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Stock Spirits Group PLC Annual Report & Accounts 2019 Stock Spirits Group PLC Annual Report & Accounts 2019 / Additional Information / Useful Links
Useful Links
Stock Spirits is a major force in Central Link share portal www.mystockspiritsshares.com Overview 01 Financial Highlights 02 At a Glance Profit for the year Information for investors and Eastern European spirits Basic earnings per share Strategic Review Information for investors is provided on the internet as 06 Our Markets €28.3m part of the Group’s website which can be found at: 08 Our Business Model Revenue (12 mth proforma 2018: €13.6m) 14.26 €cents www.stockspirits.com/investors 10 Our Strategy With a major stake in each of our core (9 mth reported 2018: €19.3m) (12 mth proforma 2018: 6.86 €cents) 12 Key Performance Indicators (9 mth reported 2018: 9.71 €cents) 14 Principal Risks and Uncertainties operating markets and with a growing presence €312.4m Investor enquiries 20 Chief Executive’s Statement Volume in 9l cases (12 mth proforma 2018: €282.4m) 30 Regional Reviews in the wider global market, we have more than (9 mth reported 2018: €193.8m) Enquiries can be directed via our website or by contacting: 30 Poland 34 Czech Republic 45 brands and export internationally to more 14.4m Paul Bal 38 Italy than 50 countries worldwide. (12 mth proforma 2018: 13.3m)
42 Other (9 mth reported 2018: 9.1m) €29.2m Chief Financial Officer
14.74 €cents 14.74 44 Non-Financial Information Statement €28.3m Email: [email protected]
45 Stakeholder Engagement 14.26€cents
46 Responsible Business Report €312.4m Tel: +44 (0)1628 648500 54 Financial Review Fax: +44 (0)1628 521366 59 Proforma Consolidated Income Statement (Unaudited)
62 Notes to the Proforma Consolidated Income m 14.4 Statement (Unaudited) Stock Spirits Group PLC
Governance Registered office: 70 Board of Directors m 13.3
Notes: Solar House 72 Chairman’s Report m 12.9
1. An enhanced dividend was paid for the 9 month period to September 2018, to ensure shareholders €282.4m Mercury Park 74 Corporate Governance Framework were not penalised from the year-end change, hence no proforma comparison is included. For the 79 Audit Committee Report year to 30 September 2019 an interim dividend of 2.63 €cents per share was paid on 21 June 2019 Wooburn Green and a final dividend of 6.31 €cents per share is proposed 84 Nomination Committee Report Buckinghamshire, HP10 0HH 2. Leverage is the net debt divided by the Adjusted EBITDA for the period. For 2018 this is the net 87 Directors’ Remuneration Report debt as per note 30 (page 167) of the Notes to the Financial Statements as at 30 September 2018, United Kingdom 105 Directors’ Report divided by the proforma 12 months Adjusted EBITDA for the 12 months to 30 September 2018 as
per page 63 Registered in England 109 Statement of Directors’ Responsibilities €13.6m
3. Stock Spirits Group uses alternative profit measures as key financial indicators to assess underlying €259.8m 110 Independent Auditor’s Report performance of the Group. These include Adjusted EBITDA, Adjusted free cashflow and Adjusted 6.86€cents Company number 08687223 basic EPS. For the proforma comparative numbers see page 59. The narrative in the Annual Report and Accounts includes these alternative measures and an explanation is set out in note 7 of the Financial Statements Financial Statements on page 143 122 Consolidated Income Statement 4. Adjusted basic earnings per share excludes the impact of the exceptional items in the relevant year, Designed and produced 123 Consolidated Statement of Comprehensive Income see page 150 124 Consolidated Statement of Financial Position Emperor 126 Consolidated Statement of Changes in Equity Emperor.works 127 Consolidated Statement of Cashflows 128 Notes to the Consolidated Financial Statements
180 Company Statement of Financial Position
2017
2018 181 Company Statement of Cashflows 2019
2019
2018 2017
182 Company Statement of Changes in Equity
183 Notes to the Parent Company 2019 2018
Financial Statements 2017
Additional Information 2019
2018 196 Shareholders’ Information 2017 197 Useful Links
Read about our recent acquisition of Distillerie Franciacorta SpA
Read more on page 23
/197 / vervie 19 Financial ighlights
2019 Financial ighlights
Stock Spirits changed its reporting date in 1 to a September year end. here relevant and to show meaningful comparable measures of performance against the reported 1 months to 3 September 19, proforma data for the comparative year have been produced. See page 59 for the proforma onsolidated Income Statement and associated notes for the comparative 1 months to 3 September 1 and for the 1 months to September 17.
ividend per share1
8.94 €cents Leverage2 9 mth reported 1 : .51 €cents 0.6 1 mth proforma 1 : .53
Ad usted BI A3
8.94 €cents €63.2m
8.51 €cents 1 mth proforma 1 : €59.4m 0.94 9 mth reported 1 : €35. m 8.10 €cents
Ad usted asic earnings per share4 19.68 €cents 1 mth proforma 1 : 16.7 €cents €63.2m
€59.4m 9 mth reported 1 : 9.71 €cents
0.67 €53.2m
0.53
19.68 €cents
16.72 €cents
14.74 €cents
2017
2018
2019
2017
2018
2019
2017 2018
2019
2017
2018
2019
/01 Stock Spirits Group PLC Annual Report & Accounts 2019
At a Glance The Group has operational subsidiaries across eight countries, throughout Central and Eastern Europe, but we distribute our brands across more than 50 different markets globally.
Total revenue Poland A manufacturing plant is based in Lublin €312.4m and our head office for the market is (12 mth proforma 2018: €282.4m) in Warsaw. (9 mth reported 2018: €193.8m)
See our Regional Review on page 30 Overview Revenue We own the route to market in Poland, the Czech Republic, Italy, Slovakia, Croatia and Bosnia & Herzegovina. Product movement is controlled by €171.7m 12 mth proforma 2018: €152.6m our operations as they deliver goods from our main 9 mth reported 2018: €105.6m manufacturing plants in Poland (Lublin) and the Czech Republic (Plzeň), through to our customers.
Our customers are: Total retail value of Headcount off-trade spirits market1 The off-trade (or sometimes called the modern trade), which is essentially the large supermarket chains €3.7bn 652
Wholesalers, who then supply smaller stores and Total spirits market Volume share of total market: the on-trade (hotels, bars, restaurants) and by category 20182 vodka, flavoured vodka and vodka-based liqueurs by trade3 In some markets, delivery is directly to the on-trade.
In these markets we have in-market sales forces or agents, ensuring the end to end service delivery for our customers is well managed. Our strong in-market presence gives us a powerful platform for sales of our own brands and makes us a highly 65% vodka 62% traditional trade 13% flavoured vodka and 21% discounters attractive distribution partner for international vodka-based liqueurs 12% supermarkets 11% whisky brand owners, enabling us to leverage this 5% hypermarkets 11% others competitive advantage.
Our International business is headquartered in the Czech Republic, where products are exported to third party distributors of our brands in the relevant export markets. 55%
/02 r i / At a Glance
Czech Republic Italy t ers A manufacturing plant is based in Plzeň, Our main office is in Milan, and we have This includes our Slovakian operations a distillery in Pradlo and our head office added operations in Franciacorta with based in Bratislava, a distillery in the for the market is in Prague. our acquisition in the year. Baltic, our International division and a UK corporate office.
See our Regional Review on page 34 See our Regional Review on page 38 See our Regional Review on page 42
Revenue Revenue Revenue €81.3m €26.9m €32.5m 12 mth proforma 2018: €73.2m 12 mth proforma 2018: €25.8m 12 mth proforma 2018: €30.9m 9 mth reported 2018: €49.2m 9 mth reported 2018: €17.6m 9 mth reporte 2018: €21.3m
Total retail value of Headcount Total retail value of Headcount Headcount off-trade spirits market4 off-trade spirits market6 €0.5bn 229 €1.5bn 59 140
Total spirits market by Total spirits market by Source(s): category 20185 category 20187 1. Nielsen total Poland, total off-trade, total spirits and spirit-based RTD’s MAT Value September 2019 2. IWSR total Poland spirits MAT Volume December 2018 3. Nielsen total Poland, total off-trade, total vodka, flavoured vodka and vodka-based liqueurs MAT Volume September 2019 (note: A “coverage factor” of 1.18x has been applied by management to the Nielsen traditional trade data. The coverage factor is derived from the historical difference between IWSR data and Nielsen data. Management considers that IWSR data more accurately represents the traditional trade in Poland) 4. Nielsen total Czech Republic, total off-trade, total 28% rum 38% others spirits MAT Value September 2019 23% vodka 36% bitters 5. IWSR total Czech Republic, total off and total on-trade, 17% herbal bitters 14% brandy total spirits MAT Volume 2018 13% others 7% vodka 6. IRI total Italy, total modern trade, discounters and cash 11% liqueurs 5% lemon liqueurs and carries, total spirits MAT Value September 2019 8% whisky 7. IWSR total Italy, total off-trade and on-trade, total spirits MAT Volume 2018
26% 9% 10% /03 Stock Spirits Group PLC Annual Report & Accounts 2019
ur purpose “ C r e a ti n g goodtimes.”
Our purpose is creating good times for all our stakeholders. Our focus on quality and innovation enhances drinking occasions for consumers and the retailers who serve them. It drives value creation for our shareholders, employees and the communities where they live and work. We create good times with great tasting drinks, but also through our values, including integrity and diversity, and by acting as a responsible alcohol business with an increasing focus on sustainability and Environment, Social and Governance (ESG) activities.
/04 Str t ic i
OUR MISSION o a e sp r ts r n n ore en o a le t rou our unique combination o super or ual t t local pr e un erstan n and innovation. MISSION
OUR VISION VISION o e t e lea n sp r ts co pan n Central and Eastern Europe (CEE).
VALUES
OUR VALUES t rit in all we do. ual t o opportun t an respect or i rsit . po r t and trust for employees. all co pan i it . Support each other.
/05 Stock Spirits Group PLC Annual Report & Accounts 2019
Our Markets A nu er o pos t e un erl n acro consu er tren s ll contr ute to sp r ts alue ro t n our ar ets n t e e u to lon ter
Overview stan ar s o l n an sposa le nco e an t t e an expansion of consumer choice which positively impacts otal sp r ts olu e s p ents n toc p r ts roup s oll e an or er alue sp r ts n t e re on owned distribution markets are estimated at c.552 million litres, an ncrease o 1 ersus t e pre ous ear1 A number of positive underlying macro consumer trends, which are outlined below, will contribute to spirits value growth in otal sp r ts olu e s p ents n our ar ets a e ro n our ar ets ersus t e pre ous ear n eac o t e last t ree ears an are now at their highest level for five years1 The sustainable growth of Stock Spirits reflects our ability to identify and take advantage of these trends by evolving our e stren t an rea t o our ran ran e n t e lar est brand portfolio, supported by consistent investment in brand spirits profit pools makes Stock Spirits Group the number one communications, innovation and operational capabilities. sp r ts co pan n our oll o ne ar ets an t e nu er t ree pla er n urope1 Desire for affordable luxury Vodka remains by far the largest category in our markets, As disposable income grows, greater numbers of consumers accounting for c.48% of total volume, almost four times n our ar ets are a le to c oose er ual t pro ucts or the size of the second biggest category, herbal bitters and c t e are prepare to pa ore e see sp r ts ro spirit aperitifs, and over five times that of whisky, the third trustworthy brands of better and more consistent quality than lar est cate or 1 t e ere a le to purc ase stor call s can e t rou otal o a olu es returne to ro t o er t e last t o a desire to display their own success, expertise, values or years, a recovery influenced heavily by premiumisation. The lifestyle through their choice of brands, but the behaviour ou le t co poun annual ro t rate A R ro t can also e r en t e es re to reta n access le e er a ac e e pre u an ultra pre u o a o er t e last luxuries when economic times are challenging. Affordable, five years in Stock’s wholly owned distribution markets is perce e ual t ran s re a n t e pre erre c o ce significantly higher than that of any other spirits category1 and spirits are an increasingly affordable luxury.
Herbal bitters and rum, where Stock has leading brands, Evolving needs amongst the next generation are both in volume growth, as is whisky, where Stock has of consumers built share primarily via distribution partnerships with a eo an ea untor ut s also u l n presence The next generation of spirits consumers in Stock’s markets using its own whisky brands and the Dubliner/Liberties Irish (broadly defined as 21 to 34 year old drinkers) are entering their s e n est ent1 pea spen n ears an open to recru t ent sp r ts ran s Their brand choices are not yet fixed and are heavily influenced Gin is also in growth, but this is far less material in our markets, by their peer group’s “word of mouth” recommendations. in most of which gin remains a niche category, than in Western Europe. Different consumer spirits usage and tastes in Stock’s For this generation, big brands remain relevant, but they need to ar ets su est n s unl el to pact total sp r ts to t e have credible heritage, values and authenticity. These consumers e ree t as else ere n t e s ort to e u ter 1 are “digital natives”, who grew up with new technology and are already purchasing other categories heavily online. Whilst Spirits performance is linked to shifts in demographics, e-commerce is still a relatively low penetration trade channel for fluctuations in the performance of local economies with their spirits in Stock’s core markets, it is forecast to grow significantly. associated impact on consumer confidence and disposable income, plus the regulatory environment. The next generation of spirits consumers expect a greater degree of personalised communication from brands than their In the short term, disposable incomes may fluctuate with pre ecessors n se r n n occas ons an e en er economic and regulatory circumstances, but the long-term friendship groups are of growing importance, as are the spirits evolution of our markets has seen a progressive growth in ran s c cater or t e
/06 Str t ic i ur ar ets
Technological change and the Increasing international mobility digital revolution A combination of greater numbers of consumers in our core Rap l c an n tec nolo an t e a ent o t e tal ar ets tra ell n el a roa or econo c reasons or era is impacting consumer behaviour and attitudes in Stock’s work, education or pleasure, plus hugely increased numbers of core markets, just as it is globally. The impact of technology is visitors from abroad visiting our markets for the same reasons, not purely as a marketing mechanism, but is being leveraged is cross-fertilising local drinking cultures. New spirits usage, t rou out us nesses to spee up ec s on a n an consu er nee s an reta l or ats are e elop n n response facilitate joined up action. to increased international mobility.
At the Business to Consumer level, it provides an easily Raised awareness of health and accessible route to our target consumers with all the benefits of real-time consumer tracking and better targeted spend. At social responsibility Business to Business level, it can complement distributor and A combination of government regulation and increased retailer coverage, enabling brand owners to communicate and consu er a areness o t e ealt an soc al respons l t serve customers they could not do so profitably historically issues associated with alcohol consumption is prompting using traditional means. Whilst e-commerce is still a niche e an or lo er alco ol olu e A sp r ts an channel in Stock’s core markets, estimated at less than 1.0% increased consumption of spirits in longer mixed drinks, rather o alco ol e era es sales currentl 2, it is the fastest growing than purely as shots, the traditional mode of consumption in channel and forecast to rise significantly over the next decade. uc o entral an astern urope ere s also ro t n consu er nterest n t e use o perce e natural rat er t an Rising need for convenience and range are anticipated to “artificial” ingredients, sourced where possible, from identifiable, supersede current extra costs for home deliveries. In spirits, trust ort local pro ucers p r ts ran s ose ran es e-commerce is already working in the premium segment, include lower ABV and versatile mixers, and which use “natural” appealing to time poor, money rich consumers with greater ingredients, are well-placed to take advantage of this trend, as a l t an rea ness to pa er pr ces p r ts pla ers is the emerging no alcohol spirits category, typically consumed which develop digital capabilities most effectively will gain mixed, targeted at adults and positioned as premium soft drinks. competitive advantage. Spirits well placed to grow value sustainably Growing confidence in local provenance The combination of our aspirational brands, wide range In Stock’s Central European markets, there were a limited of innovative tastes, breadth of ABV options and flexible nu er o ual t ran s o local pro enance a a la le pac a n or ats ean toc p r ts roup s ell place to historically, a sense that international brands were superior, grow sustainably in our markets by continuing to meet evolving couple t a susp c on o ncons stent ual t an consu er nee s counterfeiting. Now that the economies in Central Europe are mature, there is a resurgence of pride in local achievements, provenance and culture and a dawning recognition that local ran s can e as oo as or super or to porte ran s ocal spirits remain the vast majority of spirits volume in Central and Eastern Europe and there is a noticeable trend to drink better ual t e ponents o t ose local sp r ts ro truste ran s The fact that many of these markets are “dark” i.e. marketing communications are strictly regulated and limited, makes it ar er or porte ran s to u l s are rap l t rou the deployment of heavyweight advertising investment in the manner often witnessed in other markets. In this context, affordable, high quality local brands with authenticity and provenance are well-placed to act as a bridge to the fulfilment of rising consumer aspirations.
ource s Amundsen is also available in a range of vodka-based 1. IWSR 2018, aggregated spirits data from Poland, the Czech Republic, Italy, Slovakia, Croatia and Bosnia & Herzegovina flavoured liqueurs and more recently, it has also become 2. IWSR e-commerce studies 2018, Italy, Poland, the Czech Republic and Croatia available in a choice of full-strength flavours (in Slovakia only).
/07 Stock Spirits Group PLC Annual Report & Accounts 2019
Our Business Model ur us ness o el co nes lo al est pract ces an local ns ts to create alue We Research or sta e ol ers e un erta e e tens e ar et researc to un erstan e er n consu er tren s lo all as ell as n our local ar ets HOW WE CREATE VALUE
We Sell toc p r ts s t e t r lar est pro ucer an str utor o sp r ts olu e t n urope1 e e plo e cate localised sales teams to serve the differing needs of on-trade, wholesale customers and the off-trade where e also elp our custo ers n o nt us ness plann n an cate or ana e ent e a e oll o ne sales an marketing operations in Poland, the Czech Republic, Italy, Slovakia, Croatia and Bosnia & Herzegovina, where these local co pan es el er rect to our custo ers e a e We Market strong market share positions, particularly in Poland and Our own 45+ local brands spanning a range of spirits the Czech Republic. See page 13 for our market share nclu n o a o a ase la oure l ueurs ru KPIs. We also work with third party distributors in 50+ s ran tters an l oncello e see to o er ot er countr es to str ute our ran s pro ta le ran s across erent pr ce po nts an ensure ran e u t s e elope t rou a r et n ur propos t on also nclu es pre u t r part ran s ose o ners alue our local a r et capa l t es an respons le approac
We Manufacture Our position as the number three producer and distributor of sp r ts n urope es us econo es o scale at our t o a n production sites in Poland and the Czech Republic. We also operate an ethanol alcohol distillery in the Baltic, and a small distillery in the Czech Republic. Health and safety and environmental standards are portant an e on tor per or ance a a nst t ese see pa e 48, as well as operating continuous improvement programmes to n se our cost o oo s
ource s 1 R 201
OUR BUSINESS MODEL Clear strategy Robust risk management IS UNDERPINNED BY: See page 10 See page 14
/08 Str t ic i / Our Business Model
We Reinvest We see ample opportunities for acquisitions to complement our organic growth strategy, and our efficient capital structure provides headroom to support organic investment and M&A projects. In the financial year to September 2019 the Group completed two acquisitions. Our cashflow conversion is healthy and robust; see page 12 for the Group’s KPIs.
Rewarding careers for employees
See employee engagement page 51
Attractive returns for investors
Dividends up 5.1% to 8.94 €cents We Develop per share We develop profitable new products swiftly to cap tal se on e er n consu er tren s an en ance our core ran e o local ran s onsu ers n our ar ets a e ncreas n sposa le nco e an t s pro pts a e an for perceived higher quality and differentiated local ran s c u l s ran e u t t at WE CREATE can withstand price competition. We target a level of premium brands in our portfolio, to STAKEHOLDER drive higher margins; see page 12 for KPIs. VALUE We Engage tal s a core c annel not onl or us to market our brands, particularly in markets where traditional advertising routes for spirits s l te ut also to en a e t consu ers whose feedback informs our NPD. A premium brand portfolio 31.7% of Group revenue from premium brands
Competitive range for our customers and consumers We Source
We operate a central buying function with the aim of See our full portfolio on sourcing raw materials on the most competitive terms. www.stockspirits.com e also a ere to str ct o ernance on sourc n ensur n et cal stan ar s suc as t e o ern la er Act are followed.
Embedded values Responsible approach Sound governance and engaged, agile culture See page 46 See page 72 See page 52
/09 Stock Spirits Group PLC Annual Report & Accounts 2019
Our Strategy our pr or t es or ro t u lt upon a stron oun at on
re u sat on
nsur n ran e u t s ncrease r en clear ran marketing strategies and positioning of our brands that enables us to command higher price positions.
i 0 o roup re enue to co e ro pre u ran s
o s strate e ro uct e elop ent process orl class ran partners
A solid foundation forged from: Strong governance o pl ance t cs ransparenc
See this in action on pa e 1
&A
oo n at lar er ore strate c opportunities to deliver growth and s are ol er alue or t e uture
i Consider larger value creating M&A opportunities
o ost an ro t s ner es Brand portfolio enhancement eo rap c e pans on trate c o e
A solid foundation forged from: Small company agility lat structures e ol e respons l t pee
See this in action on pa es 2 & 2 /10 / Strategic Review / Our Strategy
oo n out to 2020 an e on
arl n 201 e re terate t e strate c oul ena le toc p r ts to el er sustainable and valuable growth across its existing operations and beyond.
The strategy can be summarised as driven by four pillars based upon a solid foundation o alues people an resources llenn als
ncrease a areness o an ocus on t s alua le se ent o consu ers
i Attract internationally-minded consu ers to our local ran s
o Marketing insight investment ro enance o local ran s High Potential (HIPO) ana e ent p pel ne
A solid foundation forged from: Engaged people po er ent alent ana e ent ne o s t
See this in action on pa e 2
tal
oo n at lar er ore strate c opportunities to deliver growth and s are ol er alue or t e uture
i Regularly communicating with 75% o tar ete consu ers t rou tal c annels
o o ne tal strate Common digital marketing architecture tal se processes
A solid foundation forged from: Focused resources Sales and operational planning (S&OP) process ns t r en trate c plann n
See this in action on page 37 /11 Stock Spirits Group PLC Annual Report & Accounts 2019
Key Performance Indicators easur n our success
e oar as c osen a nu er o e er or ance n cators s to easure t e roup s pro ress ese indicators are set out here, along with how they relate to strategic priorities and how we performed against them.
The Group retains very strong liquidity, significant headroom in our borrowings and a robust balance sheet, providing us with the financial strength to take the business forward and deal with unexpected challenges.
nanc al per or ance ust adjusted EBITDA margin1 ust r i s p r s r sic €63.2m u 12 t pro or a 201 9 19.68 €cents 9 t reporte 201 12 t pro or a 201 1 2 cents €312.4m 9 t reporte 201 9 1 cents 20.2% o u s o pro ucts so 12 t pro or a 201 2 2 sur i t (12 mth proforma 2018: 21.0%) ll ons o 9l cases 9 t reporte 201 19 o pro e a easure o un erl n (9 mth reported 2018: 18.5%) s are ol er alue sur i t sur it o ensure t at e are ro n o trac t e un erl n 14.4m t e re enue o t e us ness per or ance o t e us ness 12 t pro or a 201 1 e ro t n t s s an ensure t at sales ro t 9 t reporte 201 9 1 nclu e as part o t e annual s translate nto pro t onus plan tar et or e cut e sur i t pa ee Re unerat on Report o ensure t at e are pa e 99 ro n t e us ness n
a alance anner
c ts
20.2%
21.0%
20.5% c ts
c ts
Total volume
Clear vodka volume
/12 Str t ic i e er or ance n cators nanc al stren t L r o parat e n or at on 0.67 12 t pro or a 201 0 For the comparative years of 2018 and 2017, due to the year-end change in 2018, proforma information has been included to allow for sur i t a ean n ul co para le easures o ensure t at e a e an e c ent cap tal structure t ro or a eta ls or 201 an 201 are on pa es 9 to ea roo to support or an c an nor an c ro t 2018 2019
ust r ar et pos t on c s o co rsio u rk t s r o u rk t s r
r u ro Po Po 91.0% pr iu r s 12 t pro or a 201 91 9 t reporte 201 1 29.5% 29.0% 201 2 201 2 2 201 2 201 2 2 sur i t 31.7% o ensure t at e are 12 t pro or a 201 2 9 con ert n pro t nto cas 9 t reporte 201 2 1 C c C c s s nclu e as part o sur i t t e annual onus plan tar et 34.3% 35.8% n 2019 an or e cut e o ensure ran e u t s 201 0 201 201 201 pa ee Re unerat on Report ncrease c ena les us to pa es 99 an 100 co an er pr ce pos t ons t t 5.1% 4.8%
201 2 201 201 1 201
sur i t sur i t Value market share: to Volume market share: to a nta n ocus on ro n ensure t at e easure our alue not ust olu e at un erl n ar et pos t on an e pense relat e to our co pet tors
ource s 1. Stock Spirits Group uses alternative profit measures as key financial indicators to assess un erl n per or ance o t e roup ese nclu e A uste A Adjusted free cashflow and Adjusted basic EPS. For the proforma comparative numbers see page 59. The narrative in the ARA includes these alternative measures and an explanation is set out in note 7 of the Financial Statements on page 143 2 e era e s t e net e t e t e A uste A or t e per o or 201 t s s t e net e t as per note 0 pa e 1 o t e otes to t e nanc al tate ents as at 0 epte er 201 e t e pro or a 12 ont s A uste A or t e 12 ont s to 0 epte er 201 as per pa e 3. Adjusted free cashflow conversion is the free cashflow as a percentage of Adjusted EBITDA, see page 143 and proforma calculations on page 64 4. Data for this section: Poland: Nielsen, total Poland, total off-trade, total vodka, flavoured vodka and
vodka-based liqueurs MAT value and volume September 2019
Czech: Nielsen, total Czech Republic, total off-trade, total spirits, MAT volume
an alue epte er 2019
Italy: R reta l sales total tal total o ern tra e an scounters an cas an carr total sp r ts A alue an olu e epte er 2019 an 201
/13 Stock Spirits Group PLC Annual Report & Accounts 2019
Principal Risks and Uncertainties Our internal controls framework mitigates risk
Viability statement
The Directors have assessed the viability of the an t e pr nc pal r s s ac n t e roup Approval of Strategic Review Group over a three-year period and confirm n se ere ut plaus le scenar os ta n The Strategic Review comprising pages that they have a reasonable expectation that account of the velocity of the risk impact and 1 to 67 was approved and signed on behalf the Group will continue to operate and meet the effectiveness of any mitigating actions, of the Board. its liabilities, as they fall due. The Directors including insurance, as detailed below. The have determined that the three-year period strategy and associated principal risks underpin to September 2021 is an appropriate period the Group’s three-year plans and scenario over which to provide its viability statement, testing, which the Directors review annually. after taking into consideration a number of actors nclu n t at t e roup s strate c This assessment has considered the potential planning process covers a three-year period pacts o t ese r s s on t e us ness o el and that the spirits industry is considered to be future performance, solvency and liquidity Mirek Stachowicz non-cyclical. over the period. Whilst this review does not Chief Executive Officer consider all of the risks that the Group may e rectors assess ent as een a e face, the Directors consider that this stress- 4 December 2019 with reference to the Group’s current position, testing based assessment of the Group’s the Group’s strategy, the Board’s risk appetite prospects is reasonable in the circumstances.
Principal risks
toc p r ts roup el e es t e ollo n to e t e pr nc pal r s s ac n ts us ness an t e steps e ta e to ana e an 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 2019 mean changes in the 12 month period ended 30 September 2019.
Risk description and impact Change in 2019 How we manage and mitigate Rating
1. Economic and political change
Results are affected by overall economic e a e not een We monitor and analyse economic conditions and consumer confidence in key significantly impacted indicators and consumer consumption eo rap c ar ets n entral an astern by major economic or trends which, in turn, influence our uropean ar ets ere econo c an political changes in our product portfolio, new product regulatory uncertainty is considered to key markets during development and route to market. be higher than other European countries. 2019, including US/EU The key countries that we currently tariffs which have not operate n are part o t e uropean significantly affected Union and, therefore, are subject to our business. relatively consistent EU regulation. Further diversification of our geographic ootpr nt t rou strate c &A ll also mitigate this risk.
Risk Rating Change in 2019
e u o Increased No Change Reduced
/14 / Strategic Review / Principal Risks and Uncertainties
Risk description and impact Change in 2019 How we manage and mitigate Rating
2. Taxes
Increases in taxes, particularly excise duty ropose ncreases n e ers p o local sp r ts tra e rates and VAT, could adversely affect excise duty on spirits by associations, to engage with demand for the Group’s products. Demand 13% in the Czech Republic tax authorities and government for the Group’s products is particularly and 10% in Poland from representatives and, where appropriate, sensitive to fluctuations in excise taxes, 1 January 2020. pro e n or e nput to t e un nten e since excise taxes generally constitute the See note 13 Income consequences of excise increases e.g. lar est co ponent o t e sales pr ce o Taxes in the Notes to the growth of illicit alcohol and potential spirits. onsol ate nanc al harm to consumers. The Group may be exposed to tax liabilities tate ents or eta ls Professional tax advice and regular resulting from tax audits. of the ongoing tax audits of our own tax policies, processes, Changes in tax laws and related inspections in Poland and documentation and compliance. interpretations and increased enforcement Italy and other tax matters. Appropriate provisions where tax actions and penalties may increase the cost liabilities appear probable. of doing business. Certain tax positions taken by the Group are based on industry practice and external tax advice and/or involve a significant degree of judgement.
3. Laws and regulations
The Group is subject to extensive laws During the year the retail Monitoring legislative proposals and and regulations limiting advertising, tax legislation in Poland ensuring appropriate representation of promotions and access to its products, was upheld by the EU our nterests t rou local sp r ts tra e as well as laws and regulations relating to eneral ourt ut as not associations and where appropriate, its operations, such as anti-trust, anti- yet been implemented rect contract t o ern ent bribery, data protection, health, safety and pen n an appeal to departments. environmental laws. These regulations the EU Court of Justice. lear processes an controls to on tor and any changes to them could limit If implemented, retail compliance with laws and regulations. the Group’s business activities or tax will impact larger We operate detailed anti-bribery, increase costs. super ar ets ore anti-trust and data protection compliance than local traditional trade policies and processes. shops. Regular update training is conducted Increased intensity of across t e us ness an e un erta e regulatory proposals re ular re e s an n epen ent nternal relate to ot alco ol n audits to assess the adequacy and eneral an sp r ts effectiveness of our policies and processes. in particular.
/15 Stock Spirits Group PLC Annual Report & Accounts 2019
Principal Risks and Uncertainties continued
Risk description and impact Change in 2019 How we manage and mitigate Rating
4. Marketplace and competition
Highly competitive markets may result In Poland and the Czech e roup as ec an s s an n pressure on pr ces an loss o ar et Republic we continued strategies in place to mitigate the damage share. This has been particularly evident to respon to pr ce of profit erosion but there is no assurance in Poland historically. reductions by competitors they will work in the economies and Changes in the Group’s distribution an e onstrate our competitive environments in which channels may also have an adverse resilience by growing we operate. effect on profitability. our market share in key We constantly review our distribution cate or es t out a A significant portion of the Group’s channels and our customer relationships. significant impact on our re enue s er e ro a s all nu er e un erstan t e c an n nature profit margins. (Private of customers. The Group may not be o t e tra e c annels an custo er label spirits and liqueurs able to maintain its relationships with positions within those channels. We continued to grow in the these customers or renegotiate trade across all channels and actively Czech Republic, although a ree ents on a oura le ter s or manage our profit mix by both channel t e rate o ro t may be unable to collect payments and customer. slowed significantly, ro so e custo ers c oul lea and our Czech business We have well-established credit control to an impact in its financial condition. continues to mitigate pol c es an proce ures an e put n The Group is also dependent on a few key t rou stren t en n place tra e rece a les nsurance ere pro ucts n a l te nu er o ar ets ts ana e ent o it is cost effective to do so. which contribute a significant portion of promotions, brand support its revenue. and activations).
5. Strategic transactions
Key objectives of the Group are: (i) Our new product We continue to seek value-accretive t e e elop ent o ne pro ucts an development (NPD) acquisition targets and have an variants; (ii) expansion through the process continues experienced management team capable acquisition of additional businesses; and (iii) to el er success ul of pursuing and executing transaction distribution agreements with world-class innovations such as opportunities swiftly and diligently; brand partners. Unsuccessful launches, or Božkov Republica rum o e er t e o ners o tar et us nesses failure by the Group to fulfil its expansion in the Czech Republic. may have price expectations that are plans or integrate completed acquisitions, During 2019, we beyond the valuation that we can place or to maintain and develop its third-party completed acquisitions on their business. brand relationships could have a material of Distillerie Franciacorta If we are unable to complete meaningful adverse effect on the Group’s growth in Italy and Bartida in the acquisitions, we will consider distributing potential and performance. Czech Republic. surplus cash to shareholders. We continue to invest significant resources in our NPD process as well as exploring opportunities to extend and enhance our third-party distribution arrangements. e use eta le cr ter a al ne t our strategy to evaluate potential M&A targets. High hurdle rates, in excess of our Group WACC rate, are used in M&A valuations.
6. Consumer preferences
Shifts in consumer preferences or decline Continued general decline The Group undertakes extensive in social acceptability of alcohol may lead in consumption of higher consu er an route to consu er to a decrease in revenue. alcohol drinks, particularly researc an as a trac recor o by young-adult drinkers. successful NPD to constantly meet changing consumer needs. e a e e elope a ran e o lo er alcohol products and feel confident that we have the expertise to continue to develop products that meet and satisfy consumer needs.
/16 / Strategic Review / Principal Risks and Uncertainties
Risk description and impact Change in 2019 How we manage and mitigate Rating
7. Disruption to operations or systems
The Group’s operating results may be Ongoing IT project to Insurance cover to protect the business adversely affected by disruption to its up ra e to a s n le in the event of a production disruption or production and storage facilities, in version of SAP S4/Hana, other business interruption. particular its main production facilities to pro e access to Our two primary bottling sites are capable in Poland and the Czech Republic, or consistent information of bottling all of our core SKUs. by a breakdown of its information or across t e roup el er Business Continuity and Disaster management control systems. analytical reports and Recovery policies. ns ts an urt er auto ate controls an Our information and management control stan ar se processes systems are subject to internal audit across the Group. following a risk-based methodology. We retained our Cyber Independent specialists assess and test Essentials certification. security and resilience of our network against hacking and other cyber threats.
8. Supply of raw materials
Commodity price changes may increase ra n pr ces ere We closely monitor the key purchasing cost of raw and packaging materials. adversely affected by markets to optimise our purchasing. The Group may not be able to pass poor ar ests an lass ere poss le an appropr ate t e on ncreases n costs to custo ers or pr ce ncreases r en Group will negotiate term contracts for adjustments may be delayed and may by high energy prices the supply of core raw materials and not fully off-set extra costs or cause a and demand exceeding services on competitive terms to manage decline in sales. supply. However, our cost pricing fluctuations. optimisation initiatives in Extreme weather conditions and climate procure ent nclu n change may damage supplies of key raw ore central se materials such as grain, causing extreme purc as n a e ensure price spikes. t at cost o oo s re a ns Energy price fluctuations impact us at ana ea le le els both directly and indirectly through co para le t t e pr or our supply chain. year. Labour costs may also rise ahead of our ability to pass through such costs.
9. Exchange rates
Group revenue, assets and liabilities Recent world trade The Group aims to hedge transaction are primarily in Polish złoty and Czech volatility, including tariffs risk by matching cashflows, assets and oruna le results are reporte n imposed by the US, EU liabilities through normal commercial euros an t e s are pr ce s n poun s an na to et er t business arrangements where possible. sterling. Additionally, the Group’s financial the strength of the US For example, all debt is currently drawn covenants are tested in euros. dollar and Brexit, have in local currency by market. Historically, volatility between the euro, led to increased currency We monitor currency exposure as an the złoty and the koruna has been low, but fluctuations globally integral part of our monthly review we cannot predict future volatility. ut t ere as een no process an ere appropr ate significant impact on implement hedging instruments. the Group. See sensitivity table in the foreign currency risk section of note 30 to the Consolidated Financial Statements. Further diversification of our geographic ootpr nt t rou strate c &A ll also mitigate exchange rate risk.
Risk Rating Change in 2019
e u o Increased No Change Reduced
/17 Stock Spirits Group PLC Annual Report & Accounts 2019
Principal Risks and Uncertainties continued
Risk description and impact Change in 2019 How we manage and mitigate Rating
10. Talent
Loss of any member of the senior During the year we Competitive remuneration policy ana e ent tea coul a e an a erse continued to strengthen to retain, motivate and attract key effect on the Group’s operations. our ana e ent tea individuals. The Group may also not be successful in t ne appo nt ents ea ers p ra e or to u e talent attracting and retaining such individuals in key marketing and ana e ent an success on plann n in the future, particularly due to low co erc al roles n our process to mitigate risk of losing key unemployment and higher wage inflation lar est us nesses n personnel. Poland and the Czech in Poland and the Czech Republic. Annual Employee Engagement Republic respectively. Survey enables us to assess employee e results o our annual en a e ent le els across t e roup Employee Engagement an act upon t e ee ac n a Survey showed continued systematic way. improvements and action plans ar s n ro t ose results continue to be implemented.
Funding and liquidity risk has been removed from our principal risks for this year due to the Group’s low leverage and loan facilities secured until November 2022.
Risk Rating Change in 2019
e u o Increased No Change Reduced
Fernet is often drunk, particularly in the summer months, with tonic; a serve known locally as a “bavorak”.
/18 / Strategic Review / Principal Risks and Uncertainties
Brexit People After Brexit, it is expected that employees’ ability to transfer As far as Brexit is concerned, we do not consider it to be a between the UK and EU countries will be restricted. We have principal risk. For completeness, we include a summary of our relatively little international mobility among our employees risk assessment below. For risk management purposes, we therefore we would not expect any material impact. In addition, continue to assume the most disruptive outcome of a no-deal the removal of the UK from European legislation and the exit. As stated in our previous reports, given that we do not rulings of the European Court of Justice may, over time, create produce or export from the UK and have minimal sales in the differences in employment laws in relation to social security, UK, we continue to believe the impact of Brexit is unlikely to working time, minimum wage and equality. Again, we do not be significant for us. We have analysed the potential impacts expect this to have any significant impact given our very small under six main categories: population of UK employees. Trade Economic Our supply chain is predominantly non-UK based. We have The loss of the UK’s net contribution to the EU budget is very few UK suppliers, therefore the risk of additional duties, likely to impact the remaining EU countries, particularly net tariffs or import/export procedures is unlikely to affect us in recipients such as Poland and the Czech Republic. The impact a material way. One of our few UK-sourced supplies for our may be both direct, through a reduced EU funding pot, but EU businesses is Scotch whisky, which could be subjected also indirect by causing the GDP per capita in such countries to EU tariffs or other restrictions. However, it represents an to increase compared to the EU average and therefore reduce insignificant part of the Group’s revenues and profits. Some such countries’ eligibility for EU funds. of our suppliers may supply other customers in the UK and therefore could be financially weakened by duties, tariffs or Financial other increased costs arising from Brexit, possibly causing a The Group’s credit facility runs until November 2022, therefore knock-on impact on their ability, or cost, to supply us; but we e a e no nee to access cre t ar ets n t e near uture are not aware of any suppliers on whom we are dependent when they may be affected by Brexit. who would fall into this category. We do not have any selling activity from our UK companies to EU customers. Whilst there Other may be additional Customs and/or VAT rules for supply of our It is currently intended that the vast majority of EU business products from our EU subsidiaries to our UK distributor, which law that currently applies in the UK will be implemented could increase prices and delivery lead times, the UK market is directly into UK law. As a result we do not anticipate significant an insignificant part of the Group’s revenue and profits. disruption in our compliance processes. 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 ser ces arran e ents e a e n place are ro ust ell documented and compliant with current legislation.
/19 Stock Spirits Group PLC Annual Report & Accounts 2019
Chief Executive’s Statement
Stock Spirits has delivered another year of growth in volumes, revenues and profitability.
“We continue to assess a range of acquisition opportunities, following our two successful acquisitions this year, and are committed to pursuing a strategy of both organic and inorganic growth.”
/20 Str t ic i e ecut e s tate ent
With a strong balance sheet, the Group is ready for continued growth - both organic and inorganic.
Group financial performance Spirits performance is influenced by many factors, including demographics, national economic performance, consumer Following last year’s adoption of a 30 September year-end, confidence, disposable income, and regulatory environments. we present summarised results for the 12 months to 30 Whilst in the short-term consumer demand may fluctuate September 2019 along with proforma 12 month comparatives. with economic and regulatory changes, over the long-term we On this basis, we delivered another year of growth in volumes, anticipate growth in living standards and disposable income revenues and profits. We have developed a more premium in the regions in which we operate, and therefore a greater portfolio and have exceeded our strategic premiumisation demand for higher value spirits in line with our premiumisation target (i.e. 30% of Group revenue coming from premium strategy. Our sustained growth reflects our ability to leverage products) a year earlier than originally planned. Furthermore, these trends by evolving our brand portfolios, supported by we completed two strategic acquisitions, whilst also retaining a marketing investment, innovation, operational excellence, and strong balance sheet to position the Group well for continued strong sales capabilities. future growth – both organic and inorganic. Strong momentum in Poland continues Our markets in overview Revenue for Poland was €171.7m for the 12 month period Total spirits volume in the Group’s six direct-presence markets to 30 September 2019 (9 months to 30 September 2018: is c.552 million litres, a +1.7% increase on the prior year. €105.6m), with Adjusted EBITDA of €43.1m (9 months to olu e re n eac o t e last t ree ears an s no at a 30 September 2018: €27.5m). five year high1. The strength and breadth of our portfolios combined with our market capabilities makes the Group the On a proforma basis, revenue increased 13% from €152.6m number one spirits company in the region represented by in 2018. Adjusted EBITDA increased 7% on a proforma basis these six markets, and number three in Europe. from €40.4m in 2018. In 2019, this division represented 55% of Group revenue (2018 proforma: 54%). Vodka remains by far the largest category across our markets and accounts for almost half of total volume. This makes it Poland is the world’s third largest vodka market by value, and almost four times bigger than the second category (herbal the number one European vodka market1. It is the Group’s bitters and spirit aperitifs), and over five times bigger than largest market in revenue and profit. the third category (whisky). Total vodka volumes have grown over the last two years, and the double-digit annual growth During 2019, the national economy grew, disposable incomes rates of premium and ultra-premium vodka over the last five rose, and unemployment fell – all of which increased consumer years in this region are significantly higher than any other confidence and purchasing power. These positive macro trends spirits category. helped drive accelerated growth in spirits. Vodka was the top contributor to category growth, the second being whisky. Herbal bitters and rum, where Stock also has leading The total vodka category grew both value and volume. The brands, are both in volume growth. This is also the case for fastest value growth rate continued to be from the flavoured whisky, where Stock has built share primarily via distribution sub-category, but the far larger clear vodka sub-category partnerships with Diageo and Beam Suntory, but is also returned to value growth, becoming the greatest contributor building a presence using its own brands and those from our to absolute growth. Quintessential Brands Ireland Whiskey Limited investment.
Source(s): 1. IWSR 2018; aggregated spirits data from Poland, the Czech Republic, Italy, Slovakia, Croatia and Bosnia & Herzegovina
/21 Stock Spirits Group PLC Annual Report & Accounts 2019
Chief Executive’s Statement continued Poland is out-performing the total vodka market, with continued share gain. We have now delivered 29 consecutive months of olu e s are ro t ersus t e e u alent ont n t e prece n year, which is a clear sign that the business has fully turned around.
The global trend towards premiumisation in spirits is The continued strengthening of our sales team capabilities clearly visible in the Polish market, as total premium created closer cooperation with key customers. In addition, vodka achieved double-digit value and volume share we stepped up the intensity and quality of promotional growth. The mainstream vodka segment continued to support, and have engaged in a significant programme of outperform the economy segment, with improved value fixture re-layouts in the traditional trade which is yielding performance. The economy segment continued to decline improved results. in value as competitive pricing in the mainstream segment In our half-year results statement in May, we referred continues to attract up-trading consumers2. to the possibility of an increase in alcohol excise from Stock is outperforming the total vodka market, with 1 January 2020. Draft legislation to implement a 10% continued share gain. We have now delivered 29 increase from 1 January 2020 was introduced in the consecutive months of year-on-year volume share Polish parliament in November. We are taking the actions ro t 2, which is a clear sign that the Polish business has necessary to manage the change and its consequences, turned around. Stock’s total vodka volume share grew and are confident of our ability to mitigate any impact. from 26.8% last year to 29.0%, and value share grew from 27.4% to 29.5% (on an Moving Annual (MAT) Total basis)2. Strong performance in the Czech Republic For a fourteenth successive month, our volume and value growth outperformed our largest competitor. Our second Revenue for the Czech Republic was €81.3m for the largest competitor continued to decline heavily in volume 12 month period to 30 September 2019 (9 months to and value. 30 September 2018: €49.2m), with Adjusted EBITDA of €24.4m (9 months to 30 September 2018: €13.6m). The leading contributor to our clear vodka share growth was the continuing double-digit growth of our largest On a proforma basis, revenue increased 11% from premium brand, Stock Prestige, which is the number one €73.2m in 2018. Adjusted EBITDA increased 13% on a premium brand in the Polish market. Amundsen, another proforma basis from €21.6m in 2018. In 2019, this division of our premium vodkas, grew volume at a rate almost represented 26% of Group revenue (2018 proforma: 26%). double that of the top-premium segment in which it Excluding the impact of the Bartida acquisition in the year, competes. Our leading mainstream vodka, Żołądkowa underlying revenue and Adjusted EBITDA for 2019 was De Luxe, also achieved volume and value growth, €79.1m and €24.2m respectively. outperforming that segment and retaking the number two position within it. In the declining economy segment, The Czech Republic is our second largest market, where Żubr and 1906 both grew in value2. Stock has held spirits leadership for over 20 years3, with brand leadership in the key categories of rum4, vodka and Stock also grew total volume and value within flavoured herbal bitter liqueurs. vodka, leading growth in the category. Our leading flavoured brand, Lubelska, delivered a higher growth rate than the market-leading flavoured brand. Our Saska flavoured range continued to establish itself u
amongst emerging spirit drinkers, almost doubling in size. Żołądkowa Gorzka also returned to value growth2. €312.4m (12 mth proforma 2018: €282.4m)
(9 mth reported 2018: £193.8m)
Source(s): 2. Nielsen, total Poland, total off-trade, total vodka, MAT September 2019 3. IWSR 2018 4. In the Czech Republic the “rum” category of the spirits 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
/22 Str t ic i e ecut e s tate ent
STRATEGY IN ACTION: ACQUISITION Distillerie Franciacorta in Italy
Stock Spirits acquired Distillerie Franciacorta’s spirits, liqueurs and wine business, together with land for the construction of a new production facility.
Founded in 1901, Distillerie Franciacorta The main spirits brands acquired are is located in Franciacorta, in the in the grappa category. The grappa Lombardy region of Italy. Stock Spirits category is Italy's fourth largest spirits acquired Distillerie Franciacorta's spirits category, and the total premium price and liqueurs business, together with land segments in which the Franciacorta for the construction of a new production brands are positioned grew by +3.3% facility. It also acquired the prestigious in value terms year-on-year1. The Franciacorta wine brands, although acquisition means that Stock Spirits is all aspects of the wine manufacturing now the number one branded grappa was retained by the vendors, the Gozio business by value in the Italian off- family. Distillerie Franciacorta's deep trade. Stock Spirits sees clear synergies expertise in local, premium products with its existing operations, both in resonates strongly with Stock Spirits' the on-trade, where Stock Spirits can wider strategy of investing in well-loved leverage Distillerie Franciacorta's strong Source(s): national premium brands with genuine presence, and in the off-trade, where 1. IWSR 2018 and high quality provenance. the acquired brands will benefit from Find out more at: Stock Spirits' current strengths. stockspirits co s
“We are delighted to have acquired Distillerie Franciacorta, which is a business with a fantastic heritage and outstanding brands. This is a truly compelling opportunity that we had been looking at for more than a year, and we see clear and attractive synergies with our existing Italian operations.”
ir k St c o ic Chief Executive Officer
/23 Stock Spirits Group PLC Annual Report & Accounts 2019
Chief Executive’s Statement continued We further developed our sales and marketing capabilities, with a step-change in category-management as well as a continued focus on price management and promotional efficiency.
The national economy is performing well, with an increase in with aggressive price discounting from international disposable incomes and a desire for premium products driving competition. Fernet Stock was re-launched in the summer value and volume growth in spirits. of 2019 to address this situation, and met with a very positive response from our trade customers and consumers. The four core categories on which Stock focuses – i.e. rum, vodka, herbal bitters and whisky – together account for c.75% We further developed our sales and trade marketing capabilities, of total spirits volume and are therefore key drivers of overall with a step-change in category-management as well as a spirits performance. Value growth was driven primarily by continued focus on price management and promotional rum, the largest category, and by whisky. These offset a flat efficiency. We expanded our contact and service levels with performance from vodka and a decline in herbal bitters. a new dedicated call-centre which increased distribution, revenue and operational efficiency. We also continued to build Stock achieved significantly higher volume and value customer relationships and develop our e-retail customer base. growth than the total spirits market, as well as superior value growth compared to our main competitors. This was In our half-year results statement in May, we referred to the driven by a combination of our premium innovation, benefits possibility of increase in spirits excise. Legislation proposing a from previously acquired brands, and the addition of new 13% increase in excise tax on spirits from 1 January 2020 is distribution brands. We increased our market leadership, progressing in parliament, with final approval expected very growing value share from 33.0% to 34.3% and volume share shortly. As in Poland, we have implemented actions to manage from 34.7% to 35.8%5. the proposed change and are confident of our ability to mitigate any impact. Within this, Stock grew its market-leading share of the largest category, rum, through the outstanding success of Božkov Republica, which launched in 2018 and significantly grew Italy stabilising our value share of imported rum. Its growth was largely Revenue for Italy was €26.9m for the 12 month period incremental as our core Božkov Tuzemsky brand also grew to 30 September 2019 (9 months to 30 September 2018: volume and value – as did Captain Morgan Original, which €17.6m), with Adjusted EBITDA of €3.6m (9 months to Stock distributes on behalf of Diageo5. 30 September 2018: €1.7m).
