Change in 2018 - no change
During the year we continued to strengthen our management team with new appointments in key marketing and commercial roles in our largest businesses in Poland and Czech respectively. The results of our first annual Employee Engagement Survey were received during the year and the action plans arising from those results continue to be implemented.
How we manage and mitigate
The Group operates a competitive remuneration policy that aims to retain, motivate and, where necessary, attract key individuals. We have developed a leadership framework to guide our talent management and a formal succession planning process to mitigate the risk of losing key personnel. Our annual Colleague Opinion Survey enables us to assess employee engagement levels across the group and act upon the feedback in a systematic way.
Risk 6 - Marketplace and competition
The Group operates in a highly competitive environment and faces competitive pressures from both local and international spirits producers, which may result in pressure on prices and loss of market share. This has been particularly evident in Poland historically. Changes in the Group's distribution channels may also have an adverse effect on the Group's profitability and business. A significant portion of the Group's revenue is derived from a small number of customers. The Group may not be able to maintain its relationships with these customers or renegotiate agreements on favourable terms, or may be unable to collect payments from some customers, which will lead to an impact in its financial condition. The Group is also dependent on a few key products in a limited number of markets which contribute a significant portion of its revenue.
Risk rating
Medium
Change in 2018 - no change
In Poland, we continued to respond to price reductions by competitors and demonstrated our resilience by growing our market share in key categories without a significant impact on our profit margins. We saw a significant growth in sales of private label spirits and liqueurs in the Czech Republic which our Czech business continues to mitigate through strengthening its management of promotions, brand support and activations.
How we manage and mitigate
The Group has mechanisms and strategies in place to mitigate the damage of profit erosion but there is no assurance they may work in the economies and competitive environments in which we operate. We constantly review our distribution channels and our customer relationships. We understand the changing nature of the trade channels and customer positions within those channels. We trade across all channels and actively manage our profit mix by both channel and customer. We have well-established credit control policies and procedures and we put in place trade receivables insurance where it is cost effective to do so.
Risk 7 - Exchange rates
The Group's business operations and results reported in Euros are subject to risks associated with fluctuations in currency exchange rates. The Group generates revenue primarily in Polish Złoty and secondarily in Czech Koruna and a large portion of the Group's assets and liabilities are denominated in Złoty and Koruna. The Group's non-trading activities are conducted through its corporate office in the UK and are mainly transacted in GB Pounds. Additionally, the Group's financial covenants are tested in Euros. Consequently, movement in the other currencies in which the earnings, assets and liabilities of the Group's subsidiaries are denominated could adversely impact the Group's ability to comply with these financial covenants.
Risk rating
Medium
Change in 2018 - increase
Recent world trade volatility, including tariffs imposed by the US, EU and China together with the strength of the US dollar and Brexit, have led to increased currency fluctuations.
How we manage and mitigate
The Group aims to hedge transaction risk by matching cashflows, assets and liabilities through normal commercial business arrangements where possible. For example, all debt is currently drawn in local currency by market. For locations where we have non-trading activities, there is a limitation on the natural hedging that is available to cover currency exchange risk. We monitor currency exposure as an integral part of our monthly review process and, where appropriate, implement hedging instruments. We provide a sensitivity table showing the impact on profit before tax based on changes in the spot exchange rates of our primary earnings currencies within our published Annual Report and Accounts.
Risk 8 - Disruption to operations or systems
The Group's operating results may be adversely affected by disruption to its production and storage facilities, in particular its main production facilities in Poland and the Czech Republic, or by a breakdown of its information or management control systems.
Risk rating
Medium
Change in 2018 - no change
During 2018, we commenced an IT project to upgrade to a single version of SAP S4/Hana, to improve access to consistent information across the group, deliver analytical reports and insights and further automate controls and standardise processes across the Group.
How we manage and mitigate
In addition to holding appropriate insurance cover to protect the business in the event of a production disruption or other business interruption, our two primary bottling sites offer sufficient flexibility that each site is capable of bottling all of our core SKUs. We also have well-established and tested Business Continuity and Disaster Recovery policies. Our information and management control systems are subject to internal audit following a risk-based methodology. We also periodically engage independent specialists to assess and test the security and resilience of our network against hacking and other cyber threats, which include penetration testing, and we retained our Cyber Essentials certification.
Risk 9 - Laws and regulations
The Group is subject to extensive laws and regulations limiting advertising, promotions and access to its products, as well as laws and regulations relating to its operations, such as health, safety and environmental laws. These regulations and any changes to these regulations could limit its business activities or increase costs. In some cases, such as the recent introduction in Poland of restrictions on retailers trading on Sundays, the changes in law impact the Group indirectly. The Group may be affected by litigation directed at the alcoholic beverages industry and other litigation such as intellectual property disputes, product liability claims, product labelling disputes and administrative claims. The Group may be exposed to civil or criminal liabilities under anti-bribery or anti-trust laws and any violation of such laws could have a material adverse effect on its reputation and business.
Risk rating
Medium
Change in 2018 - increased
We implemented new policies and procedures to ensure compliance with the EU General Data Protection Regulation which took effect in May 2018. The EU passed a law to restrict the use of a particular rum aroma used in our Bozkov Tuzemsky product in the Czech Republic. Through the Czech spirits industry association and the relevant Czech government departments, we closely monitored and participated in the process and thereby avoided significant impact upon our business. In Slovakia, a law was passed in September 2018 to permit home distillation of spirits, subject to certain restrictions and requirements.
How we manage and mitigate
The Group has established clear processes and controls to monitor compliance with laws and regulations, and changes to them, and also any litigation action. We operate a detailed anti-bribery and anti-trust policy and process. Regular update training is conducted across the business and we undertake regular reviews and independent internal audits to assess the adequacy and effectiveness of our policy and processes.
