Download Annual Report 2013

Annual Report 2013 Our goal

Our goal is to become Central and Eastern Europe’s leading spirits company – commanding a major stake in each of our core operating markets and making our presence felt in the wider global market. Contents

Strategic report Chairman’s statement 02 Group at a glance 04 Our “millionaire” brands 06 Our heritage 08 Chief Executive Officer’s statement 10 Our business model 14 Strategy and KPIs 16 Our markets 18 HIGHLIGHTS Spirits market overview 20

Regional reviews Poland 22 17.4 m €340.5m Czech Republic 24 Italy 26 9 LITRE CASES NET SALES REVENUE Other 27 +11.4% +16.4% Operations 28 2012: 15.6m 9 litre cases 2012: €292.4m Our people 29 Corporate responsibility 30 €83.7m €47.7m Financial review 32 Principal risks 36 ADJUSTED EBITDA* OPERATING PROFIT Directors and +22.3% -44.2% Company Secretary 42 2012: €68.4m 2012: €85.4m Senior management 44

Corporate governance 46 Chairman’s letter 46 €74.4 m €8.9m Corporate governance framework 47 ADJUSTED EBIT* PROFIT FOR THE YEAR Audit Committee report 52 +26.7% -66.0% 2012: €58.7m 2012: €26.2m Nomination Committee report 56 Directors’ remuneration * Stock Spirits Group uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. These include adjusted EBITDA, adjusted EBIT and adjusted free cash flow. report 57 The narrative in the Annual Report & Accounts is based on these alternative measures and an explanation is set out in note 7 to the consolidated financial statements included in the Annual Report & Accounts. Directors’ report 70 Statement of Directors’ responsibilities 73 Independent auditor’s report 74 For more information www.stockspirits.com Financial statements 77 Notes to the accounts 84

Shareholders’ information 143 Useful links 144

Stock Spirits Group Annual Report 2013 01 CHAIRMAN’S STATEMENT

I am pleased to present The IPO attracted significant People demand from investors and I would Stock Spirits Group is a lean my inaugural report as like to welcome a broad range of organisation at the top, with most Chairman of Stock Spirits new shareholders, both from the resources in the markets where we UK and internationally, onto our operate. The central management Group PLC following the register and I look forward to your team has world-class credentials successful Initial Public continued support in the future. with successful backgrounds in We are starting out on our journey global spirits / consumer companies. Offering on the London as a fully listed company and I am We have implemented a revised Stock Exchange in personally very confident about remuneration policy in line with that the prospects of the Group. of a public company, to ensure that October 2013. the interests of the Executive As you can see in our financial Directors and senior managers are highlights that precede this aligned to those of the shareholders. statement, the Group’s performance Details of the new remuneration has been very strong in 2013 policy are contained in the corporate and we continue to improve our governance section of the report. All results in marketing, new product senior managers have a significant development, sound financial portion of annual remuneration tied management, operations and to performance targets. A system procurement. We expect of formal and informal performance that continued organic growth, evaluations leads to a culture that combined with sensible acquisitions is built on results. or mergers, will enable us to deliver results in line with our strategic plan. I would like to recognise the commitment of all our employees The Group’s two new distribution and thank them for their contribution agreements, with Beam Inc. in to the Group’s performance. Poland and Diageo plc in the Czech Republic, provide us with premium brands that complement our portfolio. These agreements demonstrate well the excellent quality of our trading platforms in both of these markets where we are the clear market leader in spirits.

02 Stock Spirits Group Annual Report 2013 Governance Looking ahead Stock Spirits Group complies I believe that the outlook for Stock with high standards of corporate Spirits Group is very promising. governance as a London listed We have a clear mission statement company. Following the IPO, and strategic plan and a proven we have a very strong Board executive team. of Directors. Combining with our Chief Executive Officer, I look forward to reporting on our Chris Heath, and Chief Financial progress as we deliver benefits to Officer, Lesley Jackson, who shareholders, consumers, customers have been building the business and employees. in recent years are three newly appointed independent Non- Executive Directors. The Board is benefiting greatly from the I would like to welcome experience of Andrew Cripps, David Maloney and John Nicolson Jack Keenan a broad range of who respectively chair the Audit, Chairman new shareholders. Nomination and Remuneration 27 March 2014 Committees.

I would also like to express my gratitude to Karim Khairallah who serves as a shareholder Non-Executive Director representing Oaktree Capital Management. Karim has guided the development of Stock Spirits Group from the very beginning.