In a flat vodka category, Stock grew both volume and value. On a proforma basis, revenue increased 4% from €25.8m in Whilst retailer own label continued to grow, its growth rate and 2018. Adjusted EBITDA decreased 19% on a proforma basis share gains slowed significantly. Stock’s brand leader, Božkov from €4.4m in 2018. In 2019, this business represented 9% vodka, delivered value growth that out-stripped that of retailer of Group revenue (2018 proforma: 9%). own label. Excluding the impact of the Distillerie Franciacorta acquisition We have the strongest whisky portfolio in the Czech market in the year, underlying revenue and Adjusted EBITDA for 2019 through our well-established partnership with Diageo, the was €25.5m and €3.8m respectively. distribution agreement with Beam Suntory (which started in early 2018) and an increasing focus on our own whisky brands. The Italian spirits market remains highly fragmented with As a result, we achieved strong whisky value share growth several mature categories including bitters, vodka, brandy, despite stiff price competition. whisky and liqueurs. Whilst Stock has a relatively small overall share of total spirits, our 6.9% value share (2018: 5.7%6 n t e These successes outweighed share decline in the contracting modern trade channel gives us leading positions in a number herbal bitters category, where Fernet Stock was affected of key categories in the off-trade. This includes number one primarily by changed retailer promotional strategies coupled positions in the clear vodka, vodka-based liqueurs, limoncello and (since the acquisition of Distillerie Franciacorta) grappa
Source(s): categories, and the number two brand in brandy7. 5. Nielsen MAT to end September 2019, total Czech off-trade 6. IRI total Italy, total modern trade, total spirits, YTD September 2019 and YTD September 2018 for prior year excluding the Distillerie Franciacorta acquisition 7. IRI total Italy, total modern trade, total limoncello, total brandy, total flavoured vodka-based liqueurs and total vodka, YTD September 2019
/24 Adjusted basic earnings per share Profit for the period 19.68 €cents €28.3m (12 mth proforma 2018: 16.72 €cents) (12 mth proforma 2018: €13.6m) (9 mth reported 2018: 9.71 €cents) (9 mth reported 2018: €19.3m)
There has been an improvement in consumer confidence, In our half-year results statement in May, we referred to the underpinned by slight declines in unemployment and inflation possibility of an increase in VAT from 1 January 2020. Since and an increase in disposable income8. Reflecting this then there have been no further developments. Nevertheless, improving macro trend, the total spirits market grew in value we remain prepared to implement any actions necessary to and volume for the year as a whole. This was reflected in our manage any changes that may be announced. own performance, which improved as the year progressed.
Stock grew volume and value share in the brandy category, Other markets driven by the continuing success of our Stock 84 range, Other markets include Slovakia, Bosnia, Croatia, Bosnia & notably via the premium Stock 84 XO variant. Volume and Herzegovina, our export activities and our Baltic distillery. value MAT shares in our four other key categories – limoncello, vodka, flavoured vodka-based liqueurs, and existing grappa – Revenue for our other markets was €32.5m for the 12 month were flat overall. period to 30 September 2019 (9 months to 30 September 2018: €21.3m), with Adjusted EBITDA of €5.4m (9 months to The first signs of stabilisation began to emerge during the 30 September 2018: €2.8m). second half of the year in our Italian business, as we continued to invest in our brands and people, reversing a number of On a proforma basis, revenue increased 5% from €30.9m in years of cost-cutting. Trade relationships were strengthened 2018. Adjusted EBITDA decreased 5% on a proforma basis through the successful negotiation of annual deals with all from €5.7m in 2018. In 2019, this division represented 10% of buying groups, and planned price increases were achieved. We Group revenue (2018 proforma: 11%). continued to invest in our core brands of Keglevich and Stock Slovakia: resilient performance in challenging conditions Brandy, and started to see the benefits in the second half of In a lower growth spirits market than last year, Stock lost the year. marginal volume share but maintained value share. Our biggest Nevertheless over the full year, in a highly competitive market, growth driver was rum, where Božkov Republica’s roll-out Stock lost volume and value share on our existing brands in our achieved a number two ranking in imported rum. In vodka, key focus channel of the modern off-trade. As a result and as Amundsen’s value growth rate was double that of the vodka reported at the half year, there was an after-tax €13.3m impact category. In whisky, Jim Beam, distributed on behalf of Beam to the income statement of a non-cash impairment against Suntory, grew value well ahead of the total whisky category. historical goodwill and brands. This growth off-set declines in two of our established A key focus for our Italian team was the acquisition of categories, herbal bitters and fruit spirits. Stock maintained Distillerie Franciacorta, and its integration is on track. Among brand leadership in the highly competitive herbal bitters its many benefits, the acquisition gives our Italian provenance category, but lost share due to highly competitive pricing. a significant boost. The recent Fernet Stock re-launch is aimed at addressing this. Demand for total fruit spirits also contracted, negatively We have recently announced the appointment of a impacting the volume performance of Stock’s Golden economy dedicated Managing Director for the Italian business, further range, despite a stable performance from the premium Golden strengthening the local team by assigning a full-time senior Ice range and strong growth in fruit distillates. manager to run the business. Marco Alberizzi, an Italian national, has extensive beverages and FMCG experience in Overall, it was a challenging year in Slovakia but one in which Italy and has a track record of business turn-around with expansion into rum and whisky, and a strong performance in Bacardi Italy. vodka to remain the second biggest player in the off-trade.
Source(s): 8. OECD to end September 2019
/25 Stock Spirits Group PLC Annual Report & Accounts 2019
Chief Executive’s Statement continued
STRATEGY IN ACTION: ACQUISITION Bartida in Czech Republic
The capabilities acquired with Bartida will step-change our ability to serve the on-trade, a channel important in brand building.
Bartida is a premium spirit drinks complementary product portfolio and business focused on the premium on- route-to-market strengthens Stock trade market in the Czech Republic. This Spirits’ existing business in the Czech acquisition will strengthen our position Republic and is in line with Stock Spirits’ as a leading player in this segment. wider premiumisation strategy. Due to the unique concept and on-trade Bartida’s portfolio, which comprises capabilities of Bartida, we will keep the both own-brands and third-party unit operationally independent, whilst distribution brands, covers the premium also including our own premium brands end of the rum, fruit spirits and liqueurs within its portfolio. We will also evaluate categories, where it fits neatly in the feasibility of rolling out the direct above Stock Spirits’ existing portfolio, sales model for premium on-trade outlets providing revenue synergies as well as to other markets. complementary operational capabilities. Bartida’s focus is on direct sales to premium on-trade outlets, and it also has its own e-shop, demonstration bar and on-trade training centre in the centre of Prague. This combination of
Find out more at: stockspirits co s
/26 Str t ic i e ecut e s tate ent
Our innovations aim to “trade-up” consumers to more premium purchases, and to recruit young-adult drinkers. Collectively, an extremely strong NPD programme across the core brands contributed to our value growth.
Other (i.e. Croatia, Bosnia & Herzegovina, our Grappa is Italy’s fourth largest spirits category, and the export operations, and our Baltic distillery) total premium segments in which the Franciacorta brands 9 In Croatia, Stock grew volume and value. This was operate grew by +3.3% in value year-on-year . We see achieved primarily through on-trade focus, which was clear synergies with existing operations, both in the supported by the re-launch of Stock 84 and a widened on-trade where we can leverage Distillerie Franciacorta’s range of distribution brands. strong presence, and in the off-trade where the acquired brands will benefit from our traditional strengths. In our export markets, the successful reorganisation of our route-to-market in Germany contributed volume The acquisition gives us a substantial amount of scale in uplift from improved distribution. Our new distribution grappa, especially in premium, with minimal additional partnership with The Drinks Company in the UK is now overheads, and the acquisition is expected to be earnings generating high margin incremental sales versus last year. enhancing in FY2021. More broadly, the acquisition also provides a strong platform from which to enhance Irish whiskey joint venture: QBIWL the provenance of the Stock Italian brand portfolio and In March 2019, our Quintessential Brands Ireland rejuvenate our Italian business. It will enhance our premium Whiskey Limited joint venture commissioned its Dublin on-trade sales capabilities and triple the sales force, distillery and opened its Visitor Centre. Liquid is now bringing growth synergies across the off and on-trade for being produced and laid down. The brands of The our entire portfolio. The success of the transaction and Dubliner and The Dublin Liberties have recently won integration process provides us with a useful "template" for several international industry awards and are starting potential future acquisitions of this kind. to gain traction in our markets. Poland is now the third In May we also completed the acquisition of Bartida, largest market for The Dubliner globally. bringing new capabilities and brands to our Czech business. The acquisition builds on our market Value creating acquisition strategy leadership in Czech and delivers a step-change in During the year we completed two strategic acquisitions our capabilities in the premium on-trade channel. that, in different ways, represent the attractive value- Bartida focuses on premium on-trade outlets, and uses creating opportunities that exist for Stock to augment innovative channels such as an e-shop, demonstration our organic growth momentum. Distillerie Franciacorta bar and on-trade training centre. Bartida also provides a provides a premium portfolio that enhances our current direct route to market to the premium on-trade, and it is brands in Italy. Bartida brings strengthened distribution a proven model in the Czech Republic which we aim to into the Czech premium on-trade channel. Both export to other markets. acquisitions will enhance our earnings and deliver returns The Bartida brand portfolio brings a combination of their ahead of our conservatively high hurdle rates. own premium brands of fruit spirits and liqueurs, as well The acquisition of Distillerie Franciacorta, announced in as distribution brands, primarily in premium rum. There January 2019, was completed in early June and means are no conflicts with our current portfolio, including our that Stock is now the number one grappa player in the distribution brands. Bartida will be earnings enhancing Italian off-trade. This represents our first step in pursuing in FY2020. consolidation opportunities in the premium segment in As we develop our strategic ambitions beyond 2020, we Italy, and it has strengthened our position in what remains remain committed to increasing shareholder value. Value- a fragmented but highly attractive market. creating acquisitions in new categories and/or markets will be a key part of our strategy.
Source(s): 9. IWSR 2018
/27 Stock Spirits Group PLC Annual Report & Accounts 2019
Chief Executive’s Statement continued The use of cutting edge technology is a key part of our strategy to deliver enhanced brand experiences. In Poland, Stock started the world’s first virtual bartender league.
Innovations Whisky Alongside our successes with our partner whisky brand We continued to build our core brands via a focused programme owners, we are developing our own whisky brands. During of NPD introductions. These aim to “trade-up” consumers to 2019 we redeveloped our single malt Czech whisky, more premium purchases, and to attract millennial drinkers10. Hammerhead, under the re-launched Pradlo brand name with Collectively, an extremely strong NPD programme across core new improved liquids and super premium packaging. brands contributed to our value growth. Amundsen Poland Amundsen vodka accelerated recruitment of millennial In Poland, a new premium Żołądkowa Gorzka range was consumers. We re-launched its low strength vodka-based launched under the “Kolonialna” sub-brand, with recipes liqueur range under the sub-brand “Fusion”, with new inspired by 18th century Polish merchant adventurers. packaging and an enhanced range of contemporary flavours. Lubelska expanded its appeal to millennial drinkers of flavoured Building on the learning from our successful limited editions spirits, with the addition of two new Lubelska “Soda” sparkling on Stock Prestige in Poland, Amundsen also launched a limited fruit flavours designed to widen category and brand usage. edition for the Czech on-trade, with a premium dark blue glass Orkisz, our top-premium Polish spelt vodka, was re-launched finish for added on-shelf impact. in a more premium new look, supported by in-store activation and a digital marketing campaign. This resulted in significant alue ro t n t e top pre u se ent t rou e pan e Operations, supply chain distribution and increased consumer appeal at point of We continued to develop purchasing capabilities to mitigate purchase. Stock Prosecco was also re-launched in more adverse market conditions in certain categories of inputs. Our premium packaging to widen its appeal to a millennial audience. plants remain well-invested, with a particular focus on health and safety considerations. Options to create more flexibility Czech Republic to ana e our o erall cost o oo s as ell as ea n s NPD in the Czech Republic also focused on premiumisation are being constantly reviewed at all levels of the business. of our core brands and increased recruitment of millennial drinkers. The most significant NPD activity was the Fernet One such initiative is to increase our own production of Stock re-launch, with new packaging, an expanded flavour alcohol. With this in mind, we have announced that we intend range (including lower ABV economy and higher ABV premium to substantially expand our distilling capabilities at Lublin in offerings) and a revised pricing architecture, all supported by a Poland to supplement our existing Baltic distillery. A capital heavyweight national marketing campaign. investment of c. €25m is envisaged over a three year period, with an estimated pay-back period of five years. We launched new labels on our core Božkov Tuzemsky range to improve shelf impact and provide easier range recognition Digital and technology and navigation for consumers. Božkov also expanded its range in the fast growing dark rum and imported rum sub-categories. The use of cutting edge technology is a key part of our Božkov Cerny (Black) was the first dark tuzemsky launched strategy to deliver enhanced brand experiences. In Poland, in the Czech Republic, and rapidly achieved leadership in Stock started the world’s first virtual bartender league, which that sub-category. Božkov Republica Reserva was launched includes educational activity aimed at creating brand advocacy in late 2019, and is a premium offer which complements our and increasing consumer engagement in the on-trade. established Republica sub-brand. To celebrate November’s Our NPD success rate has been strengthened by our investment thirtieth anniversary of the 1989 Velvet Revolution, Božkov in a platform to better manage the development process. Tuzemsky also launched a commemorative limited edition.
Source(s): 10. Stock Spirits defines millennials as young-adult drinkers above the legal age for the relevant market
/28 Str t ic i e ecut e s tate ent
We initiated our OneSAP project to develop and implement Outlook a common ERP solution across the Group, aimed at better We are pleased with the momentum in our core markets of leveraging our scale across certain functions. An upgraded Poland and the Czech Republic, and we see significant scope standard platform will be designed and implemented by FY2022. for further growth across all of the markets in which we Being an existing SAP-user, this capital investment is not operate. The year’s two acquisitions provide greater scale, a expected to materially increase our capital expenditure levels. stronger and more premium portfolio, and new distribution capabilities that strengthen our business model. Our people Our planned investment in our distribution capabilities in ur secon e plo ee en a e ent sur e s o e o erall Poland will deliver future value to the business and deliver improving engagement levels. As with the previous survey, margin enhancement as we grow the business further. the results are being acted upon. While there are challenges in certain areas of our business, During the year, we updated our Vision and Mission, notably in managing any impact that might result from the articulated our Purpose, and agreed the Values that define proposed excise tax increases in the Czech Republic and and align our organisation and culture. Poland, we remain confident in the strength of our brands, the quality of our people and the viability of our strategy. Our partners As a result, we believe we are well positioned for Stock is Europe’s third largest spirits by company volume11. future success. Given the scale of our positions in the markets in which we operate, we are an attractive partner to other spirits businesses wishing to leverage our route-to-market scale and capabilities.
Poland Mirek Stachowicz We continued to grow whisky share via the Beam Suntory Chief Executive Officer portfolio, where Jim Beam grew value share. Cooperation with Synergy Brands, with whom we have partnered since 4 December 2019 July 2016, generated positive results, with Beluga growing value in the fast growing ultra-premium vodka segment.
Czech Republic We are about to complete our fifth year as exclusive distributor of the core Diageo brands, and are delighted with the continued value growth of Captain Morgan, Johnnie Walker and Baileys. The addition of the Beam Suntory range materially increased our total whisky share and we began distribution of The Dubliner and The Dublin Liberties Irish whiskeys from Quintessential Brands Ireland Whiskey Limited.
Integration of distribution brands with Stock’s leading local brands across these markets and in Slovakia, Croatia and Italy brought significant benefits to the combined portfolios and further strengthened our overall offering.
Source(s): A front view of the Dublin Liberties Distillery. Stock Spirits has a 25% investment 11. IWSR 2018 in the Irish whiskey venture, Quintessential Brands Ireland Whiskey Limited.
/29 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Poland olan cont nues to out per or ts co pet tors n ar et s are ro t
The success of Poland continues to be one of the Group’s highest priorities.
olan s t e orl s t r lar est o a ar et The global trend to premiumisation in spirits is value and fourth largest by volume. Vodka is still by s le n olan otal pre u o a ac e e ar t e lar est sp r ts cate or n olan c ou le t 1 alue an 1 olu e o total sp r ts olu e olan s t e nu er growth, significantly ahead of the total category, one o a ar et n urope olu e an reflecting Polish consumers’ readiness to pay more “Poland has been the fastest alue an t e roup s lar est ar et n for premium quality vodka as affluence increases growing player in the competitive terms of net sales and profit1 vodka category. Our stable team The mainstream vodka segment continues to over-delivers their targets and is well ur n 2019 t e ol s econo re outper or econo t a uc pro e alue prepared for the incoming challenge of an excise increase.” stea l sposa le nco e rose an per or ance o 2 ersus last ear lst une plo ent ell ncreas n ol s econo re a ns n ecl ne at 1 alue t s as Marek Sypek Managing Director, Poland consumers’ confidence and purchasing a significantly reduced rate versus recent years. po er2 Competitive prices on the leading mainstream brands continue to switch consumers from economy These positive macro trends were reflected in to er perce e alue a nstrea n at s accelerate ro t ro t e total sp r ts cate or now effectively a single price segment alue re an olu e 2 co pare to alue 2 an olu e 1 n t e e u alent time period last year Core brands toc s out per or n t e total o a ar et n o a as ar t e reatest contr utor to sp r ts Poland, driving continued share gains. Stock grew ro t el er n 9 0 o total a solute alue total o a olu e 12 an alue 1 ell ro t lst 2 ca e ro t e secon est a ea o t e total o a cate or olu e 9 sp r ts cate or s lst ot n an ru an alue ac e e ou le t alue ro t ear on ear their combined contribution was 3.5% of absolute Stock has now delivered 29 consecutive months alue ro t o a a solute alue ro t as o olu e ro t ersus t e e u alent ont almost 15 times higher, indicating the continued the preceding year, a strong indication of the portance o o a to o erall sp r ts per or ance turnaroun n our ol s per or ance n olan toc s total o a olu e s are re ro 2 otal o a cate or alue ro t o ur n last ear to 29 0 t s ear an alue s are re 2019 as a ea o olu e ro t at 9 an ro 2 to 29 indication that growth was driven primarily by premiumisation rather than price discounting or a ourteent success e ont our A olu e an alue ro t rates outper or e The fastest overall value growth rate continued to those of our largest local competitor Roust, which be from the flavoured vodka sub-category +8.1%, ac e e 0 9 olu e an 2 9 A alue ut t e ar lar er clear o a su cate or returne ro t ar e r ar our ot er lea n local to alue ro t an as t e reatest competitor continued to decline heavily by –8.7% contr utor to a solute ro t volume and –8.8% value (MAT).
/30 Str t ic i / Regional Reviews – Poland
Po r u Po ust
€171.7m €43.1m 12 t pro or a 201 1 2 12 t pro or a 201 0 9 t reporte 201 10 9 t reporte 201 2
e lea n contr utor to our clear o a s are ro t as t e continued double digit growth of our largest premium brand, Stock Prestige, total value +26.4%, supported by consistent consumer activation at the point of purchase, including a unique Stock Prestige “Grand Prix” limited edition. Stock Prestige is the nu er one ran n t e pre u o a se ent
A un sen anot er o our pre u o as re alue 1 an olu e 12 al ost ou le t at o t e top premium segment where it is positioned, whose volume growth as
Our leading mainstream vodka, Żołądkowa De Luxe, achieved alue ro t o 2 outper or n t e a nstrea cate or and retaking the number two position from Krupnik. In the competitive economy segment, Żubr and 1906 grew their combined value +20.3%, supported by a 9cl bottle pack size innovation on Żubr (instead of market standard 10cl) and closely monitored price execution.
Stock also grew total flavoured vodka category volume and value versus last year, achieving our ambition to recapture the lead position in flavoured category growth. Our leading flavoured brand, Lubelska, delivered value growth of +18.8%, higher than the number one flavoured brand Soplica and that of the category, which had growth of +8.1%. The Saska flavoured range continued to build its position amongst emerging spirit drinkers, achieving A alue ro t o 102 supporte t e roll out o our highly successful new flavours, notably coffee with a hint o ran
Żołądkowa Gorzka, our unique brand in the flavoured category also returned to MAT value growth +3.0%, aided in the final quarter of 2019 by the introduction of new premium NPD.
ource s 1. IWSR to end of calendar year 2018 2 2019 3. Nielsen, total Poland, total off-trade, total spirits MAT September 2019 4. Nielsen, total Poland, total off-trade, total vodka MAT September 2019. For the purposes of this, total vodka = total regular vodka plus total flavoured vodka plus total flavoured vodka-based liqueurs
/31 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Poland continued
STRATEGY IN ACTION: MILLENNIALS ol s llenn al ran
Amidst the constant rush of modern life, everyone seeks moments to enjoy unhurried pleasure.
Aim: Recruit young-adults in the high margin flavoured vodka category.
How: Saska encouraged its of over two million views via target millennial consumers to Facebook, blogs and Instagram slow down the pace of their by working with food, drink and hectic lives and take the time to fashion influencers and linking enjoy experiences to the full in Saska to 40 top restaurants. A a meaningful way. A compelling new improved packaging design to communications campaign strengthen premium cues and aid showed stylish young-adults navigation around Saska’s range of enjoying good company, good flavours was also introduced. food and good drink together in a variety of occasions. Pairing Saska flavours with selected foods and Result: Saska flavours occasions drove usage. Three achieved +102.3% MAT innovative new contemporary value growth versus last flavours, coffee with a hint of year in the Polish off-trade, brandy, orange with a hint of overtaking long established bourbon and hazelnut with a hint competitor Krupnik flavours of caramel, with specific appeal to in retail value and almost millennials, were launched during doubling its share of total 2018. These were supported by flavoured category retail point of purchase merchandising sales value, from 3.5% to and a heavyweight social media 1.9%1. campaign which achieved reach
Find out more at: stockspirits co s
Source(s): 1. Nielsen , total Poland, total off-trade, total flavoured vodka MAT September 2019
/32 Str t ic i / Regional Reviews – Poland
2019 sa cont nue port ol o ro t n olan t rou stren t en n our core ran s
New Product Development Distribution brands
We continued to build our core brands via a focused We continued to grow our whisky category share via the Beam programme of NPD introductions of strategic importance. Suntory portfolio. Jim Beam achieved over double digit growth These aim to “trade-up” consumers to more premium o 1 n alue an 10 n olu e purc ases an to recru t oun a ult r n ers Our cooperation with distribution partner Synergy Brands,in A new premium Żołądkowa Gorzka range was launched place since July 2016, generated positive results. Beluga grew under the “Kolonialna” sub-brand. Its recipes are inspired by alue 0 n t e ast ro n ultra pre u o a se ent the creations of 18th century Polish merchant adventurers, who sailed from Baltic ports in search of exotic spirits, spices Organisation and fruits which they combined with their native vodka. Two initial variants were launched, macerated from bitter oranges, A stable management, sales and marketing team were in place enriched with a mixture of exotic spices, one with a hint of t rou out 2019 aromatic brandy, the other with a hint of aged whisky, both ro ress e stren t en n o our sales tea as resulte n at a er A le el t an our esta l s e ran e closer cooperation with key customers. We have step-changed
Lubelska expanded its appeal to young-adult drinkers through the intensity and quality of promotional support and have continued innovation in flavoured spirits, with the addition of engaged in a significant programme of fixture re-layouts in the two new Lubelska “Soda” sparkling fruit flavours designed to traditional trade which is yielding improved results at the point en cate or an ran usa e e ne spar l n pro ucts o purc ase are e n p lot teste n olan A a la le n le on an oran e e are us n t e latest tec nolo to el er en ance ran flavours, with an ABV content of 25% in handy 200ml bottles, experiences. Stock Polska was first in the world to start a Lubelska Soda is an ideal refreshment on hot days and a great virtual bartender league and educational activity aimed to a to et t e part roll n create ran a ocac an ncrease consu er en a e ent
r s our ol s spelt o a as re launc e n ore n t e on tra e c annel premium packaging with a new look printed bottle and gift carton, supported by in-store activation and a digital marketing Future outlook ca pa n s contr ute to ts A alue ro t Excise duty rates are to increase by 10% from 1 January 2020. in the top premium segment through expanded distribution We are implementing the necessary actions to manage the an ncrease consu er appeal at t e po nt o purc ase propose c an e toc rosecco as also re launc e n ne loo ore pre u 2019 saw continued portfolio growth in Poland through pac a n to en ts appeal to a oun a ult au ence stren t en n our core ran s ur clear o a us ness s n stron ro t across all pr ce se ents toc also ro e volume and value growth in the flavoured category, primarily through Lubelska and Saska, supported by premiumisation of Żołądkowa Gorzka. We will continue to innovate in flavoured o a to a nta n our lon ter oal to el er alue ro t a ea o t e cate or
ource s 4. Nielsen, total Poland, total off-trade, total vodka MAT September 2019. For the purposes of this, total vodka = total regular vodka plus total flavoured vodka plus total flavoured o a ase l ueurs 5. Nielsen, total Poland, total off-trade, total whisky, MAT September 2019
/33 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Czech Republic e cont nue to lea t e sp r ts ar et n t e ec Repu l c
Stock grew value share of the biggest Czech spirits category, rum, from 61.6% to 65.9%.
e ec Repu l c s t e roup s secon lar est toc re alue s are o t e lar est ec ar et ere toc as el sp r ts ar et sp r ts cate or ru ro 1 to e lea ers p or o er 20 ears1 an as ran lea ers outstanding success in rum was Božkov Republica, n t e e sp r ts cate or es o ru 2 o a an launc e n 201 c re alue s are o herbal bitter liqueurs porte ru ro 2 to 2 ts ro t as largely incremental as our core Božkov Tuzemský e ec econo s per or n ell “A successful year that saw the ran also re olu e an alue o apta n business outperform total spirits c as ncrease consu er sposa le growth and achieve volume and value or an r nal c toc str utes n t e nco e an t t t e es re or share gain driven by core rum category, ec Repu l c on e al o a eo premiumisation, NPD and pre u pro ucts r n alue ro t distribution brands.” n sp r ts In a flat overall vodka category, Stock grew its total
Jan Havlis olu e an alue ncreas n alue s are ro Spirits premiumisation’s appeal to Managing Director, 2 to 2 an olu e s are ro 2 1 to Czech Republic increasingly affluent Czech consumers 27.4%. Whilst retailer own label continued to grow ena le total sp r ts to ro alue 2 ro during 2019, its rate of growth and share gains a relatively flat volume base +0.9%. The four core have slowed significantly versus last year. Stock’s cate or es on c toc ocuses n t e ar et brand leader, Božkov vodka’s value growth +4.7% rum, vodka, herbal bitters and whisky, together outstr ppe t at o reta ler o n la el 0 1 account or c o total sp r ts olu e an are t e e r ers o o erall sp r ts per or ance alue Our well-established partnership with Diageo, ro t as r en pr ar l ru t e lar est coupled with the additional distribution agreement category, accompanied by positive growth from t ea untor c starte n 1 201 es whisky. High growth from those categories off- us, we believe, the strongest whisky portfolio in the set a flat performance from vodka and decline in ec Repu l c e ac e e s alue s are herbal bitters growth from 8.4% to 10.7%, despite significant average price reductions by a number of our leading Core brands whisky competitors.
Stock achieved significantly higher volume and value ese successes out e e our s are ecl ne ro t t an t e total sp r ts ar et an super or in the contracting herbal bitters category, where value growth to our main local and international Fernet Stock’s value share reduced from 31.9% competitors. The combination of our premium to 2 0 r en pr ar l c an e reta ler innovation, benefits from previously-acquired promotional strategies coupled with aggressive brands and the addition of new distribution brands price discounting by Jägermeister. Fernet Stock was el ere alue ro t o an olu e re-launched with a new liquid range, packaging, ro t o ncreas n our ar et lea ers p range pricing architecture and communications an ro n alue s are ro 0 to an support in Q4 2019, which will address this olu e s are ro to challenge. We continue to build awareness and trial for our premium herbal bitter, Black Fox, with its primary focus in the on-trade, the ideal environment to u l consu er tr al o t e ran
/34 Str t ic i Re onal Re e s ec Repu l c
C c pu ic r u C c pu ic ust
€81.3m €24.4m (12 mth proforma 2018: €73.2m) (12 mth proforma 2018: €21.6m) (9 mth reported 2018: €49.2) (9 mth reported 2018: €13.6m )
New Product Development Alongside our successful partnerships with third party whisky brand owners, Stock is committed to developing our own Our NPD focused on premiumisation of our core brands and whisky brands. During 2019 we redeveloped our Single Malt increased recruitment of young-adult drinkers. ec s or erl no n as a er ea un er t e The most significant NPD activity in 2019 was the Fernet re-launched Pradlo brand name (the location of the distillery Stock re-launch, with striking new packaging, an expanded where it is produced in the Czech Republic) with new improved range of flavours including lower ABV economy and higher liquids and super premium packaging. Two limited edition ABV premium offerings and a revised pricing architecture, all pro ucts ere launc e n o e er to co nc e t t e supported by a heavyweight national marketing campaign. anniversary of the Velvet Revolution, very fittingly the 30-year- The re-launch will enable Fernet Stock to target a wider old, originally distilled in 1989, the year of the revolution, and variety of consumers at different price points, attracting new the 17-year-old, celebrating the start date of the revolution, users to t e ran n t e a nstrea an pre u se ents 1 o e er lst a nta n n access le pr ce ar ants or t e ore pr ce Amundsen vodka accelerated its recruitment of young-adult sensitive amongst our established consumers. consumers. We re-launched its lower strength Amundsen We launched new look labels on our core Božkov Tuzemský vodka-based liqueur range under the sub-brand “Fusion”, ran e to pro e s el stan out an pro e eas er ran e t e e catc n ne pac a n an an en ance ran e recognition and navigation for our consumers. Božkov of contemporary flavours. Building on the learning from also expanded its range in the fast growing dark rum and our successful limited editions on Stock Prestige in Poland, imported rum sub-categories. Božkov Cerny (Black) was the Amundsen also launched a “Deep Blue” limited edition for the first dark tuzemsky to be launched in the Czech Republic, on-trade, with a premium dark blue glass finish for added on- rap l ac e n lea ers p n t e ar ru s se ent s el pact Božkov Republica Reserva was launched in Q4 2019. Priced Collectively, an extremely strong NPD programme across our at a premium of approximately one-third to our established core brands which contributed to value growth during 2019. Božkov Republica Exclusive variant, the blend of fine selected Caribbean and South American rums with a darker colour, drier taste and higher ABV, complements our established Republica sub-brand with a more premium and differentiated offering for discerning consumers, which will help overcome the “me-too” brands from competitors which have begun to enter the market. To celebrate this November’s thirtieth anniversary of the Velvet Revolution in 1989 and the end of the former Communist regime, Božkov Tuzemský is also launching a commemorative limited edition label linking one of t e countr s est lo e ran s t ts prou ann ersar
Source(s): 1 R to en o calen ar ear 201 2. In the Czech Republic the “rum” category of the spirits market includes traditional ru c s a sp r t r n a e ro su ar cane an at s el re erre to as “local rum”, known as “Tuzemák” or Tuzemský”, which is made from sugar beet. As used in this Report, “rum” refers to both traditional and local rum, while “Czech rum” re ers to local ru 3. Nielsen MAT to end September 2019, total Czech off-trade Božkov Republica Reserva was launched in Q4 of 2019, 4. OECD 2019 where we aim to have it priced at a premium. /35 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Czech Republic continued The acquisition of Bartida in the year r n s ne capa l t es an ran s to our ec us ness
Distribution brands Organisation
We are close to completing our fifth year as the exclusive We continued to develop our sales and trade marketing str utor o t e core a eo ran s n t e ar et an are capabilities, achieving continued step-change in category- delighted with the continued performance that has been management with our major customers with very positive impact achieved on Captain Morgan, Johnnie Walker and Baileys. on range and shelf space, plus continued focus throughout our sales team on enhanced price management and promotional The addition of the Beam Suntory range to our portfolio efficiency. We expanded our contact and service levels with ater all ncrease our total s s are an e a e c. 3000 on-trade customers directly via a new dedicated call- begun the distribution of The Dubliner and The Dublin centre which has increased distribution, revenue and efficiency. Liberties Irish Whiskey Brands from Quintessential Brands We continued to build relationships and to dedicate specific relan s e te a enture o c toc p r ts resources to the development of our e-retail customer base. o ns a 2 nor t nterest
The integration of the distribution brands with Stock’s leading Future outlook local brands has brought significant benefits to the combined Announcing our half-year results in May, we referred to portfolio and has further strengthened our overall offering to the possibility of increases in indirect taxation in the Czech custo ers an consu ers Republic from 1 January 2020. Legislation proposing a 13% increase is excise tax on spirits from 1 January 2020 has M&A passed its first reading in the parliament. The second and
Stock Spirits completed the acquisition of Bartida in May 2019, final reading before approval is expected later this month. bringing new capabilities and brands to our Czech business. We are implementing the necessary actions to manage the The acquisition will build on our overall market leadership to propose c an e step-change our capabilities in the premium on-trade channel. Price competition remains strong, with specific competitors in
Bartida focus on premium on-trade outlets, utilising an e-shop, eac o our e cate or es r n olu e s are ro t us n demonstration bar and on-trade training centre. They will a ress e pr c n provide a direct route to market to the premium on-trade, a The outstanding success of our first-to-market Božkov proven model which we will look to export to other markets. Republica NPD has become apparent to our competitors, one
The Bartida brand portfolio brings a combination of their own of whom has now launched a lower priced “me-too” product premium brands of fruit spirits and liqueurs, plus distribution n pre u ru brands, primarily in premium rum. There are no conflicts with A number of major retailers are continuing to expand their our current portfolio, including our distribution brands. pr ate la el ran es n e sp r ts cate or es alt ou at
The acquisition represents a total investment of €11m. uc re uce rates ersus last ear e a e ple ente Two previous owners will be retained for the next five years. a number of actions which we anticipate will help to mitigate €7.3m was paid on completion. Up to €3.7m is included on the potential risks associated with these developments an earn-out, based on specific conditions over five years. and maximise the opportunities. Our Czech business has We expect Bartida to be earnings enhancing in FY2020. el ere stron ro t o er t e last ear an as a trac record of delivering significant value growth through its focus on premiumisation, both of our own core brands and in collaboration with our distribution brand partners. Our Czech team and business moves forward from a position of strength with ambitious plans for the future.
/36 Str t ic i Re onal Re e s ec Repu l c
STRATEGY IN ACTION: DIGITAL ernet tal ca pa n
Our target consumers are “digital natives”, who grew up with new technology and are heavily influenced by online communication.
Aim: Compelling digital communication of the Fernet Stock re-launch
How: A multi-channel re-launch leading bands during the peak communications plan, focused on summer season. The Stock Mix the “be the makers of your own Fest music event generated destiny” proposition, was executed online coverage viewed by over from April to September 2019 673,000 of our target consumers. with the aim of raising awareness, The “bavorak” sampling was itself consideration and purchase intent. designed to generate additional The re-launch online campaign coverage via social media as the reached over 81% of the brand’s venues, bands and the party goers target 18–54 year old Czech digital shared images with their own consumers using impactful online networks of contacts. executions, via content on demand advertorials, Facebook and Result: Consumers claimed a Instagram. A simultaneous online higher consumption frequency public relations campaign produced score after the campaign 78 articles generating an estimated compared to before the 32 million impressions. Physical campaign1. Increased use sampling and trial of the new look of digital communication and re-launched “bavorak” long enabled real-time tracking of mixed drink with ginger ale serving, consumer responses to our and the stylish new packaging, communications, allowing was achieved through on-trade faster campaign adjustments sampling events in partnership and better targeted spend. with some of the Czech Republic’s
Find out more at: stockspirits co s
Source(s): 1. Millward Brown Brand Health pre and post campaign tracking and evaluation, September 2019
/37 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Italy tal cont nues to ol lea n positions in the off-trade. The acquisition of Distillerie Franciacorta makes Stock Italy the number one grappa player in the Italian off-trade.
tal re a ns l ra ente ro a suppl M&A perspective where the spirits market consists of The acquisition of Distillerie Franciacorta, a number of mature categories including bitters, announced in January, was completed in early June. vodka, brandy, whisky and liqueurs. Whilst The integration of Distillerie Franciacorta makes Stock has a relatively small overall share of Stock the number one grappa player in the Italian total spirits in Italy, at 6.9% value share in 1 off-trade. “This has been a transformational our key focus modern trade channel , year for the turnaround of Stock we hold leading brand positions in a This is our first step in pursuing in-market Italia with the successful acquisition of number of key categories in the off- Distillerie Franciacorta in June 2019 and consolidation opportunities in Italy, and Distillerie a return to growth2 for both Keglevich trade, with number one positions in Franciacorta will strengthen our position in what Fruit and Stock 84 brandy after their the clear vodka, vodka-based liqueurs, respective re-launches.” is a fragmented but highly attractive market for limoncello and (since the acquisition us. It is also a clear reflection of our willingness to Michael Kennedy of Distillerie Franciacorta) grappa undertake value-creating M&A as part of our four Managing Director, Italy categories, and the number two brand pillar growth strategy. n ran 2. Founded in 1901, Distillerie Franciacorta was There have been some improvements in consumer owned by the Gozio family and is located in confidence versus last year, underpinned by Franciacorta, in the Lombardy region of Italy. Stock slight declines in unemployment and inflation and Spirits acquired Distillerie Franciacorta’s spirits ncreas n sposa le nco e . and liqueurs business, together with land for the construction of a new production facility. It also Reflecting these improving macro trends, the total acquired the prestigious Franciacorta wine brands, spirits market grew +3.0% value and +1.8% volume although all aspects of the wine manufacturing in 20191. will be retained by the vendor. As part of this transaction, Stock Spirits has also taken a long- Core brands term lease of the historic Borgo San Vitale site, In a highly competitive market, Stock Italia lost the distillery and visitor-centre that is an integral marginal volume and value share in our key focus part of Distillerie Franciacorta’s heritage. Stefano channel, the modern off-trade. Gozio, one of the selling shareholders of Distillerie Franciacorta and a member of the founding Gozio Stock’s total value share (now including Distillerie family, will continue to act as a brand ambassador Franciacorta) is 6.9% (versus 5.7% LY) . Stock grew and consultant to Distillerie Franciacorta. volume and value share in the brandy category, driven by the continuing success of our re-launched The grappa category is Italy’s fourth largest spirits Stock 84 range, notably via the premium Stock category, and the total premium price segments in 84 XO variant. Volume and value MAT shares in which the Franciacorta brands are positioned grew our other four key categories: limoncello, vodka, by +2.1% in value year-on-year5. The acquisition flavoured vodka-based liqueurs and organic grappa, means that Stock Spirits is the number one were flat. branded grappa business by value in the Italian off-trade. Stock Spirits sees clear synergies with Trade relationships were strengthened through the its existing operations, both in the on-trade, where successful negotiation of annual deals with all buying Stock Spirits can leverage Distillerie Franciacorta’s groups and planned price increases were achieved. strong presence, and in the off-trade, where the acquired brands will benefit from Stock Spirits’ current strengths. /38 Str t ic i / Regional Reviews – Italy
t r u t ust
€26.9m €3.6m (12 mth proforma 2018: €25.8m) (12 proforma 2018: €4.4m) (9 mth reported 2018: €17.6m) (9 mth reported 2018: €1.7m)
The purchase price is up to €23.4m for the business with a further €3.0m for the land, payable in cash in three tranches: €3.0m was paid upon signing; a further €21.5m was paid at completion; and up to €1.9m deferred consideration will be payable over a four-year period.
The acquisition brings more scale in grappa, where the Franciacorta range joins Stock’s established Grappa Julia brand, especially in premium with minimal additional overheads. The acquisition is expected to be earnings enhancing in FY2021.
The acquisition also provides a strong platform from which to enhance the provenance of the Stock Italia brand portfolio and rejuvenate our Italian business.
It will enhance our premium on-trade sales capabilities and triple the sales force, bringing growth synergies across the off and on-trade for all of our categories.
The experience gained through the transaction and the integration process of Distillerie Franciacorta provides a “template” for potential future acquisitions by Stock Italia of family-owned businesses in the fragmented Italian market.
Source(s): 1. IRI total Italy, total modern trade, total spirits, YTD September 2019 and 2018 2. IRI total Italy, total modern trade, total limoncello, total brandy, total flavoured vodka-based liqueurs and total vodka, YTD September 2019 3. OECD 2019 4. IRI total Italy, total modern trade, total spirits YTD August 2018 5. IWSR 2018
/39 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Italy continued e nte rat on o st ller e Franciacorta acquired in the year is on track.
Organisation
The organisational focus of our Italian team during 2019 has been on the acquisition and integration of Distillerie Franciacorta. We are satisfied with progress in integrating the new business with our existing Italian business.
Future outlook
Announcing our half-year results in May, we referred to the possibility of increases in indirect taxation in Italy from 1 January 2020. Since then, there have been no further developments. Nevertheless, we remain vigilant, and prepared to implement actions necessary to manage any changes that may be announced.
Continuing economic challenges and political uncertainty are forecast to constrain consumer confidence and disposable income, with a continued impact on total spirits performance. Premiumisation in our core grappa, limoncello, brandy and vodka categories, supported by the enhanced provenance and strengthening of our on-trade capabilities brought by the Distillerie Franciacorta acquisition, will provide opportunities for value and margin enhancement and further consolidation in what is anticipated to remain a low volume growth spirits market.
/40 Str t ic i / Regional Reviews – Italy
STRATEGY IN ACTION: PREMIUMISATION Stock 84 re-launch
Consumers are prepared to pay a premium for higher perceived quality from trusted brands.
Aim: Increase core brand equity and margins.
How: Stock 84 XO is a premium Supported by trial building range extension of Italy’s across our focus modern off- second biggest-selling spirits trade channel, Stock 84 XO is a brand Stock 84. Combining celebration of Lionello Stock’s high quality, barrel-aged, eight entrepreneurial vision, during year old brandy, dark amber in what is seen by many as a colour with coppery hues and “golden age” in Italian history, notes of vanilla and chocolate associated with authenticity, in its smooth, velvety taste with honesty and self-esteem. A elegant premium black and gold time when Italian craftsmanship packaging with the foundation and invention flourished. date of 1884 embossed proudly on the bottle, Stock 84 XO commands a retail price premium of c.35% to its mother Result: Achieved MAT value brand. It offers consumers an growth of +4.5%, versus a flat brandy value category option to trade up to a more year-on-year1. Contributed premium but still affordable 14.8% of the Stock 84 range variant of a trusted brand, value growth from 7.2% of its delivering improved margin per volume base1. litre for Stock Spirits Group.
Find out more at: stockspirits co s
Source(s): 1. IRI total Italy modern off-trade, brandy MAT September 2019
/41 Stock Spirits Group PLC Annual Report & Accounts 2019
Regional Reviews – Other Božkov Republica rum was the est ro t r er n lo a a Our other markets include Slovakia, Croatia and Bosnia & Herzegovina together with our export operations, and Baltic distillery.
Slovakia Other International markets
n a lo er ro t total sp r ts ar et t an last ear In Croatia, Stock Spirits grew volume and net sales toc ar nall ecl ne olu es 2 1 ersus per l tre s as ac e e pr ar l t rou t e ar et at 0 alue n t e ar et up e te on tra e ocus supporte t e ncrease 1 2 t toc ust a le to re-launch of Stock 84 and the widened range of “A year of achievement due a nta n ts alue t ar nal ro t distribution brands. to the growth and success of the 1 newly launched Božkov Republica o 0 1 toc a nta ne ran In the year, a distribution agreement with and Amundsen brands, with a strong leadership in the highly competitive organisational focus on executing the Fentimans tonic was started, from the growing repositioning of our Fernet brand.” herbal bitters category, but lost share to e an o t e n an ton c ser e c as er e ster an atra ea ot o c Roman Pocs shown significant growth in Croatia. Managing Director, Slovakia re uce a era e pr ce per l tre to r e olu e e ernet toc re launc ll elp n our e port ar ets t e success ul to a ress t s c allen e e an or total ru t reorganisation of our route to market in Germany sp r ts n lo a a also contracte 10 2 n olu e contributed continued volume uplifts from new impacting Stock’s Golden economy range and our retail distribution, notably for our Polish brand total volume negatively, despite stable performance portfolio. Our new distribution partnership with from the premium Golden Ice range and strong e r n s o pan n t e starte ore growth in fruit distillates. slowly than anticipated due to legacy issues, but is now generating high margin incremental sales These declines were off-set by the biggest growth ersus last ear driver in rum, where Božkov Republica’s roll-out ac e e nu er t o ran n n porte ru in its first year post launch. In vodka, Amundsen Expedition’s value growth rate was +46.2% with Amundsen mainstream brand at over three times t at o t e total o a cate or n s ea str ute toc n lo a a on e al o ea untor re alue 10 0 ell a ea of the total whisky category at +7.4%. This growth off-set declines in two of our core established categories, herbal bitters and fruit spirits2
A challenging year in Slovakia, but one where our e pans on nto ru an s couple t a stron per or ance n o a ena le toc to maintain its position as the second biggest player in the off-trade.
ource s 1. Nielsen, total Slovakia, total off-trade, total spirits MAT to end September 2019 2. Nielsen, total Slovakia, total off-trade, total rum, whisky, vodka, fruit spirits, herbal bitters and fruit distillates MAT to end September 2019 3. Internal Stock Spirits Group audited sales data
/42 Str t ic i / Regional Reviews – Other
t r r u t r ust
€32.5m €5.4m (12 mth proforma 2018: €30.9m) 12 pro or a 201 (9 mth reported 2018: €21.3m) (9 mth reported 2018: €2.8m)
/43 Stock Spirits Group PLC Annual Report & Accounts 2019
Non-Financial Information Statement
This section of the Strategic Report constitutes Stock Spirits Non-Financial Information Statement. It has been produced to comply with section 414CA and 414CB of the Companies Act 2006 and outlines in the table below, in which section of this ARA the relevant information can be found.
Reporting Policies and approach Section within Requirement (some are only published internally) the Annual Report Environmental Matters Code of Conduct Responsible Business Report page 46
Environmental Policy Principal Risks page 14
www.stockspirits.com Employees Health and Safety Policy Principal Risks page 14
Purpose, Mission, Vision and Values Responsible Business Report page 46 Employee Lifecycle Policy Learning and Development Policy Speak-Up Line “Whistleblowing” Policy Equality and Diversity Policy Social and Community Matters Code of Conduct Responsible Business Report page 46
Subscribe to Drinkaware www.drinkaware.co.uk Portman Group Code of Practice www.portmangroup.org.uk Alcoholic Drinks section of the UK Code of Advertising Practice Human Rights Data Privacy Policies Responsible Business Report page 46
Modern Slavery Statement www.stockspirits.com Anti-bribery and Corruption Anti-bribery and Corruption Policy Responsible Business Report page 46 Risk Management and Controls Framework Code of Conduct
/44 / Strategic Review / Stakeholder Engagement
Stakeholder Engagement Our aim is to maintain positive dialogue with all our stakeholders.
Our Purpose, Vision, Mission and Values support the relationships we have with our Stakeholders.
Shareholders We are in regular contact with our shareholders through financial reporting, our Annual General Meeting and Capital Markets Day, as well as ad hoc meetings and discussions. Local communities Employees We respect the communities where We continue to be focused on improving we are present and we look to employee engagement across the Group. make a positive contribution and to We want to give our employees the enable sustainable growth through opportunity to express their satisfaction support of local charities and other with working for Stock Spirits, as well as community initiatives. help us to develop in the areas that are most important to our employees. We do this through annual engagement surveys, National & local intranet, town halls and lunches with the Board and Senior Management. Government We are active members of trade associations in our markets and Suppliers through them we discuss with We work closely with our suppliers to national and local governments, provide the best products to our customers policies and regulatory changes and consumers, by maintaining high that may affect the Group. standards throughout our supply chain.
Consumers Customers We engage with our consumers We work continuously with our through our marketing, which customers to ensure we are increasingly takes place via delivering best-in-market products digital channels. and service and jointly growing our businesses in a responsible way.
/45 Stock Spirits Group PLC Annual Report & Accounts 2019
Responsible Business Report We remain committed to being a responsible business.
Our approach to responsible business Alcohol and society
toc p r ts el e es t at e a n n a respons le anner We are conscious that our products should be enjoyed is an essential element of achieving our overall objectives on responsibly by those who choose to drink them, and we do a sustainable basis. During the year, a Responsible Business not want irresponsible drinking to harm the health of our Committee was established, to increase Board focus in the consumers or others who may be affected. We believe that area of Environmental, Social and Governance matters. This efforts to reduce the misuse of alcohol are most effective includes continuing to develop strong relationships with our if all parties involved (including authorities, individuals stakeholders, including suppliers, customers, communities, and producers) work together. In the UK, we subscribe to governments and consumers, ensuring best-in-class people are Drinkaware, Portman Group Code of Practice and the alcoholic joining the organisation, along with our ongoing environmental drinks section of the UK Code of Advertising Practice. Below initiatives. We are making environmental and social issues an sets out what each market has done during the year to intrinsic part of our corporate culture. The Board continued encourage responsible drinking. their focus on ensuring a positive health and safety culture across the Group, which included visits during the year to the Poland production sites in Lublin in Poland and Pradlo and Plzeň in Stock Polska is a long-standing and highly active member of ZP the Czech Republic, to review the health and safety processes Polski Przemysł Spirytusowy (ZP PPS), the trade organisation in action and discuss the continued progress and focus in this which, as part of its work, promotes responsible drinking area with the local teams. through educational programmes and public campaigns. Campaigns during 2019 included ‘Don’t drink and drive’; ‘Better Business and ethics start for your child’ aimed at pregnant women; ‘Here we check Adulthood’, ‘Have you been Drinking? Don’t Drive’, ‘Drink Our Group Code of Conduct and Ethics (our Code) together Responsibly, Sell Responsibly’ aimed at retailers and ‘Alcohol. with our Anti-Corruption and Bribery Policy and other related Always responsibly’. policies, sets out the ethics, principles and standards that are required to be consistently upheld in each business and A significant part of the responsible drinking activity in Poland corporate function within the Group. It also applies to our is carried out across social media and through campaigns business partners: suppliers, agents and customers. held at universities, industry meetings and events. There are also workshops for retailers, during which guidelines The Group has a Speak-Up hotline available in all countries on ‘Responsible selling and serving alcohol beverages’ are where the Group has operations. The Speak-Up line can communicated and ZP PPS actively supports both local and be used by any employee in the Group or by third parties national responsible alcohol campaigns. and allows them to report any incidents or inappropriate behaviours in their own language. The confidentiality of During the year, social media influencers were involved the information reported is correctly protected. The Group in a campaign to show the impact of too much alcohol on ensures all employees are aware of the principles of our Code your image, which was targeted at the under 30s, and was as well as the Speak-Up line, so it is well known and, in the case supported by Vogule, a popular website in Poland. of the Speak-Up line, can be used as needed, by any employee in the organisation.