Risk 10 - Supply of raw materials
Changes in the prices or availability of supplies and raw materials could have a material adverse effect on the Group's business. Commodity price changes may result in increases in the cost of raw materials and packaging materials for the Group's products due to a variety of factors outside the Group's control. The Group may not be able to pass on increases in the costs of raw materials to its customers and, even if it is able to pass on cost increases, the adjustments may not be immediate and may not fully offset the extra costs or may cause a decline in sales volumes. Extreme weather conditions and climate change may damage supplies of key raw materials such as grain, resulting in more extreme price spikes and supply shortages. Energy price fluctuations can impact us both directly and indirectly through our supply chain. Labour costs may also rise ahead of our ability to pass through such costs.
Risk rating
Medium
Change in 2018 - increased
Grain prices were adversely affected by poor harvests, however, our cost optimisation initiatives in procurement, including more centralised purchasing, have ensured that cost of goods sold to remains broadly consistent with the prior year.
How we manage and mitigate
We closely monitor the key markets in order to optimise our purchasing. Where possible and appropriate the Group will negotiate term contracts for the supply of core raw materials and services on competitive terms to manage pricing fluctuations.
Risk 11 - Funding and liquidity
Market conditions could subject the Group to unexpected needs for liquidity, which may require the Group to increase its levels of indebtedness. Access to financing in the longer term depends on a variety of factors outside the Group's control, including capital and credit market conditions. Higher interest rates and more stringent borrowing requirements could increase the Group's financing charges and reduce profitability.
Risk rating
Medium
Change in 2018 - no change
Significantly lower finance costs continued during 2018 as a result of the refinancing of bank facilities in 2015 and we continue to enjoy those financing facilities until November 2022.
How we manage and mitigate
The Group maintains a strong focus on cash, our future requirements for funding and the overall external market for financing. We undertake regular and detailed reviews of both short-term and longer-term liquidity requirements by market, including our growth ambitions. We are confident that we have the appropriate processes and relationships in place to respond to any unexpected liquidity needs and have not only secured lower cost and more flexible re-financing, but have also placed ourselves in the best position to access funding in the longer term.
As far as Brexit is concerned, we do not consider it to be a principal risk. For completeness, we include a summary of our risk assessment below. For risk management purposes, it is prudent to assume the most disruptive outcome of a no-deal exit in March 2019. As stated in our previous reports, given that we do not produce or export from the UK and have minimal sales in the UK, we continue to believe the impact of Brexit is unlikely to be significant for us. We have analysed the potential impacts under six main categories:
· Trade - our supply chain is predominantly non-UK based. We have very few UK suppliers, therefore the risk of additional duties, tariffs or import/export procedures is unlikely to affect us in a material way. One of our few UK sourced supplies for our EU businesses is Scotch whisky, which could be subjected to EU tariffs or other restrictions. However, it represents an insignificant part of our Group's revenues and profits. Some of our suppliers may supply other customers in the UK and therefore could be financially weakened by duties, tariffs or other increased costs arising from Brexit, possibly causing a knock-on impact on their ability or cost to supply us; but we are not aware of any suppliers on whom we are dependent who would fall into this category. We do not have any selling activity from our UK companies to EU customers. Whilst there may be additional Customs and/or VAT rules for supply of our products from our EU subsidiaries to our UK distributor, which could increase prices and delivery lead times, the UK market is an insignificant part of our Group's revenue and profits.
· Taxes - the loss of EU directives such as the parent-subsidiary directive may cause payment of dividends, interest and/or royalties from an EU subsidiary to a UK parent to be subject to withholding tax, but double taxation agreements or specific exemptions may fully or partly mitigate this and we will seek to apply them accordingly. We expect transfer pricing involving UK and EU group companies to come under even greater scrutiny post-Brexit and we are confident that the intra-group services arrangements we have in place are robust, well documented and compliant with current legislation.
· People - after Brexit, it is expected that employees' ability to transfer between the UK and EU countries will be restricted. We have relatively little international mobility among our employees therefore we would not expect any material impact. In addition, the removal of the UK from European legislation and the rulings of the European Court of Justice may, over time, create differences in employment laws in relation to social security, working time, minimum wage and equality. Again, we do not expect this to have any significant impact given our very small population of UK employees.
· Economic - the loss of the UK's net contribution to the EU budget is likely to impact the remaining EU countries, particularly net recipients such as Poland and Czech Republic The impact may be both direct, through a reduced EU funding pot, but also indirect by causing the GDP per capita in such countries to increase compared to the EU average and therefore reduce such countries' eligibility for EU funds.
· Financial - The Group's credit facility runs until November 2022, therefore we have no need to access credit markets in the near future when they may be affected by Brexit.
· Other - It is currently intended that the 'Great Repeal Bill' will implement the vast majority of EU law that currently applies to the UK directly into UK law. As a result we do not anticipate significant disruption in our compliance processes.