Stock Spirits Group Annual Report 2013 03 GROUP AT A GLANCE

Building our strength in spirits.

2013 NET SALES REVENUE (Total number and comparative 2012) 100% 60% €340.5m €206.2m

2012: €292.4m 2012: €175.3m

MARKET POSITION Group Poland Stock Spirits Group is No.1 in spirits headquartered in the UK 37.6% market share • Vodka and vodka-based liqueurs

CORE BRANDS We have over 25 brands and Żołądkowa Czysta de Luxe export internationally to more Lubelska than 40 countries worldwide Żołądkowa Gorzka Stock Prestige 1906

HEADCOUNT 962 544 Full time equivalents

Source Poland: Nielsen, total Poland, total off trade, total vodka, flavoured vodka & vodka based liqueurs MAT Dec 2013. Czech Republic: Zoominfo, Nielsen & Dunnhumby off trade retail sales data, dataservis on trade retail sales data MAT Dec 2013. Italy: IRI retail sales data, total Italy, total off trade, total spirits MAT Dec 2013.

04 Stock Spirits Group Annual Report 2013 19% 11% 10% €63.2m €36.7m €34.4m

2012: €54.7m 2012: €36.6m1 2012: €20.8m

Czech Republic Italy Other No.1 in spirits No.1 in vodka-based liqueurs Slovakia, Croatia, 40.4% market share and Limoncello Bosnia & Herzegovina. • Bitters, rum, vodka and 5.3% market share International exports: USA, vodka-based liqueurs • Vodka-based liqueurs Germany, Canada, UK, Slovenia • Limoncello and brandy and other Balkan countries

Fernet Stock Keglevich Keglevich Božkov range Keglevich Fruit Imperator (Slovakia) Amundsen Limoncè Stock 84 Stock Original Fernet Stock Citrus Hammer Head

201 49 168

In the Czech Republic, the “Rum” category of the spirits market includes traditional rum, which is a spirit drink made from sugar cane, and so-called “local rum”, or “Tuzemak”, which is made from sugar beet. As used herein, “Rum” refers to both traditional and local rum, while “Czech rum” refers to local rum.

1. €36.6m excluding discontinued US operations; €41.6m including discontinued US operations.

Stock Spirits Group Annual Report 2013 05 OUR “MILLIONAIRE” BRANDS*

Żołądkowa Gorzka Poland

Produced since 1950 to an unchanged recipe, this is a traditional Polish vodka-based liqueur made using the time honoured practice of infusing herbs in alcohol.

Made from selected herbs, spices and dried fruits, including oranges, cloves, cinnamon and nutmeg, then matured in vats before bottling, its distinctive aroma and lightly spicy-sweet taste have long confirmed it as a household name brand in Poland Lubelska and one of the Group’s flagship products. Poland

It is available in a variety of blends and The number one brand1 by volume in the flavours, including traditional, mint Polish vodka-based liqueurs category, with and honey. nine flavours and a “Three Grains” clear vodka.

Żołądkowa Gorzka1 is the second largest Relaunched in 2004, Lubelska’s success brand by volume in the vodka-based liqueurs grew from trendsetting in flavour category in Poland and has also been innovation; developing a fun, contemporary introduced to other markets. The brand has range of flavours with particular appeal to won many international awards, including younger adult and female drinkers who three golden stars for Traditional from the enjoy the brand in shots or cocktails. International Taste & Quality Institute (iTQi) awards 2013. Lubelska won a silver medal in the 2013 International Spirits Challenge and a golden star from the International Taste & Quality Institute (iTQi) awards 2013 for the new grapefruit variety.

1906 Poland

1906 is the leading brand in the economy sector in Poland and is sold in over thirty countries around the world.

An outstanding, clear vodka which is made through a process of quadruple distillation. It was created to honour the 100th anniversary of the opening of the first spirit distillery Rektyfikacja Lubelska in the city of Lublin in Poland.

In 2009 this vodka brand achieved the status of being the second fastest growing vodka brand2 in the world (after Żołądkowa Czysta de Luxe).