/46 Str t ic i / Responsible Business Report
Lost i ci t tr 2018 2019
Czech Republic and Slovakia We also promote www.pijsrozumem.cz, a responsible Our companies in these markets are founding and active drinking programme through UVDL and ourselves. members of ‘Fórum PSR’ (drink responsibly), which brings At all events we include preventive messages and together the countries’ major spirits producers and distributors strictly adhere to the ethical code of UVDL. In our to work against alcohol abuse. This Forum addresses issues targeted communication, we only target consumers related to alcohol consumption and tries to raise awareness of above 18 years of age. During 2019, Stock Plzeň Božkov the negative effects of irresponsible drinking. We continued was part of the Stock Mix Fest tour, where the Company to use the ‘PSR, (drink responsibly)’ platform within our media, supplied free water and had a team offering free alcohol in-store and other brand communication. Forum members tests and promoting responsible drinking to consumers. have also pledged to observe a code of conduct that strictly regulates their advertising activities. Italy In Italy we are a member of Federvini, the national trade Some of the main activities in Slovakia during 2019 included association founded in 1917 which, as part of its role, participation of “alco-watch” at the biggest Slovakian festival promotes responsible drinking using educational and ‘POHODA’, where volunteers from the Forum offered visitors informative programmes. free alcohol testing, to make sure they drove home safely, and ‘Let's talk about alcohol’, an initiative aimed at teenagers, parents and schools to raise awareness about the dangers of alcohol use www.hovormeoalkohole.sk.
Stock Plzeň Božkov is a member of the Spirits Trade Association and was active during 2019 in supporting the Czech government in its ongoing efforts to implement a strong regulatory environment in the spirits industry. They are also members of UVDL (Union of Spirit Producers and Distributors), aimed at educating school children and students over the age of 13 across the country. During 2019, 9520 pupils attended this programme and received lessons on topics including: what is alcohol, why alcohol is only allowed to be consumed from 18 and first aid if children meet a friend who has consumed alcohol and is ill. Since the start of the project, more than 80,000 pupils have been trained throughout the Czech Republic.
Staff in our corporate head office based in the UK, raising money for charity from a coffee morning.
/47 Stock Spirits Group PLC Annual Report & Accounts 2019
Responsible Business Report continued Health and safety is of paramount importance across the Group.
Health and safety During 2019, safety engagement and accident prevention included: We have established a strong foundation of health and safety throughout the Group, reducing the number of lost time Annual safety day held in Poland and the Czech Republic, incidents (LTIs), reducing the severity of incidents and focused on building a positive safety culture and promoting significantly increasing proactive safety initiatives, ways of proactive actions. Education, training, awareness and working and notification processes. ownership is a key component of our approach to health and safety and ensures our employees are aware, enabled, As a part of our health and safety strategy, we are implementing participating, empowered and engaged in safety at work ISO 45001 in our supply chain to further build on our safety engagement with employees, to enhance and further systematise Quarterly Group Safety Forum meetings have been held our risk-based approach, enhance local and functional across the Group for several years and the remit of the management safety ownership, whilst continuing our health and Forum was extended to include environmental matters. safety journey of excellence. The first Group Health, Safety and Environmental Forum, took place in July at Distillerie Franciacorta in Italy. All With regard to performance during the year, there were no local Health, Safety and Environmental leaders, along with major accidents or incidents notifiable to the authorities. representatives from the Board, took part in the event There was a slight reduction in the number of LTIs compared which enabled the sharing of experience and best practice to the prior year. As the graph at the top of the previous page from each market, as well as aligning policies and processes. demonstrates, the reduction in LTIs over the four-year period A strategy for the future development of the Group between 2016–2019 emphasises the effect of our proactive health and safety culture was agreed and defined and focus on health and safety across the Group. There were 10 environmental issues were discussed minor LTIs recorded in 2019. A safety survey for the Group was conducted during The annual externally facilitated property and safety the year. Top strengths and areas which require further management audits, carried out across the Group, development were identified resulted in an improvement in scores across all locations. A health and safety competition for employees was piloted in Poland and will be rolled out across the Group. The Comprehensive and holistic safety improvement plans are competition was focused on technical and organisational in place across all locations and cover culture and behaviour; improvements in terms of health and safety amongst education, training, awareness and ownership; asset safety; employees and systems, processes and ways of working. Behaviour based safety audits were implemented, initially Audit action plans are managed locally and at Group level, in Poland and are supported by the compliance team. Daily safety meetings took place to discuss notification Formal local and Group health and safety reporting is of unsafe acts and unsafe conditions presented on a monthly basis to the local management team, Proactive safety reporting and actioning, includes Group leadership team and to the Board, and includes updates documenting, investigating using root-cause analysis, on: safety performance for the period; safety initiatives; and resolving unsafe acts, unsafe conditions and near investment updates; action plan performance; miss reporting, and is embedded in our operations and reviews and audit updates.
/48 Str t ic i / Responsible Business Report
iro t r ss c p i
In the year to 30 September 2019, we continued our environmental awareness campaign, holding our fifth Health, Safety and Environmental Protection Day using the “Sztosia” mascot. The campaign continues to raise eco-awareness of both Stock Polska personnel and employees of the Company’s contractors, and to reduce our environmental impact as a business. The day covered many areas including eco-awareness and behaviour; reducing the amount of generated waste and its segregation; water, gas and electricity saving initiatives; and communication campaigns focused on environmental protection, including posters, banners and stickers displayed throughout the premises. Training and demonstrations were provided by experts to keep employees up-to-date with first aid, health and wellbeing.
The driver safety and environmental initiative introduced in A review of the packaging from suppliers in Poland took 2018, continued during the year for all company car users in place during the year and it was confirmed that 100% of glass Poland and Slovakia and monitors key safety and economy packaging used is recyclable. An agreement was put in place aspects of driver performance such as speed, seat belt with suppliers during the year, to arrange the recycling and wearing, acceleration, braking and fuel economy recovery of packaging waste and during 2019 the recycling levels for packaging waste were: plastic packaging 23.5%; Each month a safety hot topic is focused on and aluminium 51%; steel packaging 51%; paper and cardboard communicated to employees. Some examples of the topics packaging 61%; glass packaging 61% and wood packaging 16% discussed during the year were: pedestrian safety, slips, trips and falls, hazardous areas training, contractor management, A number of our suppliers have confirmation from COBRO, fire and explosion prevention and action, equipment and the Poland state owned Packaging Research Institute, which asset safety, car driver safety training, ergonomics and issues certificates to packaging producers to confirm their physiotherapy, heart attack first aid, collisions with animals packaging is suitable for recycling
on the road, HALO rule, viruses and tick prevention The majority of our packaging is made from recycled During the year, employees across the Group received first raw materials. aid training, including the use of defibrillators (AED). During the year, the following environmental educational Environment campaigns took place for the workforce in Poland: Annual Environmental Protection Day We recognise that careful management of environmental issues is important for our stakeholders and crucial for our long-term ‘Tree for waste’ action where employees received a tree for success, and we have recently begun to set environmental planting in exchange for donating plastic, paper or glass waste targets to drive improvements that we will measure and report. Promotion of zero waste Poland Encouraging videoconferencing to avoid unnecessary During 2019 the following projects were set-up and completed business travel in Poland: Car-pooling – encouraging car sharing amongst the team As part of monitoring the status of groundwater intakes, Since 2018, the factory in Poland has implemented the comprehensive testing was carried out at our production Hewlett-Packard ‘Planet Partners’ programme. The programme site in Poland. Efficiency, performance and the technical recycles used toners and HP combines the returned toners condition of the well was assessed. It was concluded that from HP Planet Partners with recycled plastic bottles to water resources have not deteriorated and were at the produce new ink cartridges. same level as in 1987. Well performance has not changed In 2019, due to an 11.5% increase in production, the amount since the wells were initially drilled. The quality of the water, of generated waste increased by 21.3% (2018: 19.43%) and which is constantly monitored, meets all the parameters of 99.75% (2018: 96.75%) of the waste produced on site was drinking water recycled. Due to the rectification unit being in use for longer during 2019, our utilities consumption also increased compared to the previous year by: electricity 3.58% (2018: 10.2%); gas 6.54% (2018: 36.11%) and water 4.74% (2018: 20.7%).
/49 Stock Spirits Group PLC Annual Report & Accounts 2019
Responsible Business Report continued The Responsible Business Committee is focused on Environmental, Social and Governance matters for the Group.
Czech Republic Utilities Consumption Goals and Actual Consumption for the Financial r During the financial year we increased production by 5.8% Utility Goal Set Average consumption which led to an improvement in the efficiency of electricity Electricity 0.14 kWh/L FG 0.12 kWh/L FG and gas consumption. Electricity consumption was reduced by 4.3% due to investments in new, more efficient lighting Gas 0.45 kWh/L FG 0.29 kWh/L FG outdoors and within the warehouses, and improved employee Water 3.7 l/L FG 2.98 l/L FG discipline. Gas consumption increased by 4.9% and 5.3% of the Sewage 2.20 l/l FG 1.68 l/L FG electricity bought in the Czech Republic comes from renewable energy sources. Water Water is a key ingredient in our products. We aim to We were able to recycle 97% of the waste produced, continually improve the efficiency of our water usage, through employee training and improvement of waste particularly in water-stressed areas. In the table below we sorting processes. have set out the levels of water stress across the Group.
Utilities Consumption Goals Location Level of Water Stress During the year, the production teams across the Group set Italy High (40–80%) themselves a target for the maximum consumption of each Germany Medium-high (20–40%) utility category, relative to the level of finished products Czech Republic Low-medium (10–20%) produced. The goals were all achieved as detailed in the Poland: Low-medium (10–20%) following table. • Warsaw Low (<10%) • Lublin Medium-high (20–40%)
Wellbeing s Su Stu s C We continue to develop our focus on employee wellbeing and have made some progress in addressing this across the Group during the year. Across our markets there are local initiatives in place to support this which include: gym/multisport card, fruit/healthy food, medical insurance and employee health checks. In addition, awareness days that have taken place received positive feedback. World Mental Health Day was again highlighted this year, when the UK office offered healthy snacks, gave information on topics relating to mental health and wellbeing and encouraged everyone to think about their own health as well as supporting others. Slovakia celebrated both International Women’s and Men’s day this year.
/50 Str t ic i / Responsible Business Report
2% 6% Employee Population by Generation
Baby Boom (1946–1964) Generation X (1965–1980) Generation Y/Millennial (1981–1996) Generation Z/Post-Millennial (1997–2012)
51% 41%
Sustainability Accounting Standards Board (SASB) As in prior years, we have applied the latest available DEFRA disclosure UK location based conversion factors (2019) and country specific IEA factors to calculate the current year emissions. We recognised that, although our Group has, for several The 2019 GHG emissions data has undergone independent years, engaged in a wide variety of positive environmental limited assurance by ERM Certification and Verification and social improvement initiatives and activities, they had Services (ERM CVS). For full details please refer the ERM not been brought within a framework to enable a more CVS Limited Assurance Statement. structured approach to setting targets, measuring performance and reporting to our stakeholders. Therefore, during the year, a decision was taken to adopt the SASB standards Diversity for the Alcoholic Beverages sector. Our first report The success of a business depends on its people and we against those standards will be published on our website are committed to providing equality of opportunity to every www.stockspirits.com within the Corporate Responsibility employee and potential employee in all areas of employment. section by February 2020. The Group benefits from having a workforce reflecting the Greenhouse gas emissions composition of the local communities in which it operates. In the financial year 2019 (1 October 2018–30 September The Group takes its responsibilities with regard to equality 2019), the Group’s total Scope 1 (direct) and Scope 2 (indirect) and diversity seriously and expects employees at all levels to Greenhouse Gas (GHG) emissions were 34,375 tonnes not only respect and observe this, but also to take personal responsibility for driving equality and diversity. and 9,254 tonnes of CO2e respectively, a total of 43,630 tonnes. This is a 3.4% decrease compared to 45,153 tonnes We have an Equality and Diversity policy, which applies to (respectively 35,770 tonnes Scope 1 and 9,382 tonnes Scope all employees and is a key part of our recruitment process 2 CO e) for the prior 12 month period (1 October 2017–30 2 to ensure that we recruit high calibre individuals matched September 2018)¹. to the requirements of the role we wish them to undertake, The emissions intensity for the financial year decreased by 12% irrespective of gender, age, race, religion, sexual orientation, national origin or disability. to 348 grams CO2e per litre of packaged product, compared to 396 grams in the prior reporting year. As a consumer-focused business, we recognise the value that This decrease is due to a number of contributing factors; first a diverse mix of people provides us with, particularly in terms the lower alcohol production volume at our Baltic distillery of consumer insights, but also in terms of driving business relative to the prior 12 month period and second, Baltic reduced performance. Diversity is key to the success of the Group, its coal consumption which resulted in a decrease in emissions with emphasis not only on gender but also on culture, intensity at Group level. Baltic’s core activity is energy-intensive nationality and experience. rectification, which is why it accounted for 76% of total Group At 30 September 2019, 12.5% (one out of eight) of the Board emissions in the financial year. Additionally, the bottling facilities of Directors were female and the Board continues to be in Poland and the Czech Republic both decreased their diesel committed to working towards 33% female composition and electricity consumption, positively impacting the total when the next vacancy arises going forward. GHG emissions. The final year data also reflects the increase in finished goods production due to increased use of the rectification line of the Lublin bottling plant.
Note: 1. In the 2018 Annual Report GHG emissions were reported for a 9 month period, in line with the shortened financial period from 1 January–30 September 2018. This year we are reporting our GHG emissions data in line with our new financial year 1 October 2018–30 September 2019. For comparative purposes, we have also provided revised emissions data covering the prior 12 month period (1 October 2017–30 September 2018)
/51 Stock Spirits Group PLC Annual Report & Accounts 2019
Responsible Business Report continued Our aim is to ensure everyone across the Group is aligned with our Purpose, Mission, Vision and Values.
Culture
As part of the work on strategy, the Board and Group Leadership Team reviewed our Purpose, Mission, Vision and Values. For the first time, we defined our Company In addition to our Mission, Vision and Values, we Purpose and Values, which will be the foundation wanted to ensure that everyone understands what for driving our culture in terms of how we want our Purpose is. Our Purpose, Mission, Vision and to work together in achieving our Mission and Values, together with the underpinning Behaviours, Vision. In January 2019 we communicated our constitute a framework that sets a clear direction Mission, Vision and Values across the Group. for what we want to achieve, how we want to Visual displays showing the Values and icons are achieve it and what kind of environment and culture displayed in every location, serving as a constant we want to create. We believe that this will further reminder to everyone. In the 2019 Employee enable us to drive engagement and retention of Engagement Survey we asked our employees talent across the Group. about our Values and the extent to which they felt they were demonstrated across the Group. RIT TEG In 2019 the Group Leadership team embarked I D on a project to further enhance the definition IV E R of how we want to work together, by ensuring a S I T common understanding of how our Values will be demonstrated on a day to day basis, and we T embarked on defining the Behaviours that underpin R
O
P
our Values. This was an opportunity to involve our P U
employees and to listen to what is important to S
T them through focus groups and interviews in order E for the Behaviours to be accepted and understood, M R E across our diverse geographic and employee W O populations. We are excited to be launching the P EM Behaviours in 2020, working on bringing them AG ILIT to life and embedding them across the Group. Our Values, together with our Behaviours, will be key drivers to shape our Culture. We are looking Our continued approach to engaging with our forward to enhancing further our ability to focus on employees will help us to progress and shape cultural fit in recruiting, as well as creating a culture a committed workforce to deliver our strategy where Integrity, Diversity, Empowerment, Agility and ensuring success across the Group for our and Supporting each other, are being truly lived, by stakeholders. recognising great examples thereof and fostering the development of Values through Behaviours and of course by checking how we are doing through our Employee Engagement Surveys going forward.
/52 Str t ic i / Responsible Business Report
Females by Department This chart shows the split of females by department across the Group. Admin 83% HR 91% Purchasing 53% BI 50% IT 21% S&OP 46% Customer service 87% Legal 75% Sales 28% Finance 64% Marketing 54% Supply Chain 27% General Management 0% NPD 67% Trade Marketing 62% H&S 83% Production 33% r ot
91% (10 out of 11) of the Group Leadership Team are Employee involvement and policy regarding male and across the Group 61% (659 out of 1,080) of all disabled persons employees are male. From a cultural perspective, our Board continues to demonstrate broader diversity in the wider A description of the action taken by the Group in relation to sense, with Directors bringing a range of both domestic and employee involvement, including how the Group provides international experience to the organisation. The Board’s employees with information on matters concerning them and diverse range of experience and expertise covers not only a the Group, can be found on page 51. Procedures are in place wealth of experience of operating in fast moving consumer that are designed to provide for full and fair consideration and goods (FMCG) but also extensive financial, marketing selection of disabled applicants and to provide equal career and commercial expertise. opportunities. Where an employee becomes disabled in the course of their employment, the Group will actively seek to The senior management teams in our markets comprise retain them wherever possible, by making adjustments to predominantly of local nationals who understand the cultures their work content and environment, or by retraining them to in which we operate. Within senior management the proportion undertake new roles. of females is 32% and the percentage of female in management positions across the Group is 37%. The graph above shows the Charity percentage of females by department across the Group. During the year the UK corporate office raised over £15,000 As a Group, we harness the experience, knowledge and points for charity which included taking part in the ‘World’s Biggest of view of employees representing various generations. The Coffee Morning’ supporting Macmillan Cancer, continuing to graph on page 51 shows the split for employee population support the Project Artworks ‘Art on Loan’ programme and by generation as at 30 September 2019. The proportion of providing sponsorship for a number of sporting challenges. employees under the age of 30 increased to 20% compared Old mobiles and laptops were sold to employees and the to the previous year, whilst the employees aged over 50 money raised was donated to Macmillan Cancer charity. decreased by 1% to 13%. The average age of employees across the Group remained 39. Stock Polska donated 50,000 PLN to enable a group of local children and teachers from Warsaw to participate in Human rights the ‘Iskierki Wyobrazni’ (imagination sparkles), a world-wide creativity contest. We supported the initiative last year and The Group ensures that human rights are protected in all the they qualified again this year for the World finals in the USA. production plants and offices from which the Group operates. As mentioned previously, we have a Code of Conduct that we require our suppliers to adhere to. This requires that they and the persons acting on their behalf act without regard to gender, age, race, religion, sexual orientation, national origin or disability in accordance with our Equality and Diversity Policy.
/53 Stock Spirits Group PLC Annual Report & Accounts 2019
Financial Review
Stock Spirits completed two acquisitions in the year; in Italy and the Czech Republic.
“Despite paying €31.8m in the year for the acquisitions, our relatively low leverage at the year-end combined with the significant headroom in our facilities leaves us well- placed to finance our strategic aspirations.”
/54 Str t ic i / Financial Review
Revenue up 10.6% and adjusted EBITDA up 6.5% year-on-year; tangible results of our strategic focus.
Proforma results Total Group revenue was €312.4m for the 12 month period (2018 proforma: €282.4m), up 10.6% on a proforma basis and Following the adoption of 30 September as our accounting up 11.6% on a constant currency proforma basis1. Total Group year-end last year and given there is very limited comparability revenue was up 61.2% from €193.8m on a reported basis. Total between the results reported for the 12 months to Group revenue for the 12 month period included €4.0m from 30 September 2019 and the results for the 9 months ended the acquisitions. Total underlying Group revenue (reported 30 September 2018 (“2018”), we have presented certain revenue excluding revenue from acquisitions) was therefore up additional Proforma Financial Statements and Notes in 9.2% on a proforma basis and up 10.1% on a constant currency this ARA. The Proforma Financial Statements cover the proforma basis1. Total underlying Group revenue was up 59.2% 12 months ended 30 September 2018 (“2018 proforma”). on a reported basis. We have also set out the basis on which these Proforma Financial Statements have been compiled, and provided Revenue per litre2 in the 12 month period was €2.42 (2018 reconciliations to the reported Financial Statements, see proforma: €2.37), reflecting the progress in improved sales page 59. The Proforma Financial Statements are not audited. mix and pricing as our focus on premiumisation gains traction. Revenue per litre2 in the 9 months to 30 September 2018 Financial performance was €2.36.
In the 12 months to 30 September 2019, we sold 14.4m 9l Costs of goods per litre2 rose during the 12 month period to cases, up 8.5% on a proforma basis from the 13.3m 9l cases €1.27 (2018 proforma: €1.21). This reflects the impact of cost sold in the 12 months to 30 September 2018 and up 58.2% inflation, and as a consequence of premiumisation, a higher from the 9.1m 9l cases sold in the 9 months to 30 September proportion of distribution brand volumes and externally sourced 2018. On an underlying basis, excluding the impact of liquid in our sales mix. Cost of goods per litre2 in the 9 months acquisitions in the year, we sold 14.3m 9l cases in 2019, to 30 September 2018 was €1.22. up 8.0% on proforma 2018 volumes.
Source(s): 1. Constant currency is calculated by converting 2018 results at 2019 FX rates. Adjusted EBITDA is excluding exceptional items and the share of results of the equity-accounted investees 2. Revenue and cost of goods per litre is calculated by dividing the total Group revenue or cost Stock Spirits continues to value its relationship with our of goods by the number of litres sold distribution partners such as Beam Suntory. /55 Stock Spirits Group PLC Annual Report & Accounts 2019
Financial Review continued
Gross margin therefore reduced to 47.3% (2018 proforma: Finance costs 48.9%), down 1.6 ppts on a proforma basis and down 1.4 Finance costs for the 12 month period were €4.3m (2018 ppts on an underlying basis. Gross margin for the 9 months to proforma: €3.4m). The increase was primarily due to interest September 2018 was 48.2%. Underlying gross margin (reported payable on bank loans arising from higher interest rates in the gross margin excluding gross margin from acquisitions) was Czech Republic, higher borrowings in Poland to pay historic tax 47.5%. Besides cost inflation, the additional distribution brand assessments, higher borrowings in Italy and Czech to fund the volumes and externally sourced liquid, this also reflected an acquisitions of Distillerie Franciacorta and Bartida and further adverse mix across our geographies, channels and customers. debtor factoring in Poland. Finance costs for the 9 months to Selling expenses were €61.3m for the 12 month period 30 September 2018 were €1.9m. (2018 proforma: €57.7m) as we continued to invest more on our salesforce as well as the development and marketing of Taxation our brands and products than in recent years. This included The total income tax expense for the 12 month period was increased advertising and promotion expenditure on Żołądkowa €9.9m. Included in this figure is an exceptional tax credit of Gorzka and Stock Prestige in Poland. Selling expenses for the 9 €0.9m that was recognised in conjunction with the non-cash months to 30 September 2018 were €42.5m. impairment taken against our Italian business, also treated as Other operating expenses for the 12 month period were an exceptional item (see note 13). The underlying income tax €31.6m, up €1.6m (5.2%) on a proforma basis. This largely expense (total income tax expense excluding exceptional items) reflects higher people costs, particularly in Central and Eastern of €10.9m represents a decrease of €1.5m on a proforma basis Europe, together with higher variable reward costs as a result and an increase of €3.6m on a reported basis. of the stronger performance across the business as a whole As detailed in note 13 of the Consolidated Financial during the year. Other operating expenses for the 9 months to Statements, the underlying income tax expense reflects a 30 September 2018 were €22.0m. Underlying corporate costs number of factors including the tax expense for the current were up 3.9% on a proforma basis and up 6.3% on a constant period, changes in provisions for taxation relating to prior currency proforma basis1 principally due to the increase in years, and movements in deferred tax. The underlying effective headcount to support the OneSAP project and to allow us tax rate (excluding exceptional items) of the Group for the to better focus on supporting our operations. Underlying 12 month period was 21.8% (2018 proforma: 27.1%). The corporate costs were up 6.5% from €9.3m for the 9 months to decrease is principally due to the €1.8m tax credit in 2019 30 September 2018. relating to provisions for tax in respect of prior years. Were it Adjusted EBITDA for the 12 month period was €63.2m (2018 not for such prior year effects, the effective tax rate would be proforma: €59.4m), up 6.5% on a proforma basis and up 7.4% stable within the 25–26% range. on a constant currency proforma basis2. Adjusted EBITDA Group tax provisions totalled €4.3m at 30 September 2019, for the 9 months to 30 September 2018 was €35.8m. Given a decrease of €3.7m from 30 September 2018. The decrease the timing of this year’s acquisitions, there was no material primarily relates to the settlement of open tax issues in Italy. difference between underlying and reported EBITDA for 2019. As set out in the Principal Risks and Uncertainties (see page As reported previously, the Group does not expect a material 14), the Group is exposed to a number of tax risks in the impact from the UK’s proposed exit from the European Union. countries in which it operates. There have been a number As the Group reports in euros and the main trading currencies of developments with respect to the Group’s unsettled tax are the Polish złoty and the Czech koruna, the volatility of years in several countries. This includes Poland where, in pounds sterling is not a material factor. Nevertheless, the recent years, the Group has noted the Polish authorities implications of Brexit will continue to be monitored as will increasingly adopting a more aggressive approach towards all the principal risks that the Group faces (see page 14). the interpretation of tax laws and regulations even where they have issued previous tax clearances. As previously Operating profit for the year after exceptional expenses reported, our Polish subsidiary, Stock Polska, was issued with was up 25.0% to €42.2m (2018 proforma: €33.8m, 2018 an assessment in December 2018 by the Polish tax authorities reported: €28.2m). in respect of its 2013 Corporate Income Tax Return, which was appealed in January 2019. A first hearing of the appeal
Source(s): 1. Constant currency is calculated by converting 2018 results at 2019 FX rates 2. Adjusted EBITDA is excluding exceptional items and the share of results of the equity-accounted investees
/56 Str t ic i / Financial Review
took place within the tax jurisdiction in August, with a ruling Cashflow and working capital favouring the tax authorities. The Group appealed against this The Group continues to generate strong cashflow from in September. The appeal is currently progressing through the operating activities. Using a measure by which we judge appeals procedure which now goes beyond the tax authorities’ our underlying operational cashflow, the Group generated jurisdiction and into the administrative courts with a first free cashflow (see note 7) of €57.5m in the 12 months to hearing scheduled for 20 December 2019. Based on advice 30 September 2019 (2018 proforma: €54.3m), up €9.6m from our taxation and legal advisors, we continue to consider from the €47.9m reported for the 9 months to 30 September it likely that our appeal will ultimately be successful and our 2018. This represents a strong conversion rate from Adjusted position upheld. Further details are set out in note 13 of the EBITDA of 91.0% (2018 proforma: 91.5%, 2018 reported: Consolidated Financial Statements. 133.6%), and reflects the continued growth in operating profit and the reduction in working capital (principally trade Acquisitions receivables), offset by an increase in capital expenditure. During the 12 months to 30 September 2019, the Group made two acquisitions. On 31 May 2019, the Group acquired 100% Dividend and reserves of the share capital of on-trade spirits businesses Bartida s.r.o. The Board has proposed a final dividend to shareholders which and Bartida Retail s.r.o. in the Czech Republic. On 3 June 2019, represents a continuation in the application of our progressive the Group acquired 100% of the share capital of Distillerie dividend policy. Franciacorta S.p.A., a company based in Italy specialising in the production, distribution and sales of alcoholic drinks, including The Board proposes a final dividend of 6.31 €cents per share grappa, amaretto and sparkling wines. Further details are set for the 12 months to 30 September 2019 (2018: €6.01 €cents out in note 35 of the Consolidated Financial Statements. per share), an increase of 5.0%.
Exceptional items When combined with the interim dividend of 2.63 €cents per share paid in June 2019 (2.50 €cents interim dividend paid There were three exceptional items in the 12 month period to in September 2018), this totals 8.94 €cents per share for the 30 September 2019. The first was a non-cash impairment loss 12 months to 30 September 2019 (2018: 8.51 €cents per of €14.3m against the carrying value of goodwill and brands share), and represents an increase of 5.1%. in our Italian business, together with a corresponding deferred tax credit of €0.9m, the former being included in our interim If, through the combination of continued strong cash generation, results in May. The second was the incurring of €1.1m of limited M&A activity or other significant capital investment, acquisition costs related to the year’s two acquisitions. Further the Group finds itself with an inefficient capital structure, the details are set out in note 8 of the Consolidated Financial Board will consider making additional shareholder distributions. Statements. The third was the realisation of a €3.8m exchange gain following the liquidation of a subsidiary. Net debt and maturity profile
The Group’s Revolving Credit Facility (“RCF”), which was taken Earnings per share out in 2015, was amended and extended in 2017, and now The basic earnings per share (“EPS”) for the 12 month period expires in 2022. Debt can be drawn and repaid at the Group’s to 30 September 2019 was 14.26 €cents per share (2018: 9.71 discretion without penalty or charge. At 30 September 2019, €cents per share). On a proforma basis, the basic EPS for the €11.4m of the RCF is used to back excise duty guarantees in 12 months to 30 September 2018 was 6.86 €cents. Adjusted Italy and Germany. We also retain a factoring facility capability basic EPS, removing the impact of exceptional items, was 19.68 of €70.0m. €cents per share (2018 proforma: 16.72 €cents). Adjusted The continued strong cashflow during the 12 month period basic EPS for the 9 months to 30 September 2018 was 9.71 to 30 September 2019 resulted in Net Debt of €42.3m at €cents per share. 30 September 2019, an increase of €10.7m from 30 September 2018. Leverage rose to 0.67x Adjusted EBITDA from 0.53x (calculated using the proforma Adjusted EBITDA for the 12 months to 30 September 2018). Reported leverage at 30 September 2018 was 0.88x Adjusted EBITDA, calculated using the 9 month reported Adjusted EBITDA.
Our relatively low leverage, combined with the significant headroom in our bank facilities, leaves us well-placed with significant flexibility and financing capacity.
/57 Stock Spirits Group PLC Annual Report & Accounts 2019
Financial Review continued
Foreign exchange Changes in accounting policies
The Group remains exposed to the impact of foreign currency The Group anticipates that the adoption of IFRS 16 “Leases” as exchange movements, with the major trading currencies from 1 October 2019 will retrospectively create right-of-use continuing to be the Polish złoty and the Czech koruna. Details assets of c.€9.3m (recognised within non-current assets) and of how the Group manages this risk is outlined on page 164. lease liabilities of c.€11.0m (recognised within current and non- At 30 September 2019, there were no formal hedging current liabilities) as at 30 September 2018. The net impact on instruments in place. retained earnings as at 30 September 2018 is anticipated to be a charge of c.€1.7m. A net foreign currency exchange loss of €0.8m was reported within the Adjusted EBITDA over the 12 month period to 30 The annual future impact to the income statement is anticipated September 2019. This has arisen on the appreciation of the to be a reduction in operating expenses of c.€3.6m, which euro versus the Polish złoty and the Czech koruna. The table will be largely off-set by an increase in finance costs and below shows the stated currency versus the euro. depreciation. Hence the overall impact to the profit in future years is not expected to be material. Nevertheless, there will be S pt an improvement in EBITDA and operating profit margins. C osi t r t r t Polish złoty 4.38 4.30 4.24 Czech koruna 25.82 25.74 25.59 Equity structure GB pound 0.89 0.88 0.88 There has been no change to the equity structure of the business in the 12 month period to 30 September 2019. The issued share capital remains at 200 million Ordinary shares with a nominal value of £0.10 each.
Net debt bridge – 30 Sep 2018 to 30 Sep 2019 YTD (€m) 17.1 (0.6) 42.3
31.6 (67.7) 4.7 31.8
10.2
15.2
Net debt Cash Income Net capital Acquisition of Net interest Dividends FX Net debt Sept-18 inflow from tax paid exp. & sales subsidiaries paid paid Sept-19 operations proceeds for PPE
Net debt to EBITDA ratio
Paul Bal Chief Financial Officer
4 December 2019
/58 / Strategic Review / Proforma Consolidated Income Statement (Unaudited)
Proforma Consolidated Income Statement (Unaudited) for the year ended 30 September 2019
The statutory reported Consolidated Income Statement and associated notes for the 12 months to 30 September 2019 can be found on page 122.
The proforma Consolidated Income Statement for the 12 months to 30 September 2018 (comparative year) has been provided as additional information to the 9 month to September 2018 statutory reported Consolidated Income Statement (as reported on page 122), as a requirement 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. The reconciliation of the comparative year of 2018 between reported and as outlined in the table below is on the following page.
The proforma Consolidated Income Statement for the 12 months to 30 September 2017 (reconciliation on page 61) and associated notes has also been provided as these figures are represented also in this Annual Report on pages 1 and 12.
Selected income statement information has been extracted from the Group’s management accounts for the comparative year of 2018 and 2017. Further notes to show the segmental analysis and certain assumptions used to calculate the proforma income statements are outlined on pages 62 to 67.
2019 Statutory reported Proforma Notes (for 12 mth 12 mth €000s 2018 only) Sept 2019 Sept 2018 Revenue 312,419 282,397 Cost of goods sold (164,600) (144,234) Gross profit 147,819 138,163 Selling expenses (61,299) (57,731) Other operating expenses (31,644) (30,069) Impairment loss on-trade and other receivables (430) (1,311) Share of loss of equity-accounted investees, net of tax 3 (536) (386) Operating profit 53,910 48,666 Exceptional expenses 2 (11,693) (14,900) Operating profit after exceptional expenses 42,217 33,766 Finance income 312 291 Finance costs (4,299) (3,396) Profit before tax 38,230 30,661 Income tax expense 4 (10,868) (12,331) Exceptional tax credit/(expense) 2 948 (4,700) Total income tax expense (9,920) (17,031) Profit for the period 28,310 13,630
Attributable to: Equity holders of Parent 28,310 13,630
Earnings per share (€cents) attributable to equity holders of the Parent 7 Basic 14.26 6.86 Diluted 14.17 6.83
/59 Stoc Spirits roup PL nnual eport ccounts 2019
Proforma Consolidated Income Statement (Unaudited) continued for the year ended 30 September 2019
2018
Statutory reported Add: Proforma 9 mth Oct-Dec 12 mth €000s Notes Sept 2018 2017 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 before exceptional expenses 28,216 20,450 48,666 Exceptional expenses 2 – (14,900) (14,900) Operating profit 28,216 5,550 33,766 Finance income 249 42 291 Finance costs (1,938) (1,458) (3,396) Profit before tax 26,527 4,134 30,661 Income tax expense 4 (7,24 4) (5,087) (12,331) Exceptional tax expense 2 – (4,700) (4,700) Profit (loss) for the period 19,283 (5,653) 13,630
Attributable to: Equity holders of Parent 19,283 (5,653) 13,630
Earnings per share (€cents) attributable to equity holders of the Parent 7 Basic 9.71 6.86 Diluted 9.66 6.83
/60 / Strategic Review / Proforma Consolidated Income Statement (Unaudited)
2017
Statutory reported Less: Add: Proforma 12 mth Oct-Dec Oct-Dec 12 mth €000s Notes Dec 2017 2017 2016 Sept 2017 Revenue 269,837 (88,631) 78,583 259,789 Cost of goods sold (137,394) 43,860 (43,407) (136,941) Gross profit 132,443 (44,771) 35,176 122,848 Selling expenses (56,044) 15,190 (14,048) (54,902) Other operating expenses (29,629) 8,101 (3,589) (25,117) Impairment loss on trade and other receivables (1,658) 810 (207) (1,055) Share of loss of equity-accounted investees, net of tax 3 (331) 220 – (111) Operating profit before exceptional expenses 44,781 (20,450) 17,332 41,663 Exceptional expenses 2 (14,900) 14,900 – – Operating profit 29,881 (5,550) 17,332 41,663 Finance income 681 (42) 112 751 Finance costs (3,253) 1,458 (614) (2,409) Profit before tax 27,309 (4,134) 16,830 40,005 Income tax expense 4 (11,280) 5,087 (4,612) (10,805) Exceptional tax expense 2 (4,700) 4,700 – – Profit for the period 11,329 5,653 12,218 29,200
Attributable to: Equity holders of Parent 11,329 5,653 12,218 29,200
Earnings per share (€cents) attributable to equity holders of the Parent 7 Basic 5.72 14.74 Diluted 5.68 14.64
/61 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Proforma Consolidated Income Statement (Unaudited) for the year ended 30 September 2019
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, as outlined on pages 128 to 139, are applied to the statutory period as 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 2016 and December 2017 year-end and no further adjustment to revenue was necessary for the purposes of proforma revenue figures.
In the context of the Group’s critical accounting judgements and key sources of estimation uncertainty, described in note 4 to the Financial Statements, 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 judgements and estimates made in the quarterly periods ended December 2016 and December 2017 was undertaken to identify any item 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-life intangible assets: annual impairment reviews were performed as at 31 December of each reporting period prior to 30 September 2018, and then as at 30 September 2018. The impairment charge recorded against goodwill in the year to 31 December 2017 has been included in the proforma financial information as an exceptional expense.
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 non-cash exceptional items were expensed. The first was an impairment loss of €14.9m against the carrying value of goodwill in our Italian business. The second was a deferred tax charge of €4.7m resulting from amortisation on our Polish brands ceasing to be available.
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3. Share of loss of equity-accounted investee: On 17 July 2017, as per the note on page 159, 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 years to September 2017 and September 2018 to provide information for the proforma years September 2017 and September 2018. No indicators of impairment were identified during the period since acquisition, and therefore the balances recognised in the proforma period 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 of 27.4% has been assumed.
5. Adjusted EBITDA and Free cashflow: 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:
Statutory reported Add: Proforma 9 mth Oct-Dec 12 mth 2018 €000s Sept 2018 Sept 2018 Operating profit 28,216 5,550 33,766 Exceptional expenses 14,900 14,900 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%
Statutory reported Less: Add: Proforma 12 mth Oct-Dec Oct-Dec 12 mth 2017 €000s Dec 2017 Sept 2017 Operating profit 29,881 (5,550) 17,332 41,663 Exceptional expenses (14,900) (14,900) Share of loss of equity-accounted investees, net of tax 331 (220) 111 Depreciation, amortisation and exceptionals 26,112 (2,845) 3,103 26,370 Adjusted EBITDA 56,324 (23,515) 20,435 53,244 Adjusted EBITDA margin 20.9% 26.5% 26.0% 20.5%
/63 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Proforma Consolidated Income Statement (Unaudited) continued for the year ended 30 September 2019
5. Adjusted EBITDA and Free cashflow: continued
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.
Statutory reported Add: Proforma 9 mth Oct-Dec 12 mth 2018 €000s Sept 2018 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 cashflow 47,903 6,411 54,314 Adjusted Free cashflow conversion 133.6% 27.3% 91.5%
Statutory reported Less: Add: Proforma 12 mth Oct-Dec Oct-Dec 12 mth 2017 €000s Dec 2017 Sept 2017 Cash generated from operations 53,619 (10,552) 18,944 62,011 Payments to acquire property, plant and equipment (3,710) 3,385 (2,783) (3,108) Payments to acquire intangible assets (1,376) 756 (5,595) (6,215) Proceeds from sale of property, plant and equipment 98 (28) 70 Free cashflow 48,631 (6,411) 10,538 52,758 Adjusted Free cashflow conversion 86.3% 27.3% 51.6% 99.1%
/64 / Strategic Review / Notes to the Proforma Consolidated Income Statement (Unaudited)
6. Segmental analysis
Other Poland Czech Republic Italy Operational Corporate Total 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
Other Poland Czech Republic Italy Operational Corporate Total 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
/65 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Proforma Consolidated Income Statement (Unaudited) continued for the year ended 30 September 2019
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 and as per note 14 of the 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.
Statutory reported Proforma 9 mth 12 mth Sept 2018 Sept 2018 Basic earnings per share Profit attributable to the equity shareholders of the Company (€000) 19,283 13,630 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 6.86
Diluted earnings per share Profit attributable to the equity shareholders of the Company (€000) 19,283 13,630 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 6.83
Adjusted basic earnings per share Profit attributable to the equity shareholders of the Company (€000) 19,283 13,630 Exceptional expense (€000) 14,900 Exceptional tax expense (€000) 4,700 Profit attributable to the equity shareholders of the Company before exceptional expenses and exceptional tax expense (€000) 19,283 33,230 Weighted average number of Ordinary shares in issue for adjusted basic earnings per share (000) 198,690 198,690 Adjusted basic earnings per share (€cents) 9.71 16.72
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Statutory 12 mth reported Dec 2017 Proforma 12 mth (excluding 12 mth Dec 2017 exceptionals) Sept 2017 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
Adjusted basic earnings per share Profit attributable to the equity shareholders of the Company (€000) 11,329 30,929 29,200 Exceptional expense (€000) 14,900 Exceptional tax expense (€000) 4,700 Profit attributable to the equity shareholders of the Company before exceptional expenses and exceptional tax expense (€000) 30,929 30,929 29,200 Weighted average number of Ordinary shares in issue for adjusted basic earnings per share (000) 198,104 198,104 198,104 Adjusted basic earnings per share (€cents) 15.61 15.61 14.74
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. Refer to note 30 in the Financial Statements for a calculation of net debt as at 30 September 2018.
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), there is felt to be no need for a comparative calculation as at 30 September 2017.
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/ Governance
70 Board of Directors 72 Chairman’s Report 74 Corporate Governance Framework 79 Audit Committee Report 84 Nomination Committee Report 87 Directors’ Remuneration Report 105 Directors’ Report 109 Statement of Directors’ Responsibilities 110 Independent Auditor’s Report
MISSION
Our mission
To make spirits drinking more enjoyable, through our unique combination of superior quality with local pride, understanding and innovation.
The Board and Section 172 Companies Act 2006 Under the Companies (Miscellaneous Reporting) Regulations 2018, the Directors will be required to explain how they have complied with their duty to have regard to the matters in section 172 (1) (a-f). The requirement comes into effect for the Group from the financial year starting 1 October 2019. The 2020 Annual Report will include this statement.
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/69 Stock Spirits Group PLC Annual Report & Accounts 2019
Board of Directors An nternat onal tea t stron e per ence
Our Board is committed to maintaining high standards of corporate governance and business integrity in a constantly evolving regulatory environment.
David Maloney Mirek Stachowicz Paul Bal John Nicolson Non-Executive Chairman Chief Executive Officer Chief Financial Officer en or n epen ent Non-Executive Director
ppoi t David was appointed re as appo nte to t e aul as appo nte to t e o n as appo nte to t e to t e oar as en or oar as an n epen ent Board as Chief Financial oar as an n epen ent Independent Non-Executive Non-Executive Director Officer in November 2017. Non-Executive Director Director in October 2013 in November 2015 and as in October 2013 and and in May 2015 was Chief Executive Officer in in October 2016 was appointed Non-Executive August 2016. appo nte en or Chairman. Independent Non-Executive Director.
p ri c During a long career in During a highly international A Fellow of the Institute of His previous roles include finance, David was Chief career of more than 20 Chartered Accountants, Paul President of Heineken Financial Officer of Le years, Mirek’s previous roles has 20 years of experience Americas, Executive r en otels an nclu e eneral ana er in the tobacco industry. In Director of Scottish & Resorts, Thomson Travel of Bestfoods (Romania), a very international career, Newcastle plc, Deputy Group and Preussag Airlines, Managing Director of ICI he has held various senior Chairman of CCU SA (Chile), and Group Finance Director Paints (Poland, Eastern finance and management Chairman of both Baltika of Avis Europe. Since Europe and Russia) and positions in the British Breweries (Russia) and Baltic embarking on a plural career, ore recentl ana n American Tobacco plc Beverages Holding (Sweden) David has served on several Director of AkzoNobel Deco Group. Several of these also and Executive Director for oar s nclu n r n (Central Europe). included responsibility for Fosters Europe. Mobile plc, Micro Focus IT. Most recently, he held International plc, Cineworld a senior finance, IT and plc an roup plc strate role n t e A business of Tupperware Brands Corporation Inc.
t r ppoi t ts one one one He is currently the Chairman of A.G. Barr and Senior Independent Director at P Z Cussons plc.
Committee membership
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Board structure Committee status
Non-Executive Chairman Audit Committee Nomination Committee Senior Independent Non-Executive Director BOARD Remuneration Committee Four other Independent Non-Executive Directors Relevant Committee Chairman
Two Executive Directors
Kate Allum Mike Butterworth Diego Bevilacqua Tomasz Blawat Sally Kenward n epen ent n epen ent n epen ent n epen ent Company Secretary Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director
ate as appo nte to t e e as appo nte to t e Diego was appointed to the Tomasz was appointed to all o ne t e roup n oar as an n epen ent oar as an n epen ent oar as an n epen ent t e oar as an n epen ent 2015 as Deputy Company Non-Executive Director in Non-Executive Director in Non-Executive Director in Non-Executive Director in ecretar an as appo nte November 2018. October 2016. October 2016. October 2016. Company Secretary in April 2017.
Previous roles have included He is a Chartered Accountant With over 40 years’ Previous roles have included An Associate of the Chief Executive of CeDo and previous roles include experience in the food and Managing Director of Governance Institute (ICSA), Ltd and First Milk Ltd, and Group Finance Director beverage sector, he has Carlsberg Poland, Chief Sally has over 20 years’ various senior management of Cookson Group plc, recently been an adviser to Executive Officer of ING in e per ence n t e r n s positions at McDonald’s Group Finance Director Bain & Company. His most Poland and a number of roles industry. Sally joined JD Restaurants and OSI of Incepta Group plc and recent executive positions for SAB Miller and Procter Wetherspoon Plc in 1997 and International Foods. Group Financial Controller at were as Chief Customer and and Gamble (Poland, the worked in a number of roles, A roup plc e starte Marketing Officer of Metro Czech Republic, Slovakia, including Deputy Company a Non-Executive career in AG, having previously been UK and Baltic States). Secretary in 2013. 2012 and roles have included President of Africa, Middle Senior Independent Director East and Turkey for Unilever. and Chairman of the Audit He has served as a Non- Committee for Johnston Executive Director of both Press plc and Kin and Carta Danisco AS and Pepsi Lipton Group plc and Chairman International. of the Audit Committee of Cambian Group plc.
e s currentl a on one He is Chairman of Solevo e s currentl t e ana n e s currentl on Executive Director and Holding B.V. and serves Director of Carlsberg UK. Executive Director/ Chair of the Remuneration on the Advisory Board of Governor at Westfield Committee for Origin POSpulse GmbH. Aca e nterpr ses plc an Cranswick plc, and serves as a Non-Executive Director for SIG plc.
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Corporate Governance Framework
Chairman’s report The year reflected further delivery of our growth plan, with increased revenue and profits as well as market share in our two largest markets of Poland and the Czech Republic.
In addition, we were pleased to complete two acquisitions during the year: firstly, the acquisition in May of Bartida, a high-end on-trade spirits business I am pleased to present in the Czech Republic; and secondly, the acquisition in June of Distillerie Franciacorta, one of the leading Italian producers of grappa, liqueurs and Franciacorta the Corporate Governance – a premium Italian sparkling wine that is produced solely in the Franciacorta region. The integrations Report for the financial year of both companies are on track, and we are now focusing our efforts on further meaningful acquisition to 30 September 2019. opportunities to deliver further shareholder value.
In line with our progressive dividend policy, our proposed final dividend results in a total dividend Board Tenure for the year up +5.1% on the prior period “enhanced” dividend, which was paid for the 9 month prior
0–1 year period. The final proposed dividend is 6.31 €cents 2–3 years per share (final dividend for the 9 month to Sept 4–6 years 2018: 6.01 €cents). In total for the year, this results in 7–9 years dividends of 8.94 €cents per share (9 month to Sept 2018: 8.51 €cents per share). The business continues to generate strong cashflows and a healthy cash conversion rate.
Board Expertise Following Kate Allum’s appointment in November 2018, there have been no changes to the make- up of the Board during the year. The continued FMCG/Drinks Finance success of the Company is down to the quality of Marketing its leadership and is reliant on the skills and talent of CEE Technology/IT the team working throughout the organisation. On Management behalf of the Board, I would like to thank all of the Strategy employees of Stock Spirits for their continued hard work, commitment and dedication.