Consolidated income statement
as at 30 September 2018
|
|
|
9 months to 30 September |
Year to 31 December |
|
|
|
2018
|
2017 Restated ˡ |
|
|
Notes |
€000 |
€000 |
|
|
|
|
|
|
Revenue |
3,4 |
193,766 |
269,837 |
|
Cost of goods sold |
|
(100,374) |
(137,394) |
|
|
|
|
|
|
Gross profit |
|
93,392 |
132,443 |
|
Selling expenses |
|
(42,541) |
(56,044) |
|
Other operating expenses |
|
(21,968) |
(29,629) |
|
Impairment loss on trade and other receivables |
|
(501) |
(1,658) |
|
Share of loss of equity-accounted investees, net of tax |
10 |
(166) |
(331) |
|
|
|
|
|
|
Operating profit before exceptional expense |
|
28,216 |
44,781 |
|
|
|
|
|
|
Exceptional expense |
6 |
- |
(14,900) |
|
|
|
|
|
|
Operating profit |
|
28,216 |
29,881 |
|
Finance income |
7 |
249 |
681 |
|
Finance costs |
7 |
(1,938) |
(3,253) |
|
|
|
|
|
|
Profit before tax |
|
26,527 |
27,309 |
|
Income tax expense |
8 |
(7,244) |
(11,280) |
|
Exceptional tax expense |
6, 8 |
- |
(4,700) |
|
Profit for the period |
|
19,283 |
11,329 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of the Parent |
|
19,283 |
11,329 |
|
|
|
|
|
|
Earnings per share, (€cents) attributable to equity holders of the Parent |
|
|
|
|
Basic |
9 |
9.71 |
5.72 |
|
Diluted |
9 |
9.66 |
5.68 |
|
|
|
|
|
|
|
1. The Group has adopted IFRS 15 using the full retrospective method, and therefore the requirements of IFRS 15 have been applied to each period presented in the consolidated financial statements. Accordingly, revenue and selling expenses presented for 2017 have been restated.
Consolidated statement of financial position
as at 30 September 2018
|
|
|
|
|
|
|
|
30 September |
31 December |
|
|
|
2018 |
2017 |
|
|
Notes |
€000 |
€000 |
|
Non-current assets |
|
|
|
|
Intangible assets - goodwill |
|
45,940 |
45,940 |
|
Intangible assets - other |
|
311,129 |
311,614 |
|
Property, plant and equipment |
|
47,265 |
50,871 |
|
Investment in equity-accounted investee |
10 |
16,994 |
17,160 |
|
Deferred tax assets |
8 |
589 |
4,151 |
|
Other assets |
|
4,742 |
4,770 |
|
|
|
|
|
|
|
|
426,659 |
434,506 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Inventories |
|
30,711 |
23,101 |
|
Trade and other receivables |
|
119,238 |
163,162 |
|
Other assets |
|
135 |
- |
|
Current tax assets |
8 |
863 |
715 |
|
Cash and cash equivalents |
12 |
50,143 |
61,341 |
|
|
|
|
|
|
|
|
201,090 |
248,319 |
|
|
|
|
|
|
Total assets |
|
627,749 |
682,825 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Financial liabilities |
|
81,300 |
114,048 |
|
Other financial liabilities |
|
2,692 |
2,600 |
|
Deferred tax liabilities |
8 |
47,421 |
47,501 |
|
Provisions |
|
1,082 |
1,051 |
|
Trade and other payables |
|
287 |
416 |
|
|
|
|
|
|
|
|
132,782 |
165,616 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
72,080 |
73,915 |
|
Financial liabilities |
|
16 |
48 |
|
Other financial liabilities |
|
66 |
83 |
|
Income tax payable |
8 |
8,149 |
8,395 |
|
Indirect tax payable |
|
62,058 |
79,256 |
|
Provisions |
|
717 |
1,203 |
|
|
|
|
|
|
|
|
143,086 |
162,900 |
|
|
|
|
|
|
Total liabilities |
|
275,868 |
328,516 |
|
|
|
|
|
|
Net assets |
|
351,881 |
354,309 |
Consolidated statement of financial position
For the period ended 30 September 2018
|
|
|
30 September |
31 December |
|
|
|
2018 |
2017 |
|
|
|
€000 |
€000 |
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
Issued capital |
|
23,625 |
23,625 |
|
Share premium |
|
- |
183,541 |
|
Merger reserve |
|
99,033 |
99,033 |
|
Consolidation reserve |
|
5,130 |
5,130 |
|
Own share reserve |
|
(3,370) |
(306) |
|
Other reserve |
|
11,406 |
11,277 |
|
Foreign currency translation reserve |
|
13,915 |
15,829 |
|
Retained earnings |
|
202,142 |
16,180 |
|
Total equity |
|
351,881 |
354,309 |
|
|
|
|
|
|
Total equity and liabilities |
|
627,749 |
682,825 |
Consolidated statement of cashflows
For the period ended 30 September 2018
|
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
Notes |
€000 |
€000 |
|
Operating activities |
|
|
|
|
Profit for the period |
|
19,283 |
11,329 |
|
Adjustments to reconcile profit for the period to net cashflows: |
|
|
|
|
Income tax expense recognised in income statement |
8 |
7,244 |
15,980 |
|
Interest expense and bank commissions |
7 |
1,938 |
3,169 |
|
(Gain)/loss on disposal of tangible assets |
|
(19) |
538 |
|
Other financial income |
7 |
(93) |
(681) |
|
Depreciation of property, plant and equipment |
|
6,424 |
9,894 |
|
Amortisation of intangible assets |
|
1,042 |
1,318 |
|
Impairment of goodwill |
|
- |
14,900 |
|
Net foreign exchange (gain)/loss |
|
(156) |
84 |
|
Share-based compensation |
|
129 |
1,942 |
|
Share of loss of equity-accounted investees, net of tax |
10 |
166 |
331 |
|
(Decrease)/increase in provisions |
|
(455) |
775 |
|
|
|
35,503 |
59,579 |
|
Working capital adjustments |
|
|
|
|
Decrease/(increase) in trade receivables and other assets |
|
43,817 |
(30,505) |
|
Increase in inventories |
|
(7,610) |
(1,443) |
|
(Decrease)/increase in trade payables and other liabilities |
|
(20,316) |
25,988 |
|
|
|
15,891 |
(5,960) |
|
Cash generated by operations |
|
51,394 |
53,619 |
|
Income tax paid |
8 |
(4,458) |
(6,959) |
|
Net cashflows from operating activities |
|
46,936 |
46,660 |
|
Investing activities |
|
|
|
|
Interest received |
7 |
93 |
681 |
|
Payments to acquire intangible assets |
|
(1,075) |
(1,376) |
|
Proceeds from sale of property, plant and equipment |
|
33 |
98 |
|
Purchase of property, plant and equipment |
|
(2,449) |
(3,710) |
|
Purchase of equity-accounted investees |
|
- |
(15,000) |
|
Net cashflow from investing activities |
|
(3,398) |
(19,307) |
|
Financing activities |
|
|
|
|
Repayment of borrowings |
|
(32,015) |
(20,128) |
|
Interest paid |
|
(1,773) |
(3,147) |
|
Purchase of own shares |
|
(3,532) |
(116) |
|
Dividends paid to equity holders of the parent |
|
(16,398) |
(15,730) |
|
Net cashflow from financing activities |
|
(53,718) |
(39,121) |
|
Net decrease in cash and cash equivalents |
|
(10,180) |
(11,768) |
|
Cash and cash equivalents at the start of the period |
|
61,341 |
74,956 |
|
Effect of exchange rates on cash and cash equivalents |
|
(1,018) |
(1,847) |
|
Cash and cash equivalents at the end of the period |
12 |
50,143 |
61,341 |
|
|
|
|
|
|
|
|
|
|
Notes to the consolidated financial statements
at 30 September 2018
1. Corporate information
These consolidated financial statements were approved and authorised for issue by the Board of Directors of Stock Spirits Group PLC (the Company) on 5 December 2018.