06 Stock Spirits Group Annual Report 2013 Stock Prestige Poland

Stock Prestige is a premium vodka launched in Poland in 2009. Stock Prestige is the result of combining 130 years of experience in producing top quality spirits with the most Żołądkowa Czysta de Luxe recent technological advancements. Poland We are delighted to report that it has This crystal-clear vodka is the number one achieved “millionaire” brand status in 2013.3 brand1 by volume in the Polish market, the 10th biggest selling vodka brand by volume2 A six-step distillation process with additional in the world and the best selling vodka in chilled filtration results in a high quality Stock Spirits’ portfolio. vodka with an exceptionally smooth taste. The raw materials used for Stock Prestige Produced to an original recipe using selected undergo careful selection and a multi-step grain, a six-step distillation and filtration control process. process over natural carbon filters ensures an exceptionally smooth, high quality vodka. Stock Prestige has won numerous international awards, including two golden Żołądkowa Czysta de Luxe has received stars for clear and cranberry and one golden several international awards, including the star for lemon from the International Taste Gold Medal award at the Vodka Masters & Quality Institute (iTQi) awards in Cannes in 2009, two golden stars 2013, as well as a silver medal for from the International Taste & Quality clear in the 2013 International Institute (iTQi) awards 2013, and a Spirits Challenge. bronze medal in the 2013 International Spirits Challenge.

Božkov Czech Republic

The Božkov brand range3 includes rum, vodka, vodka-based liqueurs, gin and other flavoured liqueurs such as apple, apricot, cherry and peppermint.

Božkov Tuzemský is the best-selling member of the Božkov range. It is a Czech domestic rum with a distinctive, fine aroma, subtle golden colour and a delicious flavour.

A versatile drink, typically served straight in shots but also used for mixed drinks, and to add flavour for culinary purposes. * A “millionaire” brand is one which sold more than one million 9 litre equivalent cases during the calendar year.

Source 1. Nielsen, total Poland, total off trade, total regular vodka and total flavoured vodka & vodka based liqueurs MAT Dec 2013. 2. IWSR 2009 & IWSR 2012. 3. Internal SSG volume sales data MAT Dec 2013.

Stock Spirits Group Annual Report 2013 07 OUR HERITAGE

Stocks Spirits Group has a long heritage dating back to 1884.

1884 1920 2006 – 1906 1950 2007

Camis & Stock Polmos Lublin One of the largest The flagship brand Oaktree Capital founded in 1884 founded in Poland. companies of its kind Żołądkowa Gorzka Management acquire by Lionello Stock in Europe by the 1920s. was created. Polmos Lublin in Trieste, Italy. in Poland. Established an Operations expanded outpost in New York Oaktree Capital into Czech Republic, in 1939. Management acquires Italy and Austria. Eckes & Stock and its businesses in the Czech Republic, Slovakia, Italy, Slovenia, Austria and the US.

08 Stock Spirits Group Annual Report 2013 2009 2012 2008 2010 2013

Merger of Polmos Żołądkowa Czysta Lubelska declared Acquisition of Shares listed Lublin and Eckes & de Luxe and 1906 fastest growing Imperator in Slovakia. on the London Stock to create Stock declared the two liqueurs brand Stock Exchange. Spirits Group. fastest growing vodka in the world. Acquisition of German brands in the world. distillery assets. Headquarters Headquarters relocated to the UK. established in Stock Spirits Group Sale of US operations Luxembourg. becomes the number and brands. Distribution one spirits company agreement for Sale of Austrian in Poland. Closure of Trieste Czech Republic business. production facility. signed with Stock establishes Diageo plc. Restructuring own distribution of US business. businesses in Distribution Croatia and Bosnia agreement for & Herzegovina. Poland signed with Beam Inc.