With regard to Corporate Governance, the Board is firmly committed to ensuring that our corporate governance arrangements continue to evolve and are effective and complied with in all jurisdictions in which the Group operates. We are convinced that strong corporate governance provides a stable platform for our business and underpins the delivery of shareholder value. During the year we continued to comply with the 2016 UK Corporate Governance Code (the Code),
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and we reviewed the new 2018 Code and have early adopted stakeholders which will continue in 2020. A review of the Group’s some areas in our 2019 ARA. Although we are a FTSE Small Cap Purpose, Vision, Mission and Values and how they link to culture constituent, we continue to adopt best practice in line with FTSE took place and will continue to be an area of focus in the year 350 companies. Further details are set out on the following pages. ahead. A robust assessment of the principal risks took place during the year. Further detail on the principal risks can be found As part of our shareholder communications programme, I on pages 14 to 19. contacted the top 20 shareholders, representing 77% of our register, seeking a meeting or call ahead of our AGM in February Another area of focus for the Board was succession planning, 2020. Disappointingly, only six shareholders responded to these including actions to strengthen the pipeline through the requests and only one requested a meeting, however, we will development of the leadership framework and also put in continue to seek feedback on an ongoing basis. place a process for the orderly succession of Board Directors. Management continued to work on the pool of emerging talent As previously indicated, the Board and Nomination Committee within the Group, providing bespoke training and development supports diversity for both internal and external appointments, plans to create a strong pipeline of internal candidates. although the most important area when recruiting will continue to be appointing the best person for the role. Any future In the second half of the year, Paula Hutchings of The People appointments will be made in line with the Board Diversity Stuff, conducted an independent and rigorous external Policy and will continue to be made on merit and take into evaluation of the Board. The evaluation was conducted account diversity, in terms of gender and ethnicity, as well according to the guidance in the Code. The outcomes from the as the appropriate mix of skills, background, knowledge, external evaluation are shown on pages 76 and 77. I believe international and industry experience. As stated on page 85 regular and appropriate Board and Committee evaluation is an the Board will work towards the voluntary 33% target for area that is fundamental to improving Board effectiveness and female representation on the Board. I believe that there will be ensuring objectives can be met. increasing pressure on all Boards to meet the target as soon as possible. Although Stock Spirits Group has an extremely strong As previously reported, the likely effect of Brexit on the and capable Board, the only way we will be able to meet the Group is not considered to be material as we do not produce target is to ask existing Directors to stand down earlier than in, or export from, the UK and we report in euros. Sterling is planned. This is regrettable and will mean losing their skills and not a major transactional currency for the Group. However, expertise which may make finding a replacement difficult. in light of the ongoing uncertainty around the exact nature of the UK’s withdrawal from the EU we are continuing to As Chairman of the Board, I work with the Company Secretary monitor events closely. to set the agenda for Board meetings. These are structured to ensure that sufficient time is spent on important matters and As we look ahead, we are very much on track with our plans. all Directors have the opportunity to contribute. During the There is good momentum in our core markets, our strategic year the Board discussed the Group’s strategy, focusing on the acquisitions are delivering as planned, and we have a robust four pillars: increased focus on premiumisation of our products, pipeline of new products and innovation. Furthermore, we have attracting more millennials to our brands, increasing the use extensive plans in place to help mitigate the potential excise of digital communications with our consumers and reviewing changes in some of our markets. We are committed to creating M&A opportunities. The Board also regularly reviews, among value for shareholders and we remain very disciplined as we other things, the performance of each of the markets; considers assess a number of value-creating opportunities that are in front the principal risks and associated procedures and processes to of Stock Spirits today. mitigate them; an ongoing focus on people including analysing the results of the annual employee survey; and health and safety across the markets. The Board also meets with the Group Leadership Team, both at Board and Board Committee meetings and in other routine meetings, which enables the NEDs to gain David Maloney a good understanding of the business and what is happening Chairman on the ground. We believe that this is an essential requirement for Directors. The Board had an in-depth review of the Group’s 4 December 2019
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Corporate Governance Framework continued
Introduction The Board composition, experience, balance of skills and effectiveness are regularly reviewed to ensure the right mix This Report explains key features of the Company’s governance of people are on the Board and its Committees. Following the structure to provide a greater understanding of how the main appointment of Kate Allum in November 2018, the principles of the 2016 UK Corporate Governance Code (the Board comprises eight Directors: a Chairman (who, for the Code), published by the Financial Reporting Council, have purposes of the Code, was independent on appointment); a been applied, and to highlight areas of focus during the year. Senior Independent Director (SID); four Independent NEDs; The new Code issued in July 2018, has been reviewed by the and two Executive Directors. Board during the year and some changes have been adopted early and have been incorporated into this year’s Report. Work The Board agrees the strategic direction and governance will continue during the year ahead to review and refresh structure that will help achieve the long-term success of the our processes against provisions within the new Code. The Company and deliver value to all our stakeholders. The Board Report also includes items required by the Disclosure and takes the lead in areas such as strategy, sustainability, financial Transparency Rules. A copy of the Code can be obtained at policy, operational performance, assessing the principal risks www.frc.org.uk. and ensuring the Company maintains a sound system of internal control.
Compliance with the UK Corporate The Board’s full responsibilities are set out in the ‘Matters Governance Code Reserved for the Board’ and are available on the Company’s website www.stockspirits.com. The Company has complied with the provisions of the Code in this financial year. Role of the Chairman The Board is chaired by David Maloney, a NED who met Governance overview the independence criteria in the Code on his appointment. The Board is collectively responsible to its stakeholders for the It is the Chairman’s duty to lead the Board and to ensure long-term success of the Company. The Board has delegated Directors have sufficient resources available to them to fulfil certain responsibilities to Board Committees to assist it with their statutory duties. The Chairman is responsible for setting discharging its duties, including ensuring that appropriate the Board’s agenda, ensuring adequate time is available for processes are in place to manage risk and monitor the discussion of all agenda items and ensuring a particular focus Company’s financial and operational performance. The Board on strategic issues. Committees play an essential role in supporting the Board to The Chairman promotes a culture of openness and debate by implement its purpose, mission, vision and strategy, and to facilitating the effective contribution of NEDs in particular, provide focused oversight of key aspects of the business. and by encouraging constructive relations between Executive The full terms of reference for each Committee are available Directors and NEDs. on the Company’s website www.stockspirits.com. Role of the Chief Executive Officer (CEO) How the Board works Mirek Stachowicz is the CEO. Through delegation from the Board, he is responsible for executive management of the The Board composition and qualification Group, including the implementation of the Group’s strategic The Company is led and controlled by the Board. The names, objectives. In fulfilling his duties, the CEO is supported by the responsibilities and details of the current Directors appointed senior management team, whom he also leads. to the Board are set out on pages 70 and 71. The biographies illustrate that the Non-Executive Directors (NEDs) have a Interaction between the Chairman and the CEO range of skills and experience including expertise in the The roles of the Chairman and the CEO are separate, with a food and drinks industry within Europe and beyond, that distinct division of responsibilities. is relevant to the management of the Company. The partnership between David Maloney and Mirek The Board believes that there is an appropriate balance Stachowicz is based on mutual trust and is facilitated by between the Executives and NEDs and that this balance regular contact between the two. The separation of authority is enhanced by the varying lengths of service, diversity and enhances independent oversight of the executive management expertise of the NEDs. by the Board and helps to ensure that no one individual on the Board has unfettered authority.
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Role of the Senior Independent Director (SID) and performance on the Board and relevant Committees, and John Nicolson is the SID and is available to shareholders if their ability to provide objective challenge to management. they have concerns that the normal channels of Chairman, The Board has considered the findings from the external CEO or other Executive Directors have failed to resolve, or Board evaluation exercise, carried out during the year and for which such channels of communication are inappropriate. reviewed the independence of each NED. The Board is of The SID also acts as an internal sounding board for the the view that all were and continue to be, independent in Chairman, and serves as intermediary for the other Directors, accordance with the provisions of the Code. with the Chairman, when necessary. The role of the SID is considered to be an important check and balance in the Committees Group’s governance structure. In accordance with the Code, The Company has established an Audit Committee, a neither the Chairman nor the SID are employed as executives Nomination Committee, a Remuneration Committee, a of the Group. Disclosure Committee and a Responsible Business Committee. The Board delegated specific responsibilities to these Non-Executive Director independence Committees. The role and responsibilities of each Board The Board considers and reviews each NED’s independence Committee are set out in formal Terms of Reference, which are on an annual basis, as part of the Directors’ performance available on the Company’s website. The Board Committees evaluation. In carrying out the review, consideration is given make recommendations to the Board as they see fit, as to factors such as their character, judgement, commitment contemplated by their Terms of Reference.
Meetings and attendance In the financial year to 30 September 2019, there were eight scheduled Board meetings. In the months when there is not a Board meeting, a Board call will be held to review the latest performance and cover any other matters requiring attention. Additional ad hoc meetings are held by telephone as required. Attendance at the formal pre-scheduled Board and Committee meetings was as follows:
Remuneration Nomination o r Audit Committee Committee Committee ir ctor i u i u i u i u David Maloney 8 5 Mirek Stachowicz 8 Paul Bal 8 John Nicolson1 8 4 5 5 Mike Butterworth 8 4 5 5 Diego Bevilacqua 8 5 5 Tomasz Blawat2 7 3 4 Kate Allum 8 4 5
1. Mr Nicolson was unable to attend the second day of meetings in June due to being called away on urgent business 2. Mr Blawat was unable to attend the Committee and Board meetings in May due to urgent business
During the financial year, certain Executive and Non-Executive Generally on the evening before each Board meeting, a dinner Directors who are not Committee members, attended Committee is held for Directors to discuss strategic matters and matters meetings by invitation (other than meetings where there would to be covered the next day in a more informal environment. be a conflict). These details have not been included in the table. Senior management who are presenting to the Board may be invited to attend the dinner if appropriate. Board meetings are structured in an open atmosphere, conducive to challenge and debate and all Directors are expected to attend. The Board delegates authority to its Committees to carry out In the event that a Director is unable to attend a meeting, they certain tasks on its behalf, so that it can operate efficiently and will receive the papers scheduled for discussion at the relevant give the right level of attention and consideration to relevant meeting, and are encouraged to provide comments to the matters. The composition and role of each Committee is Chairman or CEO on key items in advance of the meeting, so summarised in each of the respective Committee Reports. their views and opinions can be shared and taken into account at the meeting.
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Corporate Governance Framework continued
Appointment and tenure Information and support available to Directors All NEDs, including the Chairman, serve on the basis of All Board Directors have access to the Company Secretary, letters of appointment that are available for inspection at the who advises them on Board and governance matters. Company’s registered office. The letters of appointment set out the expected time commitment of NEDs who, on appointment, The Chairman and the Company Secretary work together undertake that they will have sufficient time to meet what is to ensure Board papers are clear, accurate, delivered in a expected of them. timely manner to Directors and of sufficient quality to enable the Board to discharge its duties. As well as the support of The Executive Directors’ service contracts are also available the Company Secretary, there is a procedure in place for for inspection at the Company’s registered office. any Director to take independent professional advice at the Company’s expense in the furtherance of their duties, where The Company does not place a term limit on a Director’s considered necessary. service, as all continuing Directors will present themselves for annual re-election by shareholders at the Company’s Annual Director re-election General Meetings (AGMs). In accordance with the Code and the Directors’ letters of appointment, the Directors will put themselves forward for Director induction and training annual re-election. Following recommendations from the The Chairman, with the support of the Company Secretary, is Nomination Committee, the Board considers that all Directors responsible for the induction of new Directors and the ongoing continue to be effective, committed to their roles and to have training and development of all Directors. New Directors sufficient time available to perform their duties. Accordingly, receive a full, formal and tailored induction on joining the all Directors will seek re-election at the Company’s Board, designed to provide an understanding of the Group’s forthcoming AGM. business, governance and key stakeholders. The induction process includes site visits, meetings with key individuals, Directors’ conflicts of interest and briefings on key business, legal and regulatory issues Directors have a statutory duty to avoid situations in which facing the Group. they have, or may have, interests that conflict with those of As the internal and external business environment changes, it the Company, unless that conflict is first authorised by the is important to ensure the Directors’ skills and knowledge are Board. This includes potential conflicts that may arise when refreshed and updated regularly. Accordingly the Chairman, a Director takes up a position with another company. The with the assistance of the Company Secretary, ensures that Company’s Articles allow the Board to authorise such potential regular updates on corporate governance, regulatory and conflicts, and there is a procedure in place to deal with any technical matters are provided to Directors at Board meetings. actual or potential conflict of interest. The Board deals with During the year, the Board received training on the changes to each appointment on its individual merit and takes into the Corporate Governance Code and Section 172 as well as an consideration all relevant circumstances. All potential conflicts update on developments in executive remuneration. approved by the Board are recorded in an Interests Register, which is reviewed by the Board at least quarterly to ensure During the year, operational site visits were arranged for the the procedure is working effectively. Board to the newly acquired Distillerie Franciacorta in Borgo Antico, Italy and to the Company’s production sites in Poland Board evaluation and effectiveness and the Czech Republic. The visits included a tour of each site, The effectiveness and performance of the Board is vital a deep dive presentation on the market, meetings with the to our continuing success. During the year, the Company local senior management team and a town hall meeting with commissioned Paula Hutchings of The People Stuff to a selection of the local team. In this way, Directors keep their conduct an independent, external evaluation of its Board. The skills and knowledge relevant so as to enable them to continue evaluation was conducted according to the guidance in the to fulfil their duties effectively and employees are able to meet Code. Neither Paula Hutchings nor The People Stuff have any the Directors and ask questions in an informal environment. other connection with the Company. The evaluation process consisted of an evaluation questionnaire, followed by individual Board succession planning face-to-face interviews with Board members and the Company Board succession planning was discussed during the year, in Secretary, and a Board observation. The questionnaires were light of the change to the recommended length of tenure for used to identify specific areas for further discussion during a Chairman within the new Corporate Governance Code and the interviews. The interviews also allowed each individual there was a continued focus on diversity. See page 85 for to reflect on the strategic direction of the Group, assess further details. Board performance and the behaviour and dynamics of the
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Board. The interviews were conducted on a confidential and Regular presentations take place at the time of the interim and anonymous basis. The analysis confirmed that all Directors final results, as well as during the rest of the year. An active contribute effectively, demonstrate a high-level of commitment programme of communication with potential shareholders is and dedication to their role, and together provide the skills and also maintained. All of the Directors make themselves available experience that are relevant and necessary for the leadership for meetings with shareholders as required and will be available and direction of the Group. The areas of focus were agreed to at the AGM. be a review of the vision, culture and strategy for the Group. Company values were launched during the year and the During the year, the Chair of the Remuneration Committee supporting behaviours, which are currently being finalised, are contacted the top 20 shareholders, to obtain their views on the due to be launched in the year ahead. proposed Remuneration policy.
Following the results of the evaluation, individual meetings The Board receives regular updates from the CFO on feedback took place between the Chairman and each Director to from meetings, and analyst updates are circulated to the discuss any specific points they wished to raise and these were Directors when available. During the year, roadshows were included as part of the review to agree the action plan for the held in London, Poland and North America with institutional year ahead. It was generally felt that the actions agreed from investors, and various conferences were also attended. One- the previous year’s internal evaluation had been progressed. to-one investor meetings were held throughout the year with These actions included succession planning; more focus on the CEO and CFO. engagement with the management teams; and improving A Capital Markets Day was held in June 2019 for buy side management information. and sell side analysts, and included visits to the production For 2020, an internal evaluation of the performance of the sites in Pradlo and Plzeň in the Czech Republic. Attendees Board, its Committees and the Chairman will take place. The received a tour of each site, and an update was provided on process of evaluation will be undertaken by the Company the strategy and business plans, including a specific focus on Secretary under the direction of the Chairman. the local Czech market and the work being undertaken on premiumisation and M&A. Relations with shareholders The Company has a comprehensive investor relations programme which includes offering meetings to our top 20 shareholders, buy and sell-side analysts and potential shareholders. Primary responsibility for shareholder relations rests with Mirek Stachowicz, CEO and Paul Bal, CFO, supported by the Company Secretary. They ensure there is effective communication with shareholders on matters such as governance and strategy. David Maloney offers calls and meetings to our top 20 shareholders throughout the year and ahead of the AGM, when governance meetings are offered with the Chairman and the Company Secretary. The Company’s website, www.stockspirits.com, includes a dedicated Investor section and provides an easily accessible communication channel for existing and potential investors. Private shareholders are encouraged to attend the Company’s AGM or to submit questions via the website. The website also provides the latest news, historical financial information, details about forthcoming events and other information regarding Stock Spirits.
The Capital Markets Day held in June 2019, included a visit and tour of the production site in Plzeň, Czech Republic.
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Corporate Governance Framework continued
Stakeholder engagement Annual General Meeting (AGM) The Group encourages strong and positive relationships with The Company’s AGM will take place at 10am on Thursday, all our stakeholders, which includes shareholders, as well 6 February 2020 at the offices of Numis Securities Limited at as our employees, suppliers, customers, local and national The London Stock Exchange Building, 10 Paternoster Square, governments, consumers and the communities in which we London, EC4M 7LT. All shareholders have the opportunity to operate. Further details on our stakeholders can be found on attend and vote, in person or by proxy, at the AGM. The notice page 45. The CEO and local Managing Directors are in regular of the AGM can be found on our website www.stockspirits.com, contact with our main customers and updates are provided to and in a booklet that is being issued at the same time as this the Board. Stakeholder engagement will continue to be an area Report. The Notice of the AGM sets out the business of the of focus for the Board in 2020. meeting and an explanatory note on all resolutions. Separate resolutions are proposed in respect of each substantive issue. Workforce engagement The AGM is the Company’s principal forum for communication During the year, the Board agreed the approach to workforce with shareholders. The Chairman of the Board and Directors engagement, in line with the new Code and it was agreed will be available to answer shareholders’ questions at the AGM. to appoint one of the NEDs to the role of designated NED. Kate Allum will be responsible for workforce engagement and will cover the role during the year ahead. The process will then be reviewed and it is likely that the role will be rotated between the NEDs each year. The existing engagement structures and processes will be used to engage with a broad range of the workforce, which will include town halls, David Maloney market visits, brainstorming meetings and presentations Chairman with employee groups, and reviewing the employee survey 4 December 2019 results to create action plans which will be used to drive continuous improvement of engagement levels. It was agreed that workforce engagement would continue to be discussed and reviewed during the year ahead and the Board would issue a statement on workforce engagement within the 2020 ARA, which would explain how the Board has gathered and considered the views of the workforce across the Group and how these views have been taken into account in the Board’s decision making.
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Audit Committee Report
The principal objectives of the Committee are to monitor the Group’s internal controls and financial risk management, to review the integrity of the Group’s published financial reports, including the ARA, and to oversee the conduct of the external audit.
The Audit Committee is satisfied that it is in compliance with the provisions of the UK Corporate Governance Code in relation to Audit Committees and Auditors.
The Committee has complied with the Competition and Markets Authority Order on Statutory Audit Services for Large Companies for the year ended 30 September 2019, having completed a formal competitive tender I am pleased to report process for the appointment of the external auditor during the year ended 31 December 2015. The on the role and activities external Auditors are required to rotate their lead audit engagement partner every five years, therefore a new of the Audit Committee audit engagement partner will lead the audit for the coming financial year. The process to identify a new audit for the year. partner has been recently completed with the new audit partner attending the December 2019 meeting as part of his familiarisation process with the Group.
Committee members Composition of the Committee Mike Butterworth (Chair) During the year ended 30 September 2019, the Audit John Nicolson Committee held four meetings. The members of the Kate Allum Committee during the year were Mike Butterworth Tomasz Blawat (Chair), John Nicolson, Tomasz Blawat and Kate Allum (who joined the Board and the Committee on 1 November 2018).
All the members of the Committee are independent Meetings and collectively have competence relevant to the beverage sector in which the Company operates, in 4 accordance with the UK Corporate Governance Code. Mike Butterworth is a chartered accountant and the Board is satisfied that he brings recent and relevant financial experience to the Committee, in accordance with the Corporate Governance Code, having served as CFO of a FTSE 250 company for eight years until December 2012. The Committee has an open dialogue throughout the year with the external Auditors and Head of Internal Audit to raise questions and challenge findings whilst sharing experience and an independent perspective.
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The Company Secretary served as Secretary to the Committee. Council (FRC). Our risk identification and mitigation processes The Chairman of the Company, NEDs not on the Audit have been designed to be responsive to the constantly Committee, CEO, CFO, Head of Internal Audit, Group General changing environment. Our internal control process starts with Counsel, and the audit engagement partner from our external identifying risks, compliance matters and other issues at a local auditor generally attend our Audit Committee meetings by level in each of the Company’s markets, and then consolidates invitation. We also ask other members of senior management it at a Group level at the Board. We do this through routine to present to the Committee as appropriate. reviews carried out by process owners and facilitated by relevant dedicated, specialist teams. We record risks in our Committee meetings are planned so as to enable review of risk registers, assess the implications and consequences for trading statements, the half-yearly report and the ARA, the Group, and determine the likelihood of occurrence. The with additional meetings taking place as necessary. Group’s risk register is subject to regular review and scrutiny by the Board, as well as by the Audit Committee with regards Responsibilities and role to the financial risks. Appropriate action is taken to manage of the Audit Committee and mitigate the risks identified. The Audit Committee receives an update on risk management and internal controls The Committee’s main responsibilities are to oversee, monitor at every meeting. The Report includes significant changes and make recommendations to the Board on: in risk registers; personnel and systems changes that may • The effectiveness of the Group’s internal control and risk impact upon controls; any detected breaches of controls management, including control over financial reporting or investigations into possible breaches; and any concerns reported via our Speak-Up hotline. • The effectiveness of internal audit, including co-ordination with the activities of external audit The main features of the Group’s internal control and risk management systems in relation to the process for preparing • The Group’s policies and procedures relating to business consolidated accounts include: conduct, including whistle-blowing arrangements and fraud prevention and detection procedures • Organisational structure, delegations of authority and • The Group’s overall approach to ensuring compliance with reporting lines laws, regulations and policies • Group accounting and control procedures, with a • The appointment of the external Auditor, including a tender centralised Group finance function that provides direction selection process, where appropriate, as well as terms of and support to market finance teams as well as managing engagement and remuneration the Group consolidation and reporting requirements • The scope of the external audit, its findings and the • Budgetary process and financial review cycle, with a effectiveness of the audit process quarterly review of annual budget, business performance and assessment of risks • The overall relationship with the external audit firm, including the provision of non-audit services to ensure • Risk management through monitoring and maintenance that independence and objectivity are maintained of a risk register for each business unit • The integrity of the Financial Statements, including a • Capital expenditure control review of the significant accounting policies and financial • Internal audit regular reports on controls reporting judgements • Competence and integrity of our personnel. • Whether, taken as a whole, the ARA is fair, balanced and understandable and provides the information necessary The Committee’s role is primarily advisory: it reports its findings for shareholders to assess the Group’s position and to the Board. Ultimate responsibility for internal control, the performance, business model and strategy. ARA, half-yearly reports and trading statements remains with the Board. The full ‘Terms of Reference of the Committee’, Risk management and internal which have been subject to review during the course of the year are available on our website at www.stockspirits.com. control framework We have a clear and robust framework for identifying, Effectiveness of internal controls evaluating and managing the risks faced by the Group on an ongoing basis, both at an operational and strategic level, The Committee has reviewed the effectiveness of our risk which has been in place for the period under review and up management and internal control process, including financial to the date of this Report, and which accords with ‘Guidance reporting, to ensure it remains robust. The review covered on Risk Management, Internal Control and Related Financial all material controls, including financial, operational and and Business Reporting’ issued by the Financial Reporting compliance controls, in the financial year to 30 September 2019 and the period to the approval of this ARA.
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Main activities of the Committee as it continued to provide strong oversight for this project. during the year In addition, the Committee received internal audit reports on the design and operating effectiveness of controls around Internal controls and risk management pricing and promotions management, trade marketing, excise As part of our continuous monitoring of risk management and duty compliance, inventory management and compliance with internal controls, we receive and review the corporate risk the General Data Protection Regulation (GDPR). In each case, register together with a report on changes in significant risks in the audits confirmed the general adequacy of controls and our main businesses and other control-related information on proposed areas for improvement. Results were graded, and a quarterly basis. Over the period, we have reviewed reports where improvements were identified, appropriate remedial from the CEO and the Company Secretary, as well as from actions were agreed with the management concerned, with the other members of management and the internal audit team. Committee ensuring that these are followed up. We considered the internal control issues raised in internal audit reports that In 2015 a new project to develop and implement more we received during the year, the adequacy of internal audit comprehensive controls across the business was initiated. resources and the effectiveness of the internal audit function. This involved cross functional teams throughout our principal The Committee also held a session with the Head of Internal markets challenging and redeveloping procedures and controls Audit without other members of management being present. across our major business processes to ensure they are effective and not open to misuse. The process of implementing Whistle-blowing and embedding this enhanced internal control framework Part of our remit is to oversee the Group’s processes for across all our markets was completed during 2017, although handling reports from whistle-blowers. Our Code of Business it is reviewed periodically to ensure continuous improvement, Conduct encourages all employees to report any potential and the ongoing internal audits of compliance with the controls improprieties in financial reporting or other matters. We have are now producing very high pass rates in all markets. an independent compliance hotline (Speak-Up) operated by an external agency. This is available to all employees, suppliers, With this enhanced control framework now in place in all customers and other stakeholders, in each of the languages our principal markets, the main focus in the year has been used throughout the Group and, subject to legal requirements, on the ongoing auditing of the controls to ensure that they callers can remain anonymous if they wish. All contacts received continue to operate effectively and also to seek to simplify are reported to, and reviewed by, the Audit Committee. Where and harmonise controls across the Group. appropriate, our legal and/or internal audit teams may be asked In addition, the Committee reviewed a number of matters to investigate issues and report to us on the outcome. During relevant to the financial structure of the Group. These included the year, we received one Speak-Up hotline contact. This was the adequacy of the Group’s financing facilities, updates on investigated and it was concluded that no breach of law, policy, the Group’s risk management and insurance programmes, the values or other impropriety had occurred, although it was availability of distributable reserves within the Company and recommended that there should be better communication by its ability to pay dividends. management to employees of matters such as the one reported.
Internal audit The Committee also received regular updates from the Group General Counsel on significant litigation and disputes, initiated The remit of internal audit is to undertake financial, operational by or against the Company, regulatory developments and legal and strategic audits across the Group using a risk-based compliance initiatives. methodology. In line with our usual practice, internal audit prepared an inventory of the key auditable control and risk areas Review of ARA and preliminary results announcement across the Group, informed by the Principal Risks identified in The Committee has considered the appropriateness of the our ARA and the latest quarterly risk registers prepared by our accounting policies used. Further, the Committee carried out a businesses, which drove priorities for the internal audit plan for comprehensive review of the ARA as a whole and considered a the year. This plan contained audits and reviews focused on number of factors, including the balance between reporting of areas identified as having the most risk to the business, covering positive and negative aspects, consistency throughout the ARA all parts of the Group, down to individual sites, processes and and the results of enquiries made of business unit managers activities, and all aspects of the business. and other relevant management of the most significant During the year, the internal audit team continued to focus on challenges, set-backs and achievements during the year. refreshing the design, and post-implementation auditing, of Based on that review, the Committee has recommended to the controls project referred to above in our principal markets, the Board that, taken as a whole, the ARA is fair, balanced and to ensure controls are effective and consistent and that understandable, and provides the information necessary for compliance with controls is fully embedded. The results of the shareholders to assess the Group’s position and performance, post-implementation audits were reported to the Committee, business model and strategy.
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Significant issues considered in relation to the ARA price to identifiable assets is inherently subjective and In reviewing the Financial Statements with management and requires estimation of their attributable fair value. This has the Auditors, the Committee has discussed and debated the been performed using cashflow models which are subject critical accounting judgements and key sources of estimation to estimation uncertainty arising from forecasting future uncertainty set out in note 4 to the Financial Statements. cashflows and certain other assumptions, for example the As a result of their review, the Committee has identified the discount rate. following issues that require particular judgement or have The Committee has reviewed the approach taken by significant impact on interpretation of this ARA. management and the key assumptions behind these valuations, notably the expected development of future cashflows and Revenue recognition the discount rates used, as well as considering reasonable In the Group’s main markets, procedures for appropriate sensitivities to these estimates, and concluded that these cut-off and recording of revenue and related rebates to the support the fair values set out in note 35. The Group’s correct period are important. In line with normal practice, the policy on accounting for intangible assets acquired in a businesses within the Group provide a variety of discounts, business combination is set out in note 3 to the Consolidated rebates, promotions and marketing support to customers Financial Statements. across a number of geographies and revenue is measured net of such items. A number of these arrangements are calculated Taxation retrospectively on a calendar year basis, rather than the As is normal, the Group has a number of outstanding tax Group’s financial year ending 30 September. Therefore not all assessments, and regularly undertakes reviews to assess tax sales incentives are confirmed by customers at our financial risks across the Group – for example, risks associated with VAT, period end. The estimation of these incentives varies in transfer pricing and cost recharges between Group companies. complexity, depending on the nature of the arrangements. As described in note 13 to the Consolidated Financial We reviewed the procedures performed by management Statements, we are facing a number of tax investigations at and the Auditors to ensure the accuracy and completeness subsidiary level, including a disputed tax assessment in Poland of such reserves at the end of the period. The Group’s policy relating to pre-IPO intellectual property restructuring and is set out in note 3 to the Consolidated Financial Statements. deductibility of certain management re-charges. The Group has undertaken a review of potential tax risks and current Carrying value of intangible assets tax assessments, and while it is not possible to predict the The Group’s policies on accounting for separately acquired outcome of any pending enquiries, the Committee concurs intangible assets and goodwill on acquired businesses, are set with management’s assessment of the changes to provisions out in note 3 to the Consolidated Financial Statements. The made during the year. Disclosure of significant tax risks has results of this period’s testing showed positive headroom in been made as appropriate. all cash-generating units, with the exception of Italy where an impairment charge of €14.3m has been recorded as a result of difficult trading conditions, particularly in the first half of Going concern the year. In assessing whether the Company is a going concern, and accordingly making our recommendation to the Board, we As part of the testing, the Committee has reviewed the key considered a paper prepared by management based on assumptions behind these valuations; notably the expected guidance published by the Financial Reporting Council and development of future cashflows and the discount rates used, as reviewed the findings of the external Auditors. The assessment well as considering reasonable sensitivities to these estimates, was made for the period of 12 months from the date of this and concluded that following the impairment noted above Report, in accordance with accepted practice. Based on these support the carrying values set out in notes 15 and 16. internal forecasts, we reviewed the Group’s debt-maturity Valuation of intangible assets acquired in business profile, including headroom and compliance with financial covenants, and its capital structure. We stress-tested this by combinations adjusting the Company’s internal full-year forecast cashflow The Group acquired Bartida s.r.o. and Distillerie Franciacorta by a combination of the principal risks we have identified – S.p.A. in May and June 2019 respectively, with the assets notably an economic downturn leading to loss of revenue and (including intangible assets) and liabilities acquired being customer default (see Principal Risks – Economic and Political recognised at their acquisition-date fair values. Change; and Marketplace and Competition). See note 2 to the accounts (Going concern). The Committee concluded that the The identification and measurement of these intangible application of the going concern basis for the preparation of assets requires judgement and the application of potentially the Financial Statements remained appropriate. complex valuation techniques. The allocation of the purchase
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Change of year-end objectivity of the Auditors, and reviewed the effectiveness of the audit process by interrogation of management and Auditors. Following the change of year-end in the prior year to 30 The Committee also sought assurance from management that all September (from 31 December), the statutory results of the appropriate matters had been brought to the Auditors’ attention. Group for 2019 reflect a 12 month trading period with 9 month comparatives. To assist shareholders in better understanding the underlying performance of the business, additional financial Non-audit services policy and information has been provided, on a proforma basis, for the auditor independence 12 month period ended 30 September 2018. We have a policy on non-audit services provided by the The Committee reviewed the basis of preparation for this external Auditors. Specific approval must be sought from the pro-forma financial information and its disclosure in the Audit Committee for: ARA alongside the statutory financial information. • Single or linked advice from our Auditors, the cost of which is likely to exceed €50,000 in the financial year or bring the Changes to accounting standards and aggregate non-audit fee for that firm over €300,000 in the interpretations financial year; and The Committee reviewed analysis and proposals from the • Employment into control positions of individuals who Group finance team on the implementation of changes have worked directly on the external audit in the to accounting standards and interpretations starting on previous two years. or after 30 September 2018. These include adoption of Our policy also states that we require annual confirmation of IFRS 16 ‘Leases’ and IFRIC 23 ‘Uncertainty over Income the independence of an audit firm in accordance with its own Tax Treatments’ and are outlined in note 3 to the Financial and required regulatory and ethical guidelines. We review a Statements and the Committee concurs with the assessments quarterly report from the CFO of the actual level and nature of the impacts. of non-audit work and periodic confirmation from KPMG of their independence. External audit The total fees paid to KPMG for audit services for the period During the year, the Audit Committee assessed the ongoing were €845,000 (2018: €760,000) and audit-related assurance effectiveness and quality of the external audit process on the services fees amounted to €82,000 (2018: €61,000). The basis of a questionnaire-based internal review completed by audit-related assurance services work entirely comprised of a members of the Audit Committee, the external Auditors and half-year interim review. We are satisfied that this audit-related key members of the finance team. The Committee concluded assurance services work did not detract from the objectivity that the audit process was effective, while identifying a number and independence of our external Auditors. Further details of of learnings that will be applied to future audits as part of our the fees paid to the external Auditors are set out in note 12. commitment to continuous improvement.
The Committee maintained a dialogue with our external Governance Auditors, KPMG, on the key financial statement risks on which The Committee has reported in accordance with its Terms of the half-year review and full-year audit would focus. KPMG’s Reference and, in particular, has recommended to the Board approach to materiality informed discussion of the appropriate the adoption of the ARA and the proposal to reappoint KPMG level of materiality for the audit, and the Committee concurred LLP as independent Auditors at the AGM. A formal external with KPMG’s proposals as set out in their report. The evaluation of the effectiveness of the Committee was carried Committee continued to meet regularly with the external out during the year (see page 76); based upon the results of Auditors in the absence of management. that evaluation, the Committee believes that it has operated Before concluding our recommendation on the ARA in December effectively during the year. 2019, we reviewed a report from KPMG on the findings from their audit with particular attention on key issues arising out of the audit, including their views on critical estimates and judgements, key assumptions, clarity of disclosures and proposed audit Mike Butterworth adjustments. We discussed these with management and satisfied Chairman of the Audit Committee ourselves that the issues raised had been properly dealt with. We received and considered confirmation of the independence and 4 December 2019
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Nomination Committee Report
Composition of the Committee The members of the Committee during the period consisted of David Maloney (Chair), John Nicolson, I am pleased to present Mike Butterworth and Diego Bevilacqua. the Nomination Committee Meetings The Nomination Committee met five times during the year. For Directors’ attendance, see Report for the financial year table on page 75. David Maloney, John Nicolson, Mike Butterworth and Diego Bevilacqua met the to 30 September 2019. independence criteria in the Code on appointment. The Company Secretary served as Secretary to the Committee. The Executive Directors attend Committee meetings by invitation as required. We Committee members also ask other members of the senior management team, such as the Group HR Director, to present to David Maloney (Chair) the Committee during the year. Mike Butterworth John Nicolson Diego Bevilacqua Responsibilities and roles of the Committee The Nomination Committee is responsible for regularly reviewing the structure, size and Meetings composition required of the Board compared to its current position, and making recommendations to 5 the Board with regard to any changes; giving full consideration to succession planning for Directors, taking into account the challenges and opportunities facing the Company, and the skills and expertise that will therefore be needed on the Board in the future; and identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise.
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The Nomination Committee takes into account the provisions Succession planning of the UK Corporate Governance Code 2016 (the Code) and any regulatory requirements that are applicable to the Succession planning has continued to be a key area of focus Company. The updated 2018 Code was reviewed by the during the year, both in respect of the Board and for the senior Committee during the year and will be taken into account for management team. In November 2018, the Committee met and the 2020 Report. It ensures that external evaluations of the discussed the succession planning of senior management, both Board are carried out according to the applicable regulations. in terms of permanent succession and also short-term cover The ‘Terms of Reference of the Committee’ (which are available for senior roles. on the website: www.stockspirits.com) were reviewed and There was an increased focus on the high performing updated during the year to ensure they reflect the remit of the individuals with potential to develop into senior roles in the Committee and remain appropriate. future and a training and mentoring programme has been put in place. In accordance with the recommendation for FTSE 350 companies set out in the Code, all of the Company’s Directors In June and September 2019, Non-Executive succession will stand for election or re-election at the forthcoming AGM. planning was discussed in light of the changes within the new Code. A plan was developed to ensure an orderly succession The biographical details of the current Directors can be plan is in place, for when the Chairman steps down in 2023. found on pages 70 and 71. The Committee considered the This plan takes into account the new Code provision, regarding performance of each of the Directors standing for re-election the overall nine year time limit for Chairs. Succession planning and agreed that each Director continues to be effective is a key area for the Group and continues to be enhanced and and demonstrates commitment to their role, including developed. We developed the plan to move towards our target commitment of time for Board and Committee meetings of 33% females on the Board, however, as mentioned on page and any other duties. 73, this will mean some of our Directors will need to step down which is regrettable as we will lose their skills and expertise and Activity finding a replacement may be difficult.
The Committee meets at least twice a year and after each At the meeting held in June 2019, the Committee agreed to meeting, the Committee Chairman reports formally to the continue the mentoring programme between the NEDs and Board. The Committee held five meetings during the financial the senior management team as it was felt to be of continued year to 30 September 2019. benefit. New partnerships were suggested and agreed at the meeting held in September 2019, for the year ahead. This Board appointments programme helps the NEDs gain a greater understanding of a particular area of the business and provides a sounding board for As noted in the 2018 Report, Kate Allum joined the Board on the senior management team individual as required. 1 November 2018 and became a member of the Audit and Remuneration Committees on that date. There have been no The Committee will continue to focus on succession planning and further appointments during the financial year. development of both middle and senior management and will be updated on the performance of the high performing individuals across the Group and their training and mentoring programme to enable them to develop into senior roles in the future.
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Effectiveness Director induction and training As detailed on page 76 during 2019, Paula Hutchings of The New Directors undertake an induction programme when People Stuff was commissioned to conduct an independent, joining the Board. Each induction is tailored to the needs of the external evaluation of the Board and its Committees. individual and will include meetings with internal and external individuals who are key to the success of the Company and Diversity include visiting our production sites. The Company remains committed to ensuring a diverse and The NEDs are encouraged to meet the Group’s employees representative Board and to ensuring that appointments at all levels and town hall meetings are held in our operating are based on merit. Gender, ethnic and social boardroom territories throughout the year, to enable employees to diversity will continue to be an important area of focus for the ask the Board questions and spend time with them in an Committee with the aim of attracting and maintaining a Board informal setting. which has a broad range of skills, backgrounds and experience, The individual training and development needs of the Directors ensuring the best people are appointed. Whilst the Board does was discussed as part of the external Board evaluation process not currently meet the voluntary target for gender set by the during 2019 and discussed further during the meeting in Hampton-Alexander Review for FTSE 350 Boards, this target September 2019. Directors are encouraged to attend external is included within our Board Diversity Policy and was part of seminars and briefings as part of their continuous development the overall succession planning discussions during the year. and several are members of the Deloitte Academy, which The Committee will work towards the target when vacancies provides updates on areas such as corporate governance arise in the future, however, given the size and tenure profile matters and financial reporting. The Company Secretary shared of the Board, it is expected that it will take longer than 2020 a variety of updates with the Board throughout the year. to achieve. As discussed on the previous page, the Board succession development planning process included discussing A training session was provided by Slaughter and May in ways to increase diversity amongst the Board in the future May 2019 covering changes to the Corporate Governance and a plan to meet the 33% target by the AGM in February Code and a session on Environmental, Social and Governance 2022. This will only be achieved if two NEDs step down and matters is planned for early 2020. the Group recruits an additional female NED with the requisite experience before then. It also depends on existing Directors’ The terms and conditions of appointment of NEDs, including plans remaining unchanged. the expected time commitment, are available for inspection at the Company’s registered office. With regard to the Parker Review, which aims for FTSE 100 Boards to have at least one director from an ethnic minority I will be available at the 2020 AGM to answer questions background by 2021, we have considered the findings during relating to the work of the Committee. the year and will look to incorporate into our Board Diversity Policy during the year ahead. It is pleasing to note that although we are a FTSE Smallcap, we have achieved this aspiration ahead of schedule, with one of our Board members being from an ethnic minority background. David Maloney The Committee will continue to seek diversity when Chairman of the Nomination Committee considering new appointments to both the Board and the 4 December 2019 senior management team and will work with the Executive search firms, in a manner which enhances opportunities for diverse candidates. The Board Diversity Policy will continue to be reviewed on an annual basis to ensure it remains appropriate. The Policy will be fully taken into account when the next Board vacancy arises.
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Directors’ Remuneration Report
Annual statement from the Remuneration Committee Chair On behalf of the Remuneration Committee and the Board, I am pleased to present the Remuneration I am pleased to present the Report for the last year, together with details of our new Remuneration Policy (the Policy) which Remuneration Committee will be put to shareholders for a binding vote at our forthcoming AGM on 6 February 2020. Our Report for the financial year previous policy was adopted at the 2017 AGM and has been in place for three years. We have used to 30 September 2019. this opportunity to review the appropriateness of the policy in the context of our strategy, market conditions, governance changes and performance. With this in mind we are proposing some changes to our policy, which will continue to support alignment Committee members with our shareholders and reflect best practice. We John Nicolson (Chair) consulted with our major shareholders in relation to Mike Butterworth our approach to the new Policy and have taken their Kate Allum feedback into account within the Policy set out later Tomasz Blawat in the Report. Diego Bevilacqua During the period under review, we continued to apply the policy that was adopted in 2017.
The key changes are summarised below, and we Meetings have also made minor amendments to reflect changes in practice since the previous policy was 5 approved and as a consequence of this: • Maximum bonus opportunity will reduce from 140% of salary to 125% to move focus to the longer-term performance of the business • The bonus deferral has increased from 25% to 50% (with a two year deferral period continuing to apply) • Annual Long Term Incentive Plan (LTIP) award will increase from 125% to 140% (the maximum opportunity of 250% in exceptional circumstances will not be increased)
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• To reflect the 2018 edition of the Corporate Governance on target and maximum. Mirek Stachowicz and Paul Bal Code we have introduced a post-cessation shareholding have earned bonuses of 87.21% of the salary earned in the requirement pursuant to which shares with a value of year; further information is included on page 99. 25% of 200% of salary must be held for one year after cessation of the bonus earned by Mirek Stachowicz and Paul Bal will be employment and shares with a value of 100% of salary must deferred into shares (and held for two years). Downward be held for a further year after cessation of employment. discretion has been used in previous years for the Executive Further information is included on page 92 Directors’ bonus, however, it was not felt to be necessary • Pension levels for new Executive Directors will be in line this year. with the wider workforce • Performance Share Plan • Malus and clawback has been extended to include corporate failure and serious reputational damage The 2017 Performance Share Plan (PSP) will vest at 100% of the maximum opportunity. EPS compound growth of • To reflect the 2018 edition of the Corporate Governance 12.9% will result in a 100% vesting and cash conversion Code, we have introduced discretion to vary the formulaic of 103.6% will result in a 100% vesting. The options are vesting outturns of variable pay in order that performance subject to a two year holding period after they have vested can be appropriately taken into account. in March 2020. Further details can be found on page 100.
The Annual Report on Remuneration (pages 98 to 104) sets During the course of the year, in addition to discussing the out how the Policy was applied in the year to 30 September CEO’s remuneration package, the Committee also consulted 2019 and details the rewards earned by Directors. The Annual and agreed on a relocation package. Please see page 95 for Report on Remuneration will be subject to an advisory vote by further details. shareholders at the AGM. Remuneration for 2020 Remuneration in 2019 Executive Director salaries for 2020 will be decided by the The outturn for 2019 can be summarised as follows: Remuneration Committee, at the same time as the salary review for the wider workforce. Any increases will be implemented • Base salary in January 2020. Any increase for the Executive Directors Mirek Stachowicz and Paul Bal’s salary for 2019 increased is expected to be modest and will not exceed the range by 2% to £446,505 (€507,391) and £306,000 (€347,727) of increases awarded to the wider workforce. Information respectively, in line with the range of increases awarded regarding the increases will be provided in the 2020 ARA. to the wider workforce. Subject to the approval of the new Policy, the bonus • Annual bonus opportunity will be up to 125% of salary earned during the period. 50% of any bonus earned will be deferred into shares Mirek Stachowicz’s and Paul Bal’s bonus opportunity for two years. The bonus metrics for the financial year to for 2019 was up to 140% of salary earned in the year. 30 September 2020: The bonus was based on three performance metrics: (1) EBITDA (60% of the opportunity); (2) cashflow (20% of • As regards 60% of the opportunity, EBITDA the opportunity); and (3) revenue growth (20% of the • As regards 40% of the opportunity, revenue growth. opportunity). Performance against the EBITDA measure was between on target and maximum; performance against It is our intention to grant PSP awards at the level of 140% the cashflow conversion measure was below the minimum of salary. Awards will be subject to EPS and cash conversion and performance against revenue growth was between targets as set out on page 104 and will be subject to a two year holding period after vesting. The Committee has considered
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again the use of Total Shareholder Return (TSR) as a measure Engagement and consideration of for the PSP awards. The review concluded that TSR remains shareholder views an inappropriate measure for the Group as there is no sensible comparator group against which the performance of the Group The Remuneration Committee and the Board of Directors could be measured, given its operational geographic footprint more generally, recognise the importance of engaging with and scale. As a consequence, using TSR could lead to shareholders in relation to executive remuneration and are windfall gains. available for meetings with shareholders as required. The Committee considers shareholder feedback received in relation Any proposed increase in fees for the Chairman and NEDs to the AGM each year, plus any additional feedback received will be discussed and agreed at the same time as the during meetings. The proposed changes to the Remuneration Executive Directors and wider workforce review and will be Policy were shared with shareholders representing 77% of our implemented from January 2020 in line with the salary review register and shareholder representation bodies, to ascertain for the Executive Directors and wider workforce, and will be their views ahead of the publication of this Report. I met with reported within the 2020 ARA. several shareholders and corresponded with several others on various topics in relation to the new Policy. All shareholder Executive Director pensions are contractual and will remain feedback was considered by the Committee before finalising the at their current level. However, they will continue to be Policy. The Chairman of the Company has offered meetings with monitored and kept under close review by the Remuneration shareholders ahead of the 2020 AGM as detailed on page 73. Committee during the year ahead. The Remuneration Report at the 2019 AGM received 83.65% Key activities votes in favour from those that voted; the full breakdown of the votes is reported on page 104. The key activities of the Remuneration Committee during the year to 30 September 2019 included: The proposed Policy has been set out on pages 90 to 97.
• Reviewing the base salaries of the Executive Directors We remain committed to a responsible approach to Executive and senior management team for 2019 Director pay, as I trust that this Remuneration Report and • Setting the objectives for the 2019 annual bonus Policy demonstrates, and value all shareholders’ views on our arrangements for Executive Directors and the senior remuneration arrangements. On behalf of the Board, I would management team like to thank shareholders for their continued support and would encourage shareholders to get in touch should they • Reviewing targets for the Executive Directors’ bonus have any questions regarding our Remuneration strategy. arrangements in respect of the financial year to 30 September 2019 Following the AGM in February 2020, I will step down from • Approving the LTIP awards granted in February 2019 my role as Chair of the Remuneration Committee and will be replaced by Kate Allum. • Reviewing and approving the updated Remuneration Committee’s Terms of Reference • Remuneration Policy review and update • Discussing the approach to workforce engagement John Nicolson • Taking an overview of the broader pay policy for the Chairman of the Remuneration Committee Company as a whole 4 December 2019 • Reviewing the arrangements for the CEO relocation to the UK • Discussing the approach to variable pay below Board level • Review of the new Corporate Governance Code relating to the Remuneration Committee • Engagement with shareholders with regard to the new Remuneration Policy.
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Directors’ Remuneration Report continued
Directors’ remuneration policy This part of the Report sets out the Directors’ remuneration policy which will be subject to a binding vote at the 2020 AGM and will take effect from the end of that meeting (the “Policy”). The Policy is determined by the Company’s Remuneration Committee (the “Committee”). The Company’s last Directors’ remuneration policy was approved at the AGM held on 23 May 2017 and took effect from that date. The changes between the new Policy and the Directors’ remuneration policy approved in 2017 are summarised in the Committee Chairman’s Statement on page 87.
Future policy – Executive Directors The table below sets out the key elements included in the remuneration package for Executive Directors and explains how each element of the package operates. The Committee ensures that the incentive structure to be applied links to strategy, market conditions, performance and governance changes and does not raise environmental, social or governance risks by inadvertently motivating irresponsible behaviour.
The Committee considers general pay and employment conditions of all employees within the Group, as well as the prevailing market conditions and governance requirements when setting Executive Director remuneration.
Purpose and link Element to strategy Operation Maximum opportunity Performance measures
Salary To provide salaries Salaries are paid in equal monthly No maximum salary has been set. While payment of salary that are sufficient instalments and are normally reviewed However, any increase will normally is not subject to any to attract and retain on an annual basis. be within the range of increases (in performance conditions, experienced and percentage terms) awarded to the the overall performance of capable Executives, wider workforce. Increases may be the individual is taken into taking account of the awarded above the level awarded account generally as well skill, responsibility, to other employees in appropriate as when determining the performance and circumstances, which include amount of any increase. experience to drive but are not limited to: the business forward. • A change in the scope of the role • An increase in the complexity or size of the business • To take account of the individual’s performance in the role, which can include aligning a newly appointed Executive Director’s salary with the market over time • To take account of changes in market practice.
Benefits To operate a Benefits currently provided include private There is no maximum value of Not applicable. competitive benefits medical cover, life insurance, an annual benefits that may be provided, but structure that aids car allowance and allowances to cover the Committee monitors the overall in the recruitment tax and legal advice to reflect the nature cost and market practice of the and retention of and location of the role and, in the case of benefit provision on a periodic basis. our Directors. Mirek Stachowicz, benefits in relation to his relocation to the United Kingdom as described on page 95.
Additional benefits may be provided as appropriate to take into account the nature and location of the role.
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Purpose and link Element to strategy Operation Maximum opportunity Performance measures
Retirement Provide a competitive The Company will provide a monthly cash Up to 15% of salary for any Executive Not applicable. benefits means of long-term allowance in lieu of a contribution to a Director in office at the date on which retirement saving for pension scheme or contribute an amount to this Policy takes effect. Executive Directors. a money-purchase pension scheme. For any Executive Director appointed after the date on which this Policy takes effect, the level of pension contribution (or cash allowance) as a percentage of salary, will not exceed the percentage applicable to the majority of the Group’s wider workforce (or such sub-set of that workforce as the Committee determines) from time to time.
Annual Bonus Rewards achievement The annual bonus may be paid in cash or Maximum annual bonus (including The performance targets Plan (ABP) of annual financial in deferred shares (under the DABP). The cash and deferred shares) of 125% used for the annual bonus and Deferred objectives or Committee’s current intention is for 50% of of salary. will be set by the Committee Annual Bonus other performance any bonus to be deferred under the DABP. at the start of each financial Plan (DABP) measures which However, under the rules of the ABP, the year. The metrics and support the delivery Committee may decide to satisfy up to weightings used may vary of the Company’s 100% of the annual bonus in shares. from year to year to reflect strategy while changing business priorities. encouraging a long- Where the amount of the bonus to be At least 50% of the bonus term focus through deferred into shares is less than £5,000, opportunity will be based on the use of deferred the Committee may pay the whole bonus financial measures, and for share awards. in cash. the financial year starting on 1 October 2019 it is Any deferred shares will be granted in proposed that the whole of the form of nil (or nominal) cost options the bonus opportunity will be or conditional awards, and will normally based on financial measures. be subject to a two year vesting period. Dividend equivalents may be payable on In the case of financial the deferred share awards in respect of performance measures, there dividends paid over the period from grant is no minimum bonus payment of the award to vesting calculated on such for threshold performance, basis as the Committee shall determine, with up to 50% of the which may assume the reinvestment of maximum opportunity paid for dividends into shares. target performance increasing to the full potential being paid Claw-back and, in the case of deferred for maximum performance. share awards, malus provisions, will apply In the case of non-financial as referred to below. performance measures, if applied, the bonus will be The Committee has discretion to vary the earned between 0% and 100% formulaic bonus outturn if it considers based on the Committee’s that the outturn does not reflect the assessment of the extent to Committee’s assessment of performance, which the relevant metric has or is not appropriate in the context of been achieved. circumstances that were unexpected or unforeseen. The vesting schedules above are subject to the Committee’s discretion to vary formulaic bonus outturns.