Stock Spirits Group PLC is domiciled in England. The Company's registered office is at Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH, United Kingdom.
The Company, together with its subsidiaries (the Group), is involved in the production and distribution of branded spirits in Central and Eastern Europe.
2. Basis of preparation
These financial statements are consistent with the consolidated financial statements of the Group for the period ended 30 September 2018. These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. International Financial Reporting Standards are issued by the International Accounting Standard Board (IASB).
These consolidated financial statements have been prepared on a going concern basis as the Directors believe there are no material uncertainties that lead to significant doubt that the entity can continue as a going concern for a period of at least 12 months from the date of approval of the financial statements.
3. Revenue
An analysis of the Group's revenue is set out below:
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Revenue from the sale of spirits, gross of excise taxes |
557,221 |
789,535 |
|
Other sales |
3,039 |
3,025 |
|
Excise taxes |
(366,494) |
(522,723) |
|
|
|
|
|
Revenue |
193,766 |
269,837 |
4. Segmental analysis
In identifying its operating segments, management follows the Group's geographic split, representing the main products traded by the Group. The Group is considered to have five reportable operating segments: Poland, Czech Republic, Italy, Other Operational and Corporate. The Other Operational segment consists of the results of operations of the Slovakian, International and Baltic distillery entities. The 'Corporate' segment consists of expenses and central costs incurred by non-trading Group entities.
Each of these operating segments is managed separately as each of these geographic areas requires different marketing approaches. All inter-segment transfers are carried out at arm's length prices. The measure of revenue reported to the chief operating decision-maker to assess performance is based on external revenue for each operating segment and excludes intra-Group revenues. The measure of Adjusted EBITDA reported to the chief operating decision-maker to assess performance is based on operating profit and excludes intra-Group profits, depreciation, amortisation and exceptional items.
The Group has presented a reconciliation from profit before tax per the consolidated income statement to Adjusted EBITDA below:
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
Profit before tax |
26,527 |
27,309 |
|
Share of loss of equity-accounted investees, net of tax |
166 |
331 |
|
Net finance charges |
1,689 |
2,572 |
|
|
28,382 |
30,212 |
|
Depreciation and amortisation |
7,466 |
11,212 |
|
EBITDA |
35,848 |
41,424 |
|
Exceptional expense (note 6) |
- |
14,900 |
|
Adjusted EBITDA |
35,848 |
56,324 |
Total assets and liabilities are not disclosed as this information is not provided by segment to the chief operating decision-maker on a regular basis.
|
|
Poland |
Czech Republic |
Italy |
Other Operational |
Corporate |
Total |
|
2018 |
€000 |
€000 |
€000 |
€000 |
€000 |
€000 |
|
|
|
|
|
|
|
|
|
External revenue |
105,648 |
49,220 |
17,592 |
21,306 |
- |
193,766 |
|
Adjusted EBITDA |
27,477 |
13,601 |
1,739 |
2,846 |
(9,815) |
35,848 |
|
|
|
|
|
|
|
|
|
|
Poland |
Czech Republic |
Italy |
Other Operational |
Corporate |
Total |
|
2017 - restated |
€000 |
€000 |
€000 |
€000 |
€000 |
€000 |
|
|
|
|
|
|
|
|
|
External revenue |
147,496 |
67,712 |
26,224 |
28,405 |
- |
269,837 |
|
EBITDA after exceptional expense |
37,738 |
21,818 |
(8,583) |
4,899 |
(14,448) |
41,424 |
|
Exceptional expense (note 6) |
- |
- |
14,900 |
- |
- |
14,900 |
|
Adjusted EBITDA |
37,738 |
21,818 |
6,317 |
4,899 |
(14,448) |
56,324 |
External revenue by operating segment in 2017 has been restated for the impact of IFRS 15. There is no impact to EBITDA by operating segment, however as a consequence of the restatement of revenue, EBITDA margin has improved by 0.4% to 20.9%.
5. Adjusted EBITDA and Free Cash Flow
The Group defines Adjusted EBITDA as operating profit before depreciation and amortisation, exceptional items and the share of results of equity-accounted investees. Adjusted EBITDA and Adjusted free cashflow conversion are supplemental measures of the Group's performance and liquidity that is not required to be presented in accordance with IFRS.