Stock Spirits Group Annual Report 2013 09 CHIEF EXECUTIVE OFFICER’S STATEMENT

2013 was an important and I am pleased with the strong Listing on the London performance we delivered during Stock Exchange transformational year for the year in a challenging environment. One of the major events for the Stock Spirits Group. I would like to pass on my thanks Company during the year was the to all our people who have made premium listing on the main market We listed our shares on the London Stock such a worthwhile contribution. of the London Stock Exchange. The Exchange; we made significant progress towards Their support has been invaluable. impact on the organisation of such our strategic goals; and we delivered strong an exercise is considerable and I performance in our key growth markets. It is an exciting time to be leading commend the whole management Stock Spirits Group. We enjoy strong team who retained a strong focus positions in our core markets, and on our customers and the business selected market segments, within during this busy period, avoiding the Central and Eastern European distraction. We are well prepared Region. I believe that we are well to respond to the new requirements placed to take advantage of the of being a listed company and continued strong demand for spirits also take advantage of the in the area we operate in. There is opportunities presented. a long cultural tradition of spirits consumption in Central and Eastern Strategic initiatives Europe and I believe this will I would like to highlight two continue to underpin the success significant strategic initiatives that of the Group as we move forwards. we undertook this year, both of which I am confident will lead to I am also particularly encouraged strong results in the future. with the results we are seeing from a number of our key brands. In Poland, The first is Project Polar – the highly Żołądkowa Czysta de Luxe has innovative installation of branded regained the leading position in the refrigerators at the point of sale in clear vodka market. Also in Poland, small local retailers in Poland, the new pineapple and apple covering over half of the weighted additions to the Lubelska vodka- volume distribution through this very based liqueurs range have been very important sales channel. The speed well received by consumers. In the of this roll out demonstrates our Czech Republic, Božkov has had a proven ability to act swiftly using our very strong year, benefiting from operational management strength the recovery in the spirits market and, in this case, has provided us with following the temporary prohibition first mover advantage. These in late 2012. In Italy, both the clear branded refrigerators address and flavoured variants of Keglevich consumer demand for chilled vodka, have performed well. often for immediate consumption,

10 Stock Spirits Group Annual Report 2013 while also displaying the Group’s brands to best effect in our most important sales channel.

In addition to the capital expenditure incurred on the refrigerator programme, during the year we increased the size of the sales team in Poland. This has enabled us to further increase the level of service we offer to our customers and also supported the roll out of the refrigerators.

Significant progress towards strategic goals The strategy for growth that we are pursuing has six key, interlocking aspects:

1. Further develop the Group’s strong brand portfolio in current markets

2. Continue to invest in attractive markets with strong growth potential

3. Utilise purchasing and production capabilities to deliver quality products with a competitive cost advantage

4. Expand distribution capability in current and new markets

5. Continue to invest in people and develop management talent

6. Pursue the significant opportunities for acquisitions across Central and Eastern Europe.

Stock Spirits Group Annual Report 2013 11 CHIEF EXECUTIVE OFFICER’S STATEMENT The second initiative relates to the Adjusted EBITDA* for the year was CONTINUED two distribution agreements we €83.7m, a growth of 22.3% over signed with global spirits companies, 2012, and an adjusted EBITDA* Beam Inc and Diageo plc, which both margin of 24.6%. serve to validate the success of our strategy and demonstrate the The Group remains highly cash confidence of these leading global generative and has delivered spirits companies in the quality of adjusted free cash flow* of our distribution platforms. The Beam €83.3m, and a closing net debt contract was signed in August 2013 to adjusted EBITDA* leverage and appointed us as the exclusive of 0.55, providing the Group with distributor of Beam’s portfolio of sufficient funding headroom to whisky and bourbon brands in support our growth ambitions. Poland with effect from September 2013. Since January 2014, we have New product development (NPD) been the exclusive distributor of I am very proud of the Group’s Diageo’s premium brands in the strong track record of developing Czech Republic. These agreements successful new products and new both support the strategic drive to variants of existing products. strengthen the premium elements Following the Group’s success of our brand portfolio further. with Żołądkowa Czysta de Luxe, we formalised the NPD Programme. Strong performance in our markets As a result we now have a We made some excellent progress structured framework for new in our key markets, despite product development which challenging economic pressures expedites our ability to launch and external factors such as the new products. Polish excise duty increase effected from 1 January 2014. People One of our strongest assets is The Group has delivered another the quality of our people and the outstanding performance against excellent team work found in the a challenging economic backdrop, Group. Our business thrives on their recording growth in Net sales energy and enthusiasm and their revenue, adjusted EBITDA* attitude and professionalism and adjusted EBITDA* margin. reinforces my confidence in our * Stock Spirits Group uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. These include adjusted EBITDA, adjusted EBIT and adjusted free cash flow. The narrative in the Annual Report & Accounts is based on these alternative measures and an explanation is set out in note 7 to the consolidated financial statements included in the Annual Report & Accounts.

12 Stock Spirits Group Annual Report 2013 ability to continually improve our We are making excellent progress performance and achieve our in our NPD Programme and in strategic goals. We have a strong embedding our new distribution and distinctive culture which we arrangements in Poland and the continue to nurture. Czech Republic.