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Purpose and link Element to strategy Operation Maximum opportunity Performance measures
Performance Encourages sustained At the discretion of the Committee, Maximum PSP award opportunity The vesting of PSP awards Share Plan performance, Executive Directors will receive awards of of 140% of salary (or up to 250% granted to Executive (PSP) assists with shares in the form of nil (or nominal) cost in exceptional circumstances) in Directors will be subject to retention, focuses options or conditional awards, which will respect of a financial year. performance conditions set by management on usually vest following the assessment of the Committee prior to grant. longer-term financial performance conditions, measured over a growth, which period typically of at least three years. Performance conditions aligns Executive will be based on financial Directors’ interests Awards will be subject to a two year holding measures aligned to the with shareholders’ period following vesting, taking the form Company’s strategy which interests. of either: (1) an additional period before may include, but are not the vested shares can be acquired; or (2) limited to, earnings per share a requirement that any shares acquired or other earnings based pursuant to the award should be retained measures, cash conversion for the holding period (subject to sales to or other cash-based cover tax liabilities arising on the acquisition measures and return based of the shares). measures. Where more than one performance measure Dividend equivalents may be payable in applies, the Committee will respect of dividends over the period from determine the weightings grant to vest (or if the holding period of the measures at the is structured as an additional period time of grant. Awards will before the vested shares can be acquired, vest on a sliding scale from from grant to the date on which those up to 25% for threshold shares become capable of acquisition) performance rising to 100% calculated on such basis as the Committee for maximum performance. shall determine, which may assume the reinvestment of dividends into shares.
Claw-back and malus provisions will apply, as referred to below.
The Committee has discretion to vary the formulaic vesting outturn if it considers that the outturn does not reflect the Committee’s assessment of performance, or is not appropriate in the context of circumstances that were unexpected or unforeseen at grant.
Shareholding guidelines
Shareholding guidelines during service To encourage the Executive Directors to build and maintain shareholdings in the Company, they are required to retain 50% of the shares (net of tax) vesting under the PSP and DABP until they hold shares with a value equal to 200% of salary. Shares subject to awards which have not vested but which are no longer subject to performance conditions may be counted towards the guideline on a net of assumed tax basis.
Shareholding guidelines after employment Executive Directors will be required to retain 100% of the in-service shareholding requirement for the first year after employment and 50% of the requirement for the second year post-cessation (or, in either case, their actual holding if lower). The post-employment shareholding requirement does not apply to shares purchased or acquired pursuant to awards granted before the financial year starting on 1 October 2019. Shares subject to awards which have not vested but which are no longer subject to performance conditions may be counted towards the guideline on a net of assumed tax basis.
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Further details on the operation of the incentive schemes
Annual bonus The payment of any bonus is ultimately at the discretion of the Committee. The Committee retains the ability, in appropriate circumstances, to adjust previously set targets and/or set different performance measures if events occur that cause the Committee to determine that the measures are no longer appropriate, and that amendment is required so that they achieve their original purpose.
Performance share awards The Committee may, acting fairly and reasonably, vary performance conditions applying to existing PSP awards if an event has occurred that causes the Committee to consider that it would be appropriate to amend the performance conditions, and the varied conditions are not materially less challenging than the original conditions would have been but for the event in question.
Use of Discretion Bonus and LTIP outcomes are subject to the Committee being satisfied that the Company’s performance on the measures is consistent with underlying business performance and individual contributions. The Committee will exercise discretion on bonus outcomes if it deems necessary.
Operation of incentive plans The Committee has discretion to operate the PSP and DABP in accordance with their rules, including the ability to settle awards in cash, in whole, or in part in appropriate circumstances (although it would do so for an Executive Director only in exceptional circumstances, such as where there was a regulatory restriction on the delivery of shares) and to adjust awards in the event of a variation of the Company’s share capital or any other relevant event.
Claw-back provisions Claw-back provisions may be operated at the discretion of the Committee in respect of awards granted under the ABP, the DABP and the PSP in certain circumstances (including where there has been a material misstatement of accounts, an error in assessing any applicable performance condition, misconduct on the part of the participant or, in the case of awards granted after 1 October 2019, corporate failure or serious reputational damage). Claw-back may be operated during a period of two years following the vesting of a DABP award, or within two years following the payment of an ABP bonus. Claw-back may be applied during a period of two years following the vesting of a PSP award, i.e. during the holding period.
Malus provisions Malus provisions may be operated at the discretion of the Committee in respect of awards granted under the DABP and PSP in certain circumstances (including where there has been a material misstatement of accounts, an error in assessing any applicable performance condition, misconduct on the part of the participant or, in the case of awards granted after 1 October 2019, corporate failure or serious reputational damage). Malus may be operated before the vesting of an award.
Differences in policy from the wider employee population The Company’s approach to annual salary reviews is consistent across the Group and, in accordance with this Policy, for any Executive Director appointed after the date on which this Policy takes effect, the level of pension contribution (or cash allowance) as a percentage of salary will not exceed the percentage applicable to the majority of the Group’s wider workforce (or such sub-set of that workforce as the Committee determines) from time to time.
However, there are some differences between the Policy for Executive Directors as set out above and its approach to payment of employees generally. For example, there is an increased emphasis on performance-related pay for Executive Directors through a higher annual bonus opportunity and participation in the PSP, plus a higher proportion of their total remuneration is also at risk. The Committee has not consulted directly with employees on the Policy, but it takes into account the pay and employment conditions of the general workforce when considering any changes to the quantum or structure of the Executive remuneration packages.
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Non-Executive Directors
Purpose and link to strategy Operation Opportunity To attract and retain high- Fees are paid on a per-annum basis and are not varied for the number of The fee levels are usually calibre Non-Executive days worked. The fees are set to take into account the responsibilities of reviewed annually and Directors by offering the role, the experience of the Chairman and Non-Executive Director and may be increased if competitive fees. the expected time commitment involved. appropriate to do so. The maximum aggregate fee Additional fees may be paid to reflect extra responsibilities such as to all Directors that may for the SID or when acting as Chairman or a member of any of the be paid is limited to the Board Committees. amount permitted under the Company’s Articles The Chairman and Non-Executive Directors may also be eligible to receive of Association from benefits relevant to their role such as travel costs and secretarial support, time to time. or other benefits that may be appropriate.
Reward scenarios The chart below shows the potential reward available to the Executive Directors in the financial year starting on 1 October 2019 under the Policy.
The chart is prepared on the following basis.
Fixed pay Annual Bonus PSP Minimum Base salary applying from 1 January No annual bonus is earned No PSP vests Target 2019: Mirek Stachowicz £446,505; Annual bonus of 50% of maximum PSP vesting of 25% of maximum Paul Bal £306,000 (62.5% of salary) (35% of salary) Maximum Benefits and pension as disclosed in PSP vesting of 140% of salary the table on page 99 in respect of the PSP vesting of 140% of salary plus Maximum plus Annual bonus of 125% of salary share price financial year ended 30 September an assumed 50% increase in the 2019. share price
The Directors are paid in sterling but the chart has been presented in euros, which is the Group’s reporting currency using an exchange rate of €1:£0.88. No assumptions have been made as to dividends earned in relation to share awards.
Reward scenarios (€000)
Mirek Stachowicz Paul Bal
€2,394 2,500 2,500
€2,039 2,000 2,000 45% 35% €1,586 1,500 1,500 €1,342 €1,189 46% 15% 37% 1,000 31% 26% 1,000 €760 €694 27% 16% 32% 27% €421 500 500 29% 100% 58% 34% 29% 100% 55% 31% 27% 0 0 Minimum Target Maximum Maximum with Minimum Target Maximum Maximum with 50% increase 50% increase in share price in share price
Fixed pay Annual bonus Performance share plan (PSP)
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Legacy arrangements The Committee retains the right to make any remuneration payment or payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with this Policy where the terms of the payment were agreed:
• Before the Policy came into effect (and, in the case of a payment agreed on or after 13 May 2014, were in line with the Directors’ remuneration policy in force at the time of agreement); or • At a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company.
For these purposes, the term “payments” includes the satisfaction of awards of variable remuneration and, in relation to an award over shares, the terms of the payment are agreed at the time the award is granted.
Service contracts and letters of appointment Each Executive Director has been appointed under a service contract, as set out in the table below. These contracts contain the following obligations on the Company that could give rise to, or impact on, remuneration payments or payments for loss of office:
• To provide pay, contributions to a pension scheme (or a cash allowance in lieu) and benefits as specified in the contract • To give the Executive Director eligibility at the discretion of the Committee to participate in short and long-term incentive plans • To provide 30 working days’ paid holiday per annum, or pay in lieu of any accrued but untaken holiday on termination of employment • To provide sick pay as specified in the contract • To terminate the contract on not less than 12 months’ notice by either the Company or the Director or to make a payment in lieu of notice equal to value of the base salary either in one lump sum or in phased instalments and reduced by amounts earned from alternative remunerative positions obtained during the notice period • In the case of Mirek Stachowicz, to receive, subject to the prior agreement of the Company, up to £4,500 per year in respect of legal and tax advice for the duration of his employment and for up to five years thereafter.
Each of the Non-Executive Directors is appointed by letter of appointment for an initial term of three years, as set out in the table below. Their appointments may be terminated earlier without compensation on three months’ notice and are subject to annual re-election by the shareholders.
The Executive Directors’ service contracts and the Non-Executive Directors’ letters of appointment are kept available for inspection at the Company’s registered office.
Name Commencement date Unexpired term remaining as at 30 September 2019 Mirek Stachowicz 10.08.2016 Terminable on 12 months’ notice. Paul Bal 07.11.2017 Terminable on 12 months’ notice. David Maloney 21.10.2013 Terminable on 3 months’ notice. John Nicolson 21.10.2013 Terminable on 3 months’ notice. Tomasz Blawat 24.10.2016 Terminable on 3 months’ notice. Mike Butterworth 24.10.2016 Terminable on 3 months’ notice. Diego Bevilacqua 24.10.2016 Terminable on 3 months’ notice. Kate Allum 01.11.2018 Fixed term expiring on 01.11.2021 (subject to renewal) and terminable on 3 months’ notice.
CEO relocation Mirek Stachowicz relocated to the UK in August 2019, a move which is to support Mr Stachowicz’s focus on the Group’s strategy, which includes M&A. As part of the relocation arrangements, Mr Stachowicz is entitled, for a period of two years ending 31 July 2021, to the reimbursement of certain costs related to his relocation (including school fees for his two children, rental costs and relocation related expenses) which will be capped at £200,000 per annum (which will include the amount of any income tax and National Insurance contributions due). The terms of the relocation arrangement were discussed with major shareholders in June 2019.
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Payments for loss of office In the event of an Executive Director’s departure, the Company will honour the contractual entitlements of that Director. The Company’s approach to payments for loss of office will be based on the following principles:
Notice period/pay in lieu Executive Directors have rolling contracts with 12 month notice periods. The Company may elect to terminate employment immediately by making a payment in lieu of notice, equivalent to the Executive Director’s salary for the notice period. The payment in lieu of notice may be made in monthly instalments, which can be reduced to the extent the Executive Director obtains alternative paid employment. Other than Mirek Stachowicz’s relocation arrangements (which in certain termination circumstances, including in the event of a change of control, will continue to the end of the fixed two year period referred to above) and right to receive up to £4,500 in respect of legal and tax advice (as referred to above), all other benefits including pension contributions or allowance (as the case may be) will cease on termination, unless the Committee determines otherwise. The Company may terminate a Director’s employment without notice (or payment in lieu) in certain circumstances, including where the Executive commits a serious breach of his or her service agreement, or is found guilty of gross misconduct.
Outstanding incentive awards Leavers As a general rule, unvested incentive awards (e.g. outstanding PSP and DABP awards and entitlement to annual bonus) will lapse on a participant ceasing to hold employment or to be a Director within the Company’s Group.
Good leavers However, if the reason for the cessation of employment falls within certain good leaver categories (which include for example, cessation due to a participant’s injury, disability, retirement, redundancy, the employing company or business being sold out of the Company’s Group) or in other circumstances at the discretion of the Committee, then the unvested incentive award may vest and be payable as set out below:
• PSP: Awards will usually vest on the normal vesting date subject to performance and time pro-rating and be released at the end of the originally envisaged holding period. The Committee retains the discretion not to time pro-rate if it considers it appropriate to do so. The Committee may allow the outstanding share award to vest and be released early to a good leaver and if a participant dies, his or her award will ordinarily vest and be released early (unless the Committee decides otherwise). If a participant ceases employment after a PSP award has vested but during the holding period applying to it for any reason (other than summary dismissal, in which case his award will lapse), the holding period will usually continue until its originally scheduled end date, although the Committee retains discretion to bring the holding period to an end on cessation.
• Annual bonus: A good leaver’s annual bonus for the year of cessation will ordinarily be paid in respect of the period of service during the year. Any payment will be subject to the performance conditions and be paid at the usual time, although the Committee retains discretion to make payments earlier in appropriate circumstances. Bonuses for the year of cessation or preceding year may be paid wholly in cash (with no deferral into shares) at the election of the Committee. • DABP: In the case of DABP awards, outstanding awards for a good leaver will vest early to such extent as the Committee determines appropriate.
Takeovers In the event of a takeover or winding up of the Company (not being an internal corporate reorganisation), all unvested PSP awards will vest early, subject to: (i) performance and (ii) time pro-rating, although the Committee can decide to reduce or eliminate the pro-rating of a PSP award or to disapply (or partially disapply) any performance conditions if it regards it as appropriate to do so in the particular circumstances.
In the event of a takeover or winding up of the Company (not being an internal reorganisation), vested PSP awards which are subject to a holding period, will be released early to the extent already vested.
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In the event of a takeover or winding up of the Company, the Committee may allow bonuses for that financial year to be paid early, subject to: (i) the extent that the performance conditions have been satisfied at that time; and (ii) the pro-rating of the bonus to reflect the reduced period of time between grant and the date of such event, although the Committee can decide to reduce or eliminate the pro-rating of a bonus.
In the event of a takeover or winding up of the Company (not being an internal corporate reorganisation), all DABP awards will vest early in full.
Internal corporate reorganisation In the event of an internal corporate reorganisation, PSP and DABP awards may, at the discretion of the Committee, be replaced by equivalent new awards over shares in a new holding company, provided that the Board of Directors of the new holding company agrees. If such replacement is not agreed before the internal corporate reorganisation takes place, then the PSP and DABP awards will vest on the basis that would apply in the case of a takeover.
Other payments and benefits Outplacement services may be provided where appropriate and any statutory entitlements, sums to settle or compromise claims in connection with a termination would be paid as necessary, along with any accrued but untaken holiday and where appropriate, payments in respect of legal fees.
Recruitment of Directors Where a new Executive Director is appointed, the principles outlined above in relation to the structure, components and maximum opportunities of the existing Executive Directors’ remuneration package and service contract terms will also apply to any newly appointed Executive Director. Salaries for new hires will be set to reflect their skills and experience, the Company’s intended pay positioning and the market rate for the role. In accordance with the Policy table (on pages 90 and 92), the maximum variable pay that may be offered is 265% of salary (375% in exceptional circumstances), excluding any “buy-out award” as referred to below.
It may be necessary to buy-out incentive awards that would be forfeited on leaving the previous employer. In determining the structure of any buy-out award, the Committee will take into account the form of the awards forgone (cash or shares), the timing of the awards and their expected value. Replacement share awards, if used, may be granted under the PSP, although awards may also be granted outside of this scheme if necessary and as permitted under the Listing Rules.
The Committee may also alter the performance measures, performance period, vesting period and holding period of the annual bonus, DABP or PSP if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly explained in a subsequent Directors’ Remuneration Report.
In the case of an internal promotion, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms of grant.
Fees for a new Chairman or Non-Executive Director will be set in line with the Policy.
Non-Executive positions by Executive Directors The Company’s policy is to allow an Executive Director to take only one Non-Executive Director role in another company with prior consent from the Board, which cannot be unreasonably withheld. The Committee may permit an Executive Director to take on additional roles following the giving of notice to terminate his employment with the Company.
Consideration of shareholder views The Committee is committed to open and transparent dialogue with shareholders, and seeks views from major shareholders in advance of proposing significant changes to its Directors’ remuneration policy. The Committee considers shareholder feedback received in relation to the AGM each year plus any additional feedback received during meetings from time to time. When there are material issues relating to executive remuneration or proposed changes in policy, we engage actively with major shareholders to ensure we understand the range of their views during the year. Major shareholders and representative bodies were consulted in respect of this Policy and also Mirek Stachowicz’s relocation arrangements and this Policy was finalised having regard to feedback received.
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Annual Report on Remuneration This part of the Report provides details of remuneration earned by Executive Directors in respect of the financial year to 30 September 2019 and how the Policy will be implemented during the year to 30 September 2020, subject to its approval at the 2020 AGM. It will be put to an advisory shareholder vote at the 2020 AGM. The information in this section has been audited where stated.
Role of the Remuneration Committee The Remuneration Committee determines and agrees with the Board the framework or broad policy for the remuneration of the Executive Directors and the senior management team. The remuneration of NEDs is a matter for the Chairman of the Board and the Executive Directors, subject to the constraints contained in the Company’s Articles of Association. No Director or Manager shall be involved in any decisions as to their own remuneration.
The Remuneration Committee will determine the policy for and scope of service agreements, termination payments and compensation commitments for the Executive Directors and the senior management team. It also ensures that Directors’ contractual terms on termination are observed, ‘that failure is not rewarded’ and that the duty to mitigate loss is fully recognised. The Remuneration Committee will also agree the policy for authorising claims for expenses from the Directors.
The full Terms of Reference of the Remuneration Committee are available on our website at www.stockspirits.com.
Composition of the Remuneration Committee The Committee consists entirely of Independent Non-Executive Directors. The Committee is chaired by John Nicolson and during the year to 30 September 2019, its other members were Mike Butterworth, Diego Bevilacqua, Tomasz Blawat and Kate Allum (who joined the Board and the Remuneration Committee on 1 November 2018).
During the financial year ended 30 September 2019 the Committee held five meetings, see the table on page 75 for further details.
The Company Secretary served as Secretary to the Committee. Meetings were also attended by the Chairman, CEO, CFO and Group HR Director, by invitation. Members of the Remuneration Committee and any person attending its meeting do not participate in any discussion or decision on their own remuneration.
Advice provided to the Remuneration Committee Deloitte LLP were appointed as adviser to the Committee in 2016, following a tender process and continued to advise the Committee during the financial year to 30 September 2019. Deloitte is a founding member of the Remuneration Consultants Group and adheres to its Code of Conduct in relation to Executive remuneration consulting in the UK. Deloitte’s fees for advice to the Committee during 2019 were £21,510 (€24,443) plus VAT. Deloitte also provided advice on share plans and taxation and consulting advice in relation to internationally mobile executives in the financial year to 30September 2019.
The Committee reviewed the potential for conflicts of interest and the safeguards against them, and is satisfied that Deloitte does not have any such interests, or connections with the Group, that may impair its independence. The effectiveness of Deloitte was discussed by the Committee during the year and it was concluded that the advice provided by Deloitte remains appropriate, objective and independent.
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Directors’ remuneration (audited) The table below sets out the total remuneration for the Directors for the financial year 2019 and the 9 month period in 2018. The Directors are paid in sterling, but figures in this Report are disclosed in euros (the Group’s reporting currency).
The exchange rate used is €1:£0.88 for both reporting periods.
Total amount of Annual incentive Long-term incentive salary and fees All taxable benefits1 arrangements arrangements Pension4 Total 12 month 9 month 12 month 9 month 12 month 9 month 12 month 9 month 12 month 9 month 12 month 9 month period period period period period period period period period period period period €000 2019 2018 20191 20181 20192 2018 20193 2018 2019 2018 2019 2018 Executive Directors Mirek Stachowicz 505 373 111 19 440 363 1,211 – 76 56 2,343 811 Paul Bal 346 256 21 12 302 249 –– 52 38 721 555
Independent NEDs David Maloney 193 145 – – – – – – – – 193 145 John Nicolson 81 61 – – – – – – – – 81 61 Tomasz Blawat 64 48 – – – – – – – – 64 48 Mike Butterworth 75 56 – – – – – – – – 75 56 Diego Bevilacqua 64 48 – – – – – – – – 64 48 Kate Allum 58 ––––––––– 58 –
1. Taxable benefits include car allowance, medical and dental healthcare and, in respect of 2019 in the case of Mirek Stachowicz benefits of €85,025 (£74,822) in respect of his relocation to the UK and reflecting an allowance for housing costs in the UK, school fees for Mr Stachowicz’s children and other relocation related expenses, as referred to on page 95 2. 25% of the bonus earned by each of Mirek Stachowicz (€110,082) and Paul Bal (€75,441) will be deferred into an award of shares under the Deferred Annual Bonus Plan which will vest after two years subject to continued employment 3. The value in respect of long-term incentive arrangements for the 12 month period 2019 relates to the PSP award granted to Mirek Stachowicz in March 2017, as further described on page 100 4. Each Executive Director receives a monthly cash allowance of 15% of salary in lieu of a pension scheme contribution
Annual bonus earned for 2019 (audited) The Remuneration Committee regards the financial year as a period of good progress in both financial and strategic terms and agreed that the bonus is an appropriate reflection of the progress made. Mirek Stachowicz’s and Paul Bal’s bonuses for the financial year were based on a mix of financial measures, as summarised below.
The maximum bonus opportunity was 140% of salary. Based on the performance achieved, bonuses were earned as follows:
Mirek Stachowicz: 87.21% of salary Paul Bal: 87.21% of salary
Performance targets Bonus Weighting earned (% Measure measure Minimum On Target Maximum Actual of salary) Adjusted EBITDA (at budget rates) 60% €57.474m €59.252m €62.807m €61.477m 65.14% Free cashflow conversion (at budget rates) 20% 95% 100% 110% 86.4% 0% Revenue growth 20% 4% 8% 12% 9.7% 22.07%
The Committee considered the overall underlying financial performance of the Company over the year, including in the case of the revenue measure, its assessment of the quality of the revenue and the Committee determined that the bonuses earned as referred to above were appropriate and justified.
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Long-term incentives vesting in respect of a performance period ending in 2019 (audited) PSP awards were granted to employees and Directors, including Mirek Stachowicz, on 15 March 2017, which vested by reference to performance over the period of three financial years ending 30 September 2019 assessed against EPS and average cash conversion performance conditions as set out below. The awards are scheduled to vest and become exercisable on 15 March 2020.
Shares subject to Mirek Threshold Maximum Vesting Vested Stachowicz’s award Performance measure Weighting (25% vesting) (100% vesting) Outturn percentage shares EPS 50% 6% CAGR 12% CAGR 12.91% CAGR 100% 416,667 416,667 Average cash conversion1 50% 75% 90% 103.65% 100%
1. This is the average of the cash conversion (Adjusted Free Cashflow/Adjusted EBITDA) for each financial year in the performance period
The awards were also subject to underpin performance conditions pursuant to which vesting was dependent upon: (1) the Committee determining that the level of vesting reflected its assessment of overall financial performance over the performance period; and (2) in the case of the average cash conversion performance measure, that the average Adjusted EBITDA over the performance period was at least €53.3 million. The underpin performance conditions were met and accordingly, 416,667 shares subject to Mirek Stachowicz’s award are expected to vest.
The award is scheduled to vest on 15 March 2020. Other than as regards to any shares disposed of to cover tax liabilities arising in respect of the exercise of the award, no shares acquired may be disposed of before the second anniversary of vesting.
In the Directors’ remuneration table on page 99 the value attributable to this award is calculated by reference to the average share price over the three month period ended 30 September 2019 (£2.29), plus £0.27 in respect of dividend equivalents on the vested shares attributable to dividends over the period from grant to 30 September 2019 and the proposed final dividend for the financial year ended 30 September 2019.
Long-term incentives awarded in 2019 PSP awards in 2019 were granted at the level of 125% of salary for the financial year to 30 September 2019 as follows:
Face value No. of share % vesting Director Basis of award of award (£) awards at threshold End of performance period2 PSP awards Mirek Stachowicz 125% of salary £558,1311 243,300 25% 30 September 20213 Paul Bal 125% of salary £382,5001 166,739 25% 30 September 20213
1. The face value of each PSP award is calculated by multiplying the number of shares by £2.294 (being the average share price over the five dealing days preceding the grant) 2. Neither Mirek Stachowicz nor Paul Bal may dispose of shares acquired pursuant to the exercise of the award before the expiration of a period of two years beginning with the date of vesting of his award (other than to fund tax liabilities associated with the award), unless the Remuneration Committee determines otherwise 3. Each PSP award is subject to the following performance conditions assessed over the Company’s 2019, 2020 and 2021 financial years:
Threshold Maximum Performance condition Weighting (25% vesting) (100% vesting) Annual compound growth in fully diluted adjusted EPS 50% 6% 12% Average cash conversion for each year in the performance period 50% 75% 90%
Straight-line vesting will apply between the performance levels stated. Each award is also subject to underpin conditions. The award will vest only to the extent that the Committee determines that the level of vesting reflects the overall financial performance of the Group over the Performance Period. In addition, the element of the award subject to the cash conversion performance measure shall vest only if the aggregate of the Adjusted EBITDA for the Financial Years in the Performance Period is at least €185.2m.
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Outstanding share awards (audited) The following table summarises the Executive Directors’ share awards as at 30 September 2019.
No. shares Interest as at under any Share awards as at Vesting date or Date Performance 30 September No. shares lapsed portion 30 September (for options) Type of interest of grant condition 2018 under award of the award 2019 exercise period Mirek Stachowicz DABP 2019 21.02.19 None – 34,791 – 34,791 21.02.21 PSP 20191 21.02.19 EPS and Cash – 243,300 – 243,300 December 20212 conversion DABP 2018 23.03.18 None 13,661 Nil 13,661 23.03.20 PSP 2018 14.03.18 EPS and Cash 157,058 Nil 157,058 December 20203 conversion PSP 2017 15.03.17 EPS and Cash 416,667 Nil 416,667 15.03.20 conversion
Paul Bal DABP 2019 21.02.19 None – 23,843 21.02.21 PSP 20191 21.02.19 EPS and Cash – 166,739 December 20212 conversion PSP 2018 14.03.18 EPS and Cash 107,635 Nil 107,635 December 20203 conversion Joiner option 10.10.17 None4 40,184 Nil 40,184 10.10.20
1. The performance conditions for the 2019 PSP awards are set out on page 100 2. The 2019 PSP awards will vest on assessment of the performance condition following the end of the Company’s financial year ending on 30 September 2021 3. The 2018 PSP awards will vest on assessment of the performance condition following the end of the Company’s financial year ending on 30 September 2020 4. This option was granted to Paul Bal to compensate him for incentive awards he forfeited in his previous role, as described in the 2017 Directors’ Remuneration Report
Payments to past Directors and payments for loss of office (audited) There have been no payments to past Directors or payments for loss of office in the period which are required to be disclosed.
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Directors’ Remuneration Report continued
Directors’ share interests (audited) The table below sets out the Directors’ shareholdings and, for the Executive Directors, a summary of their outstanding scheme interests. The Executive Directors are subject to shareholding guidelines requiring them to build and maintain a shareholding of a specified level. For 2019, this was 200% of salary, which reflects the current policy, see page 92 for further details. Their achievement against these guideline limits is set out in the table below.
Value of shares counting towards Outstanding Scheme Interests the shareholding guideline Deferred Beneficially Annual Bonus As at 30 September 2019 owned shares1 PSP4 Plan Joiner award £000 % salary Executive Directors Mirek Stachowicz 121,3802 817,025 48,452 – 283 63% Paul Bal 20,000 274,374 23,843 40,184 47 15%
Non-Executive Directors David Maloney 60,0003 – – – – – John Nicolson – – – – – – Tomasz Blawat – – – – – – Mike Butterworth 18,750 – – – – – Diego Bevilacqua 27,018 – – – – – Kate Allum – – – – – –
1. Only the shares beneficially owned count towards the thresholds set out in the share ownership guidelines. Achievement against the guideline is calculated using the year-end share price of £2.33 and expressed as a percentage of their annualised current salary 2. All of which are held jointly with Katarzyna Lewicka-Stachowicz, his wife 3. All of which are held in the name of Agneta Maloney, his wife 4. With regard to the vesting of the PSP, other than for the sale of shares to realise an amount equal to any tax, social security or dealing costs arising in connection with the exercise of the award, the Director may not deal with any shares acquired pursuant to the award until the second anniversary of the vesting date
Total shareholder return performance The chart below shows the Company’s total shareholder return performance relative to the FTSE 250 Index (excluding investment trusts). The FTSE 250 Index (excluding investment trusts) has been chosen as a comparator as it represents a broad UK equity market index.
Stock Spirits Group FTSE 250 (excluding investment trusts)
160
140
120
100
80
60
40 22 Oct 31 Dec 31 Dec 31 Dec 31 Dec 30 Sept 30 Sept 2013 2014 2015 2016 2017 2018 2019
This graph shows the value by 30 September 2019, of £100 invested in Stock Spirits Group on 22 October 2013 (the date of the IPO) compared with that of £100 invested in the FTSE 250 Index (excluding investment trusts). As detailed on page 89 TSR remains an inappropriate measure for the Group.
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Total remuneration of Chief Executive Officer (CEO) The table below shows a summary of the total remuneration received by the CEO since 2013.
1 2016 9 month Chris Mirek 12 month period 12 month 2013 2014 2015 Heath Stachowicz year 2017 2018 year 2019 Single-figure total remuneration (€000) 2,8462 717 795 222 382 736 811 2,343 Total annual bonus pay-out (as % of maximum opportunity) N/A 2 N/A N/A N/A N/A 23% 69% 62% Long-term incentive vesting (as % of maximum opportunity) N/A N/A N/A N/A N/A N/A N/A 100%
1. Chris Heath was CEO in 2016 from the start of the year until his retirement on 18 April 2016. Mirek Stachowicz became CEO from 18 April 2016 2. Under the pre-IPO bonus scheme, the bonus opportunity was uncapped
Percentage change in the remuneration of the CEO The table below shows the movement in salary, benefits and bonus for the CEO between the 2019 year and the 9 month period 2018, compared to the average remuneration for all employees.
Chief Executive All employees % change in: As reported Annualised As reported Annualised Base salary 35.3%2 1.5% 27.6% (4.3%)4 Benefits1 36.0% 2.0% 21.1% (9.1%) Total annual bonus3 21.4% (9.0%) 51.9% 13.9%
1. Benefits include car allowance, health and dental cover and pension. The relocation benefits provided to Mirek Stachowicz in FY19 have been disregarded for the purposes of this comparison since they reflect the individual circumstances of his relocation and are to be provided for a finite period; accordingly, the Committee does not consider that their inclusion would enable a meaningful comparison to be made 2. Mirek Stachowicz’s annual salary was increased from 1 January 2019 by 2% versus received in 2018 as disclosed in the Annual Report and Accounts 2018. The percentage increase shown above is created by comparing a 12 month salary received in 2019 to a 9 month salary received in 2018 3. Mirek Stachowicz earned a bonus of £319,245 (€362,778) in respect of 2018 and £387,488 (€440,327) for 2019 4. The average base salary and benefits for all employees is lower than in 2018 largely due to the recruitment of an additional 35 production staff in Poland where the average remuneration is lower than the 2018 average remuneration for all employees
The results for 2018 have been annualised to provide a like-for-like comparison versus the current year.
Relative importance of the spend on pay The following table shows the relative importance of the spend on pay, which compares the total remuneration paid to all employees to the amount distributed to shareholders by way of a dividend. Recognising that the financial year ending 30 September 2018 was a 9 month period, we have also included annualised figures to provide a “like for like” comparison.
9 month period 12 month year Annualised 2018 2019 % change 2018 % change Remuneration paid to all employees (€m)1 28.3 40.8 44.1 37.8 8.0 Dividends to shareholders (€m) 16.4 17.1 4.3 16.4² 4.3
1. Excluding share-based payments, see note 10 in the statutory financial statements for further details. The rise in pay to employees is due to the 9 month reporting period in 2018 compared to 12 months in 2019 2. No dividend was paid to shareholders in the period 1 October 2017 to 31 December 2017
The results for the remuneration have been annualised to provide a like-for-like comparison.
How the Directors’ remuneration policy will be applied for 2020 As noted in the statement by the Committee Chairman on page 87, at the 2020 AGM we will seek approval for a new Directors’ Remuneration Policy. That new Directors’ Remuneration Policy is set out on pages 90 to 97 and we have described below how we will apply that policy, subject to its approval at the 2020 AGM.
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Directors’ Remuneration Report continued
Base salaries Executive Directors’ salaries will be decided by the Remuneration Committee at the same time as the salary review for the wider workforce. The increases will be implemented in January 2020. Any increase for the Executive Directors is expected to be modest, and will not exceed the range of increases awarded to the wider workforce. Information regarding any increases will be provided in the 2020 Directors’ Remuneration Report.
Annual bonus The annual bonus plan for 2020 will be based on achievement against a range of financial targets as follows: 60% will be based on the achievement of an EBITDA target, and 40% on a revenue growth target. The forward-looking targets are commercially sensitive. The maximum bonus opportunity will be payable only for achieving stretch levels of performance. Payment of any bonus will be subject to an overall consideration of the underlying financial performance, including, in the case of the revenue measure, the Remuneration Committee’s assessment of the quality of the revenue. Details of the targets and performance against them will be published in our 2020 Directors’ Remuneration Report.
Performance Share Plan (PSP) As described in the statement by the Remuneration Committee Chairman on page 87, it is our intention to grant PSP awards for 2020 at the level of 140% of salary which is an increase from 125% to coincide with the lowering of the annual bonus percentage to increase the focus on the long-term performance of the business. The vesting of the awards will be subject to the satisfaction of performance conditions measured over financial years 2020, 2021 and 2022 based on EPS growth (as regards 70% of each award) and cash conversion (as regards 30% of each award), as set out below. Each award will be subject to a two-year post-vesting holding period as for the 2019 awards (as described on page 92): Compound annual growth in EPS1 Three year average cash conversion2 Vesting over the performance period over the performance period 0% Less than 6% Less than 80% 25% 6% 80% Pro-rata between 25% and 100% Between 6% and 12% Between 80% and 95% 100% 12% or more 95% or more
1. For these purposes, EPS will be defined as fully diluted earnings per share as disclosed in note 14 to the Consolidated Financial Statements, subject to such adjustments as the Committee shall determine from time to time 2. For these purposes, cash conversion will be calculated as Adjusted Free Cashflow/Adjusted EBITDA (see note 7) Fees for the Chairman and NEDs Any proposed increase in fees for the Chairman and NEDs will be discussed and agreed at the same time as the Executive Directors and wider workforce reviews and will be implemented from January 2020 and will be reported within the 2020 Directors’ Remuneration Report.
Shareholding vote at the AGM The Company’s current Directors’ Remuneration Policy was approved at the 2017 AGM. Further details regarding this are provided in the 2018 ARA on page 72.
The voting outcome in relation to the Directors’ Remuneration Policy and 2018 Annual Report on Remuneration were as follows:
Votes for Votes against Votes withheld Directors’ Remuneration Policy at the 2017 AGM 128,658,271 (79.66%) 32,841,810 (20.34%) – 2018 Annual Report on Remuneration at the 2019 AGM 141,784,630 (83.65%) 27,708,124 (16.35%) 1,279,578
Approved and signed on behalf of the Board.
John Nicolson Chairman of the Remuneration Committee
4 December 2019
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Directors’ Report
The Corporate Governance Report on pages 72 to 78 forms part of the Directors’ Report. The Directors’ Report, prepared in accordance with the requirements of the Companies Act 2006 and the UK Listing Authority’s Rules, and the Disclosure and Transparency Rules, comprises pages 105 to 108.
Directors The Directors in office at the date of this Report are shown on pages 70 to 71. All served throughout the year under review, with the exception of Kate Allum who was appointed as a Director on 1 November 2018.
Directors’ interests in the Company’s shares The interests of the Directors of the Company at 30 September 2019, and their connected persons, in the issued shares of the Company disclosed in accordance with the FCA’s Listing Rules, are given in the Remuneration Report on page 102. The Remuneration Report also sets out details of any changes in those interests between the year-end and 4 December 2019.
Powers of Directors Our Directors’ powers are determined by UK legislation and the Company’s Articles of Association (the Articles), which are available on our website www.stockspirits.com. The Articles may be amended by a special resolution of the members. The Directors may exercise all of the Company’s powers, provided that the Articles or applicable legislation do not stipulate that any such powers must be exercised by the members.
Further details of Directors’ contracts and remuneration are given in the Directors’ Remuneration Report on pages 87 to 104.
Indemnification of Directors and insurance The indemnification for Directors provided by the Company has been arranged in accordance with the Company’s Articles and the Companies Act 2006. As far as is permitted by legislation, all officers of the Company are indemnified out of the Company’s own funds against any liability incurred while conducting their role in the Company, unless such liability is to the Company or an associated company. The Company has appropriate Directors’ and Officers’ liability insurance cover in place in respect of any legal action against, among others, its Executives and NEDs.
Appointment and replacement of Directors The rules about the appointment and replacement of Directors are contained in the Company’s Articles. They provide that Directors may be appointed by ordinary resolution of the members, or by a resolution of the Directors. In addition to the powers to remove a Director conferred by legislation, the Company may also remove a Director by special resolution.
Compensation for loss of office We do not have arrangements with any Director that would provide compensation for loss of office or employment resulting from a takeover, except that provisions of the Company’s share plans may cause options and awards granted under such plans to vest on a takeover. Further information is provided on page 96.
Political donations There were no political donations during the period (2018: nil).
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Directors’ Report continued
Share capital and control Details of our issued share capital as at 30 September 2019 can be found in note 28 to the Consolidated Financial Statements on page 164. The Company’s share capital comprises 200,000,000 Ordinary shares, which are listed on the London Stock Exchange. There were no changes to the share capital during the year.
Holders of Ordinary shares are entitled to receive dividends (when declared), copies of the Company’s ARA, attend and speak at general meetings of the Company, appoint proxies and exercise voting rights.
Other than compliance with the Company Dealing Rules for persons discharging managerial responsibilities and permanent insiders, there are no restrictions on the transfer, or limitations on the holding, of Ordinary shares and no requirements to obtain approval prior to any transfers. No Ordinary shares carry any special rights with regard to control of the Company, and there are no restrictions on voting rights. Major shareholders have the same voting rights per share as all other shareholders.
There are no known arrangements under which financial rights are held by a person other than the holder of the shares, and no known agreements on restrictions on share transfers or on voting rights.
Shares acquired through our share schemes and plans rank equally with the other shares in issue and have no special rights.
Particulars of acquisitions of own shares At the Company’s 2019 AGM, shareholders granted the Company authority to make market purchases of up to 20,000,000 Ordinary shares of £0.10 each, representing 10% of the issued-share capital. At the Company’s forthcoming AGM, Directors will be seeking approval from shareholders to authorise the Company to purchase up to 10% of its existing Ordinary share capital. This authority, if approved, will expire on 28 February 2021 or at the Company’s 2021 AGM, whichever is earlier; however, it is intended that this authority be renewed each year. For more information on this resolution, refer to the notice of AGM and explanatory notes, which are being sent separately to shareholders entitled to vote at the AGM.
Substantial share interests In accordance with FCA Disclosure and Transparency Rule 5.1.2, the Directors are aware of the following substantial interests amounting to 3% or more of the voting rights in the shares of Stock Spirits Group PLC:
As at 4 December 2019 As at 30 September 2019 Substantial interests (above 3%) Shares % Shares % M&G Investment Management Ltd 20,943,448 10.47% 20,735,422 10.37% Western Gate Private Investments 20,000,148 10.00% 20,000,148 10.00% BlackRock Inc 14,995,223 7.50% 18,832,336 9.42% J O Hambro Capital Management 14,510,991 7.26% 14,546,932 7.27% Heronbridge Investment Management 11,741,355 5.87% 11,749,875 5.87% Columbia Threadneedle Investments 9,171,676 4.59% 9,388,228 4.69% Allianz Global Investors 7,780,620 3.89% 2,722,906 1.36% Franklin Resources Inc 6,424,167 3.20% 7,662,439 3.83% Princeton Holdings Ltd 6,168,768 3.08% 6,168,768 3.08% Majedie Asset Management 5,325,662 2.66% 6,080,198 3.04%
Western Gate Private Investments Limited, of which the ultimate beneficial owner is Mr Luis Manauel Conceicao Do Amaral, holds 10.00% of the shares of the Company. Mr Luis Manauel Conceicao Do Amaral also holds 44.04% of the shares of Eurocash SA. Eurocash is one of the Group’s major customers in Poland.
There have been no other changes notified between 30 September 2019 and the date of this Report.
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Financial risk management The Group’s financial risk management objectives and policies, including its use of financial instruments, are set out in note 30 to the Group’s Consolidated Financial Statements on pages 164 to 168.
Post-balance sheet events There were no events after the balance sheet date which require adjustment to or disclosure in these financial statements.
Future business developments Further details on these are set out in the Strategic Review on pages 1 to 67.
Research and development The Company carries our research and development activities, particularly new product development, to support its business as a manufacturer and distributor of spirit drinks.
The existence of branches outside the UK The Group’s activities in overseas jurisdictions are carried out through subsidiary companies. The Company does not have any branches outside the UK.
Significant agreements The Group is a party to the following significant agreements that would take effect, alter or terminate on a change of control of the Company following a takeover bid:
• Amended and restated Facilities agreement dated 21 July 2017 for a €200,000,000 revolving facility agreement with a banking club consisting of five banks including HSBC, who also act as the Agent. The loans bear variable rates of interest which are linked to the inter-bank offer rates of the drawers; WIBOR, PRIBOR or EURIBOR as appropriate. Each of the loans have a variable margin element to the interest charge. The margin is linked to a ratchet mechanism where the margin decreases as the Group’s leverage covenant decreases. • Agreement with Quintessential Brands Group in relation to the acquisition in July 2017 of a 25% equity interest in Quintessential Brands Ireland Whiskey Limited (QBIWL). The shareholder not subject to the change of control, shall be entitled to purchase the other shareholder’s shares in QBIWL.
Dividend A dividend of 2.63 €cents per share was paid at the interims (see note 29 to the Financial Statements), and the Directors recommend a final dividend of 6.31 €cents to be paid on 21 February 2020 to shareholders on the share register at the close of business on 31 January 2020. The shares will be quoted ex-dividend on 30 January 2020. The foreign exchange (FX) fixing date will be 31 January 2020.
Total dividends paid and proposed for the period amount to 8.94 €cents per share.
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Directors’ Report continued
Going concern The Directors have considered the Group’s debt-maturity and cashflow projections, and an analysis of projected debt covenant compliance. The Board is satisfied that the Group’s forecasts and projections, taking into account reasonable changes in trading performance, shows that the Group will continue in operation for a period of at least 12 months from the date of this Report, and has neither the intention nor the need to liquidate or materially curtail the scale of its operations. For this reason the Group continues to adopt the going concern basis in preparing its Financial Statements. More information can be seen in note 2 to the Consolidated Financial Statements. The longer-term viability statement is set out on page 14.
Statement on disclosure to Auditors So far as each Director is aware, there is no relevant audit information, that would be needed by the Company’s Auditors in connection with preparing their Audit Report (which appears on pages 110 to 119), of which the Auditors are not aware; each Director, in accordance with Section 418(2) of the Companies Act 2006, has taken all reasonable steps that he or she ought to have taken as a Director to make him or her aware of any such information, and to ensure that the Auditors are aware of such information.
Auditors KPMG LLP is the statutory auditor of the Company, and resolutions for its reappointment and to authorise the Directors to agree the Auditor’s remuneration will be submitted at the 2020 AGM.
Requirements of the Listing Rules The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed:
Listing Rule requirement Location A statement of the amount of interest capitalised during the period under review, and details of any Not applicable related tax relief Publication of unaudited financial information, profit forecast and profit estimates Not applicable Details of any long-term incentive scheme established in the past year specifically to recruit or retain an No such scheme individual Director Details of any arrangements under which a Director has waived emoluments, or agreed to waive any No such waivers future emoluments, from the Company Details of any non pre-emptive issues of equity for cash No such share allotments Details of any non pre-emptive issues of equity for cash by any unlisted major subsidiary undertaking No such share allotments Details of Parent participation in a placing by a listed subsidiary No such participations Details of any contract of significance in which a Director is or was materially interested No such contracts Details of any contract of significance between the Company (or one of its subsidiaries) and a No such contracts controlling shareholder Details of waiver of dividends by a shareholder Not applicable Board statement in respect of relationship agreement with the controlling shareholder No such agreements
Approval of Directors’ Report This Directors’ Report was approved for and signed on behalf of the Board.
Mirek Stachowicz Paul Bal Chief Executive Officer Chief Financial Officer
4 December 2019 4 December 2019
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Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Parent Company Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company Financial Statements for each financial year. Under that law, they are required to prepare the Group Financial Statements in accordance with IFRSs as adopted by the EU and applicable law, and have elected to prepare the Parent Company Financial Statements on the same basis.
Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company, and of their profit or loss for that period. In preparing each of the Group and Parent Company Financial Statements, the Directors are required to:
• Select suitable accounting policies, and then apply them consistently • Make judgements and estimates that are reasonable, relevant and reliable • State whether they have been prepared in accordance with IFRSs as adopted by the EU • Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern, and • Use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time, the financial position of the Parent Company, and enable them to ensure its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of the Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Report that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the ARA We confirm that, to the best of our knowledge:
• The Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the undertakings included in the consolidation taken as a whole, and • The Strategic Report and Directors’ Report include a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We consider the ARA, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
By order of the Board.
Mirek Stachowicz Paul Bal Chief Executive Officer Chief Financial Officer
4 December 2019 4 December 2019
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to the members of Stock Spirits Group PLC
1. Our opinion is unmodi ed Basis for opinion We have audited the nancial statements of Stock We conducted our audit in accordance with International Spirits Group PLC (“the Company”) for the year ended Standards on Auditing (UK) (“ISAs (UK)”) and applicable 30 September 2019 which comprise the Consolidated law. Our responsibilities are described below. We believe Income Statement, Consolidated Statement of that the audit evidence we have obtained is a suf cient Comprehensive Income, Consolidated and Company and appropriate basis for our opinion. Our audit opinion is Statement of Financial Position, Consolidated and consistent with our report to the audit committee. Company Statement of Changes in Equity, Consolidated We were rst appointed as auditor by the shareholders and Company Statement of Cash ows, and the related on 19 May 2015. The period of total uninterrupted notes, including the accounting policies in note 3 to the engagement is for the 5 nancial periods ended Consolidated nancial statements and note 2 to the 30 September 2019. We have ful lled our ethical Parent Company nancial statements. responsibilities under, and we remain independent of In our opinion: the Group in accordance with, UK ethical requirements – the nancial statements give a true and fair view including the FRC Ethical Standard as applied to listed of the state of the Group’s and of the parent public interest entities. No non-audit services prohibited Company’s affairs as at 30 September 2019 and of by that standard were provided. the Group’s pro t for the year then ended; Overview – the Group nancial statements have been properly Materiality: €2.1m (2018: €1m) prepared in accordance with International Financial Group nancial 4.2% (2018: 3.8%) of Reporting Standards as adopted by the European statements as a normalised pro t before tax Union (IFRSs as adopted by the EU); whole 97% (2018: 98% of Group – the Parent Company nancial statements have Coverage pro t before exceptional items and been properly prepared in accordance with IFRSs taxation as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and Key audit matters vs 2018 – the nancial statements have been prepared in Recurring Goodwill and intangible asset accordance with the requirements of the Companies risks impairment Act 2006 and, as regards the Group nancial Tax provisioning statements, Article 4 of the IAS Regulation. Revenue recognition
Recoverability of Parent Company’s investment in subsidiary Event driven New: Valuation of acquired intangible assets
Note: all references to 2018 refer to the 9 month period ended 30 September 2018
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2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most signi cance in the audit of the nancial statements and include the most signi cant assessed risks of material misstatement (whether or not due to fraud) identi ed by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit signi cance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the nancial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
The risk Our response
Goodwill & brand Forecast-based valuation Our procedures included: intangible asset The appropriateness of the – Assessing forecasts: based on our knowledge impairment carrying value of goodwill and of the business and industry, we challenged the forecast €49.6 million; brand intangible assets is revenue growth and pro t margin assumptions with 2018: €62.2 million) dependent on achieving reference to past performance, future plans (for example, suf cient levels of future brand positioning, pricing actions and promotional Refer to page 82 (Audit cash ows. The assets are expenditure), and external market data. Committee Report), page spread across a range of 135 (accounting policy) – Benchmarking assumptions: we involved our own markets and consequently and page 153 ( nancial valuation specialists to assess the discount rates used by forecasting cash ows used in disclosures). the Group, including comparing the key inputs, such as impairment testing is more risk free rates, size premium, country premium and complex, requiring assumptions in ation, to externally derived data. Our valuation to be made relating to differing specialists also assessed the long term growth rate and economic environments. the valuation methodology used. Estimating the recoverable amount is subjective due to the – Sensitivity analysis: we performed breakeven analysis inherent uncertainty involved in on key assumptions, including discount rate and forecasting and discounting projected cash ows. future cash ows. – Assessing transparency: we considered whether the The risk is focused on the Italy Group’s disclosures about the sensitivity of the outcome Cash-Generating Unit (CGU) for of the impairment assessment to changes in key which the level of headroom is assumptions re ected the risks inherent in the valuation most sensitive. An impairment of goodwill and brand intangible assets. was recorded in the current year Our results against the carrying value of Italy goodwill and brand value. We found the resulting estimate of the recoverable amount of goodwill and brand intangibles assets to be acceptable (2018 result: acceptable).