The directors use the Adjusted EBITDA and Adjusted free cashflow conversion as the performance measures of the business. They remove significant items that would otherwise distort comparability.
The use of these alternative performance measures is consistent with how institutional investors consider the performance of the Group. These measures are not defined in IFRS and thus may not be comparable to similarly titled measures by other companies.
|
Adjusted EBITDA
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
Operating profit |
28,216 |
29,881 |
|
Exceptional expense |
- |
14,900 |
|
Share of results of equity-accounted investees, net of tax |
166 |
331 |
|
|
28,382 |
45,112 |
|
Depreciation and amortisation |
7,466 |
11,212 |
|
Adjusted EBITDA |
35,848 |
56,324 |
|
|
|
|
|
Adjusted EBITDA margin |
18.5% |
20.9% |
The Group defines free cashflow as cash generated from operating activities (excluding income tax paid), plus the proceeds from the sale of property, plant and equipment and proceeds from the disposal of intangible assets less cash used for the acquisition of property, plant or equipment and for the acquisition of intangible assets. Adjusted free cashflow conversion is free cashflow as a percentage of Adjusted EBITDA.
|
Free cashflow |
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
Cash generated from operations |
51,394 |
53,619 |
|
Payments to acquire property, plant and equipment |
(2,449) |
(3,710) |
|
Payments to acquire intangible assets |
(1,075) |
(1,376) |
|
Proceeds from sale of property, plant and equipment |
33 |
98 |
|
Free cashflow |
47,903 |
48,631 |
|
|
|
|
|
Adjusted free cashflow conversion |
133.6% |
86.3% |
|
|
|
|
|
|
|
|
6. Exceptional items
In 2018, the Group has no exceptional items (2017: exceptional expenses of €14,900,000 and exceptional tax charge of €4,700,000).
During 2017, the impairment review for goodwill identified the need to impair the goodwill held for the Italian brands by €14,900,000. Due to the size of the impairment and the nature of the transaction, it was disclosed as an exceptional expense.
Due to a change in tax legislation in Poland during the year to 31 December 2017, tax amortisation on our Polish brands ceased to be available. This resulted in a significant one-off deferred tax charge of €4,700,000, which was classified in accordance with our accounting policies as an exceptional charge. See note 8 for further information.
7. Finance income and costs
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
Finance income: |
|
|
|
Foreign currency exchange gain |
156 |
- |
|
Interest income |
93 |
681 |
|
|
|
|
|
Total finance income |
249 |
681 |
|
|
|
|
|
Finance costs: |
|
|
|
Interest payable on bank overdrafts and loans |
1,200 |
1,384 |
|
Foreign currency exchange loss |
- |
84 |
|
Bank commissions, guarantees and other payables |
514 |
788 |
|
Other interest expense |
224 |
997 |
|
|
|
|
|
Total finance costs |
1,938 |
3,253 |
|
|
|
|
|
Net finance costs |
1,689 |
2,572 |
8. Income taxes
(i) Income tax recognised in profit or loss:
|
Income tax expense: |
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
Tax expense comprises:
|
|
|
|
Current tax expense |
3,455 |
5,826 |
|
Tax expense relating to prior year |
327 |
213 |
|
Deferred tax charge |
3,367 |
5,219 |
|
Other taxes |
95 |
22 |
|
|
|
|
|
Total tax expense |
7,244 |
11,280 |
|
|
|
|
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
Exceptional tax expense: |
€000 |
€000 |
|
|
|
|
|
Deferred tax charge |
- |
4,700 |
There have been no tax charges to other comprehensive income.
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Profit before tax |
26,527 |
27,309 |
|
|
|
|
|
Accounting profit multiplied by United Kingdom combined rate of corporation tax 19.00% (2017: 19.25%) |
5,040 |
5,257 |
|
Expenses not deductible for tax purposes |
|
|
|
- Goodwill impairment |
- |
2,868 |
|
- Other |
1,189 |
1,363 |
|
Tax losses for which no deferred tax is recognised |
964 |
1,384 |
|
Deferred tax not previously recognised |
(351) |
- |
|
Effect of difference in tax rates |
16 |
248 |
|
Tax charge relating to prior year |
327 |
213 |
|
Taxable profit relieved against brought forward losses |
(36) |
(75) |
|
Other taxes |
95 |
22 |
|
|
|
|
|
Income tax expense reported in the income statement |
7,244 |
11,280 |
|
|
|
|
|
Exceptional tax expense - impact of post-IPO corporate restructuring |
- |
4,700 |
|
|
|
|
|
Total tax charge |
7,244 |
15,980 |
|
|
|
|
|
Effective tax rate
|
27.3% |
58.5% |
|
|
|
|
Post-IPO corporate restructuring
Post-IPO the Group completed corporate restructuring transactions which gave rise to a significant deferred tax assets which were being amortised over a five-year period. Due to tax legislation changes in Poland, from 1 January 2018, amortisation on these items was no longer deductible for tax purposes. This resulted in an exceptional tax charge of €4,700,000 in the year to 31 December 2017. The charge is considered exceptional because it is a significant transaction resulting from the change in tax legislation.