Production Our actions over the coming year The Group continued to benefit will result in even stronger brands from what we believe to be and a broader platform for driving best-in-class production facilities growth across the business. in Poland and the Czech Republic. We also have a small distillery The Group continued to and production unit in the Czech Republic and an ethanol distillery benefit from what we believe in Germany. These facilities Chris Heath to be best-in-class production provide a total combined annual Chief Executive Officer bottling production capacity of 27 March 2014 facilities in Poland and the circa 329 million litres based on Czech Republic. current product mix, following the significant investment we made in recent years.

Outlook The year has started well, despite the challenges posed by the Polish excise duty increase, and we view the future with confidence.

Building momentum behind our growth strategy is my personal priority for the coming year. Growing our market shares in our core regions and further developing our brand portfolio will strengthen our ability to maximise growth and shareholder value.

Stock Spirits Group Annual Report 2013 13 OUR BUSINESS MODEL

Our successful business model.

Utilising global fast-moving consumer goods (FMCG) best practices and local insight has resulted in the creation of a leading spirits business in Central and Eastern Europe, with an award-winning portfolio of products. Global FMCG best practices

Procurement Business processes

Group buying power Performance management The Group operates a central buying function based in We have cascaded accountability for profitability Switzerland with the objective of sourcing raw materials throughout the Group on the most competitive terms Working capital management Multi-location sourcing options We monitor our investment in working capital and ensure The Group has circa 329m litres of bottling capacity at its that we have efficient and sufficient working capital two bottling sites (located in Poland and Czech Republic) to support the business and its growth in addition to an ethanol alcohol distillery providing around 40% of the Group’s alcohol requirements Systems The Group has invested in its IT systems and will continue Quality improvement to do so to ensure they support the business We constantly aim to ensure that product quality is of the highest standard and seek to improve where the opportunity Efficient balance sheet arises, whether this is new packaging or improved liquids The capital structure following the IPO has been established to provide an efficient balance sheet which can support the Cost reduction growth ambitions of the Group The Group strives to reduce production cost without compromising product quality

Production Portfolio expansion

Targeted capital investment Professional key account management The Group has invested over €44m in the last five years We train our sale teams to operate world-class account in state-of-the-art production technology and plant management processes

Training Wholesale and on-trade coverage We provide regular training on both operational processes We employ dedicated sales teams serving the differing as well as English language courses for our employees needs of on-trade and wholesale customers

World-class practises Marketing effectiveness tools We operate to the highest professional standards across All marketing activity is carefully planned and monitored our production environment to ensure maximum effectiveness

World-class brand management Source We maintain detailed long term brand plans for all our core 1. Nielsen, total Poland, total off trade, total vodka, flavoured brands and measure our performance against these plans vodka & vodka based liqueurs MAT Dec 2013. 2. Zoominfo, Nielsen & Dunnhumby off trade retail sales data, Dataservis on trade retail sales data MAT Dec 2013. 3. IRI: Total Italy, total off trade, total spirits MAT Dec 2013. 4. Internal SSG sales data MAT Dec 2013.

14 Stock Spirits Group Annual Report 2013 Local Insights A leading spirits business in Central and Eastern Europe

We have more than Sales & marketing 25 brands and export Portfolio analysis internationally to more We undertake detailed reviews of our product portfolio to ensure that we have profitable products that meet consumer than 40 countries worldwide needs at all price points We have fully-owned operations Effective and efficient new product development We operate a world-class NPD process to bring high quality, in Poland, Czech Republic, Italy profitable products to market expediently Slovakia, Croatia and Bosnia Financial resources & Herzegovina We ensure that our brands enjoy the necessary ongoing marketing support No.1 in Poland in spirits, vodka and vodka-based liqueurs1

No. 1 in Czech Republic in spirits, bitters, rum, vodka and vodka- based liqueurs2 Consumer insight No. 1 in Italy in vodka-based Consumer trends liqueurs and limoncello3 We undertake extensive market research to understand emerging consumer trends globally as well as in our individual local markets, and seek to develop new products that match 4 these trends ahead of our competitors Our six “millionaire” brands :

Consumption occasions Stock’s local marketing teams regularly interview consumers to understand what products they prefer to purchase and consume on various occasions and how they wish to enjoy their drinks

Consumer motivation We have developed a deep understanding of consumer motivation with particular focus on younger adult drinkers to sustain future revenue streams

Stock Spirits Group Annual Report 2013 15 STRATEGY AND KEY PERFORMANCE INDICATORS

Measuring our success against strategy.