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2. Key audit matters: our assessment of risks of material misstatement continued
The risk Our response
Tax provisioning Dispute outcome Our procedures included: €4.3 million; The Directors are required to – Our own tax expertise: we used our own international 2018: €8.0 million) make judgments and estimates tax specialists in foreign jurisdictions to assess the in determining the liabilities to be Group’s tax positions, through inquiry of management and Refer to page 82 (Audit recognised with regard to the their external tax advisors with regard to latest status with Committee Report), page 141 various taxation exposures. the relevant tax authorities. We obtained management’s (accounting policy) and page written correspondence with the Group’s tax advisors 146 ( nancial disclosures). The Group has a number of containing their explanations of material tax exposures and outstanding tax assessments. any related litigation. We analysed and challenged the The tax risks for the Group assumptions used to determine tax provisions based on include transfer pricing amounts our knowledge and experiences of the application of the charged not being considered international and local legislation by the relevant deductible by local authorities authorities and courts. for corporation tax. – Our sector experience: we assessed the Group’s A receivable has been transfer pricing documentation and policy with reference recognised in the current year to the latest market practices in this area. in relation to payments to the Poland tax authorities for open – Assessing transparency: we assessed the cases. There is a risk over appropriateness of the disclosures in the nancial recoverability of the statements in respect of tax and uncertain tax positions. payments made. Our results The Group continues to be We found the level of tax provisioning to be acceptable (2018 subject to Italian corporation result: acceptable). tax enquires for the years 2009 – 2010.
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2. Key audit matters: our assessment of risks of material misstatement continued
The risk Our response
Valuation of acquired Subjective valuation Our procedures included: intangible assets The Group acquired Distillerie – Our valuation experts: we involved our own valuation €22.6 million Franciacorta Spa and Bartida Sro specialists to assess whether the valuation methodology in May and June 2019 for €26.8m applied to each intangible asset (customer relationships, Refer to page 82 (Audit and €10.9m respectively. As a distribution contacts and brands) was appropriate. Committee Report), page result, identi able assets and 140 (accounting policy) and – Evaluation of third party experts: we assessed the liabilities acquired in the business page 175 ( nancial competence and objectivity of the third party valuation combination, that were not disclosures). experts engaged by the Group. We assessed whether all previously recognised in the appropriate intangible assets were identi ed. nancials of the acquirees, such as brands, customer relationships – Benchmarking: we compared the key assumptions and distributor contracts, have used in the cash ow and replacement cost models, been recognised on the balance where appropriate, to externally derived publicly available sheet of the Group. data or post-acquisition results in relation to key inputs.
The Group exercised judgment – Assessing transparency: we assessed the adequacy of in selecting the most appropriate the Group’s disclosures in respect of the acquired valuation method for the intangible assets. intangible assets acquired. The Our results valuation methods included the use of forecast cash ows which The results of our testing was satisfactory and we required the directors to exercise consider the carrying value of acquired intangible assets judgment in determining the to be appropriate. expected cash ows from the assets and the discount rates to be applied.
There is a risk that this is not accounted for in accordance the relevant accounting standards resulting in inappropriate under or over valuation of amortisable intangibles, with consequent impacts on goodwill.
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2. Key audit matters: our assessment of risks of material misstatement continued
The risk Our response
Revenue recognition Omitted arrangements Our procedures included: €312 million, of which Revenue is measured net of – Test of details: we have assessed the completeness €15 million is subject to discounts, incentives and of accruals for sales incentives by agreeing a sample of estimation; rebates earned by multiple post year-end cash disbursements, invoices received customers on the Group’s sales. and credit notes issued to amounts recorded by the 2018: €194 million, of which Group at the year end to obtain evidence that sales €19 million was subject to Across the Group, there is a incentives were recorded in the income statement in estimation. large number of geographically the correct period. dispersed customers; there is a Refer to page 82 (Audit risk that not all sales incentive – Reperformance: in addition to quantitatively signi cant Committee report), page 131 arrangements have been contracts, we selected a random additional sample of (accounting policy) and page captured and re ected in the other customer contracts, understood the key terms 142 ( nancial disclosures). nancial statements, due to and recalculated rebates based on those terms. either fraud or error. – Historical comparison: we assessed the reasonableness Subjective estimate of the Group’s accruals, including estimates, by considering In certain of the Group’s the historical accuracy of prior period accruals for sales locations, sales incentive incentives. This included assessing the prior period accruals arrangements are made directly against payments made, invoices received and credit notes with retailers that purchase the issued in 2018. Group’s products from third – Expectation vs outcome: we performed a comparison of party wholesalers. As such, in amounts deducted from sales as a proportion of gross sales some cases, the value of sales throughout the year and across regions and customers to incentives are not known with identify any unusual trends. We assessed whether these certainty at 30 September. indicated further risk of revenue being inappropriately Within the Polish component of recognised in the current year. the Group, the estimation of retrospective rebates and certain – Our sector experience: we assessed whether the Group’s other incentive arrangements assumptions used to estimate rebate accruals re ect our recognised is material. knowledge of the business and industry, including known or probable trends in the business environment. There is a risk of revenue being misstated as a result of – Extended scope: we critically assessed manual journals erroneous or fraudulent posted to revenue to identify unusual or irregular items, and estimations over such where relevant agreed these to supporting documentation. arrangements, which have Our results varying levels of complexity. We found the Group’s assessment of revenue recognition to be acceptable (2018 result: acceptable).
Recoverability of Parent Low risk, high value Our procedures included: Company’s investment The carrying amount of the – Comparing valuations: we have compared the carrying in subsidiary parent company’s investment in amount of the investment to the Group’s market €257 million its subsidiary represents 94% capitalisation to assess whether there are any indicators 2018: €256 million (2018: 94%) of the company’s of the investment’s impairment. total assets. The recoverability is Refer to page 184 – Test of detail: we have compared the carrying amount of not at a high risk of signi cant (accounting policy) and page the investment to the value in use of the Group’s assets, misstatement or subject to 185 ( nancial disclosures). being an indication of its recoverable amount to assess signi cant judgement. However, whether there are any indicators of the investment’s due to its materiality in the impairment. Value in use of the Group’s assets was context of the parent Company audited as part of the Group’s audit as disclosed in the Financial Statements, this is goodwill impairment key audit matter above. considered to be the area that had the greatest effect on our Our results overall parent Company audit. We found the Group’s assessment of the recoverability of the investment in subsidiary to be acceptable (2018: acceptable).
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3. Our application of materiality and an overview of the scope of our audit Materiality for the Group nancial statements as a whole Normalised Pro t Group Materiality was set at €2.1m (2018: €1m), determined with reference Before Tax €2.1m (2018: €1m) to a benchmark of Group pro t before tax normalised €49.9m (2018: €26.5m) to exclude exceptional items as disclosed in Note 8, of which it represents 4.2% (2018: 3.8%). €2.1m Whole nancial statements Materiality for the Parent Company nancial statements materiality (2018: €1m) as a whole was set at €0.4m (2018: €0.2m), determined with reference to a benchmark of company total assets, of which it represents 0.1% (2018: 0.1%).
We agreed to report to the Audit Committee any corrected or uncorrected identi ed misstatements €1.4m Range of materiality at 7 exceeding €105,000 (2018: €50,000), in addition to other components (€0.2m - €1.4m) identi ed misstatements that warranted reporting on (2018: €0.2m to €0.7m) qualitative grounds. Pro t before tax €105,000 Of the Group’s 17 (2018: 15) reporting components, Group materiality Misstatements reported we subjected 7 (2018: 7) to full scope audits for Group to the audit committee purposes. (2018: €50,000)
The components within the scope of our work accounted Note: all references to 2018 refer to the 9 month period ended 30 September 2018 for the percentages illustrated opposite. Group pro t before The remaining 4% (2018: 3%) of total Group revenue, Group revenue exceptional items and taxation 3% (2018: 2%) of Group pro t before tax and 3% (2018: 2%) of total Group assets is represented by 10 (2018: 8) reporting components, none of which individually represented more than 1% (2018: 1%) of any of total Group revenue, Group pro t before tax or total Group assets. 96% 97% (2018: 97%) (2018: 98%) The Group team instructed component auditors as to the signi cant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from €0.2m to €1.4m (2018: €0.2m to €0.7m), having regard to the mix of size Group total assets and risk pro le of the Group across the components. Full scope for Group audit The work on 5 of the 7 components (2018: 5 of the 7 purposes 2019 components) was performed by component auditors Full scope for Group audit and the rest, including the audit of the parent company, purposes 2018 was performed by the Group team. 97% Residual components (2018: 98%) The Group team visited 4 (2018: 4) component locations in Poland (1), the Czech Republic (2) and Italy (1) to assess the audit risk and strategy. Telephone and video conference meetings were also held with these component auditors and all of the others that were not physically visited. At these visits and meetings, the ndings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor.
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4. We have nothing to report on going concern second order impacts, such as Brexit or the impact of a The Directors have prepared the nancial statements on the signi cant business continuity issue affecting the Group’s going concern basis as they do not intend to liquidate the manufacturing facilities or ability to trade, which could result Company or the Group or to cease their operations, and as in a rapid reduction of available nancial resources. they have concluded that the Company’s and the Group’s Based on this work, we are required to report to you if: nancial position means that this is realistic. They have also concluded that there are no material uncertainties that could – we have anything material to add or draw attention have cast signi cant doubt over their ability to continue as to in relation to the Directors’ statement in Note a going concern for at least a year from the date of approval 2 to the nancial statements on the use of the of the nancial statements (“the going concern period”). going concern basis of accounting with no material uncertainties that may cast signi cant doubt over the Our responsibility is to conclude on the appropriateness of Group and Company’s use of that basis for a period the Directors’ conclusions and, had there been a material of at least 12 months from the date of approval of uncertainty related to going concern, to make reference to the nancial statements; or that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may – the related statement under the Listing Rules set out result in outcomes that are inconsistent with judgments on page 108 is materially inconsistent with our audit that were reasonable at the time they were made, the knowledge. absence of reference to a material uncertainty in this We have nothing to report in these respects, and we did auditor’s report is not a guarantee that the Group and the not identify going concern as a key audit matter. Company will continue in operation. 5. We have nothing to report on the other In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and information in the Annual Report Company’s business model and analysed how those The Directors are responsible for the other information risks might affect the Group’s and Company’s nancial presented in the Annual Report together with the nancial resources or ability to continue operations over the going statements. Our opinion on the nancial statements does concern period. The risks that we considered most likely not cover the other information and, accordingly, we do to adversely affect the Group’s and Company’s available not express an audit opinion or, except as explicitly stated nancial resources over this period were: below, any form of assurance conclusion thereon.
– Continued slowdown in the broader macro- Our responsibility is to read the other information and, economic environment and therefore market growth; in doing so, consider whether, based on our nancial statements audit work, the information therein is – Increased competition in local markets; and materially misstated or inconsistent with the nancial – External pressures on gross margin through cost statements or our audit knowledge. Based solely on that price in ation. work we have not identi ed material misstatements in the other information. As these were risks that could potentially cast signi cant doubt on the Group’s and the Company’s ability to continue Strategic Report and Directors’ Report as a going concern, we considered sensitivities over Based solely on our work on the other information: the level of available nancial resources indicated by the – we have not identi ed material misstatements in the Group’s nancial forecasts taking account of reasonably Strategic Report and the Directors’ Report; possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively and evaluated – in our opinion the information given in those reports the achievability of the actions the Directors consider for the nancial year is consistent with the nancial they would take to improve the position should the risks statements; and materialise. We also considered less predictable but realistic – in our opinion those reports have been prepared in accordance with the Companies Act 2006.
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Directors’ remuneration report Corporate governance disclosures In our opinion the part of the Directors’ Remuneration We are required to report to you if: Report to be audited has been properly prepared in – we have identi ed material inconsistencies between accordance with the Companies Act 2006. the knowledge we acquired during our nancial Disclosures of principal risks and longer-term statements audit and the Directors’ statement that viability they consider that the annual report and nancial Based on the knowledge we acquired during our nancial statements taken as a whole is fair, balanced and statements audit, we have nothing material to add or understandable and provides the information necessary draw attention to in relation to: for shareholders to assess the Group’s position and performance, business model and strategy; or – the Directors’ con rmation within the Viability Statement page 14 that they have carried out a robust – the section of the annual report describing the work assessment of the principal risks facing the Group, of the Audit Committee does not appropriately including those that would threaten its business model, address matters communicated by us to the Audit future performance, solvency and liquidity; Committee.
– the Principal Risks disclosures describing these risks We are required to report to you if the Corporate and explaining how they are being managed and Governance Statement does not properly disclose a mitigated; and departure from the eleven provisions of the UK Corporate Governance Code speci ed by the Listing Rules for – the Directors’ explanation in the Viability Statement our review. of how they have assessed the prospects of the Group, over what period they have done so and We have nothing to report in these respects. why they considered that period to be appropriate, 6. We have nothing to report on the other matters and their statement as to whether they have a reasonable expectation that the Group will be able on which we are required to report by exception to continue in operation and meet its liabilities as Under the Companies Act 2006, we are required to they fall due over the period of their assessment, report to you if, in our opinion: including any related disclosures drawing attention to – adequate accounting records have not been kept by the any necessary quali cations or assumptions. parent Company, or returns adequate for our audit have Under the Listing Rules we are required to review the not been received from branches not visited by us; or Viability Statement. We have nothing to report in this – the parent Company nancial statements and the respect. part of the Directors’ Remuneration Report to be Our work is limited to assessing these matters in the audited are not in agreement with the accounting context of only the knowledge acquired during our nancial records and returns; or statements audit. As we cannot predict all future events – certain disclosures of directors’ remuneration or conditions and as subsequent events may result in speci ed by law are not made; or outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of – we have not received all the information and anything to report on these statements is not a guarantee explanations we require for our audit. as to the Group’s and Company’s longer-term viability. We have nothing to report in these respects.
/117 Independent Auditor’s Report continued
7. Respective responsibilities standards), and discussed with the directors and other Directors’ responsibilities management the policies and procedures regarding As explained more fully in their statement set out compliance with laws and regulations. We communicated on page 109, the directors are responsible for: the identi ed laws and regulations throughout our team and preparation of the nancial statements including being remained alert to any indications of non-compliance satis ed that they give a true and fair view; such internal throughout the audit. This included communication from control as they determine is necessary to enable the the Group to component audit teams of relevant laws and preparation of nancial statements that are free from regulations identi ed at Group level. material misstatement, whether due to fraud or error; The potential effect of these laws and regulations on the assessing the Group and parent Company’s ability to nancial statements varies considerably. continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going Firstly, the Group is subject to laws and regulations that concern basis of accounting unless they either intend to directly affect the nancial statements including nancial liquidate the Group or the parent Company or to cease reporting legislation (including related companies operations, or have no realistic alternative but to do so. legislation), distributable pro ts legislation, and taxation legislation and we assessed the extent of compliance Auditor’s responsibilities with these laws and regulations as part of our procedures Our objectives are to obtain reasonable assurance about on the related nancial statement items. whether the nancial statements as a whole are free from material misstatement, whether due to fraud, Secondly, the Group is subject to many other laws other irregularities (see below), or error, and to issue our and regulations where the consequences of non- opinion in an auditor’s report. Reasonable assurance is compliance could have a material effect on amounts a high level of assurance, but does not guarantee that or disclosures in the nancial statements, for instance an audit conducted in accordance with ISAs (UK) will through the imposition of nes or litigation. We identi ed always detect a material misstatement when it exists. the following areas as those most likely to have such Misstatements can arise from fraud, other irregularities an effect: regulations related to licensing and excise or error and are considered material if, individually or duty, anti-bribery and health and safety, recognising in aggregate, they could reasonably be expected to the nature of the Group’s activities. Auditing standards in uence the economic decisions of users taken on the limit the required audit procedures to identify non- basis of the nancial statements. compliance with these laws and regulations to enquiry of the directors and other management and inspection of A fuller description of our responsibilities is regulatory and legal correspondence, if any. provided on the FRC’s website at www.frc.org.uk/ auditorsresponsibilities. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some Irregularities – ability to detect material misstatements in the nancial statements, We identi ed areas of laws and regulations that could even though we have properly planned and performed reasonably be expected to have a material effect on our audit in accordance with auditing standards. For the nancial statements from our general commercial example, the further removed non-compliance with laws and sector experience and through discussion with the and regulations (irregularities) is from the events and directors and other management (as required by auditing transactions re ected in the nancial statements, the less likely the inherently limited procedures required by
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auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non- compliance with all laws and regulations.
8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Simon Haydn-Jones (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Reading RG7 4SD
4 December 2019
/119 St c S i its Annual Report & Accounts 2019
/ Financial Statements
122 Consolidated Income Statement 123 Consolidated Statement of Comprehensive Income 124 Consolidated Statement of Financial Position 126 Consolidated Statement of Changes in Equity 127 Consolidated Statement of Cashflows 128 Notes to the Consolidated Financial Statements 180 Company Statement of Financial Position 181 Company Statement of Cashflows 182 Company Statement of Changes in Equity 183 Notes to the Parent Company Financial Statements
VISION
ur s on
To be the leading spirits company in Central and Eastern Europe (CEE).
/120 / Financial Statements
/121 Stock Spirits Group PLC Annual Report & Accounts 2019
Consolidated Income Statement for the year ended 30 September 2019
r to o t s to S pt r S pt r ot s Revenue 12 19 19 ost o oo s sol 1 00 100
Gross profit 1 19 9 92 ell n e penses 1 299 2 1 Other operating expenses 1 21 9 pa r ent loss on tra e an ot er rece a les 0 01 are o loss o e u t accounte n estees net o ta 22 1
Operating profit before exceptional expense 910 2 21 Exceptional expenses 11 9
Operating profit 2 21 2 21 nance nco e 9 12 2 9 nance costs 9 299 1 9
Profit before tax 2 0 2 2 nco e ta e pense 1 10 2 Exceptional tax credit 1 9 otal nco e ta e pense 9 920 2
Profit for the period 2 10 19 2
Attributable to: u t ol ers o t e arent 2 10 19 2
Earnings per share (€cents) attributable to equity holders of the Parent as c 1 1 2 9 1 lute 1 1 1 9
/122 i ci St t ts onsol ate tate ent o o pre ens e nco e
Consolidated Statement of Comprehensive Income for the year ended 30 September 2019
r to o t s to S pt r S pt r Profit for the period 2 10 19 2
Other comprehensive (expense)/income: Other comprehensive expense to be reclassified to profit or loss in subsequent periods: Exchange differences arising on translation of foreign operations 1 91 2 9 1 9
Other comprehensive (expense)/income not to be reclassified to profit or loss in subsequent period: Re easure ent losses a ns on e plo ee se erance n e n t Total comprehensive income for the period, net of tax 2 92 1
Attributable to: u t ol ers o t e arent 2 92 1
/123 Stock Spirits Group PLC Annual Report & Accounts 2019
Consolidated Statement of Financial Position as at 30 September 2019
S pt r S pt r ot s Non-current assets ntan le assets oo ll 1 9 00 9 0 ntan le assets ot er 1 2 1 11 129 ropert plant an e u p ent 1 2 2 n est ent n e u t accounte n estee 22 1 1 99 e erre ta assets 1 9 t er assets 21 20 2 2 09 2 9
Current assets n entor es 19 0 9 0 11 ra e an ot er rece a les 20 111 0 119 2 t er assets 21 1 urrent ta assets 1 as an cas e u alents 2 0 1 221 1 2 201 090 Total assets 2 2 9
Non-current liabilities Financial liabilities 2 10 2 1 00 Other financial liabilities 2 11 2 92 Deferred tax liabilities 1 2 2 21 ro s ons 2 1 2 1 0 2 ra e an ot er pa a les 2 1 2 1 1 2 2 Current liabilities ra e an ot er pa a les 2 2 0 0 Financial liabilities 2 2 1 Other financial liabilities 2 1 1 nco e ta pa a le 1 1 9 n rect ta pa a le 2 9 1 2 0 ro s ons 2 1 1 1 1 0 Total liabilities 11 1 2 Net assets 1 1 1 1
/124 i ci St t ts onsol ate tate ent o nanc al os t on
S pt r S pt r ot s Capital and reserves ssue cap tal 2 2 2 2 2 er er reser e 2 99 0 99 0 Consolidation reserve 2 1 0 1 0 n s are reser e 2 2 1 0 t er reser e 2 12 11 0 Foreign currency translation reserve 2 9 1 91 Reta ne earn n s 21 00 202 1 2 Total equity 1 1 1 1 Total equity and liabilities 2 2 9
otes 1 to are an nte ral part o t e onsol ate nanc al tate ents
e onsol ate nanc al tate ents o toc p r ts roup re stere nu er 0 22 on pa es 122 to 1 9 ere approved by the Board of Directors and authorised for issue on 4 December 2019 and were signed on its behalf by:
Mirek Stachowicz Paul Bal Chief Executive Officer Chief Financial Officer
ece er 2019 ece er 2019
/125 Stock Spirits Group PLC Annual Report & Accounts 2019
Consolidated Statement of Changes in Equity for the year ended 30 September 2019
or i curr c ssu S r r r Consolidation s r t r translation t i ot c pit pr iu r s r r s r r s r r s r r s r r i s uit Balance at 1 January 2018 2 2 1 1 99 0 1 0 0 11 2 1 29 1 1 0 09
Profit for the period 19 2 19 2 t er co pre ens e e pense nco e 1 91 1 910 otal co pre ens e e pense nco e 1 91 19 2 1
Share-based compensation charge note 129 129 en s note 29 1 9 1 9 Own shares acquired for incentive sc e es note 2 2 2 Own shares utilised for incentive sc e es note 2 Cancellation of share premium (note 28) 1 1 1 1 Balance at 30 September 2018 2 2 99 0 1 0 0 11 0 1 91 202 1 2 1 1
Profit for the year 2 10 2 10 t er co pre ens e e pense 2 otal co pre ens e e pense nco e 2 0 2 92
Share-based compensation charge note 2 92 2 92 Exercise of share options (note 28,34) Reduction in share-based compensation reserve following liquidation of su s ar note 2 9 9 Realisation of exchange differences following liquidation of subsidiary note 2 en s note 29 1 121 1 121 Own shares utilised for incentive sc e es note 2 2 2 Balance at 30 September 2019 2 2 99 0 1 0 2 1 12 9 21 00 1 1
/126 i ci St t ts onsol ate tate ent o as lo s
Consolidated Statement of Cashflows for the year ended 30 September 2019
r to o t s to S pt r S pt r ot s Operating activities Profit for the period 2 10 19 2 Adjustments to reconcile profit for the period to net cashflows: nco e ta e pense reco n se n nco e state ent 1 9 920 2 nterest e pense an an co ss ons 9 21 1 9 oss a n on sposal o ntan le an tan le assets 0 19 Other financial income 9 12 9 Depreciation of property, plant and equipment 1 0 2 Amortisation of intangible assets 1 1 9 1 0 2 pa r ent o oo ll an ran s 1 29 Gain on liquidation of subsidiary et ore n e c an e loss a n 9 1 1 Share-based compensation 2 92 129 are o loss o e u t accounte n estees net o ta 22 1 ecrease n pro s ons 1 2 0 Working capital adjustments ecrease n tra e rece a les an ot er assets 9 9 2 1 ncrease n n entor es 1 10 Increase/(decrease) in trade payables and other liabilities 1 20 1 1 1 91 Cash generated by operations 1 9 nco e ta pa 1 1 19 Net cashflows from operating activities 2 9 Investing activities nterest rece e 9 19 9 a ents to ac u re ntan le assets 1 1 2 1 0 rocee s ro sale o propert plant an e u p ent 21 urc ase o propert plant an e u p ent 1 2 9 Acquisition of subsidiaries, net of cash acquired 1 01 Net cashflow from investing activities 1 9 9 Financing activities ncrease ecrease n orro n s 2 2 9 1 2 01 nterest pa 1 1 urc ase o o n s ares 2 2 en s pa to e u t ol ers o t e arent 29 1 121 1 9 Net cashflow from financing activities 2 999 1 Net increase/(decrease) in cash and cash equivalents 1 1 10 1 0 Cash and cash equivalents at the start of the period 0 1 1 1 Effect of exchange rates on cash and cash equivalents 2 1 01 Cash and cash equivalents at the end of the period 2 0 1
/127 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements at 30 September 2019
1. Corporate information ese onsol ate nanc al tate ents ere appro e an aut or se or ssue t e oar o rectors o toc p r ts roup t e o pan on ece er 2019
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 entral an astern urope
2. Going concern The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements. Thus, they continue to adopt a going concern basis of accounting in preparing the financial statements.
The financial position of the Group, its cashflows, liquidity position and borrowings facilities are described in the paragraphs below. In addition, note 30 to the Consolidated Financial Statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposure to credit risk and liquidity.
Details of the terms of each external loan facility are set out in note 23. The Group met its covenant requirements throughout the year ended 30 September 2019.
The Group has positive free cashflow. The Group has a €200,000,000 revolving credit facility available to it. As at 30 September 2019 €105,500,000 (2018: €81,443,000) was drawn, and a further €11,361,000 (2018: €10,551,000) was used for customs guarantees in Italy and Germany, thereby leaving access to funds of €83,139,000 (2018: €108,006,000) which could be drawn at short notice. See note 23 for further details.
The Group’s forecasts and projections, taking account of possible changes in trading performance, show that the Group will be able to operate within the level of its current available facilities and maintain comfortable covenant headroom. The revolving credit facility is available as part of wider borrowing arrangements with the syndicate of banks and is not subject to annual renewal. In addition, the HSBC Credit Facility allows for factoring of receivables up to a total of €70,000,000, which can be use to eet s ort ter or n cap tal re u re ents necessar ee note 20 or urt er eta ls
After making enquiries, the Directors have a reasonable expectation that the Company and the Group will have adequate resources to continue their operational existence for the foreseeable future and remain compliant with the covenant re u re ents un er t e roup s re ol n cre t ac l t or a per o o at least 12 ont s ro t e ate o appro al o t e financial statements. Accordingly, they continue to adopt the going concern basis for preparing the financial statements.
3. Accounting policies
Basis of preparation 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).
ese onsol ate nanc al tate ents a e een prepare on a o n concern as s as t e rectors el e e t ere 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.
The Consolidated Financial Statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.
Changes in accounting policies In the preparation of these Consolidated Financial Statements, the Group followed the same accounting policies and methods of computation as compared with those applied in the previous period, except for the adoption of new standards and interpretations and revision of the existing standards noted below.
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New/Revised standards and interpretations adopted in 2019 IFRIC 23 Uncertainty over Income Tax Treatments, applicable for accounting periods beginning on or after 1 January 2019, has been early adopted. This interpretation is applied to the determination of taxable profit, tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. IFRIC 23 has been applied retrospectively. The impact to opening balances at 30 September 2018 is €nil. Refer to note 13 for further details.
There are no further amendments to existing standards or interpretations which were newly effective in the year to 30 epte er 2019
New/Revised standards and interpretations not applied The following standards and interpretations in issue are not yet effective for the Group and have not been adopted by the Group:
Effective dates IFRS 16: Leases 1 January 2019 Amendments to IFRS 9: Financial Instruments 1 January 2019 Amendments to IAS 19: Employee Benefits 1 January 2019 Amendments to IAS 28: Investments in Associates and Joint Ventures 1 January 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle – minor amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 1 January 2019 Amendments to References to Conceptual Framework in IFRS Standards 1 January 2020 Amendments to IFRS 3: Business Combinations 1 January 2020 Amendments to IAS 1: Presentation of Financial Statements and IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors 1 January 2020 IFRS 17: Insurance Contracts 1 January 2021
1. The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards
Following the change of year-end to 30 September, the above standards and interpretations effective from 1 January 2019 will become effective from 1 October 2019.
The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Consolidated or Company Financial Statements, with the exception of IFRS 16, as explained below.
IFRS 16 Leases IFRS 16 will remove the distinction between operating leases and finance leases and will require lessees to report operating leases on the balance sheet, similar to the treatment of finance leases under IAS 17. Lessees will recognise an asset for the right to use the leased asset (ROU asset) and a liability for the future lease payments for each lease. They will also have to recognise an ele ent o eac lease pa ent as an nterest c ar e
The effect of this on the Group’s financial statements will be that gross assets and gross liabilities will each increase following the recognition of right-of-use assets and lease liabilities relating to future lease payments. In the income statement, depreciation or amortisation and interest expenses will be recognised, instead of lease rental expenses. This change will result in an improvement in the financial measure of Adjusted EBITDA. In the statement of cashflows, the change in presentation of the lease expenses will result in an improvement in the cashflows from operating activities and a decrease in the cashflows from financing activities.
The Group intends to apply the full retrospective transition approach, and consequently will restate opening balances from the transition date of 30 September 2018.
The Group expects that the adoption at 30 September 2018 will create ROU assets of around €9m, recognised within non- current assets, and lease liabilities of around €11m, recognised within current and non-current liabilities. The net impact on retained earnings would be a charge of around €2m. The annual reduction in operating expenses of around €4m is expected to be largely offset by an increase in finance costs and depreciation, and so the overall impact to the income statement is not expected to be material.
/129 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
3. Accounting policies cont nue
New/Revised standards and interpretations not applied cont nue Basis of consolidation The Consolidated Financial Statements incorporate the financial statements of the Company and its subsidiaries controlled by the Company for the periods to 30 September 2019 and 30 September 2018. Control is achieved when the Group is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has all of the following:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
e contractual arran e ent t t e ot er ote ol ers o t e n estee Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights.
e roup re assesses et er or not t controls an n estee acts an c rcu stances n cate t at t ere are c an es to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the period are included in the Consolidated Financial Statements from the date the Group gains control until t e ate t e roup ceases to control t e su s ar
Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date on which control commences until the date on which control ceases.
The subsidiary financial statements are prepared for the same reporting period as the Parent Company and are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profit arising from them, are el nate n ull
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control of a subsidiary it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary; (ii) derecognises the carrying amount of any non-controlling interest; (iii) derecognises the cumulative translation differences recorded in equity; (iv) recognises the fair value of the consideration received; (v) recognises the fair value of any investment retained; (vi) recognises any surplus or deficit in profit or loss; (vii) recognises the Parent’s share of any components previously recognised in other comprehensive income, to profit or loss or retained earnings, as appropriate.
Business combinations Business combinations are accounted for using the acquisition method. The cost of any acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquirer’s identifiable net assets. Acquisition costs incurred are expensed and included within exceptional items.
When the Group acquires a business it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
/130 / Financial Statements / Notes to the Consolidated Financial Statements
Goodwill is initially recognised at cost: being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest, over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit and loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether assets or liabilities of the acquisition are assigned to those units.
Where goodwill forms part of a CGU, and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.
Associates Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the Consolidated Statement of Financial Position at cost. Subsequently, associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses an ot er co pre ens e nco e s reco n se n t e onsol ate nco e tate ent an tate ent o o pre ens e nco e (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is el nate a a nst t e carr n alue o t e assoc ate
Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.
We have allocated the investor's share of the comprehensive income of equity-accounted investees to the appropriate co ponents o e u t
Contingent and deferred consideration Deferred consideration, including where contingent on future performance conditions, is recognised at its fair value at acquisition date within the cost of investment, with a corresponding entry to other financial liabilities. Changes to fair value of the resulting financial liability at each subsequent reporting date are recognised in the income statement.
Revenue recognition e roup as conclu e t at t s t e pr nc pal n ts re enue arran e ents as t s t e pr ar o l or n t ese re enue arrangements, has pricing latitude and is also exposed to inventory and credit risks.
Contracts entered into by the Group generally include a single performance obligation, being supply of goods to the customer. As such, revenue from the sale of goods is recognised at the point in time at which control is transferred to the customer i.e. when all the following conditions are satisfied:
The customer has taken delivery and legal title to the goods sold e roup as trans erre to t e u er t e r s s an re ar s o o ners p o t e oo s The amount of revenue can be measured reliably; and It is probable that the economic benefits associated with the transaction will flow to the entity.
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually-defined terms of payment and excluding taxes or duty which are generally recognised at the point of sale.
/131 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
3. Accounting policies cont nue
Revenue recognition cont nue Revenue is reduced for estimated customer returns, rebates and other similar allowances to customers, the measurement of which is determined by contractual arrangements with customers. Sales incentives are recognised in the same period as the related revenue is recorded, and comprise:
Discounts and rebates – which are sales incentives to customers to encourage them to purchase increased volumes and are relate to total olu es purc ase an sales ro t Marketing services – which include merchandising, slotting and listing fees Sales support for promotional activities – which include payments to customers, distributors and external agencies. Under IFRS 15, if consideration payable to a customer does not represent a payment for a distinct good or service, this should be treated as a reduction in the transaction price.
Finance income Finance income is recognised as interest accrues using the effective interest method. The effective rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to its net carrying amount.
Finance income also includes foreign currency exchange gains on the retranslation of loans and gains arising from changes in t e a r alue o nterest rate s ap nstru ents
Segmental analysis The accounting policy for identifying segments is based on internal management reporting information that is regularly reviewed by the chief operating decision-maker.
For management purposes, the Group is organised into business units based on geographical area, and has five reportable segments:
olan Czech Republic, including Bartida and Bartida Retail Italy, including Distillerie Franciacorta Other operational, including the Slovakian, International and Baltic distillery entities Corporate, including the expenses and central costs incurred by non-trading Group entities.
Management monitors the results of all operating segments separately, as each of the geographic areas require different marketing approaches. Segment performance is evaluated based on EBITDA, adjusted for exceptional items and non-recurring expenses.
Foreign currencies The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the Group financial statements, the results and financial position of each entity are reported in Euros (€), which is the presentational currency for the Group financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. Monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All resulting differences are taken to the income statement.
For the purpose of presenting Group financial statements, the assets and liabilities of the Group’s foreign operations are expressed in Euros using the exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as other comprehensive income and transferred to the Group’s translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
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The foreign exchange rates used in the consolidation are as follows:
Closing Average PLN 4.38 4.28 4.30 4.25 CZK 25.82 25.70 25.74 25.57 0.89 0.89 0.88 0.88 CHF 1 09 1.13 1 12 1.16
Employee benefits – severance indemnity The provision for employee severance indemnity, mandatory for Italian companies pursuant to Law No. 297/1982, represents an unfunded defined benefit plan, according to IAS 19 (Revised), and is based on the working life of employees and on the remuneration earned by an employee over the course of a pre-determined term of service.
For details of the actuarial assumptions used, see note 25. For the severance indemnity, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each reporting period end. Past service costs are expensed in full in the period in which the past service credit is granted.
The severance indemnity obligation recognised in the Statement of Financial Position represents the present value of the obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
Contributions for severance indemnity are recognised as an expense in the income statement when employees have rendered service entitling them to the contributions.
Income taxes Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the relevant taxation authorities and computed using tax laws and rates enacted or substantively enacted by the balance sheet date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements with the following exceptions:
Where the temporary difference arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised only to the extent that it is probable that there will be sufficient taxable profits against which the deductible temporary differences, carried forward tax credits or tax losses can be used.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rate that is expected to apply when the related asset is realised or liability is settled, based on tax rates enacted or substantively enacted by the balance sheet date.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date. Deferred income tax assets and liabilities are off-set only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the Group to make a single net payment.
Income tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive income. Similarly, income tax is charged or credited directly to equity if it relates to items that are credited or charged directly to equity. Otherwise income tax is recognised in the income statement.
/133 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
3. Accounting policies cont nue
Income taxes cont nue Uncertainties in relation to tax positions are reflected in measuring current and deferred taxes in accordance with IFRIC 23. Uncertainties have been provided for within income tax payable to the extent that it is considered probable that the tax position taken by the Group will ultimately not be accepted by the relevant authorities. The amount provided is calculated using the ‘mostly likely’ or ‘expected value’ methods, whichever is most appropriate. Uncertainties in relation to tax assets have been reflected within current and deferred tax assets which are recognised only where it is probable that the adopted tax position will be accepted by the relevant authorities.
Property, plant and equipment Buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the Statement of Financial Position at their cost less depreciation. Land is not depreciated.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is charged so as to write-off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each period end, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference et een t e sales procee s an t e carr n a ount o t e asset an s reco n se n t e nco e state ent
The following useful lives are used in the calculation of depreciation:
Land No depreciation Buildings 20–50 years Technical equipment 7–20 years Other equipment 3–10 years
Intangible assets Intangible assets acquired separately Intangible assets including brands, customer lists and trademarks acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with a definite life are amortised on a straight-line basis over their estimated useful lives of between 2 and 15 years. A useful life of 15 years has been applied to trademarks, with consideration to the age, history and profile of such trademarks. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Amortisation expense related to software is included within other operating expenses in the Consolidated Income Statement. Amortisation expense related to customer relationships and trademarks is included in selling expenses.
Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date. Fair value of identifiable brands acquired and recognised as part of a business combination is determined using the royalty or multi-period excess methods. The majority of the Group’s brands are considered to have indefinite useful lives and so are not amortised. Instead, they are tested for impairment annually and whenever there is an indication that the asset may be impaired. Brands which are considered to have a definite useful life are deemed not to complement the current portfolio and therefore production is planned to cease in the mid to near future. These brands are amortised over their expected useful lives.
/134 / Financial Statements / Notes to the Consolidated Financial Statements
In arriving at the conclusion that a brand has an indefinite life, management considers their future usage, commercial position, stability of industry and all other aspects that might have an impact on this accounting policy. Management considers the business to be a brand business and expects to acquire, hold and support brands for an indefinite period. Subsidiary company history goes back to 1884 in Italy, 1920 in the Czech Republic and for over 100 years in Poland. Brands have a long tradition an co pan es a e u lt custo er lo alt o er t e r stor
A core element of the Group’s strategy is to invest in building its brands through an ongoing programme of spending on consumer marketing and through significant investment in promotional support. This policy is appropriate due to the stable lon ter nature o t e us ness an t e en ur n nature o t e ran s
Subsequent to initial recognition, other intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.
Impairment of tangible and intangible assets excluding goodwill For each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time-value of money and the risks specific to the asset for which the estimates of future cashflows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately n t e nco e state ent
Goodwill Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units. Goodwill is reviewed for impairment annually, or more frequently if there is an indication of impairment. Impairment of goodwill is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying value of the cash-generating unit to which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Inventories Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with the majority being valued on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
Trade and other receivables Trade and other receivables are initially recognised at fair value, which is generally the same as invoiced amount, and subsequently measured at amortised cost, or their recoverable amount. Trade receivables are predominantly short-term and so the effects of time-value of money are not considered material.
The Group applies the simplified approach for measuring expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. The Group has established a provision matrix that is based on the historical credit loss experience, adjusted for forward-looking factors specific to the debtors and economic environment.
/135 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
3. Accounting policies cont nue
Sale of receivables under non-recourse factoring The Group, via Stock Polska Sp. z.o.o., has entered into a non-recourse receivables financing agreement with Coface, supported by Natixis Bank. It may sell up to €32,710,000 (PLN 140,000,000) of invoices (at any one time) at face value less certain reserves an ees ra e rece a les sol un er t s non recourse actor n arran e ent are nclu e net o t e alue o n o ces c a e een actore
During the year, Stock Polska Sp. z.o.o. entered into an additional non-recourse receivables financing agreement with a particular customer and Bank Pekao S.A.. Stock Polska Sp. z.o.o. receives payment within 7 days of the invoice date from Bank Pekao. e pa ent rece e s re uce nterest an co ss on
Pursuant to the HSBC Credit Facility, the total amount of receivables subject to a factoring facility may not in aggregate exceed €70,000,000.
Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position comprise cash at banks, in hand and in short-term deposits c can e recalle n t ree ont s or less
Financial assets Financial assets in the Statement of Financial Position are loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payment values that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.
Loans and receivables are subsequently carried at amortised cost using the effective interest method if the time-value of money is significant. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
ra e rece a les are reco n se an carr e at t e lo er o t e r or nal n o ce alue an reco era le a ount ro s on s made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when t e pro a l t o reco er s assesse as e n re ote
Purchases or sales of financial assets that require delivery of assets within a timeframe established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell t e asset
Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the date of the statement of financial position, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the rece a le s reco n se as an asset t s rtuall certa n t at re urse ent ll e rece e an t e a ount o t e rece a le can e easure rel a l
The timing of cash outflows are by their nature uncertain and are therefore best estimates. Provisions are not discounted as the time-value of money is not deemed to be material.
Financial liabilities Borrowings and other financial liabilities Borrowings and other financial liabilities, including loans, are initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
/136 / Financial Statements / Notes to the Consolidated Financial Statements
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or where appropriate, a shorter period.
Derivative financial instruments The Group may enter into derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross currency swaps.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the reporting period date. The resulting gain or loss is recognised in profit or loss immediately.
The fair value of derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the relationship is more than 12 months and as a current asset or a current liability if the remaining maturity of the relationship s less t an 12 ont s
The Group does not apply hedge accounting.
Fair value measurement The Group measures financial instruments, such as derivatives, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability.
e pr nc pal or t e ost a anta eous ar et ust e access le to t e roup
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest an est use
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level of input that is significant to the fair value measurement as a whole:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or n rectl o ser a le Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Leases and hire purchase commitments Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
/137 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
3. Accounting policies cont nue
Leases and hire purchase commitments cont nue nance leases are cap tal se on t e start o t e lease at t e lo er o t e a r alue o t e asset an t e present alue o t e minimum lease payments. Each payment is allocated between the liability and finance charges so as to achieve a constant rate of interest on the finance balance outstanding. The rental obligations, net of finance charges, are included in interest-bearing loans an orro n s
The finance charges are charged to the income statement over the lease period so as to produce a constant periodic rate of nterest on t e re a n n alance o t e l a l t or eac per o
Payments under operating leases are charged to the income statement on a straight-line basis over the term of the lease.
Share-based payments Equity-settled transactions The cost of equity-settled transactions is recognised together with a corresponding increase in other reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity- settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for the period represents the movement in cumulative expense recognised as at the beginning and end of the period and is recognised in general and administrative expenses.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cost based on the original award terms continues to be recognised over the original vesting period and an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification.
The financial effect of awards by the Parent Company of options over its equity shares to employees of subsidiary undertakings is recognised by the Parent Company in its individual financial statements as an increase in its investment in subsidiaries with a credit to equity equivalent to the IFRS 2 cost in subsidiary undertakings. The subsidiary, in turn, recognises the IFRS 2 cost in its income statement with a credit to equity to reflect the deemed capital contribution from the Parent Company.
Repurchase and reissue of Ordinary shares (own shares) When shares recognised in equity are repurchases, the amount of the consideration paid, which includes directly attributable costs, are recognised as a deduction from equity. Repurchased shares are classified as own shares and are presented in the own share reserve. When own shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within retained earnings.
Cash dividends to equity holders of the Parent The Company recognises a liability to make cash distributions to equity holders of the Parent when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in the United Kingdom, a distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity.
Exceptional and adjusted profitability measures Management uses a range of measures to monitor and assess the Group’s financial performance, including those calculated in accordance with IFRS, and other, alternative performance measures (APMs). Such measures are also used in determining performance incentives for management.
/138 / Financial Statements / Notes to the Consolidated Financial Statements
The Group uses the following APMs to provide management and investors with useful additional information about the Group’s performance, profitability, liquidity and indebtedness:
Adjusted EBITDA, being operating profit before depreciation and amortisation and exceptional items and the share of results of equity-accounted investees (refer to note 7) Adjusted basic EPS, being basic earnings per share before the impact of exceptional items (refer to note 14) Free cashflow, being 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 (refer to note 7) Adjusted free cashflow conversion, being free cashflow as a percentage of Adjusted EBITDA (refer to note 7) Net debt, being the net of balances reported as cash and cash equivalents, loans and borrowings, and finance leases (refer to note 30); and Leverage, being net debt divided by Adjusted EBITDA (refer to note 30).
The above measures represent the equivalent IFRS measures but are adjusted to exclude items that we consider would prevent comparison of the Group’s performance both from one reporting period to another and with other similar businesses.
Exceptional items are not defined under IFRS. Exceptional items are those significant items which, in management’s judgement should be separately disclosed by virtue of their size, nature or incidence, to provide a better understanding of the underlying financial performance of the Group. In determining if an event or transaction is exceptional, management of the Group considers quantitative and qualitative factors such as its expected size, frequency, precedent for similar items and the commercial context for the particular transactions, while ensuring consistent treatment between favourable or unfavourable transactions impacting income and expense. Presentation of these measures is not intended to be a substitute for or to promote them above statutory measures.
Exceptional items are detailed in note 8 to the Financial Statements.
Items that are considered to be exceptional and that are therefore separately identified to aid comparability may include the following:
Profits or losses resulting from the disposal of a business or investment Costs incurred in association with business combinations, such as legal and professional fees and stamp duty that are excluded from the fair value of the consideration of the business combination Significant restructuring and integration costs that are incurred following a material change in business operations, such as a business combination Impairment charges in respect of tangible and intangible assets as a result of restructuring, business closure, underperformance or other matters Tax charges and credits in respect of the above items; and Significant tax charges and credits in respect of changes in legislation.
4. Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
Financial risk management note 30
Sensitivity analysis disclosures notes 17, 30
/139 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
4. Critical accounting judgements and key sources of estimation uncertainty cont nue
Judgements In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Consolidated Financial Statements:
Taxation Management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies.
Where Group entities are loss making, and are expected to continue to be loss making into the future it is judged that deferred tax assets should not be recognised in respect of these losses as it is not known when the losses will be able to be used in these entities.
Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are described below. The Group based its assumptions and estimates on parameters available when the Consolidated Financial Statements were prepared. However, estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Measurement and impairment of indefinite life intangible assets A key source of estimation uncertainty, that has a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year, is the measurement and impairment of indefinite life intangible assets in certain of the Group’s cash-generating units, as further explained in note 17. The measurement of intangible assets other than goodwill on a business combination involves estimation of future cashflows and the selection of a suitable discount rate. The Group determines whether indefinite life intangible assets are impaired on an annual basis and this requires an estimation of their value-in-use. This involves estimation of future cashflows and choosing a suitable discount rate (note 17). The majority of brands are considered to have an indefinite life. Management considers the business to be a brand business and expects to acquire, hold and support brands for an indefinite period.
Impairment of goodwill The Group’s impairment test for goodwill is based on a value-in-use calculation using a discounted cashflow model. The cashflows are derived from the Group’s three year plan. The recoverable amount is most sensitive to the discount rate used for the discounted cashflow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different cash-generating units, including a sensitivity analysis, are further explained in note 17. The Group tests annually whether goodwill has suffered any impairment.
Determination of fair values of intangible assets acquired in business combinations As part of the acquisitions of Distillerie Franciacorta S.p.A, Bartida s.r.o. and Bartida Retail s.r.o., the identifiable assets and liabilities acquired, including intangible assets and deferred and contingent consideration, were recognised at their fair value in accordance with IFRS 3 Business Combinations. The determination of the fair values on acquired assets and liabilities is based, to a considerable extent, on management’s judgement. In particular, the valuation of the acquired brands, customer relationships and deferred and contingent consideration.
The valuation of acquired brands are sensitive to management’s financial forecasts, discount rate applied to the forecast future cashflows and assessment that brands are considered largely to have indefinite useful economic lives. This is consistent with the assessment of other brands acquired as part of previous business combinations, as management expect to acquire, hold and support brands for an indefinite period.
/140 / Financial Statements / Notes to the Consolidated Financial Statements
The valuation of acquired customer relationships is impacted by management’s financial forecasts by customer channel, anticipated customer attrition rate and discount rate applied to the forecast future cashflows. The inputs used in the valuation are based on a combination of historical data and management’s expectation for the future performance of the business.
The nature and inherent uncertainties relating to the above assumptions and estimates means that the actual cashflow may be materially different from the forecast, and would therefore have led to a different asset value. See notes 3 and 16 for the useful lives and amortisation policies regarding intangible assets acquired in business combinations.
The fair value measurement of deferred and contingent consideration has been performed using a discounted cashflow based on a series of unobservable inputs. Management have used all available information about the likely future trading of the entities acquired in business combinations to determine the fair value as at 30 September 2019. The valuation of the consideration payable will continue to be reassessed based on the latest information available.
Taxation and transfer pricing Given that the Group is a sizeable international business operating across multiple jurisdictions, intercompany cross border transactions are subject to transfer pricing regulations. Transfer prices, and the policies applied, directly affect the allocation of Group wide taxable income across a number of tax jurisdictions.
As tax, and especially transfer pricing (where regulations and their interpretation may vary considerably), is an area of inherent risk, tax positions adopted by the Group and its cross border intercompany transactions may be subject to challenge by the relevant tax authorities. Although the Group aims to comply with applicable laws and regulations and operates an OECD principles-based transfer pricing model, at each balance sheet date the Group undertakes a review of potential tax risks and tax positions and, whilst it is not possible to predict the outcome of any pending enquiries, ensures that adequate provisions are made in the Group accounts to cover any associated cash outflows and estimated future settlements.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income.
Significant judgement exists in assessing the likelihood that a tax position will ultimately be accepted.
The Group provides for anticipated risks, using reasonable estimates based on the applicable laws, practice of their application, professional opinions and previous experience of tax audits, see note 13. Settlement of tax provisions could potentially result in future cash tax payments, however, these are not expected to result in an increased tax charge as they have been provided for in accordance with management’s best estimates of the most likely outcomes.
In respect of tax enquiries and audits, significant uncertainty exists over the size of possible settlements of ongoing enquiries and new enquiries could be opened into prior years. Hence the ultimate tax outcomes could be higher or lower than the amounts pro e or
Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded.
Revenue recognition
In line with common business practices, the Group negotiates a variety of sales incentive arrangements with customers across a number of geographies, and revenue is measured net of such items.
For sales incentive arrangements where there is uncertainty in amounts due to customers, for example in respect of annual retrospective volume rebates and accruals relating to regional chains in Poland, management makes estimates related to customer performance, sales volume and agreed terms, to determine total amounts earned and to be recorded in deductions ro re enue
The estimation of these incentives is an area of judgment, with varying complexity, depending on the nature of the arrangements. The most sensitive area of estimation in respect of the carrying value of amounts held where outcomes are not yet finalised amounts to €15.0 million (2018: €14.5 million), although the potential impact of any changes over the next 12 months is not expected to be material.
/141 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
5. Revenue An analysis of the Group’s revenue is set out below:
Year to 9 months to 30 September 30 September 2019 2018 Revenue from the sale of spirits, gross of excise taxes 878,249 557,221 Other sales 4,059 3,039 Excise taxes (569,889) (366,494) Revenue 312,419 193,766
6. 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, share of results of equity-accounted investees and exceptional items.