(ii) Income tax recognised in the balance sheet:
Current tax liability:
|
|
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Tax prepayments as of 1 January |
715 |
411 |
|
Current tax liability as of 1 January |
(8,395) |
(8,926) |
|
Tax charge relating to prior year |
(327) |
(213) |
|
Payments in period |
4,458 |
6,959 |
|
Current tax expense |
(3,455) |
(5,826) |
|
Other taxes |
(95) |
(22) |
|
Interest on open tax enquiries |
(199) |
- |
|
Foreign exchange adjustment |
12 |
(63) |
|
|
|
|
|
Net current tax liability |
(7,286) |
(7,680) |
|
|
|
|
|
Analysed as: |
|
|
|
Tax prepayment as of end of period |
863 |
715 |
|
Current tax liability as of end of period |
(8,149) |
(8,395) |
|
|
|
|
|
|
(7,286) |
(7,680) |
The Group is an international drinks business and, as such, transfer pricing arrangements are in place to cover the recharging of management and stewardship costs, as well as the sale of alcohol and finished goods between Group companies. The Group has undertaken a review of potential tax risks and current tax assessments, and whilst it is not possible to predict the outcome of any pending enquiries, adequate provisions are considered to have been included in the Group accounts to cover any expected estimated future settlements.
In common with many groups operating across multiple jurisdictions, certain tax positions related to inter-company transactions may be subject to challenge by the relevant tax authority. The Group has recognised provisions totalling €8,001,000 (2017: €7,514,000) in relation to matters where it is probable that tax positions taken by the Group will not be accepted.
Tax risks include those in respect of our Italian business, Stock S.r.l. The Italian tax authorities have open inquiries covering the years 2006-2010. Rulings from the Second Court have resulted in a net increase in provisions in the period of €1,123,000 including associated interest of €199,000. The Group will continue to challenge these rulings.
During 2017, a tax judgement was made against the Group's Czech subsidiary, Stock Plzeň-Božkov s.r.o., and therefore provisions were made as at 31 December 2017 for income tax due of €636,000 and associated interest and penalties of €631,000. These amounts were paid during 2018 such that the provision as at 30 September 2018 is €nil. Notwithstanding these payments, Stock Plzeň-Božkov is vigorously contesting the assessment.
Settlement has been reached during the period on the inquiry into the 2015 corporate tax return for the Group's German subsidiary, Baltic Distillery GmbH, with agreement to pay tax of €298,000 and interest of €33,000. These amounts were fully covered in brought forward provisions.
In 2016, the Group's Polish subsidiary, Stock Polska Sp. z.o.o., received notification from the Polish tax authorities of the commencement of an inquiry covering its 2013 corporate income tax return. To date, there has been no formal assessment although written enquiries were received in March 2018 and in October 2018, and most recently in late November 2018 after the balance sheet date.
The enquiries cover a number of items, the most significant of which relates to corporate restructuring transactions carried out in Poland around the time of the IPO in 2013 which gave rise to tax deductible costs in the form of the amortisation of intellectual property ('IP') assets claimed in tax returns up to 2017. The Group obtained individual tax rulings relevant for the restructuring process prior to implementation. Whilst it is the case that there could be a risk of material exposure arising from this inquiry, the Group does not consider there to be any basis to the challenge on this matter by the Polish tax authority and has thus responded to them accordingly. No provision has been recorded in relation to the IP inquiry since, at this stage, the Group considers it to be highly unlikely that any liability will ultimately crystallise. The amount of tax in relation to the amortisation of the IP assets and other related matters in 2013 is some €3,300,000. Although not subject to any enquiry at this stage, tax deductions claimed in respect of these matters in each of the years 2014 to 2017 are in the range between €5,800,000 and €6,300,000. These sums exclude penalty interest that would be applied and calculated from the year concerned up to the current day. The interest rate as published by the Polish Ministry of Finance that could be applied is in the range of 8% and 13% on the years between 2013 and the current day. Management considers that ultimately it is probable that the tax position taken will be sustained, and therefore no provision has been recognised for this issue. Nevertheless, in some circumstances the Group may have to pay over sums assessed as due by the authorities and then seek their recovery as appeals processes run their course.
The other element of these written enquiries in Poland is in relation to historical transfer pricing arrangements between Group companies during the years 2013 to 2016. A provision of €3,684,000 in relation to this and other transfer pricing issues is held as at 31 December 2017 and 30 September 2018.
Although our transfer pricing is performed on an arms' length basis, it is management's view that there is risk of further assessments regarding intercompany transactions in certain jurisdiction, and thus a provision is carried for this eventuality. Although provisions are based on management's assessment of the most likely or expected outcome, there is a reasonable possibility of material changes to these estimates over the next twelve months.
Impact of Brexit
On 29 March 2017, the UK government invoked Article 50 of the Treaty of Lisbon, notifying the European Council of its intention to withdraw from the EU. There is an initial two-year timeframe for the UK and EU to reach an agreement on the withdrawal and the future UK and EU relationship, although this timeframe can be extended. At this stage, there is significant uncertainty about the withdrawal process, its timeframe and the outcome of the negotiations about the future arrangements between the UK and the EU. As a result, there is significant uncertainty over the period for which the existing EU laws for member states will continue to apply to the UK and which laws will apply to the UK after an exit. Following the negotiations between the UK and the EU, the UK's tax status may change and this may impact the Group, for example as it relates to distributions from subsidiaries over which no tax is currently payable due to the EU Parent Subsidiary Directive. However, at this stage the level of uncertainty is such that it is impossible to determine if, how and when that tax status will change.
(iii) Unrecognised tax losses
The Group has tax losses which arose in the UK of €45,834,000 as at 30 September 2018 (31 December 2017: €32,298,000) that are available indefinitely for off-set against future taxable profits of the companies in which the losses arose. A deferred tax asset has not been recognised in respect of these losses as it is not sufficiently probable that the losses will be utilised in the relevant entities.
(iv) Deferred tax balances
The exceptional tax expense is included in the amount charged in 2017 on the Brands.