The Group has presented a reconciliation from profit before tax per the Consolidated Income Statement to Adjusted EBITDA below:
Year to 9 months to 30 September 30 September 2019 2018 Profit before tax 38,230 26,527 Share of loss of equity-accounted investees, net of tax 536 166 Net finance charges 3,987 1,689 42,753 28,382 Depreciation and amortisation (note 11) 8,771 7,466 EBITDA 51,524 35,848 Exceptional expenses (note 8) 11,693 – Adjusted EBITDA 63,217 35,848
Total assets and liabilities are not disclosed as this information is not provided by segment to the chief operating decision-maker on a re ular as s
Other Poland Czech Republic Italy Operational Corporate Total External revenue 171,670 81,338 26,896 32,515 – 312,419 EBITDA before exceptional expenses 43,072 24,134 (11,667) 5,438 (9,453) 51,524 Exceptional expenses (note 8) – 2 2 15,217 – (3,766) 11,693 Adjusted EBITDA 43,072 24,376 3,550 5,438 (13,219) 63,217
Other Poland Czech Republic Italy Operational Corporate Total 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
/142 / Financial Statements / Notes to the Consolidated Financial Statements
7. Adjusted EBITDA and free cashflow The Group defines Adjusted EBITDA as operating profit before depreciation and amortisation, exceptional items and the share of results of equity-accounted investees. The Group defines Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. Adjusted EBITDA, Adjusted EBITDA margin and Adjusted free cashflow conversion are supplemental measures of the Group’s performance and liquidity that are 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
Year to 9 months to 30 September 30 September 2019 2018 Operating profit 42,217 28,216 Exceptional expenses 11,693 – Share of results of equity-accounted investees, net of tax 536 166 54,446 28,382 Depreciation and amortisation (note 11) 8,771 7,466 Adjusted EBITDA 63,217 35,848 Adjusted EBITDA margin 20 2 18.5%
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
Year to 9 months to 30 September 30 September 2019 2018 Cash generated from operations 67,683 51,394 Payments to acquire property, plant and equipment (8,556) (2,449) a ents to ac u re ntan le assets (1,628) (1,075) Proceeds from sale of property, plant and equipment 21 33 Free cashflow 57,520 47,903 Adjusted free cashflow conversion 91 0 133.6%
8. Exceptional items In 2019, the Group has €15,459,000 (2018: €nil) of exceptional expenses, €3,766,000 of exceptional income (2018: €nil) and an exceptional tax credit of €948,000 (2018: €nil).
Of total exceptional expenses, €14,295,000 relates to a non-cash impairment of goodwill and brands in Italy.
Performance in Italy in the first six months of the financial year was below budget, and therefore an indicator of impairment was identified. An assessment of recoverable amount was performed at the cash-generating unit (CGU) level as this is the lowest level of separately identifiable cashflows. It was not possible to estimate the recoverable amount at the brand level.
Due to Christmas sales being below expectations and a continued decline in the overall Italian spirits market, a revised three year plan was prepared in March 2019, with the financial projections insufficient to support the carrying value of the CGU. Consequently, an impairment loss of €14,295,000 was recognised in the six month period to 31 March 2019. This impairment reduced the carrying value of goodwill in the Italy region CGU from €7,732,000 to €nil. Brands in the Italy region CGU were also impaired by €6,563,000, on which there was a corresponding reduction in deferred tax liabilities of €948,000. /143 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
8. Exceptional items cont nue Due to the nature and size of the impairment, and consistent with prior periods, this has been disclosed as an exceptional expense. Also refer to notes 11 and 13.
The impairment analysis completed for year-end purposes shows an improvement in headroom, with this totalling €781,000 (refer to note 17). This has arisen as a consequence of a reduction in post-tax discount rate to 9.5% (2018: 10.0%) and the cashflows resulting from the profits on sales of Distillerie Franciacorta products, following the acquisition of this entity in June 2019 (refer to note 35). The Directors consider that it would be premature at this stage to conclude that the circumstances which gave rise to the recognition of the impairment loss have now decreased or no longer exist. Consequently, €781,000 o t e pa r ent loss c as reco n se ur n t e ear as not een re erse
Exceptional items also include:
Costs incurred in association with the acquisitions of Distillerie Franciacorta S.p.A., Bartida s.r.o. and Bartida Retail s.r.o.. Acquisition costs included in the Consolidated Income Statement, which principally comprise professional fees, total €922,000 for Distillerie Franciacorta and €242,000 for the Bartida entities Realisation of exchange differences following the liquidation of Stock Spirits Group Services A.G., resulting in a gain of €3,766,000.
9. Finance income and costs Year to 9 months to 30 September 30 September 2019 2018 Finance income: Foreign currency exchange gain – 156 nterest nco e 195 93 Change in fair value of consideration paid in business combinations (note 35) 117 – Total finance income 312 2 9
Finance costs: Interest payable on bank overdrafts and loans 2,328 1,200 Foreign currency exchange loss 81 – Bank commissions, guarantees and other payables 633 514 Change in fair value of deferred and contingent consideration (note 35) 82 – Other interest expense 1,175 22 Total finance costs 4,299 1,938 Net finance costs 3,987 1,689
Other interest includes factoring fees in Stock Polska Sp. z.o.o. totalling €737,000 (2018: €297,000). Refer to note 20 for further eta ls on actor n arran e ents
10. Staff costs Year to 9 months to 30 September 30 September 2019 2018 Wages and salaries 31,893 22,576 oc al secur t costs 6,862 4,329 Other pension costs 1,794 1,375 Termination benefits 270 74 Long-term incentive plan (note 25) – 19 Share-based compensation 2,868 1 9 43,687 28,484
/144 / Financial Statements / Notes to the Consolidated Financial Statements
Other pension costs relate primarily to the Group’s contributions to defined contribution pension plans. Also included is €331,000 (2018: €170,000) of contributions relating to the employee severance indemnity in Italy, which represents an unfunded defined benefit plan. Refer to note 25 for further details.
Average monthly number of employees in the period
Year to 9 months to 30 September 30 September 2019 2018 No. No. Production and logistics 500 2 ales 365 354 Other 215 207 1,080 1,003
11. Operating profit Operating profit for the period has been arrived at after charging/(crediting):
Year to 9 months to 30 September 30 September 2019 2018 Costs of inventories recognised as an expense 164,600 100,374 Advertising, promotion and marketing costs 23,666 16,006 Indirect costs of production 9,040 6,315 Logistics costs 5,944 4,267 Operating lease payments 5,262 3,668 e al an pro ess onal ees 4,393 3,333 Loss/(profit) on disposal of intangible and tangible assets 50 19 Net foreign exchange loss 821 431 Exceptional expenses (note 8) 11,693 –
Depreciation and amortisation – production cost 4,979 3,847 Depreciation and amortisation – selling cost 1,531 2,018 Depreciation and amortisation – administration cost 2,261 1,601 Total depreciation and amortisation 8,771 7,466
12. Auditor’s remuneration The Group paid the following amounts to its auditor, KPMG LLP, in respect of the audit of the financial statements and for other services provided to the Group:
Year to 9 months to 30 September 30 September 2019 2018 Fees payable for: Audit of the Parent and Group financial statements 368 368 ocal statutor au ts or su s ar es 477 392 Audit-related assurance services 82 61 otal 927 821
/145 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
13. Income taxes
(i) Income tax recognised in profit or loss:
Year to 9 months to 30 September 30 September 2019 2018 Income tax expense: Tax expense comprises: Current tax expense 11,977 3,455 Tax (credit)/expense relating to prior periods (1,802) 327 Deferred tax charge 602 3,367 Other taxes 91 95 Total tax expense 10,868 7,24 4
Year to 9 months to 30 September 30 September 2019 2018 Exceptional tax credit: Deferred tax credit - impact of impairment of brands (note 8) (948) –
There have been no tax charges to other comprehensive income.
Year to 9 months to 30 September 30 September 2019 2018 Reconciliation of effective tax rate: Profit before tax 38,230 26,527
Accounting profit multiplied by United Kingdom rate of corporation tax 19.00% (2018: 19.00%) – Underlying items 9,485 5,040 – Exceptional items (2,221) – Expenses not deductible for tax purposes – Underlying items 909 1,189 – Exceptional items 2,605 – Gains not taxable - Exceptional items (716) – Deductible timing differences for which no deferred tax is recognised 259 – Utilisation and recognition of previously unrecognised deferred tax assets (126) (387) Tax losses for which no deferred tax is recognised 1,582 9 Share of loss of equity-accounted investees, net of tax 102 31 Effect of differences in applicable tax rates in foreign jurisdictions – Underlying items 368 5 – Exceptional items (616) – Tax (credit)/charge relating to prior periods (1,802) 327 Other taxes 91 95 Total tax charge 9,920 7,24 4
Effective tax rate 25.9% 27.3%
Exceptional items above represent the impact on the tax charge of the exceptional items (note 8).
/146 / Financial Statements / Notes to the Consolidated Financial Statements
(ii) Income tax recognised in the balance sheet: Current tax liability:
Year to 9 months to 30 September 30 September 2019 2018 Tax prepayments as of start of period 863 715 Current tax liability as of start of period (8,149) (8,395) (7,286) (7,680) Tax credit/(charge) relating to prior periods 1,802 (327) a ents n t e per o 15,196 4,458 Current tax expense (11,977) (3,455) Other taxes 91 (95) Interest on open tax enquiries 1 1 199 Tax liabilities assumed in business combinations (61) – Foreign exchange differences 19 12 Net current tax liability (2,295) (7,286)
Analysed as: Tax prepayment as of end of period 3,588 863 Current tax liability as of end of period (5,883) (8,149) (2,295) (7,286)
The Group is a sizeable international drinks business operating across multiple jurisdictions with intercompany cross border transactions being subject to transfer pricing regulations. As tax, and especially transfer pricing (where regulations and their interpretation may vary considerably), is an area of inherent risk, tax positions adopted by the Group and its cross border intercompany transactions may be subject to challenge by the relevant tax authorities. Although the Group aims to comply with applicable laws and regulations and operates an OECD principles based transfer pricing model, at each balance sheet date the Group undertakes a review of potential tax risks and tax positions and, whilst it is not possible to predict the outcome of any pending enquiries, ensures that adequate provisions are made in the Group accounts to cover any associated cash outflows and estimated future settlements.
As at 30 September 2019, the Group has recognised tax provisions totalling €4.3m (2018: €8.0m) in relation to matters where it is probable that tax positions adopted by the Group may not ultimately be sustained by the relevant authorities. These tax provisions are included in income taxes payable on the balance sheet. The reduction in these tax provisions is mainly due to the payments made and settlements agreed in respect of the enquiries in Italy, Germany and Poland as detailed below.
The Italian business, conducted via Stock S.r.l., significantly reduced its risk exposure related to the inquiries covering the years 2006–2010. The business successfully settled the enquiries related to 2006–2008 using favourable tax amnesty laws to reduce the overall liability below the level provided. This resulted in an overall decrease in tax provisions of €2.2m. The business continues to defend tax positions taken in respect of 2009–2010, for which suitable provisions have been recognised.
Settlement was reached in respect of the enquiry into the 2015 corporate income tax return of the Group’s German subsidiary, Baltic Distillery GmbH. A payment of €0.3m, which was fully provided for as at September 2018 and represented tax and interest, was made during the year.
There have been no developments in respect of the ongoing tax appeal in Czech Republic related to the 2011 CIT return of Stock Plzeň-Božkov s.r.o..
In December 2018, following an audit of the 2013 corporate income tax return of the Group’s subsidiary in Poland, Stock Polska Sp. z.o.o., the Polish tax authorities issued an assessment totalling PLN 23.8m (€5.4m) in tax and interest by reference to the adopted tax treatment of the pre-IPO intra-group restructuring and management recharges. In accordance with the local tax administration rules, the assessment was paid in full to facilitate an appeal. In March 2019, following a review of the late interest calculation by the tax authorities, the assessment was reduced to PLN 20.4m (€4.7m).
/147 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
13. Income taxes cont nue
(ii) Income tax recognised in the balance sheet: cont nue In August 2019 upon an administrative appeal by the Company, the Director of the Tax Administration Chamber upheld the assessment of the local tax administration related to management recharges and overturned the assessment in part related to the intra-group restructuring, replacing it with an assessment based on different provisions of tax law but similar in its total effect. As a result of this, the assessment was further reduced to PLN 20.3m (€4.6m). The Group appealed against the decision to the administrative court within the prescribed period. The hearing is expected to take place at the end of 2019.
The current assessment of €4.6m comprises €3.8m of tax and interest related to the amortisation of the intellectual property (IP) assets arising from the intra-group restructuring, and €0.8m relating to the deductibility of the intra-group management rec ar es
With regards to the amortisation of the IP, the Group obtained advanced tax rulings from the tax authorities prior to implementation, adopted a tax position fully compliant with the tax laws prevailing at the time, and made full disclosures. As the Company’s tax position had been accepted by the tax authorities for the periods prior to 2013, the Group does not consider there to be any basis for the challenge by the Polish tax authority on this matter. Management, having obtained professional tax and legal advice, considers that ultimately the appeals process will result in a positive outcome for the Group. As such, a corresponding recoverable tax asset has been recorded in current tax assets, and a late interest receivable has been included in trade and other receivables, both equivalent to the amounts paid.
Whilst not subject to inquiries, the tax impact of deductions claimed in respect of the amortisation of the IP in each of the years 2014 to 2017 are in the range between €5.8m and €6.3m. That, together with late interest at the prescribed rate of 8%, determines the Group’s maximum possible exposure associated with the issue. Management considers that ultimately it is probable that the adopted tax position will be sustained and therefore no provision has been recognised for this issue. Nevertheless, if assessments were issued, the Group may have to pay over amounts at stake and then seek their recovery using t e appeal process
Although the Group’s transfer pricing is performed on an arms’ length basis, in management’s view there is a risk that tax positions regarding intercompany transactions in certain jurisdictions, including Poland and Czech Republic, may ultimately not be accepted, and thus a provision of €2.4m (2018: €3.6m) is carried against the risk.
Provisions against uncertain tax positions are based on management’s assessment of the most likely or expected outcome, however, due to the nature of the underlying items and likelihood of further developments, there is a reasonable possibility of material changes to these estimates over the next 12 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. 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 which may affect ability of the Group to rely on the EU tax framework, such as EU Parent Subsidiary or Interest and Royalties Directives. At this stage the level of uncertainty is such that it is impossible to determine if, how and when that tax status will change. As it stands, the Group has not identified any critical dependencies or reliances which could materially impact its operations and which could not be managed.
(iii) Unrecognised tax losses The Group has tax losses which arose in the UK of €49.5m as at 30 September 2019 (30 September 2018: €45.8m) 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 used in the relevant entities.
/148 / Financial Statements / Notes to the Consolidated Financial Statements
(iv) Deferred tax balances Deferred tax assets and liabilities arise as follows:
(Charged)/ 1 October credited Acquisitions Translation 30 September 2018 to income (note 35) difference 2019 Temporary differences: ran s (55,015) 989 (3,824) 1 (57,706) Accrued liabilities 5,940 292 – (136) 5,512 Other assets and liabilities 2,243 (351) (2,254) 2 0 (46,832) 346 (6,078) (34) (52,598)
Deferred tax asset 589 77 – 8 674 Deferred tax liability (47,421) 269 (6,078) 2 (53,272) (46,832) 346 (6,078) (34) (52,598)
(Charged)/ 1 January credited Translation 30 September 2018 to income difference 2018 Temporary differences: ran s (55,085) (54) 12 (55,015) Accrued liabilities 7,956 (1,812) 20 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)
Deferred tax liability related to brands is based on the difference between the accounting and tax book values of brands, and calculated using the appropriate substantively enacted tax rate. The exceptional deferred tax credit of €948,000 relates to the impairment of Italian brands (note 8).
The deferred tax asset in respect of accrued liabilities arises in respect of trade related costs deductible on a paid basis, while other deferred tax assets and liabilities represent all other timing differences between accounting and tax recognition.
(v) Change in tax rates Deferred tax assets and liabilities recognised as at 30 September 2019 have been calculated using tax rates enacted or substantively enacted at the balance sheet date and applicable to the periods in which differences between the accounting and tax book values are expected to unwind. In the UK, a reduction in corporate income tax rate from 19% to 17% effective from 1 April 2020 was substantively enacted on 15 September 2016. There is no effect of the change in the applicable UK corporate income tax rate on deferred tax.
/149 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
14. 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 exceptional items that would otherwise distort comparability and distort understanding of the un erl n per or ance o t e roup
Details of the earnings per share are set out below:
Year to 9 months to 30 September 30 September Basic earnings per share Profit attributable to the equity shareholders of the Company (€000) 28,310 19,283 Weighted average number of Ordinary shares in issue for basic earnings per share (000) 198,468 198,690 Basic earnings per share (€cents) 14.26 9.71
Diluted earnings per share Profit attributable to the equity shareholders of the Company (€000) 28,310 19,283 Weighted average number of diluted Ordinary shares adjusted for the effect of dilution (000) 199,743 199,606 Diluted earnings per share (€cents) 14.17 9.66
Adjusted basic earnings per share Profit attributable to the equity shareholders of the Company (€000) 28,310 19,283 Exceptional expenses (€000) 11,693 – Exceptional tax credit (€000) (948) – Profit attributable to the equity shareholders of the Company before exceptional expenses and exceptional tax credit (€000) 39,055 19,283 Weighted average number of Ordinary shares in issue for adjusted basic earnings per s are 000 198,468 198,690 Adjusted basic earnings per share (€cents) 19.68 9.71
Adjusted diluted earnings per share Profit attributable to the equity shareholders of the Company (€000) 28,310 19,283 Exceptional expenses (€000) 11,693 – Exceptional tax credit (€000) (948) – Profit attributable to the equity shareholders of the Company before exceptional expenses and exceptional tax credit (€000) 39,055 19,283 Weighted average number of diluted Ordinary shares adjusted for the effect of dilution (000) 199,743 199,606 Adjusted diluted earnings per share (€cents) 19.55 9.66
/150 / Financial Statements / Notes to the Consolidated Financial Statements
Reconciliation of basic to diluted Ordinary shares
Year to 9 months to 30 September 30 September 2019 2018 Issued Ordinary shares 200,000 200,000 Effect of own shares held (1,532) (1,310) Basic weighted average number of Ordinary shares 198,468 198,690 Effect of options 1,275 916 Diluted weighted average number of Ordinary shares 199,743 199,606
There have been no transactions involving the Group’s Ordinary shares between the reporting date and the date of authorisation of these financial statements.
15. Intangible assets – goodwill
30 September 30 September 2019 2018 Cost: As at start of period 77,340 77,340 Goodwill arising on acquisitions 11,592 – As at 30 September 88,932 77,340 Accumulated impairment: As at start of period 31,400 31,400 pa r ent c ar e 7,732 – As at 30 September 39,132 31,400 Carrying amount at 30 September 49,800 45,940
See note 17 for details of the impairment of goodwill, and note 35 for goodwill arising on acquisitions.
/151 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
16. Intangible assets – other
Customer Distributor Relationships Brands Contracts and Trademarks Software Total Cost: As at 1 October 2018 306,601 – 1,624 22,781 331,006 Additions – – – 1,793 1,793 Acquisitions through business combinations 14,827 2,657 5,084 25 22,593 Net foreign currency exchange differences (215) – (30) 29 (274) As at 30 September 2019 321,213 2,657 6,678 24,570 355,118
Amortisation: As at 1 October 2018 – – 626 19,251 19,877 Amortisation expense 2 199 350 1,415 1,966 Impairment charge (note 8) 6,563 – – – 6,563 Net foreign currency exchange differences – – – (6) (6) As at 30 September 2019 6,565 199 976 20,660 28,400
Carrying amount – As at 30 September 2019 314,648 2,458 5,702 3,910 326,718
Customer Relationships Brands and Trademarks Software Total Cost: As at 1 January 2018 307,122 1,624 21,885 330,631 Additions – – 1,111 1,111 sposals – – (177) (177) Net foreign currency exchange differences (521) – (38) (559) As at 30 September 2018 306,601 1,624 22,781 331,006
Amortisation: As at 1 January 2018 – 589 18,428 19,017 Amortisation expense – 88 954 1,042 sposals – – (177) (177) rans ers – (51) 51 – Net foreign currency exchange differences – – (5) (5) As at 30 September 2018 – 626 19,251 19,877
Carrying amount – As at 30 September 2018 306,601 998 3,530 311,129
The majority of brands are not amortised, as it is considered that their useful economic lives are not limited. An annual pa r ent assess ent s per or e to ensure carr n alues are reco era le
A small number of brands are deemed not to complement the current portfolio and therefore production is planned to cease in the mid to near future. These brands are amortised over their expected useful lives of between 5 to 10 years.
Other intangible assets with a definite useful life are amortised on a straight-line basis as follows:
Customer Relationships are amortised over between 12 and 14 years Trademarks are amortised over 15 years Distributor contracts are amortised over 5 years Software is amortised over 2–5 years.
/152 / Financial Statements / Notes to the Consolidated Financial Statements
Amortisation relating to software is included within other operating expenses in the Consolidated Income Statement.
Amortisation relating to brands, customer relationships, trademarks and distributor contracts is included in selling expenses.
The gross carrying value of fully amortised intangible assets that are still in use is €6,786,000 (2018: €6,418,000).
17. Impairment of goodwill and intangibles with indefinite lives Goodwill acquired through business combinations and brands have been allocated for impairment testing purposes to cash- generating units (CGUs) based on the geographical location of production plants and the ownership of intellectual property. This represents t e lo est le el t n t e roup at c oo ll an ran s are on tore or nternal ana e ent purposes
Cash-generating units For the purposes of impairment testing, goodwill has been allocated to the Group’s CGUs as follows:
Distillerie Czech Republic Italy Poland Franciacorta Bartida Other Total 30 September 2019 arr n a ount o ran s 204,625 49,639 43,108 11,246 3,579 2,451 314,648 arr n a ount o oo ll 34,516 – 2,212 8,244 3,348 1,480 49,800 Value-in-use headroom 159,733 781 465,181
Czech Republic Italy Poland Other Total 30 September 2018 arr n a ount o ran s 205,580 54,445 44,125 2,451 306,601 arr n a ount o oo ll 34,516 7,732 2,212 1,480 45,940 Value-in-use headroom 78,030 8,403 442,881
The Czech Republic, Italy and Poland CGUs relate to the Group’s legacy businesses. Under IAS 36, CGUs should be based on the lowest aggregation of assets that are able to generate largely independent cashflows. For this reason Distillerie Franciacorta and Bartida, both acquired in 2019, are considered to represent separate CGUs, and therefore have been disclosed separately. Value-in-use headroom has not been shown given the very recent acquisition of Distillerie Franciacorta and Bartida.
Key assumptions used in the value-in-use calculations The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key assumptions represent management’s assessment of future trends in the industry and have been based on historical data from both external and internal sources.
The calculation of value-in-use for all regions is most sensitive to the following assumptions:
Spirits price inflation – small annual percentage increases assumed in all markets based on historical data Growth in spirits market – assumed to be static or marginally increasing in all markets based on recent historical trends Market share – through company specific actions outlined in detailed internal plans, market share to be grown overall Discount rates – rates reflect the current market assessment of the risks specific to each operation. The discount rate was estimated based on an average of guideline companies adjusted for the operational size of the Group and specific re onal actors Raw material cost – assumed to be at average industry cost Excise duty – no future duty changes have been used in projections, with the exception of the proposed duty increase in the Czech Republic of 13%, which is expected to be applicable from 1 January 2020. An excise duty increase in Poland in 2020 is also anticipated, but as this legislation has not yet begun to be passed through Parliament the potential impact has not been included in the cashflow projections. If 100% of the excise duty increase was to be borne by Stock Polska Sp. z.o.o. the headroom in the Polish CGU would still stand as €397.3m.
/153 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
17. Impairment of goodwill and intangibles with indefinite lives cont nue
Key assumptions used in the value-in-use calculations cont nue Growth rate used to extrapolate cashflows beyond the forecast period. The assumed growth rate reflects the long-term inflation rate of the primary market of each CGU.
The headroom for each cash-generating unit where these sensitivities would be applicable has been detailed below.
Impairment review outcome Czech region The recoverable amount of the Czech region unit has been based on its value-in-use using discounted cashflows based on cashflow projections from the three-year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections is 8.9% (2018: 9.6%) and cashflows beyond the three year period are extrapolated using a 2.0% (2018: 2.0%) growth rate.
A reasonably possible change in two key assumptions could cause the carrying amount to exceed the recoverable amount. The following sensitivity analysis shows the impact on the headroom of different post-tax discount rates and EBITDA delivery in the cashflow projections used in the impairment review models.
Post-tax discount rate 6.5% 7.0% 7.5% 8.0% 8.5%
EBITDA delivery €m €m €m €m €m 10 196.0 155.3 122 1 9 71.0 -5% 218.9 176.0 1 0 9 111.7 87.0 0 2 1 9 196.7 159.7 129 0 102 9 5% 264.9 217.4 178.6 146.2 163.5 10 287.8 238.1 197.4 163.5 134.9
The impact of a 1 percentage point decrease in the long-term growth rate applied in the terminal value calculation would be a decline in headroom of €39.9m.
Italy region The Italy CGU represents the sales of Italian trading brands by Stock S.r.l. and through Stock International s.r.o.. There is no anu actur n n tal
The recoverable amount of the Italy region unit was determined based on its value-in-use using discounted cashflows based on cashflow projections from the three-year planning process approved by senior management. At 30 September 2019 the recoverable amount of the Italian CGU is €52.1m.
During 2019 the carrying value of the assets of the Italian CGU was determined to be higher than their recoverable value, and an impairment loss of €14,295,000 was recognised. The impairment loss was fully allocated to goodwill and brands and included as an exceptional expense (note 8).
The pre-tax discount rate applied to cashflow projections is 12.8% (2018: 13.3%) and cashflows beyond the three year period are extrapolated using a 1.2% (2018: 1.7%) growth rate.
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The following sensitivity analysis shows the impact on headroom of different post-tax discount rates and EBITDA delivery in the cashflow projections used in the impairment review models.
Post-tax discount rate 8.5% 9.0% 9.5% 10.0% 10.5%
EBITDA delivery €m €m €m €m €m 10 1.5 (1.8) (4.7) (7.3) (9.6) -5% 4.6 1 1 2 0 (4.7) (7.2) 0 7.7 0 0.8 2 1 (4.7) 5% 10 9 7.0 3.5 0.5 2 2 10 1 0 9 9 6.3 3.1 0 2
The impact of a 1 percentage point decrease in the long-term growth rate applied in the terminal value calculation would be an impairment of €4.1m.
Distillerie Franciacorta The recoverable amount of the Distillerie Franciacorta unit was determined based on its value-in-use using discounted cashflows based on cashflow projections from the three year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections in 2019 is 12.9% and cashflows beyond the three-year period are extrapolated using a 1.5% growth rate.
As Distillerie Franciacorta was only acquired in June 2019 and early trading indicators are positive, the Group considers that reasonably possible variations in assumptions would not lead to an impairment at this time.
In time, the CGUs of Italy and Distillerie Franciacorta may merge into a single CGU.
Bartida The recoverable amount of the Bartida unit was determined based on its value-in-use using discounted cashflows based on cashflow projections from the three-year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections is 8.8% and cashflows beyond the three year period are extrapolated us n a 2 0 ro t rate
As Bartida was only acquired in May 2019 and early trading indicators are positive, the Group considers that reasonably possible variations in assumptions would not lead to an impairment at this time.
Poland region The recoverable amount of the Poland region unit has been determined based on its value-in-use using discounted cashflows based on cashflow projections from the three-year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections 10.1% (2018: 10.0%) and cashflows beyond the three year period are extrapolated using a 2.3% (2018: 2.4%) growth rate.
The recoverable amount calculated indicates very significant headroom over the carrying value exists. As such, there are no assumptions for which a reasonably possible change will result in an impairment.
/155 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
18. Property, plant and equipment
Land and Technical Other Assets under buildings equipment equipment construction Total Cost: As at 1 October 2018 35,679 54,628 16,176 1,955 108,438 Additions 1,212 3,836 673 3,244 8,965 Acquisitions through business combinations 3,300 1,259 355 – 4,914 sposals 2 (237) (372) – (611) rans ers 99 456 – (555) – Foreign currency adjustment (178) (207) 9 (37) (431) As at 30 September 2019 40,110 59,735 16,823 4,607 121,275
Depreciation: As at 1 October 2018 12,024 34,450 14,699 – 61,173 Depreciation expense 925 4,978 902 – 6,805 sposals – (164) (376) – (540) Foreign currency adjustment 52 72 10 – 11 As at 30 September 2019 13,001 39,336 15,215 – 67,552 Carrying amount: As at 30 September 2019 27,109 20,399 1,608 4,607 53,723
Land and Technical Other Assets under buildings equipment equipment construction Total Cost: As at 1 January 2018 35,568 55,477 16,192 551 107,788 Additions 274 1,252 471 1,579 3,576 sposals 1 (1,907) (463) 2 (2,373) rans ers 57 85 5 (147) – Foreign currency adjustment 219 (279) 29 (26) (553) As at 30 September 2018 35,679 54,628 16,176 1,955 108,438
Depreciation: As at 1 January 2018 11,240 32,352 13,325 – 56,917 Depreciation expense 719 3,847 1,858 – 6,424 sposals – (1,884) (475) – (2,359) Foreign currency adjustment 65 135 9 – 191 As at 30 September 2018 12,024 34,450 14,699 – 61,173 Carrying amount: As at 30 September 2018 23,655 20,178 1,477 1,955 47,265
The net book value of assets held under finance leases amounts to €503,000 (2018: €254,000).
The gross carrying value of fully depreciated property, plant and equipment that are still in use is €36,980,000 (2018: €32,584,000).
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19. Inventories
30 September 30 September 2019 2018 Raw materials 7,425 5,912 Work in progress 4,406 2,648 n s e oo s an erc an se 33,003 24,234 ro s on or o solescence (1,775) (2,083) 43,059 30,711
During the period ended 30 September 2019, inventories with a total value of €456,000 (2018: €598,000) were written off. This amount does not include the impact to the income statement for provisions made during the period. All write-offs were incurred as part of normal activities.
20. Trade and other receivables
30 September 30 September 2019 2018 ra e rece a les 102,617 112,728 Allowance for doubtful debts (4,922) (5,213) 97,695 107,515 Other debtors and prepayments 13,373 11,723 111,068 119,238
The movement on the allowance for doubtful debts is set out below.
Year to 9 months to 30 September 30 September 2019 2018 As at start of period (5,213) (5,379) ar e or t e per o 210 (377) Amounts utilised/released 09 443 Foreign currency adjustment 92 100 As at end of period (4,922) (5,213)
The Group, via Stock Polska Sp. z.o.o., has entered into a non-recourse receivables financing agreement with Coface, supported by Natixis Bank. It may sell up to €32,710,000 (PLN 140,000,000) of invoices (at any one time) at face value less certain reserves and fees. As at 30 September 2019, Coface charge interest on the drawn amounts of WIBOR (Warsaw Inter-bank Offered Rate) 1M + 1.05% and a fee per invoice of 0.19%. The proceeds from the sale can be applied for the general corporate and working cap tal purposes o t e roup
During the year Stock Polska Sp. z.o.o. entered into an additional non-recourse receivables financing agreement with a particular customer and Bank Pekao S.A.. Stock Polska Sp. z.o.o. receives payment within 7 days of the invoice date from Bank Pekao. The payment received is reduced by interest and commission. As at 30 September 2019, Bank Pekao charges interest of WIBOR 1M + 0.9% on the gross invoice value for period from the financing date to the payment date. Commission is also charged of 0.03%, calculated at gross value for period from the financing date to the payment date.
Pursuant to the HSBC Credit Facility, the total amount of receivables subject to a factoring facility may not in aggregate exceed €70,000,000, of which up to €50,000,000 is secured. In 2019 and 2018, the secured element of the factoring ac l t as not use
/157 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
20. Trade and other receivables cont nue
Sale of receivables under non-recourse factoring
Trade receivables are denominated in the following currencies:
30 September 30 September 2019 2018 Polish złoty 71,322 85,596 uro 13,425 11,579 ec oruna 10,570 8,061 Other currencies 2,378 2,279 97,695 107,515
At the end of the period, the analysis of trade receivables that were past due but not impaired is as follows:
30 September 30 September 2019 2018 Overdue 0–30 days 8,490 12,064 Overdue more than 30 days 6,562 7,605 15,052 19,669
The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to external credit ratings where available, otherwise historical information relating to counterparty default rates is used. The Group continually assesses t e reco era l t o tra e rece a les an t e le el o pro s on n re u re
Information about major customers
Annual revenue from one customer in the Poland segment totalled more than 10% of total Group revenue. In 2019, revenue from this customer amounted to €61,578,000 (2018: €38,897,000).
21. Other assets Current Non-current Current Non-current 30 September 30 September 30 September 30 September 2019 2018 2018 €000 usto s epos ts – 4,720 135 4,742
Customs guarantees are lodged with local Customs and Excise authorities and represent assets belonging to the Group. The deposits are to provide comfort to local Customs and Excise authorities that liabilities will be settled. These are cash deposits and are recognised as a receivable that does not meet the definition of cash and cash equivalents.
/158 / Financial Statements / Notes to the Consolidated Financial Statements
22. Investment in equity-accounted investee 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 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 the period November 2020 to May 2022, 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 2019 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 €536,000 (2018: loss of €166,000). 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 2019. 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 year to 30 September 2019.
30 September 30 September 2019 2018 Net assets Non-current assets 64,807 60,701 Current assets and liabilities 9,214 12,530 Non-current liabilities (9,889) (6,955) Net assets 64,132 66,276
Group’s share of net assets (25%) 16,033 16,569 oo ll 425 425 Carrying value of investment in associate at end of period 16,458 16,994
Year to 9 months to 30 September 30 September 2019 2018 Revenue (100%) 8,103 2,252 Loss from continuing operations (100%) (2,144) (662) Total comprehensive expense (100%) (2,144) (662) Group’s share of loss from continuing operations (25%) (536) (166) Group’s share of total comprehensive expense (25%) (536) (166) arr n alue o n est ent n assoc ate rou t or ar 16,994 17,160 Share of loss from continuing operations (25%) during the period (536) (166) Carrying value of investment in associate carried forward 16,458 16,994
/159 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
23. Financial liabilities
Current Non-current Current Non-current 30 September 30 September 30 September 30 September 2019 Unsecured – at amortised cost HSBC loan1 – 105,500 – 81,443 ost o arran n an loan2 – (75) – (143) nterest pa a le 2 – 16 – otal 2 105,425 16 81,300
1. The Group has a facilities agreement for a €200,000,000 revolving credit facility (RCF) with a banking club consisting of five banks including HSBC who also act as the Agent. The original term of the RCF facility was five years, to November 2020. On 21 July 2017, Stock Spirits Group extended its revolving credit facilities with its banking club by a further 2 years to November 2022. The other key facility terms remain unchanged The facility is fully flexible and allows the Group to benefit from being able to increase or reduce borrowings as required, and utilise balance sheet cash more effectively. Each of the drawings under the RCF are drawn down in the local currencies. The loans bear variable rates of interest which are linked to the inter-bank offer rates of the country of drawing: WIBOR, PRIBOR or EURIBOR as appropriate. Please refer to the table below for the balances drawn down. Each of the loans have a variable margin element to the interest charge. The margin is linked to a ratchet mechanism, subject to a minimum margin, as the Group’s leverage covenant changes As well as RCF drawings of €105,500,000 as at 30 September 2019 (2018: €81,443,000), an additional €11,361,000 (2018: €10,551,000) of the RCF was used for customs guarantees in Italy and Germany. These customs guarantees reduce the available RCF but do not constitute a balance sheet liability 2. Costs of arranging the Group banking facilities are deducted from the original measurement of the loan facilities and amortised into finance costs throughout the period using the effective interest method. The arrangement fees under the facility totalled €300,000, and these are being amortised into finance costs throughout the initial period of the facility. Fees for the extension of the facility until 2022 are being amortised over the loan period. The balance of the fees remaining is €75,000 (2018: €143,000)
The following table shows the distribution of loan principal balances in euros:
30 September 30 September toc ols a p o o 27,397 15,187 Stock Plzeň-Božkov s.r.o. 37,103 41,556 toc r l 37,50 0 20,000 toc lo ens o s r o – 700 Baltic distillery GmbH 3,500 4,000 105,500 81,443
No security is provided to the lenders under the RCF facility as at 30 September 2019 (2018: nil security provided).
Reconciliation of movement of financial liabilities
As at 1 October 2018 81,316 ncrease n loans 24,981 nterest c ar e 2,243 nterest pa (2,257) Amortisation of arrangement fees 68 Foreign exchange on loan repayments 92 As at 30 September 2019 105,427
/160 / Financial Statements / Notes to the Consolidated Financial Statements
24. Other financial liabilities
Current Non-current Current Non-current 30 September 30 September 30 September 30 September 2019 2019 2018 €000 nance leases 56 145 66 201 Contingent consideration 1,092 4,188 – 2,491 Deferred consideration – 1,782 – – 1,148 6,115 66 2,692
Contingent consideration: On the purchase of the 25% equity interest in Quintessential Brands Ireland Whiskey Limited (see note 22), the fair value of contingent consideration was estimated at €2,491,000. This value is determined to be materially consistent at 30 September 2019 (2018: €2,491,000), and therefore no adjustment has been recorded for the year to 30 September 2019.
On the acquisition of Bartida s.r.o. and Bartida s.r.o. (see note 35), the fair value of contingent consideration was estimated at €2,722,000. The value has been increased to €2,789,000 at 30 September 2019.
Deferred consideration: On the acquisition of Distillerie Franciacorta S.p.A. (see note 35), the fair value of deferred consideration was estimated at €1,767,000. The value has been increased to €1,782,000 at 30 September 2019.
25. Provisions
Legal and Employee Employee Interest and contract benefits and severance penalties on open related Other pensions indemnity tax enquiry provisions provisions Total As at 1 October 2018 596 159 32 29 583 1,799 Assumed through business combinations – 22 – – 2 46 Arising during the period 127 331 – – 83 541 Utilised/released (63) (357) (32) (307) (205) (964) Net foreign currency exchange differences (13) – – – 2 (15) As at 30 September 2019 647 155 – 122 483 1,407
– Current 77 – – – 96 173 – Non-current 570 155 – 122 387 1,234
(i) Employee benefits and pensions: The provision for employee benefits represents expenses recognised in relation to a long-term incentive plan (LTIP) operated by the Group, and Czech and Polish pension commitments for retirement benefits.
The long-term incentive plan which existed prior to admission to the London Stock Exchange was amended so that 50%–70% of accrued awards crystallised upon admission, being paid out in cash. All remaining awards became exercisable in October 2014. At the Company’s discretion these options can be satisfied in cash and consequently these have been accounted for as long-term employee benefits under IFRS 2 Share-Based Payments.
During 2019 15,224 LTIP options were exercised (2018: 12,324 options exercised). There are now nil LTIP options outstanding.
(ii) Employee severance indemnity: The Group operates an employee severance indemnity, mandatory for Italian companies, for qualifying employees of its Italian subsidiary. Under IAS 19 (Revised), this represents an unfunded defined benefit plan and is based on the working life of employees and on the remuneration earned by an employee over the course of a pre-determined term of service.
/161 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
25. Provisions cont nue
(ii) Employee severance indemnity: cont nue The most recent valuations of the present value of the severance indemnity obligation were carried out at 30 September 2019 an actuar
The present value of the severance indemnity obligation, and the related current service cost and past service cost, were measured using the projected unit credit method. The principal assumptions used for the purposes of the actuarial valuations were as follows: discount rate 0.82% p.a. (2018: 2.83% p.a.), inflation 2.00% p.a. (2018: 2.00% p.a.), revaluation rate 75% of inflation rate + 1.5 points = 3.00% p.a. (2018: 3.00% p.a.).
The amounts recognised in the Consolidated Statement of Financial Position are as follows:
30 September 30 September 2019 2018 Defined benefit obligation at start of period 159 153 Assumed through business combinations 22 – nterest cost – 2 Benefits paid (38) – Defined benefit obligation at end of period 143 155 Other 12 Non-current provision 155 159
(iii) Interest and Penalties on open tax enquiries: as stated in note 13, a provision had been made for the penalties and late interest payment for the 2015 tax assessment in Germany, which was settled during 2019.
(iv) Legal and contract related provisions: relate to exposures for potential contractual penalties arising in the normal course of business. Provisions are recognised where a legal or constructive obligation exists at the period end date and where a reliable estimate can be made of the likely outcome. While these provisions are reviewed on a regular basis and adjusted for management’s best current estimates, the judgemental nature of these items means that future amounts settled may differ ro t ose pro e
(v) Other provisions: relate pr ar l to sales a ent n e n t ees an ar ous ot er scellaneous pro s ons ro s ons are recognised where a legal or constructive obligation exists at the period end date and where a reliable estimate can be made of the likely outcome. While these provisions are reviewed on a regular basis and adjusted for management’s best current estimates, the judgemental nature of these items means that future amounts settled may differ from those provided.
26. Indirect tax payable
30 September 30 September 2018 €000 Excise taxes 48,546 50,708 VAT 11,168 11,350 59,714 62,058
/162 / Financial Statements / Notes to the Consolidated Financial Statements
27. Trade and other payables 30 September 30 September 2018 €000 ra e pa a les 36,291 32,214 Accruals 37,406 35,358 Social security and staff welfare costs 2,159 1,970 Other payables 3,009 2,825 78,865 72,367
– Current 78,534 72,080 – Non-current 331 287
28. Authorised and issued share capital and reserves
Share capital of Stock Spirits Group PLC 30 September 30 September Number of shares Ordinary shares of £0.10 each, issued and fully paid 200,000,000 200,000,000
The movements in called up share capital and share premium accounts are set out below:
Number of Ordinary shares Share Premium Ordinary shares At 1 January 2018 200,000,000 23,625 183,541 Cancellation of share premium – – (183,541) At 30 September 2018 and 30 September 2019 200,000,000 23,625 –
All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders’ meetings.
Share premium It was confirmed on 12 June 2018 by the High Court of Justice of England and Wales that the Share Premium Account has been cancelled, crediting the sum of €183,541,000 to retained earnings. This amount is now considered to be distributable. The Share Premium Cancellation was approved by shareholders at the Annual General Meeting held on 22 May 2018.
Merger reserve On 21 October 2013 129,064,871 shares were issued in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l. The net book value of OCM Luxembourg Spirits Holdings S.à.r.l. at the time of exchange was €114,279,000, which resulted in €99,033,000 being credited to the merger reserve in line with merger relief provided by Section 612 of the Company Act 2006.
Consolidation reserve As the Group was formed through a reorganisation in which Stock Spirits Group PLC became a new Parent entity of the Group, the 2013 Consolidated Financial Statements were prepared as a continuation of the existing Group using the pooling of interests method (or merger accounting). Merger accounting principles for this combination gave rise to a consolidation reserve of €5,130,000.
Own share reserve The own share reserve comprises the cost of the Company’s shares held by the Group. The Employment Benefit Trust (EBT) holds these shares on behalf of the employees until the options are exercised. During the year ended 30 September 2019 no shares were purchased by the EBT on behalf of the Group to satisfy the vesting of options under the current share schemes (2018: 1,200,000 shares purchased resulting in an increase in the own share reserve of €3,532,000). At 30 September 2019, the Group held 1,364,519 of the Company’s shares (30 September 2018: 1,691,991).
On the exercise of options in the year, €652,000 (2018: €468,000) was credited to the own share reserve, with the corresponding charge to retained earnings (2018: exercise of Top-Up and Substitute option agreements €468,000).
e ol s t e s ares at cost /163 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
28. Authorised and issued share capital and reserves cont nue Other reserve Other reserves includes the credit to equity for equity-settled share-based payments. See note 34 for full details. The charge for the period ended 30 September 2019 was €2,492,000 (2018: €129,000). On the exercise of Restricted Stock options (RSU) in the period, €683,000 was debited from other reserves and credited to retained earnings.
In 2019, subsidiary undertaking Stock Spirits Group Services A.G. was liquidated. As a consequence, €649,000 has been debited ro ot er reser es an cre te to reta ne earn n s
Foreign currency translation reserve
30 September 30 September 2019 2018 Foreign currency translation reserve 9,774 13,915
Exchange differences relating to the translation from the functional currencies of the Group’s foreign subsidiaries into Euros are accounted for by entries made directly to the foreign currency translation reserve.
29. Distributions made and proposed
Year to 9 months to 30 September 30 September 2019 2018 €000 Cash dividends on Ordinary shares declared and paid: Interim dividend for 2019: 2.63 €cents per share (2018: 2.50 €cents per s are 5,167 5,025
Proposed dividends on Ordinary shares: Final cash dividend for 2019: 6.31 €cents per share (2018: 6.01 €cents per s are 12,563 11,946
Dividend payments included in the Consolidated Statement of Cashflows of €17,121,000 (2018: €16,398,000) reflect the movement in exchange rates from the date of declaration to the date of payment and include the payment of the final dividend ro t e pr or ear
The proposed dividend on Ordinary shares is subject to approval at the AGM and is not recognised as a liability as at 30 September 2019.
30. Risk management The Group is exposed to a variety of risks such as market risk, credit risk and liquidity risk. The Group’s principal financial liabilities are loans and borrowings. The Group also has trade and other receivables, trade and other payables, indirect tax payables and cash and cash equivalents that arise directly from operations. This note provides further detail on financial risk management and includes quantitative information on the specific risks.
e roup s sen or ana e ent o ersees an a rees t e pol c es or ana n eac o t ese r s s ese are su ar se elo
Market risk Market risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate because of changes in market prices. The Group’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Financial instruments affected by market risk include loans and borrowings.
All Group borrowings are subject to the variable rates based on WIBOR, PRIBOR and EURIBOR, as stated per the HSBC loan ac l t a ree ent
The Group has not entered into any derivatives to hedge foreign currency risk in relation to the HSBC facility. Each facility and the resulting cash outflows are denominated in local currency. The cashflows are therefore economically hedged within each market. Management have considered the foreign currency risk exposure and consider the risk to be adequately mitigated.
/164 / Financial Statements / Notes to the Consolidated Financial Statements
Sensitivity analysis The Company recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might affect the amounts recorded in its equity and its profit and loss for the period. Therefore the Company has assessed:
What would be reasonably possible changes in the risk variables at the end of the reporting period, and The effects on profit or loss and equity if such changes in the risk variables were to occur.
Interest rate risk The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the Group’s floating rate loans and borrowings which, at the end of 30 September 2019, are not hedged. With all other variables being constant the Group’s profit before tax is affected through the impact on floating rate borrowings as follows.
Effect on profit/ Increase in (loss) before tax basis points 30 September 2019 uro -50/+50 205/(205) Polish złoty -50/+50 137/(137) ec oruna -50/+50 186/(186)
30 September 2018 uro -50/+50 124/(124) Polish złoty -50/+50 76/(76) ec oruna -50/+50 208/(208)
The assigned movement in basis points for interest rate sensitivity analysis is based upon the currently observable ar et en ron ent
The Group cash balances are held in current bank financial statements and earn immaterial levels of interest. Management has concluded that any changes in the EURIBOR, PRIBOR and WIBOR rates will have an immaterial impact on interest income earned on the Group cash balances. No interest rate sensitivity has been included in relation to the Group’s cash balances.
Foreign currency risk The following tables consider the impact on profit before tax arising from the conversion of non-domestic currency trade debtor, trade creditor and cash balances in our Polish, Czech and UK Group entities should there be a change in the spot €/CZK, €/PLN and €/GBP exchange rates of +/-5%. These currencies are considered as these are the most significant non-Euro denominations o t e roup
Change in EUR vs. PLN/CZK/ GBP rate EUR–PLN + 5% 70 70 - 5% (77) (77)
EUR–CZK + 5% 171 175 - 5% (189) (193)
EUR–GBP + 5% – 2 - 5% – 2
Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
/165 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
30. Risk management cont nue Trade receivables Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and controls relating to customer credit risk management. Outstanding customer receivables are regularly monitored and credit insurance is used where applicable. Consequently, Management does not believe that the Group is subject to any significant credit risk.
The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to external credit ratings where available, otherwise historical information relating to counterparty default rates is used. The Group continually assesses the recoverability of trade receivables and the level of provisioning required. Refer to note 20 for details of accounts receivable c are past ue
The carrying amount of accounts receivable is reduced by an allowance for doubtful debt and the amount of loss is recognised within the Consolidated Income Statement. When a receivable balance is considered uncollectible, it is written off against the allowance for doubtful debts account. Subsequent recoveries of amounts previously written off are credited to the Consolidated Income Statement. Refer to note 20 for details of the movement in allowance for doubtful debts.
Other receivables and financial assets Other receivables and financial assets consist largely of VAT and excise duty receivables and customs guarantees. As the counterparties are Revenue and Customs Authorities in the various jurisdictions in which the Group operates, credit risk is cons ere to e n al an t ere ore no urt er anal s s as een per or e
Financial instruments and cash deposits Credit risk from balances with banks and financial institutions is managed in accordance with the Group’s policy. The Group deposits cash with reputable financial institutions, from which management believes the risk of loss to be remote. The Group’s maximum exposure to credit risk for the components of the statement of financial position at 30 September 2019 and 30 September 2018 is the carrying amounts as illustrated in notes 23 and 32. The Group’s maximum exposure for financial uarantees s note n note 2 an n t e l u t ta le elo
Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and actual cashflows and matching the maturity profiles of financial assets and liabilities.
The tables below summarise the maturity profile of the Group’s undiscounted financial liabilities at 30 September 2019 and 30 September 2018.
Less than Between two As at 30 September 2019 one year and five years Total Financial liabilities €000 €000 Interest-bearing loans and borrowings (note 23) – 105,500 105,500 nterest pa a le on nterest ear n loans 2,175 4,637 6,812 Other financial liabilities (note 24) 56 145 201 Trade and other payables (note 27) 75,958 158 76,116 Contingent consideration (note 24) 1,092 4,188 5,280 Deferred consideration (note 24) – 1,782 1,782 79,281 116,410 195,691
Less than Between two As at 30 September 2018 one year and five years Total Financial liabilities Interest-bearing loans and borrowings (note 23) – 81,443 81,443 nterest pa a le on nterest ear n loans 1,588 4,971 6,559 Other financial liabilities (note 24) 66 201 267 Trade and other payables (note 27) 69,845 133 69,978 Contingent consideration (note 24) – 2,491 2,491 71,499 89,239 160,738
/166 / Financial Statements / Notes to the Consolidated Financial Statements
The RCF agreement which was signed in 2015 was for a term of five years, ending November 2020. On 21 July 2017, Stock Spirits Group extended its revolving credit facilities with its banking club by a further two years to November 2022. The facility is fully flexible, with the amount borrowed being reset each month. Interest payable on interest-bearing loans for the term of the facility has been estimated using amounts drawn at 30 September 2019, and the interest rates and margins applicable at this time.
The Group has €83,139,000 of undrawn facilities available to it under the terms of the RCF (30 September 2018: €108,006,000). Refer to note 23.
The fair value measurement (Level 3) of the deferred and contingent consideration has been performed using a discounted cashflow based on a series of unobservable inputs. Management has used all available information about likely future trading of Quintessential Brands Ireland Whiskey Limited, Bartida s.r.o., Bartida Retail s.r.o. and Distillerie Franciacorta S,p.A. to determine the fair value of the contingent and deferred consideration.
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 t eets c an n us ness nee s
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 c an es to t e cap tal re u re ents n t e current per o
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:
Net debt 42,266 31,583 Equity attributable to the owners of the Company 361,414 351,881 403,680 383,464
Net debt is calculated as follows:
Cash and cash equivalents (note 32) 63,437 50,143 Floating rate loans and borrowings (note 23) (105,502) (81,459) nance leases note 2 201 (267) Net debt (42,266) (31,583)
2019 2018 Adjusted EBITDA (note 7) 63,217 35,848 Net debt/Adjusted EBITDA (Leverage) 0.67 0.88
Fair value Management considers that cash and cash equivalents, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
As per the table below, the carrying amounts of the Group’s financial instruments are considered to be a reasonable approximation of their fair values.
/167 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
30. Risk management cont nue Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts which approximates fair values of all of the Group’s financial instruments that are carried in the financial statements.
Financial assets and liabilities at As at 30 September 2019 amortised cost Total book value Financial assets: Cash and cash equivalents (note 32) 63,437 63,437 ra e an ot er rece a les note 20 106,832 106,832 usto s epos ts note 21 4,720 4,720 Financial liabilities: Interest-bearing loans and borrowings: (i) Finance lease obligations (note 24) 201 201 (ii) Floating rate borrowings – banks (note 23) (105,425) (105,425) Trade and other payables (note 27) (76,116) (76,116) Contingent consideration (note 24) (5,280) (5,280) Deferred consideration (note 24) (1,782) (1,782)
Financial assets and liabilities at As at 30 September 2018 amortised cost Total book value Financial assets: Cash and cash equivalents (note 32) 50,143 50,143 ra e an ot er rece a les note 20 114,083 114,083 usto s epos ts note 21 4,877 4,877 Financial liabilities: Interest-bearing loans and borrowings: (i) Finance lease obligations (note 24) (267) (267) (ii) Floating rate borrowings – banks (note 23) (81,300) (81,300) Trade and other payables (note 27) (69,978) (69,978) Contingent consideration (note 24) (2,491) (2,491)
At 30 September 2019 and 30 September 2018 contingent and deferred consideration is measured at fair value (Level 3). There are no further financial instruments and therefore an analysis using the fair value hierarchy has not been performed.
/168 / Financial Statements / Notes to the Consolidated Financial Statements
31. Related party transactions Note 33 below provides details of the Group’s structure including information about the subsidiaries of Stock Spirits Group PLC. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. There were no transactions with related parties in the period to 30 September 2018 or 30 September 2019, with the exception of intercompany transactions and compensation of key management personnel.
Compensation of key management personnel The Group’s Directors, as shown on pages 70 and 71, and the senior management team are deemed to be key management personnel. It is the Board and senior management team which have responsibility for planning, directing and controlling the activities of the Group. Total compensation to key management personnel was included in selling expenses and other operational expenses in the Consolidated Income Statement.
Year to 9 months to 30 September 30 September 2019 2018 Short-term employee benefits 5,481 5,294 oc al secur t costs 575 330 Post-employment benefits 261 213 Share-based compensation (note 34) 2,010 632 Termination benefits 3 – 8,330 6,469
There were no material transactions or balances between the Group and its key management personnel or members of their close family. At the end of the period, key management personnel did not owe the Group any amounts (2018: €nil).
As at 30 September 2019, no Directors (2018: nil) had any retirement benefits accrued under either money-purchase schemes or under defined benefit schemes.
In 2019, no Director (2018: nil) made gains on the exercise of share options.
Other disclosures on Directors’ remuneration required by the Companies Act 2006 and those specified for audit by the Directors’ Remuneration Report Regulations 2002 are included in the Directors’ Remuneration Report. See page 87.
Other related party transactions The following table provides the total amount of transactions that have been entered into with Quintessential Brands Ireland Whiskey Limited and its related entities for the year to 30 September 2019 and the 9 month period to 30 September 2018.
Sales of Purchases of Amounts owed Amounts owed goods/services goods/services by related parties to related parties Subsidiaries: Stock Plzeň-Božkov s.r.o. 6 84 – 17 toc r l – – 1 – toc ols a p o o – 324 – 2 toc o o – 68 – 22 toc lo ens o s r o 1 11 1 7 7 487 2 88
/169 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
31. Related party transactions cont nue
Other related party transactions cont nue
Sales of Purchases of Amounts owed Amounts owed goods/services goods/services by related parties to related parties Subsidiaries: Stock Plzeň-Božkov s.r.o. – 31 – 31 toc r l 8 – 5 toc o o 5 67 5 15 toc lo ens o s r o 5 32 5 – 1 138 10 51
32. 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 30 September 2019 2018 as an an alances 63,437 50,143
Cash and cash equivalents are denominated in the following currencies:
30 September 30 September 2019 2018 terl n 21,121 2,030 uro 11,226 9,814 ec oruna 16,165 18,254 Polish złoty 13,223 14,887 Other currencies 1,702 5,158 otal 63,437 50,143
/170 / Financial Statements / Notes to the Consolidated Financial Statements
33. Group structure and acquisition details Details of Group undertakings as of 30 September 2019 and 30 September 2018 are as follows:
Country of Proportion of voting rights shares held incorporation and registered office 30 September 30 September Group company address Relation 2018 Stock Spirits (UK) Limited n lan 2 u s ar 100 100 Stock Plzeň-Božkov s.r.o.1 Czech Republic u s ar 100 100 toc r l 1 tal 6 u s ar 100 100 F.lli Galli, Camis & Stock A.G.1 t erlan 7 u s ar 100 100 toc ols a p o o 1 olan 3 u s ar 100 100 Stock International s.r.o.1 Czech Republic u s ar 100 100 Stock Spirits Group Services A.G.1 t erlan 7, 12 u s ar – 100 Stock BH d.o.o.1 osn a8 u s ar 100 100 toc o o 1 Croatia9 u s ar 100 100 Baltic distillery GmbH1 er an 10 u s ar 100 100 toc lo ens o s r o 1 lo a a5 u s ar 100 100 Stock Finance (Koruna) Limited1 n lan 2 u s ar 100 100 Distillerie Franciacorta S.p.A.1 tal 6 u s ar 100 100 Bartida s.r.o.1 Czech Republic11 u s ar 100 100 Bartida Retail s.r.o.1 Czech Republic11 u s ar 100 100
All shareholdings in subsidiaries are represented by Ordinary shares.
1. Wholly owned, held indirectly through subsidiary undertakings 2. The registered office is Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH, United Kingdom 3. The registered office is ul Spoldzielcza n.6 Lublin 20–402, Poland 4. The registered office is Palirenska 641/2, PSC 32600, Czech Republic 5. The registered office is Galvaniho 7/A Bratislava – mestská časť Ružinov 821 04, Slovakia 6. The registered office is Tucidide 56 bis, 20 134 Milan, Italy 7. The registered office is Domanda Verurraltungs GmbH, Baarerstrasse 43, 6302 Zug 8. The registered office is Džemala Bijedića 185, Ilidža, 71000 Sarajevo, Bosnia Herzegovina 9. The registered office is Josipa Lončara 3, 10000 Zagreb, Croatia 10. The registered office is Baltic Distillery GmbH, Gartenweg 1, 18334 Dettmannsdorf 11. The registered office is Havelská 500/25, Praha 1, Staré Město, 110 00, Czech Republic 12. In connection with an internal corporate reorganisation, Stock Spirits Group Services A.G. was liquidated in June 2019
/171 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
34. Share-based compensation
Share options issued at IPO Post-IPO awards were valued by reference to the share price at admission to the London Stock Exchange.
The Group EBT holds the shares for all vested share options. At IPO several members of key management were issued a total of 1,538,124 £0.10 Ordinary share options in Stock Spirits Group PLC. The options vested immediately upon grant.
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Company to settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Company on exercise of the options.
30 September 30 September 2018 Exercisable options Number outstanding 458,501 458,501 Weighted average exercise price £nil £nil Expiration period ears 5 years
ere as no o e ent n t e nu er o a ar s outstan n ur n t e ear
Performance Share Plan (PSP): Participation in the PSP is restricted to the senior management team. Awards made under the PSP normally vest provided the participant remains in the Group’s employment during the performance period and financial targets are met at the end of the per or ance per o
In the 2019 plan, financial targets are based 50% on EPS targets and 50% on cashflow conversion.
The performance period is three financial years beginning with the financial year in which the award is granted. The vesting period for grants made under the 2019 scheme is 2.80 years with an exercise period of 7.20 years. The exercise price of PSP options is €nil.
Awards were granted over 584,279 shares on 21 February 2019. The Executive Directors are required to hold the shares (other than those sold to cover tax and social security due on exercise) for a period of two years from the date of vest. These new options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
In the 2018 plan, financial targets were based 50% on EPS targets and 50% on cashflow conversion.
The performance period for the 2018 PSP scheme is three financial years, beginning with the financial year in which the award is granted. The vesting period for grants made under the 2018 scheme is 2.72 years with an exercise period of 7.28 years to reflect the impact of the change in the year-end to 30 September from 31 December. The exercise price of PSP options is €nil.
Awards were granted over 382,661 shares on 14 March 2018 (2017: 1,611,583 shares). An additional 4,521 options were also issued under the 2017 PSP scheme. The Executive Directors are required to hold the shares (other than those sold to sell to cover tax and social security due on exercise) for a period of two years from the date of vest. These new options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
In the 2017 plan, financial targets were based 50% on EBITDA targets and 50% on cashflow conversion for senior management excluding the Executive Directors. For Executive Directors the performance conditions were 50% EPS targets and 50% cashflow conversion targets. These options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
The performance period for the 2017 PSP scheme is three financial years, beginning with the financial year in which the award is granted. The vesting period for grants made under this scheme is three years with an exercise period of seven years. The exercise price of PSP options granted under this scheme is €nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
Further information on the PSP is set out in the Directors’ Remuneration Report on pages 87 to 104.
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The principal assumptions made in measuring the fair value of PSP awards were as follows:
2019 PSP 2018 PSP 2019 PSP No holding 2018 PSP No holding Principal assumptions Holding period period Holding period period 2017 PSP a r alue at rant ate 191 1 pence 227.5 pence 209.8 pence 259.0 pence 187.0 pence are pr ce on rant ate 227.5 pence 227.5 pence 259.0 pence 259.0 pence 187.0 pence Expected life of the awards 2.80 years 2.80 years 2.72 years 2.72 years 3 years Risk free rate interest rate 0.85% 0.84% 0.82% 0.82% 0 en el on t e o pan s s ares 0 0 0 0 n/a Volatility of the Company’s shares 30.70% 30.70% 36.39% 36.39% n/a
The movements in the awards outstanding during the year were as follows:
2019 Number At 1 October 2018 1,735,893 rante 584,279 Outstanding at 30 September 2019 2,320,172 Exercisable at 30 September 2019 –
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Group to settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Group on exercise of the options.
Restricted Stock options (RSU): On 21 February 2019, awards were granted over 681,919 shares. An additional 292 options were also issued under the 2018 RSU scheme.
Participation in the 2019 RSU is restricted to the senior management team, excluding Executive Directors. Vesting is dependent upon continued employment as at the date of the announcement of the 2020 results and an underpin such that Adjusted EBITDA in 2021 is greater than Adjusted EBITDA in 2018. No dividends accrue to the Plan participants prior to exercise. The exercise price of RSU options is €nil.
On 14 March 2018, awards were granted over 453,897 shares (2017: 534,419). An additional 2,261 options were also issued under the 2017 RSU scheme.
Participation in the 2018 RSU is restricted to the senior management team, excluding Executive Directors. Vesting is dependent upon continued employment as at the date of the announcement of the 2020 results and an underpin such that Adjusted EBITDA in 2020 is greater than Adjusted EBITDA in 2017. No dividends accrue to the Plan participants prior to exercise. The exercise price of 2018 RSU options is €nil.
Participation in the 2017 RSU was restricted to the senior management team, who were previously included in the 2014 or 2015 PSP schemes and still employed by the Group in March 2017. Vesting is dependent upon continued employment as at the date of the announcement of the 2018 results. No dividends accrue to the Plan participants prior to exercise.
The exercise price of 2017 RSU options is €nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date. The fair value of nil-cost options is determined using a Black-Scholes model.
Further information on the RSU is set out in the Directors’ Remuneration Report on pages 87 to 104.
/173 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
34. Share-based compensation cont nue
Restricted Stock options (RSU): cont nue The principal assumptions made in measuring the fair value of RSU awards were as follows:
2019 2017 RSU RSU RSU Principal assumptions a r alue at rant ate 206.3 pence 236.8 pence 172.8 pence are pr ce on rant ate 227.5 pence 259.0 pence 187.0 pence Expected life of the awards 2.80 years 2.72 years 1.72 years Risk free rate interest rate 0.84% 0.82% 0 en el on t e o pan s s ares 3.5% 3.3% n/a Volatility of the Company’s shares 30.70% 36.39% n/a
The movements in the awards outstanding during the period were as follows:
Number At 1 October 2018 935,623 rante 682,211 Exercised (312,248) Outstanding at 30 September 2019 1,305,586 Exercisable at 30 September 2019 169,478
Deferred Annual Bonus Plan: In respect of 2018, an annual bonus was paid to Mirek Stachowicz and Paul Bal of 97.24% of salary. 25% of the bonus earned was deferred into shares. Options over 58,634 shares were awarded. The exercise price of the options is €nil. Dividends accrue prior to exercise. The vesting period is two financial years from the date of grant with an exercise period of eight years. See page 88 in the Directors’ Remuneration Report.
In respect of 2017 an annual bonus was paid to Mirek Stachowicz of 32.1% of salary. 25% of the bonus earned was deferred into shares. Options over 13,661 shares were awarded. The exercise price of the options is €nil. Dividends accrue prior to exercise. The vesting period is two financial years from the date of grant with an exercise period of eight years. See page 87 in the Directors’ Remuneration Report.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date. The fair value of nil-cost options is determined using a Black-Scholes model.
The principal assumptions made in measuring the fair value of awards were as follows:
2019 2018 P P Principal assumptions a r alue at rant ate 227.5 pence 243.0 pence are pr ce on rant ate 227.5 pence 243.0 pence Expected life of the awards 2 0 ears 2 0 ears Risk free rate interest rate 0.84% 0.83% en el on t e o pan s s ares 0 0 Volatility of the Company’s shares 32.98% 29.75%
/174 / Financial Statements / Notes to the Consolidated Financial Statements
Share-based compensation expense The expense recognised in other operational expenses for employee services received during the period is shown in the ollo n ta le
Year to 9 months to 30 September 30 September 2019 Total share-based compensation expense recognised in Statement of Changes in Equity 2,492 129 Total cash-settled share-based compensation awards recognised in liabilities 376 20 Share-based compensation (note 10) 2,868 1 9
The total value of cash-settled share-based compensation awards recognised in liabilities at 30 September 2019 is €759,000 (2018: €383,000). These represent employer’s social security on share options and accrued dividend equivalents and associated e plo er s soc al secur t
35. Business combinations During 2019, the Group made two acquisitions. The acquisitions of the share capital of Distillerie Franciacorta S.p.A. and Bartida (Bartida s.r.o. and Bartida Retail s.r.o.) were accounted for as business combinations as set out below.
Distillerie Franciacorta S.p.A. On 3 June 2019, the Group acquired 100% of the share capital of Distillerie Franciacorta S.p.A., an unlisted company based in Italy specialising in the production, distribution and sales of alcoholic drinks. The Group acquired Distillerie Franciacorta S.p.A. to enhance its presence in the Italian market as well as to acquire a number of brands including grappa, liqueurs and Franciacorta – a pre u tal an spar l n ne t at s pro uce solel n t e ranc acorta re on
Consideration transferred The following table summarises fair values, including measurement period adjustments recognised during the reporting period, of the identifiable assets and liabilities of Distillerie Franciacorta at the date of acquisition:
Consideration paid as pa 24,255 Deferred consideration (payable over 4 years) 1,767 Purchase price adjustment for inventory and working capital 648 Other fair value adjustments 117 Total consideration 26,787
An advance payment of €3,000,000 was made on 31 January 2019 on signing of the agreement to purchase Distillerie Franciacorta S.p.A.. A capitalisation factor was applied to this payment to calculate the fair value at acquisition date in June. This increased the deemed cash consideration by €117,000.
An additional €40,000 was paid relating to the reimbursement of equity following the setup of the entity, Distillerie Franciacorta S.p.A..
The purchase price adjustment of €648,000 is based on levels of working capital and inventory being higher at the acquisition date than those on which the contracted consideration was based. This amount is payable within 12 months.
The Group has agreed to pay the selling shareholders additional consideration of €1,000,000 on the second anniversary of the completion of the acquisition, and €900,000 on the fourth anniversary of the completion of the acquisition. The Group initially recognised €1,767,000 as deferred consideration, which represented the fair value at acquisition. At 30 September 2019 the deferred consideration has increased to €1,782,000, representing unwinding of discount from acquisition.
/175 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
35. Business combinations cont nue
Distillerie Franciacorta S.p.A. cont nue Acquisition-related costs The Group incurred acquisition-related costs of €922,000 on consulting fees, legal fees and due diligence. These costs have been included as an exceptional expense. See note 8.
Identifiable assets acquired and liabilities assumed Fair value recognised on acquisition Assets Property, plant and equipment (note 18) 4,882 n entor es 3,068 Brands and customer relationships (note 16) 15,479 Liabilities ra e an ot er pa a les (162) Deferred tax liabilities (4,724) Total identifiable net assets at fair value 18,543
Goodwill Goodwill arising from the acquisition has been recognised as follows:
30 September 2019 Consideration transferred 26,787 Fair value of identifiable net assets (18,543) Goodwill 8,244
The goodwill of €8,244,000 comprises the value of expected synergies and assembled workforce arising from the acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units.
Reported results for year ending 30 September 2019 From the date of acquisition Distillerie Franciacorta S.p.A. contributed the following results:
Reported results for year ended 30 September 2019 Volumes (thousand 9 litre cases) (unaudited) 36 Revenue (€000) 1,724 EBITDA (€000) (1,146) Adjusted EBITDA (€000) (223) Operating loss before exceptional expenses (€000) (501) Loss before tax (€000) (1,427)
The results of Distillerie Franciacorta S.p.A. are included in the Italy and Other Operational segments (note 6). Of total revenue, €1,433,000 is included in the Italy segment, and €291,000 in the Other Operational segment. Negative Adjusted EBITDA of €294,000 is included in the Italy segment and positive Adjusted EBITDA of €71,000 in the Other Operational segment.
/176 / Financial Statements / Notes to the Consolidated Financial Statements
Distillerie Franciacorta S.p.A. is a newly established legal entity, with the relevant assets and liabilities being transferred into this new legal entity by the vendor. As a consequence, relevant and reliable information for the period immediately prior to acquisition is not available, and therefore no estimate of the impact to consolidated revenue and profit should this acquisition have been made on 1 October 2018 has been given.
The contribution from Distillerie Franciacorta S.p.A shown above has been impacted by the timing of the acquisition. Sales of spirits beverages are somewhat seasonal, with the fourth calendar quarters accounting for the highest sales volumes.
Bartida s.r.o. and Bartida Retail s.r.o. On 31 May 2019, the Group acquired 100% of the share capital of on-trade spirits business Bartida, an unlisted company based in the Czech Republic specialising in the production, distribution and sales of alcoholic drinks. The deal includes Bartida’s online shop as well as their demonstration bar and on-trade training centre in Prague. The Group acquired Bartida to enhance its presence n t e ec on tra e ar et as ell as to ac u re a nu er o ran s
Consideration transferred The following table summarises fair values, including measurement period adjustments recognised during the reporting period, of the identifiable assets and liabilities of Bartida at the date of acquisition:
Consideration paid as pa 8,260 Contingent consideration (payable over 5 years based on performance conditions) 2,722 Other fair value adjustments 2 Total consideration 10,940
The Group has agreed to pay the selling shareholders additional consideration of €1,350,000 on the first anniversary of the completion of the acquisition, €1,550,000 on the second anniversary, and €280,000 on each of the third, fourth and fifth anniversaries should various commitments be met. The Group initially recognised €2,722,000 as contingent consideration, which represented the fair value at acquisition. At 30 September 2019 the contingent consideration has increased to €2,789,000, representing unwinding of discount from acquisition.
Acquisition-related costs The Group incurred acquisition-related costs of €242,000 on legal and advisory fees. These costs have been included as an exceptional expense. See note 8.
Identifiable assets acquired and liabilities assumed Fair value recognised on acquisition Assets as an cas e u alents 754 Property, plant and equipment (note 18) 32 ra e an ot er rece a les 1,034 n entor es 1,464 Brands, distributor contracts and customer relationships (note 16) 7,145 Liabilities ra e an ot er pa a les (1,483) Deferred tax liabilities (1,354) Total identifiable net assets at fair value 7,592
/177 Stock Spirits Group PLC Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements continued at 30 September 2019
35. Business combinations cont nue
Bartida s.r.o. and Bartida Retail s.r.o. cont nue Goodwill Goodwill arising from the acquisition has been recognised as follows:
30 September 2019 Consideration transferred 10,940 Fair value of identifiable net assets (7,592) oo ll 3,348
The goodwill of €3,348,000 comprises the value of expected synergies and assembled workforce arising from the acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units.
The fair value of acquired patents and licenses acquired comprise the Bartida trademark, Bartida brands and customer relationships.
Reported results for year ending 30 September 2019 From the date of acquisition Bartida s.r.o. and Bartida Retail s.r.o. contributed the following results:
Reported results for year ended 30 September 2019 Volumes (thousand 9 litre cases) (unaudited) 21 Revenue (€000) 2,262 EBITDA (€000) (51) Adjusted EBITDA (€000) 190 Operating loss before exceptional expenses (€000) (32) Loss before tax (€000) 210
If the acquisition had occurred on 1 October 2018, management estimates that consolidated revenue would have been €322.3m, and consolidated profit for the year would have been €34.6m. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 October 2018.
/178 36. Operating lease commitments e roup as entere nto co erc al leases on certa n te s o plant an ac ner an u l n s ese leases a e an average life of between three and five years with no renewal option included in the contracts. There are no restrictions placed upon t e roup enter n nto t ese contracts
Future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year 4,587 5,005 After one year but not more than five years 10,418 12,267 More than five years 3,250 2,801 18,255 20,073
The total charge under operating leases as of 30 September 2019 was €5,262,000 (2018: €3,668,000).
37. Commitments for capital expenditure Commitments for the acquisition of property, plant and equipment as of 30 September 2019 are €nil (2018: €656,000).
38. Events after the balance sheet date There were no events after the balance sheet date which require adjustment to or disclosure in these financial statements.
/179 Stock Spirits Group PLC Annual Report & Accounts 2019
Company Statement of Financial Position at 30 September 2019
S pt r S pt r ot s Non-current assets n est ents 2 1 1 2 1 t er rece a les 1 2 1 2 2
Current assets t er rece a les an prepa ents 1 1 0 1 1 as an cas e u alents 1 91 1 22 0 0 1 9 Total assets 2 21 2 2
Non-current liabilities ra e an ot er pa a les 102 91
Current liabilities ra e an ot er pa a les 2 9 2 0 Total liabilities 2 1 2 1 Net assets 2 2 0 0
Capital and reserves ssue s are cap tal 9 20 000 20 000 er er reser e 9 n s are reser e 9 2 19 000 Share-based compensation reserve 9 12 10 0 9 1 Reta ne earn n s 1 2 2 1 0 2 2 0 0
otes 1 to 1 are an nte ral part o t e nanc al tate ents
The standalone financial statements of Stock Spirits Group PLC, registered number 08687223, on pages 180 to 193, were approved by t e oar o rectors an aut or se or ssue on ece er 2019 an ere s ne on ts e al
Mirek Stachowicz Paul Bal Chief Executive Officer Chief Financial Officer
ece er 2019 ece er 2019
/180 i ci St t ts o pan tate ent o as lo s
Company Statement of Cashflows for the year ended 30 September 2019
r to o t s to S pt r S pt r ot s Operating activities Profit for the period 2 1 1 09 Adjustments to reconcile profit to net cashflows: Other financial income 19 2 nterest e pense 2 1 9 Share-based compensation 12 1 0 9 2 0 9 1 0 Working capital adjustments ncrease ecrease n tra e rece a les an ot er assets 10 Increase in trade payables and other liabilities 29 1 Net cashflows from operating activities 2 901 1 0
Investing activities nterest rece e Net cashflow from investing activities Financing activities nterest pa 212 1 2 en s pa to e u t ol ers 10 1 99 1 1 Purchase of own shares 9 11 Net cashflow from financing activities 1 210 1 Net increase in cash and cash equivalents 12 91 Cash and cash equivalents at the start of the period 1 22 Cash and cash equivalents at the end of the period 1 91 1 22
/181 Stock Spirits Group PLC Annual Report & Accounts 2019
Company Statement of Changes in Equity for the year ended 30 September 2019
S r s ssu S r r r compensation s r t i c pit pr iu r s r r s r r s r r i s ot Balance at 1 January 2018 20 000 1 2 9 021 2 2 2 2 2 0 01 Profit for the year 1 09 1 09 otal co pre ens e nco e 1 09 1 09
Share-based compensation charge (note 12) 11 11 Own shares acquired for incentive schemes (note 9) 1 1 Own shares utilised for incentive schemes (note 9) 1 0 en s note 10 1 1 1 1 Cancellation of share premium (note 9) 1 2 1 2 Balance at 30 September 2018 20 000 9 1 000 1 0 2 0 0
Profit for the period 2 1 2 1 otal co pre ens e nco e 2 1 2 1
Share-based compensation charge (note 9,12) 2 21 2 21 Reduction in share-based compensation reserve following liquidation of subsidiary (note 9) 9 9 Own shares utilised for incentive schemes (note 9) 1 1 en s note 10 1 99 1 99 Balance at 30 September 2019 20 000 10 0 2 19 1 2 2 2
/182 / Financial Statements / Notes to the Parent Company Financial Statements
Notes to the Parent Company Financial Statements at 30 September 2019
1. General information These separate financial statements were approved and authorised for issue by the Board of Directors of Stock Spirits Group PLC (the Company) on 4 December 2019.
The Company’s registered office is at Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH, United Kingdom.
2. Accounting policies
Basis of preparation These separate financial statements of the Company are presented as required by the Companies Act 2006 (the Act). As permitted by the Act, the separate financial statements 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).
The financial statements have been prepared on a going concern basis as the Directors believe that there are no material uncertainties which 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.
The financial statements are presented in Sterling (£), rounded to the nearest thousand (£000) unless otherwise stated. They have been prepared under the historical cost convention.
These financial statements have been prepared for the year ended 30 September 2019 (2018: 9 months to 30 September 2018).
Exemptions The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and not presented an Income Statement or a Statement of Comprehensive Income for the Company alone. The profit for the period has been disclosed in the Statement of Changes in Equity.
New/Revised standards and interpretations adopted in 2019 IFRIC 23 Uncertainty over Income Tax Treatments, applicable for accounting periods beginning on or after 1 January 2019, has been early adopted. This interpretation is applied to the determination of taxable profit, tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. IFRIC 23 has been applied retrospectively. The impact to opening balances at 30 September 2018 is €nil.
There are no further amendments to existing standards or interpretations which were newly effective in the year to 30 September 2019.
New/Revised standards and interpretations not applied The following standards and interpretations in issue are not yet effective for the Company and have not been adopted by the Company:
Effective dates¹ IFRS 16 Leases 1 January 2019 Amendments to IFRS 9: Financial Instruments 1 January 2019 Amendments to IAS 19: Employee Benefits 1 January 2019 Amendments to IAS 28: Investments in Associates and Joint Ventures 1 January 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle – minor amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 1 January 2019 Amendments to References to Conceptual Framework in IFRS Standards 1 January 2020 Amendments to IFRS 3: Business Combinations 1 January 2020 Amendments to IAS 1: Presentation of Financial Statements and IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors 1 January 2020 IFRS 17: Insurance Contracts 1 January 2021
1. The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Company prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Company’s discretion to early adopt standards /183 Stock Spirits Group PLC
Notes to the Parent Company Financial Statements continued at 30 September 2019
2. Accounting policies continued
New/Revised standards and interpretations not applied continued Following the change of year-end to 30 September, the above standards and interpretations effective from 1 January 2019 will become effective from 1 October 2019.
The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Company financial statements in the period of initial application. The Company will continue to monitor any potential impact as the new standards become more imminent.
Investments Investments in subsidiary undertakings are valued at cost, less accumulated impairment.
Share-based compensation Equity-settled transactions The cost of equity-settled transactions is recognised together with a corresponding increase in other reserves in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for the period represents the movement in cumulative expense recognised at the beginning and end of the period and is recognised in general and administrative expenses.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cost based on the original award terms continues to be recognised over the original vesting period and an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification.
The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings is recognised by the Parent Company, in its individual financial statements, as an increase in the costs of investments in its subsidiaries, with the corresponding credit being recognised directly in equity as a credit to the share-based payments reserve equivalent to the IFRS 2 cost.
Repurchase and reissue of Ordinary shares (own shares) When shares recognised in equity are repurchased, the amount of consideration paid – which includes directly attributable costs – is recognised as a deduction from equity. Repurchased shares are classified as own shares and are presented in the own share reserve. When own shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is presented within retained earnings.
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s loans and receivables comprise Other receivables and Cash and cash equivalents in the balance sheet.
Other receivables Other receivables are non interest-bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced by appropriate allowances for estimated irrecoverable amounts.
/184 / Financial Statements / Notes to the Parent Company Financial Statements
Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position comprise cash at banks, in hand and in short-term deposits which can be recalled in three months or less.
Trade and other payables Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest rate method.
Cash dividends to equity holders The Company recognises a liability to make cash distributions to equity holders of the Parent when the distribution is authorised and the distribution is no longer at the discretion of the Company. As per the corporate laws in the United Kingdom, an interim distribution is authorised by the Board, whilst a final distribution is authorised when it is approved by the shareholders.
3. Investments
Carrying value at 1 October 2018 256,341 Increase in investments from share-based payments 1,349 Decrease in investments from share-based payments following liquidation of Stock Spirits Services A.G. (549) Carrying value at 30 September 2019 257,141
See note 33 to the Consolidated Financial Statements.
In 2019 subsidiary undertaking Stock Spirits Services A.G. was liquidated. As a consequence the investment which was previously recorded in relation to options issued over equity shares to employees of this subsidiary undertaking has been written off, with a corresponding reduction in the share-based compensation reserve.
4. Other receivables due in more than 1 year
30 September 30 September 2019 2018 Cost of arranging bank loans > 1 year 3 31
5. Other receivables and prepayments
30 September 30 September Amounts owed by subsidiary undertakings 15,804 14,844 Other debtors and prepayments 328 301 Cost of arranging bank loans < 1 year 28 28 16,160 15,173
No security has been granted over other receivables.
6. Cash and cash equivalents
30 September 30 September Cash and bank balances 13,914 1,223
/185 Stock Spirits Group PLC
Notes to the Parent Company Financial Statements continued at 30 September 2019
7. Trade and other payables: amounts falling due after more than one year
30 September 30 September Other payables 102 91
Other payables falling due after more than one year represents Employer’s social security costs of £102,000 (2018: £91,000) in relation to share-based compensation.
8. Trade and other payables
30 September 30 September 2019 2018 Trade payables 160 92 Accruals 1,095 1,063 VAT and social security 104 216 Amounts due to subsidiary undertakings 526 501 Other payables 754 175 2,639 2,047
Other payables includes £173,000 (2018: £146,000) which represents Employer’s social security costs in relation to share-based compensation.
9. Authorised and issued share capital and reserves The movements in called up share capital and share premium accounts are set out below:
Number of Ordinary shares Share Premium Ordinary shares £ At 1 January 2018 200,000,000 20,000,000 155,428,080 Cancellation of share premium – – (155,428,080) At 30 September 2018 and 30 September 2019 200,000,000 20,000,000 –
Share premium On 25 October 2013 the Company was admitted to the London Stock Exchange and placed 22,127,660 ordinary £0.10 shares at a premium of £2.25 per share. Also included in share premium was capitalised listing costs, which were incurred directly in connection with the registration and distribution of shares.
It was confirmed on 12 June 2018 by the High Court of Justice of England and Wales that the Share Premium Account has been cancelled, crediting the sum of £155,428,080 to retained earnings. This amount is now considered to be distributable. The Share Premium Cancellation was approved by shareholders at the AGM held on 22 May 2018.
Merger reserve On 21 October 2013, 129,064,871 shares were issued in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l. The net book value of OCM Luxembourg Spirits Holdings S.à.r.l. at the time of exchange was £96,743,000, which resulted in £83,837,000 being credited to the merger reserve in line with merger relief provided by Section 612 of the Company Act 2006.
/186 / Financial Statements / Notes to the Parent Company Financial Statements
Own share reserve The own share reserve comprises the cost of the Company’s shares, which are held by the Employee Benefit Trust (EBT) on behalf of the employees until the options are exercised. During the 9 months ended 30 September 2018, 1,200,000 shares were purchased by the EBT on behalf of the Group, to satisfy the vesting of options under the current share schemes. This resulted in an increase in the own share reserve of £3,144,000. No further share purchases were made in the year ending 30 September 2019. At 30 September 2019 the EBT held 1,364,519 of the Company’s shares (2018: 1,691,991).
On the exercise of options in the period, £581,000 (2018: £416,000) was credited to the own share reserve.
The EBT holds the shares at cost.
Share-based compensation reserve Share-based compensation reserve includes the credit to equity for equity-settled share-based payments. See note 12 for full details. The equity charge for the period ended 30 September 2019 was £2,218,000 (2018: £115,000).
In 2019, subsidiary undertaking Stock Spirits Services A.G. was liquidated. As a consequence the investment which was previously recorded in relation to options issued over equity shares to employees of this subsidiary undertaking has been written off, with a corresponding reduction in the share-based compensation reserve.
10. Distributions made and proposed
Year to 9 months to 30 September 30 September Cash dividends on Ordinary shares declared and paid: Interim dividend for 2019: 2.63 Euro cents (2.31 Sterling pence) per share (2018: 2.50 Euro cents (2.25 Sterling pence)) 4,600 4,474 Proposed dividends on Ordinary shares: Final cash dividend for 2019: 6.31 Euro cents (5.62 Sterling pence) per share (2018: 6.01 Euro cents (5.35 Sterling pence)) 11,181 10,632
11. Risk management The Company’s principal financial liabilities are trade and other payables. The Company’s principal financial assets include other debtors, prepayments and cash and cash equivalents that derive directly from its operations.
The Company is exposed to a variety of risks including market risk, credit risk and liquidity risk. The Company’s senior management oversees and agrees the policies for managing each of these risks. These are summarised below.
Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument, leading to a financial loss. The Company is exposed to credit risk from its financing activities, including deposits with banks and financial institutions.
Financial instruments and cash deposits Credit risk from balances with banks and financial institutions is managed in accordance with the Group’s policy (refer to note 30 of the Consolidated Financial Statements). The Company deposits cash with reputable financial institutions, from which management believes loss to be remote. The Company’s maximum exposure to credit risk for the components of the Statement of Financial Position at 30 September 2019 is the carrying amounts as illustrated in note 6.
Other receivables and prepayments Other receivables and prepayments consist largely of amounts receivable from subsidiaries. As there are deemed to be no going concern issues with any of the individual Group entities, loss is considered to be remote; consequently, credit risk is minimal and no further analysis has been performed.
/187 Stock Spirits Group PLC
Notes to the Parent Company Financial Statements continued at 30 September 2019
11. Risk management continued
Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying values and fair values of all financial instruments that are carried in the financial statements.
As at 30 September 2019 Financial assets and liabilities at amortised cost Total book value Cash and cash equivalents (note 6) 13,914 13,914 Other receivables (note 4,5) 15,921 15,921 Trade and other payables (note 7,8) (2,364) (2,364)
As at 30 September 2018 Financial assets and liabilities at amortised cost Total book value Cash and cash equivalents (note 6) 1,223 1,223 Other receivables (note 4,5) 14,921 14,921 Trade and other payables (note 7,8) (1,873) (1,873)
Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by maintaining adequate cash reserves, by continuously monitoring forecast and actual cashflows and matching the maturity profiles of financial assets and liabilities.
The table below summarises the maturity profile of the Company’s undiscounted financial liabilities.
As at 30 September 2019 Less than Between two More than On demand one year and five years five years Total Financial liabilities Trade and other payables (note 7,8) – (2,308) (56) – (2,364)
As at 30 September 2018 Less than Between two More than On demand one year and five years five years Total Financial liabilities Trade and other payables (note 7,8) – (1,809) (64) – (1,873)
Market risk Market risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate because of changes in market prices. The Company’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and interest rates. Financial instruments affected by market risk are limited to cash and cash equivalents.
Currency risk The Company engages in foreign currency transactions to a very limited extent. No financial assets or liabilities are held in foreign currencies. Due to the Company’s lack of exposure to currency risk no sensitivity analysis has been performed.
/188 / Financial Statements / Notes to the Parent Company Financial Statements
Interest rate risk The Company has no interest-bearing financial liabilities, and its interest-bearing financial assets consist of only cash and cash equivalents. As such, exposure to interest rate risk is limited and no sensitivity analysis has been performed.
Capital risk management The Board’s objectives and policies for the Company are consistent with those of the Group. Full details are provided in note 30 of the Consolidated Financial Statements.
RCF financing facility On 18 November 2015 the Group signed a facilities agreement for a €200,000,000 revolving credit facility (RCF) with a banking club consisting of five banks including HSBC who also act as the Agent. The term of the RCF facility was originally five years to November 2020. On 21 July 2017, Stock Spirits Group extended its RCF with its banking club by a further two years to November 2022. The other key facility terms remain unchanged. See note 23 of the Consolidated Financial Statements for further details.
12. Share-based compensation
Share options issued at IPO Post-IPO awards were valued by reference to the share price at admission to the London Stock Exchange.
The Group EBT holds the shares for all vested share options. At IPO several members of key management were issued a total of 1,538,124 £0.10 Ordinary share options in Stock Spirits Group PLC. The options vested immediately upon grant.
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Company to settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Company on exercise of the options.
30 September 30 September Exercisable options Number outstanding 458,501 458,501 Weighted average exercise price £nil £nil Expiration period 4 years 5 years
There was no movement in the number of awards outstanding during the year.
Performance Share Plan (PSP) Participation in the PSP is restricted to the senior management team. Awards made under the PSP normally vest provided the participant remains in the Group’s employment during the performance period and financial targets are met at the end of the performance period.
In the 2019 plan, financial targets are based 50% on EPS targets and 50% on cashflow conversion.
The performance period is three financial years beginning with the financial year in which the award is granted. The vesting period for grants made under the 2019 scheme is 2.80 years with an exercise period of 7.20 years. The exercise price of PSP options is €nil.
Awards were granted over 584,279 shares on 21 February 2019. The Executive Directors are required to hold the shares (other than those sold to cover tax and social security due on exercise) for a period of two years from the date of vest. These new options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
In the 2018 plan, financial targets are based 50% on EPS targets and 50% on cashflow conversion.
The performance period is usually three financial years beginning with the financial year in which the award is granted. The vesting period for grants made under the 2018 scheme is 2.72 years with an exercise period of 7.28 years to reflect the impact of the change in the year-end to 30 September from 31 December. The exercise price of PSP options is £nil.
/189 Stock Spirits Group PLC
Notes to the Parent Company Financial Statements continued at 30 September 2019
12. Share-based compensation continued
Performance Share Plan (PSP) continued Awards were granted over 382,661 shares on 14 March 2018 (2017: 1,611,583 shares). An additional 4,521 options were also issued under the 2017 PSP scheme. The Executive Directors are required to hold the shares (other than those sold to sell to cover tax and social security due on exercise) for a period of two years from the date of vest. These new options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
In the 2017 plan, financial targets were based 50% on EBITDA targets and 50% on cashflow conversion for senior management excluding the Executive Directors. For Executive Directors the performance conditions were 50% EPS targets and 50% cashflow conversion targets. These options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
The performance period for the 2017 PSP scheme is three financial years, beginning with the financial year in which the award is granted. The vesting period for grants made under this scheme is three years with an exercise period of seven years. The exercise price of PSP options granted under this scheme is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
Further information on the PSP is set out in the Directors’ Remuneration Report on pages 87 to 104.
The principal assumptions made in measuring the fair value of PSP awards were as follows:
2019 PSP 2018 PSP 2019 PSP No holding 2018 PSP No holding Holding period period Holding period period 2017 PSP Principal assumptions Fair value at grant date 191.1 pence 227.5 pence 209.8 pence 259.0 pence 187.0 pence Share price on grant date 227.5 pence 227.5 pence 259.0 pence 259.0 pence 187.0 pence Expected life of the awards 2.80 years 2.80 years 2.72 years 2.72 years 3 years Risk free rate interest rate 0.85% 0.84% 0.82% 0.82% 0% Dividend yield on the Company’s shares 0% 0% 0% 0% n/a Volatility of the Company’s shares 30.70% 30.70% 36.39% 36.39% n/a
The movements in the awards outstanding during the period were as follows:
Number At 30 September 2018 1,735,893 Granted 584,279 Outstanding at 30 September 2019 2,320,172 Exercisable at 30 September 2019 –
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Group to settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Group on exercise of the options.
Restricted Stock options (RSU) On 21 February 2019, awards were granted over 681,919 shares. An additional 292 options were also issued under the 2018 RSU scheme.
/190 / Financial Statements / Notes to the Parent Company Financial Statements
Participation in the 2019 RSU is restricted to the senior management team, excluding Executive Directors. Vesting is dependent upon continued employment as at the date of the announcement of the 2020 results and an underpin such that Adjusted EBITDA in 2021 is greater than Adjusted EBITDA in 2018. No dividends accrue to the Plan participants prior to exercise. The exercise price of RSU options is £nil.
On 14 March 2018, awards were granted over 453,897 shares (2018: 534,419). An additional 2,261 options were also issued under the 2017 RSU scheme.
Participation in the 2018 RSU is restricted to the senior management team, excluding Executive Directors. Vesting is dependent upon continued employment as at the date of the announcement of the 2020 results and an underpin such that Adjusted EBITDA in 2020 is greater than Adjusted EBITDA in 2017. No dividends accrue to the Plan participants prior to exercise. The exercise price of 2018 RSU options is £nil.
Participation in the 2017 RSU is restricted to the senior management team, who were previously included in the 2014 or 2015 PSP schemes and still employed by the Group in March 2017. There are no performance conditions. Vesting is dependent upon continued employment as at the date of the announcement of the 2018 results. No dividends accrue to the Plan participants prior to exercise. The exercise price of 2017 RSU options is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date. The fair value of nil-cost options is determined using a Black-Scholes model.
Further information on the RSU is set out in the Directors’ Remuneration Report on pages 87 to 104.
The principal assumptions made in measuring the fair value of RSU awards were as follows:
2019 RSU 2018 RSU 2017 RSU Principal assumptions Fair value at grant date 206.3 pence 236.8 pence 172.8 pence Share price on grant date 227.5 pence 259.0 pence 187.0 pence Expected life of the awards 2.80 years 2.72 years 1.72 years Risk free rate interest rate 0.84% 0.82% 0% Dividend yield on the Company’s shares 3.5% 3.3% n/a Volatility of the Company’s shares 30.70% 36.39% n/a
The movements in the awards outstanding during the period were as follows:
2019 Number At 1 October 2018 935,623 Granted 682,211 Exercised (312,248) Outstanding at 30 September 2019 1,305,586 Exercisable at 30 September 2019 169,478
/191 Stock Spirits Group PLC
Notes to the Parent Company Financial Statements continued at 30 September 2019
12. Share-based compensation continued
Deferred Annual Bonus Plan In respect of 2018 an annual bonus was paid to Mirek Stachowicz and Paul Bal of 97.24% of salary. 25% of the bonus earned was deferred into shares. Options over 58,634 shares were awarded. The exercise price of the options is €nil. Dividends accrue prior to exercise. The vesting period is two financial years from the date of grant with an exercise period of eight years. See page 88 in the Directors’ Remuneration Report.
In respect of 2017 an annual bonus was paid to Mirek Stachowicz of 32.1% of salary. 25% of the bonus earned was deferred into shares. Options over 13,661 shares were awarded. The exercise price of the options is £nil. Dividends accrue prior to exercise. The vesting period is two financial years from the date of grant with an exercise period of eight years.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date. The fair value of nil-cost options is determined using a Black-Scholes model.
The principal assumptions made in measuring the fair value of awards were as follows:
2019 DABP 2018 DABP Principal assumptions Fair value at grant date 227.5 pence 243.0 pence Share price on grant date 227.5 pence 243.0 pence Expected life of the awards 2.0 years 2.0 years Risk free rate interest rate 0.84% 0.83% Dividend yield on the Company’s shares 0% 0% Volatility of the Company’s shares 32.98% 29.75%
Share-based compensation expense The amount recognised in the Statement of Changes in Equity for employee services received during the year is shown in the following table:
Equity-settled share-based compensation expense recognised in Statement of Changes in Equity 2,218 115
The expense recognised in other operational expense in respect of the Directors of Stock Spirits PLC during the period is shown in the following table:
2019 2018 Equity-settled share-based compensation expense 868 75 Cash-settled share-based compensation expense 181 (39) Share-based compensation 1,049 36
13. Subsidiaries The principal subsidiary undertakings of the Company and their details are set out in note 33 to the Consolidated Financial Statements.
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14. Related party transactions The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year:
Sales of Purchases of Amounts owed by Amounts owed to goods/services goods/services related parties related parties Subsidiaries: Stock Spirits (UK) Limited 550 – 676 526 Stock S.r.l. – – 1 – 550 – 677 526
Sales of Purchases of Amounts owed by Amounts owed to goods/services goods/services related parties related parties Subsidiaries: Stock Spirits (UK) Limited 549 – 61 493 Stock Polska Sp. z.o.o. – – 39 8 Stock Finance (Koruna) Limited – – 6 – 549 – 106 501
In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Compensation of key management personnel The Executive and Non-Executive Directors are deemed to be key management personnel of Stock Spirits Group PLC. It is the Board which has responsibility for planning, directing and controlling the activities of the Company.
There were no material transactions or balances between the Company and its key management personnel or members of their close family. At the end of the period, key management personnel did not owe the Company any amounts (2018: nil).
Executive and Non-Executive Directors received remuneration for their services to the Company as follows:
Year to 9 months to 30 September 30 September 2019 2018 Short-term employee benefits 2,230 1,628 Social security costs 239 77 Post-employment benefits 112 80 Share-based compensation 873 135 3,454 1,920
As at 30 September 2019 no Directors (2018: nil) had any retirement benefits accrued under either money-purchase schemes or under defined benefit schemes.
In 2019 no Director (2018: nil) made any gains on the exercise of share options. Please refer to page 99 of the Directors Remuneration Report for further details.
Other disclosures on Directors’ remuneration required by the Companies Act 2006 and those specified for audit by the Directors’ Remuneration Report Regulations 2002 are included in the Directors’ Remuneration Report.
/193 Stock Spirits Group PLC Annual Report & Accounts 2019
VALUES
ur alues
Our five values (forming the acronym IDEAS when written in English) ensure everyone behaves in a way that delivers a consistent message around our brand.
/194 itio or tio
in all we do INTEGRITY e ual t o e n onest an a n stron et cal pr nc ples n e er t n e o
Equality of opportunity and respect for DIVERSITY a rness an nclus on or e er one so e can all contr ute to ar s pro n our us ness
EMPOWERMENT and trust for employees Enabling the full potential of all our people to drive our business forward.
Small company AGILITY The ability to move quickly and easily to achieve business objectives.
SUPPORT each other Working together supportively with colleagues and partners to achieve our common goals.
/195 Stock Spirits Group PLC Annual Report & Accounts 2019
Shareholders’ Information
Financial calendar Corporate Brokers
Annual General Meeting: 6 February 2020 J.P. Morgan Cazenove 25 Bank Street Results announcement London, E14 5JP Interim Results – for the period ending 31 March 2020: 13 May 2020 Numis Securities Ltd The London Stock Exchange Building Shareholder information online 10 Paternoster Square London, EC4M 7LT Stock Spirits Group’s registrars are able to notify shareholders by email of the availability of an electronic version of shareholder information. Legal Advisers
Whenever new shareholder information becomes available, Slaughter & May such as Stock Spirits Group’s interim and full-year results, Link 1 Bunhill Row will notify you by email and you will be able to access, read and London, EC1Y 8YY print documents at your own convenience. To take advantage of this service for future communications, please go to Independent Auditors www.mystockspiritsshares.com where full details of the shareholder portfolio service are provided. Once you have KPMG LLP logged in you can check your account details, change your Arlington Business Park address details or review FAQs, one of which will explain how Theale to request a new share certificate. Reading, RG7 4SD
When registering for this service, you will need to have your 11-character Investor Code (IVC) to hand, which is shown on Registrars your share certificate. Link Asset Services You can then select “Send me all communications by 34 Beckenham Road email (most environmentally friendly)”. Should you change Beckenham your mind at a later date, you may amend your request by Kent, BR3 4TU entering your portfolio online and selecting your preferred Tel: 0871 664 0300 method of communication to “Send me paper copies of all communications”.
If you wish to continue receiving shareholder information in the current format, there is no need to take any action.
(Within the UK: 0371 664 0300. Calls cost 12 pence a minute plus your phone company’s access charge, lines are open 9.00am–5.30pm Monday to Friday excluding public holidays in England and Wales)
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Email: [email protected]
/196 / Additional Information / Useful Links
Useful Links
Link share portal www.mystockspiritsshares.com
Information for investors
Information for investors is provided on the internet as part of the Group’s website which can be found at: www.stockspirits.com/investors
Investor enquiries
Enquiries can be directed via our website or by contacting:
Paul Bal Chief Financial Officer Email: [email protected] Tel: +44 (0)1628 648500 Fax: +44 (0)1628 521366
Stock Spirits Group PLC
Registered office: Solar House Mercury Park Wooburn Green Buckinghamshire, HP10 0HH United Kingdom Registered in England Company number 08687223
Designed and produced
Emperor Emperor.works
/197 Stock Spirits Group PLC Solar House, Mercury Park, Wooburn Green, Buckinghamshire HP10 0HH, United Kingdom www.stockspirits.com Tel: +44 1628 648500 Fax: +44 1628 521366