Deferred tax assets and liabilities arise from the following:
|
|
1 January 2018 |
(Charged)/ credited to income |
Translation difference |
30 September |
|
2018 |
€000 |
€000 |
€000 |
€000 |
|
Temporary differences: |
|
|
|
|
|
Brands |
(55,085) |
(54) |
124 |
(55,015) |
|
Accrued liabilities |
7,956 |
(1,812) |
(204) |
5,940 |
|
Other assets and liabilities |
3,779 |
(1,501) |
(35) |
2,243 |
|
|
|
|
|
|
|
|
(43,350) |
(3,367) |
(115) |
(46,832) |
|
|
|
|
|
|
|
Deferred tax asset |
4,151 |
(3,469) |
(93) |
589 |
|
Deferred tax liability |
(47,501) |
102 |
(22) |
(47,421) |
|
|
|
|
|
|
|
|
(43,350) |
(3,367) |
(115) |
(46,832) |
|
|
|
|
|
|
|
|
1 January 2017 |
(Charged)/ credited to income |
Translation difference |
31 December |
|
2017 |
€000 |
€000 |
€000 |
€000 |
|
Temporary differences: |
|
|
|
|
|
Brands |
(42,687) |
(11,145) |
(1,253) |
(55,085) |
|
Accrued liabilities |
4,475 |
3,685 |
(204) |
7,956 |
|
Other assets and liabilities |
5,534 |
(2,459) |
704 |
3,779 |
|
|
|
|
|
|
|
|
(32,678) |
(9,919) |
(753) |
(43,350) |
|
|
|
|
|
|
|
Deferred tax asset |
13,255 |
(9,670) |
566 |
4,151 |
|
Deferred tax liability |
(45,933) |
(249) |
(1,319) |
(47,501) |
|
|
|
|
|
|
|
|
(32,678) |
(9,919) |
(753) |
(43,350) |
Brands
Deferred tax liability is based on the difference between the accounting and tax book values of brands, and calculated using the appropriate substantively enacted tax rate.
(v) Change in tax rates
A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) was substantively enacted on 15 September 2016. A further reduction to 17% (effective from 1 April 2020) was also substantively enacted on this date. The deferred tax asset or liability at 30 September 2018 has been calculated based on the appropriate tax rates. There are no UK deferred tax assets or liabilities to which this new rate will be applied.
9. Earnings per share
Basic earnings per share amounts are calculated by dividing the profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. Adjusted earnings per share amounts exclude the impact of the significant items that would otherwise distort comparability and distort understanding of the underlying performance of the Group.
|
Details of the earnings per share are set out below: |
9 months to 30 September 2018 |
Year to 31 December 2017 |
|
Basic earnings per share |
|
|
|
Profit attributable to the equity shareholders of the Company (€000) |
19,283 |
11,329 |
|
Weighted average number of ordinary shares in issue for basic earnings per share (000) |
198,690 |
198,104 |
|
Basic earnings per share (€cents) |
9.71 |
5.72 |
|
|
|
|
|
Diluted earnings per share |
|
|
|
Profit attributable to the equity shareholders of the Company (€000) |
19,283 |
11,329 |
|
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000) |
199,606 |
199,467 |
|
Diluted earnings per share (€cents) |
9.66 |
5.68 |
|
|
|
|
|
Adjusted basic earnings per share |
|
|
|
Profit attributable to the equity shareholders of the Company (€000) Exceptional expense (€000) Exceptional tax charge (€000) |
19,283 - - |
11,329 14,900 4,700 |
|
Profit attributable to the equity shareholders of the Company before exceptional expenses and exceptional tax charges (€000) |
19,283 |
30,929 |
|
|
|
|
|
Weighted average number of ordinary shares in issue for adjusted basic earnings per share (000) |
198,690 |
198,104 |
|
Adjusted basic earnings per share (€cents) |
9.71 |
15.61 |
|
|
|
|
|
Adjusted diluted earnings per share |
|
|
|
Profit attributable to the equity shareholders of the Company (€000) Exceptional expense (€000) Exceptional tax charge (€000) |
19,283 - - |
11,329 14,900 4,700 |
|
Profit attributable to the equity shareholders of the Company before exceptional expenses and exceptional tax charges(€000) |
19,283
|
30,929 |
|
|
|
|
|
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000) |
199,606 |
199,467 |
|
Adjusted diluted earnings per share (€cents) |
9.66 |
15.51 |
|
Reconciliation of basic to diluted ordinary shares |
9 months to 30 September 2018 000 |
Year to 31 December 2017 000 |
|
|
|
|
|
Issued Ordinary shares |
200,000 |
200,000 |
|
Effect of Own shares held |
(1,310) |
(1,896) |
|
Basic weighted average number of Ordinary shares |
198,690 |
198,104 |
|
|
|
|
|
Effect of options |
916 |
1,363 |
|
Diluted weighted average number of Ordinary shares |
199,606 |
199,467 |
There have been no transactions involving the Group's ordinary shares between the reporting date and the date of authorisation of these financial statements.
10. Investment in equity-accounted investees
On 17 July 2017, Stock Spirits entered into an agreement with Quintessential Brands Group for the acquisition of a 25% equity interest in Quintessential Brands Ireland Whiskey Limited for a cash consideration of up to €18,333,000. Consideration comprised of an initial cash payment of €15,000,000 for 25% of the equity interest, and a contingent consideration of up to €3,333,000 which is payable over a five-year period, subject to performance conditions.
The fair value of the contingent cash consideration at the acquisition date was calculated as €2,491,000, and goodwill of €425,000 was recognised. The fair value of the cash consideration at 30 September 2018 is not considered to have changed with the contingent liability of €2,491,000 being included in non-current financial liabilities.
The Group's share of the loss of Quintessential Brands Ireland Whiskey Limited for the period is €166,000 (31 December 2017: loss of €331,000). There has been a corresponding reduction in the carrying value of the investment.
The principal place of business of Quintessential Brands Ireland Whiskey Limited is Dublin, Ireland.
The following table summarises the financial information of Quintessential Brands Ireland Whiskey Limited as included in its own financial statements, adjusted for fair value adjustments at acquisition and differences in accounting policies, as at 30 September 2018. The table also reconciles the summarised financial information to the carrying value of the Group's interest in Quintessential Brands Ireland Whiskey Limited, and the results for the period from acquisition of the investment to 30 September 2018.
|
|
30 September 2018 |
31 December 2017 |
|
|
€000 |
€000 |
|
Net assets |
|
|
|
Non-current assets |
60,701 |
58,356 |
|
Current assets and liabilities |
12,530 |
9,166 |
|
Non-current liabilities |
(6,955) |
(583) |
|
|
|
|
|
Net assets (100%) |
66,276 |
66,939 |
|
|
|
|
|
Group's share of net assets (25%) |
16,569 |
16,735 |
|
Goodwill |
425 |
425 |
|
Carrying value of investment in associate at end of period |
16,994 |
17,160 |
|
|
|
|
|
|
|
|
|
|
9 months to 30 September 2018 |
17 July to 31 December 2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Revenue (100%) |
2,252 |
1,321 |
|
|
|
|
|
Loss from continuing operations (100%) |
(662) |
(1,324) |
|
Total comprehensive income (100%) |
(662) |
(1,324) |
|
Group's share of loss from continuing operations (25%) |
(166) |
(331) |
|
Group's share of total comprehensive income (25%) |
(166) |
(331) |
|
|
|
|
|
|
|
|
|
Carrying value of investment in associate brought forward |
17,160 |
17,491 |
|
Share of loss from continuing operations (25%) during the period |
(166) |
(331) |
|
Carrying value of investment in associate carried forward |
16,994 |
17,160 |
11. Risk management
Capital risk management
The primary objective of the Group's capital management is to ensure that it has the capital required to operate and grow the business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital structure to ensure it meets changing business needs.
In addition, the Directors consider the management of debt to be an important element in controlling the capital structure of the Group. The Group may carry significant levels of long-term structural and subordinated debt to fund investments and acquisitions and has arranged debt facilities to allow for fluctuations in working capital requirements. There have been no changes to the capital requirements in the current period.
Management manage capital on an ongoing basis to ensure that covenant requirements on the third party debt are met.
The Group regards its total capital as follows:
|
|
2018 |
2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Net debt |
31,583 |
53,143 |
|
Equity attributable to the owners of the Company |
351,881 |
354,309 |
|
|
383,464 |
407,452 |
|
Net debt is calculated as follows: |
2018 |
2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Cash and cash equivalents (note 12) |
50,143 |
61,341 |
|
Floating rate loans and borrowings |
(81,459) |
(114,292) |
|
Finance leases |
(267) |
(192) |
|
|
|
|
|
Net debt |
(31,583) |
(53,143) |
|
|
2018 |
2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Adjusted EBITDA (note 5) |
35,848 |
56,324 |
|
Net debt/ Adjusted EBITDA (Leverage) |
0.88 |
0.94 |
12. Cash and cash equivalents
For the purposes of the cashflow statement, cash and cash equivalents include cash on hand and in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cashflow statement can be reconciled to the related items in the statement of financial position as follows:
|
|
30 September 2018 |
31 December 2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Cash and bank balances |
50,143 |
61,341 |
Cash and cash equivalents are denominated in the following currencies:
|
|
30 September 2018 |
31 December 2017 |
|
|
€000 |
€000 |
|
|
|
|
|
Sterling |
2,030 |
1,445 |
|
Euro |
9,814 |
7,883 |
|
Czech Koruna |
18,254 |
21,958 |
|
Polish Złoty |
14,887 |
24,610 |
|
Other currencies |
5,158 |
5,445 |
|
Total |
50,143 |
61,341 |
13. Post balance sheet events
Further correspondence was received from the Polish tax authorities in relation to its inquiry covering the 2013 tax return of the Group's Polish subsidiary, refer to note 8 for further details.
The financial information set out above does not constitute the company's statutory accounts for the period ending 30 September 2018 or year ended 31 December 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
____________________________
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 can be found in note 5 to the statutory reported figures
2 Leverage at 30 September 2018 is net debt as at 30 September 2018 divided by proforma adjusted EBITDA 2018
3 Subject to shareholder approval at the AGM on 14 February 2019, the final dividend will be paid on 1 March 2019 based on the record date of 8 February 2019
4 Nielsen, total Poland, total off-trade, total vodka MAT September 2018. For the purposes of this estimate total vodka = total clear vodka plus total flavoured vodka plus total flavoured vodka based liqueurs
5 IWSR
6 In the Czech Republic the "rum" category of the spirts market includes traditional rum, which is a spirit drink made from sugar cane, and what is widely referred to as "local rum", known as "Tuzemak" or Tuzemsky", which is made from sugar beet. As used in this Report, "rum" refers to both traditional and local rum, while "Czech rum" refers to local rum.
7 Nielsen MAT to end September 2018, total Czech Off-trade
8 OECD 2018
9 IRI total Italy, total modern trade, total spirits, MAT to end September 2018
10 Nielsen, total Slovakia, total off-trade, total spirits MAT to end September 2018
11 Nielsen, Slovakia, total off-trade, total herbal bitters MAT to end September 2018
12 Nielsen, Slovakia, total off-trade, total vodka MAT to end September 2018
13 Nielsen, Slovakia, total off-trade, total whisky MAT to end September 2018
14 Internal Stock Spirits Group audited data
15 Constant currency is calculated by converting 2017 results at 2018 FX rates
16 Revenue and cost of goods per litre is calculated by dividing total Group revenue and cost of goods sold by litres sold