The board has chosen a number of key performance indicators to measure the Group’s progress. The table sets out these indicators, how they relate to strategic priorities and how we performed against them.

What we measure Why we measure it Performance 2013 2012 Comments

Financial Performance Millions 9 litre cases No. No. We focus on a number Total clear volume of financial measures to ensure 9.2 8.5 that our strategy successfully To ensure that we are growing the business Volumes of product sold Total other volume Strong volume growth delivers increased value for in a balanced manner 8.2 7.1 our shareholders Total Volume 17.4 15.6

€ m € m To ensure that we are growing the Growth as a result of positive volumes, Net sales revenue Net sales revenue of the business Net sales revenue 340.5 292.4 product mix and sales price increases

€ m € m

To track the underlying performance of the Adjusted EBITDA * 83.7 68.4 Adjusted EBITDA & Strong EBITDA growth with associated business and ensure that sales growth is adjusted EBITDA margin* % % growth in margin translated into profit Adjusted EBITDA margin* 24.6 23.4

% % Adjusted free cash To ensure that we are converting profit Adjusted free cash flow 99.6 88.8 Continuing strong cash generation despite flow conversion* into cash as % of adjusted EBITDA* significant capital investment in FY13

€ cent per share € cent per share To provide a measure of underlying FY13 EPS impacted by IPO-related EPS shareholder value EPS 0.05 0.20 expenses and corporate restructuring

To ensure that we have an efficient capital Ratio Ratio structure with headroom to support organic Financial Strength Leverage Net debt**: 0.55 0.46 Continuing strong leverage position and inorganic growth. This is an important adjusted EBITDA* measure for both our banks and shareholders

% %

To ensure that we measure our underlying Poland 37.6 36.01 Market Position Volume market share market position relative to our competitors Czech Republic 40.4 39.2 2 Italy 5.3 5.43

Source 1. Nielsen, total Poland, total off trade, total vodka, flavoured vodka & vodka based liqueurs MAT Dec 2013. 2. Zoominfo, Nielsen & Dunnhumby off trade retail sales data, Dataservis on trade retail sales data MAT Dec 2013. 3. IRI, retail sales, total Italy, total off trade, total spirits MAT Dec 2013.

16 Stock Spirits Group Annual Report 2013 What we measure Why we measure it Performance 2013 2012 Comments

€ m € m

€ cent per share € cent per share To provide a measure of underlying FY13 EPS impacted by IPO-related EPS shareholder value EPS 0.05 0.20 expenses and corporate restructuring

% %

To ensure that we measure our underlying Poland 37.6 36.01 Market Position Volume market share market position relative to our competitors Czech Republic 40.4 39.2 2 Italy 5.3 5.43

* Stock Spirits Group uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. These include adjusted EBITDA, adjusted EBIT and adjusted free cash flow. The narrative in the Annual Report & Accounts is based on these alternative measures and an explanation is set out in note 7 to the consolidated financial statements included in the Annual Report & Accounts. ** Net debt is defined as bank borrowings plus finance leases less cash and cash equivalents.

Stock Spirits Group Annual Report 2013 17 OUR MARKETS

Overview of Stocks Spirits Group today and the potential markets.

Estonia

Latvia

Lithuania

Rostock Belarus Head ofﬁce – UK Warsaw

Luxembourg Lublin Pilsen Ukraine

Bratislava Moldova Zug Hungary

Romania Milan Zagreb Serbia Sarajevo Montenegro Bulgaria Macedonia

Commercial offices Main production facilities and ethanol distillery (Rostock)

Service centres Countries with own sales and marketing operations

Target new territories

18 Stock Spirits Group Annual Report 2013 Source 1. Nielsen, total Poland, total spirits, total off trade MAT Dec 2013/Jan 2014. 2. Nielsen, total Poland, total vodka, flavoured vodka & vodka based liqueurs MAT Dec 2013. 3. Zoominfo, Nielsen & Dunnhumby off trade retail sales data, Dataservis on trade retail sales data MAT Dec 2013. 4. IRI, total Italy, total off trade, total spirits MAT Dec 2013. 5. Market values from Euromonitor estimates 2013.

Note: A “coverage factor” of 1.18 x has been applied by management to the Nielsen traditional trade data. The coverage factor is derived from the difference between IWSR MAT 2012 data and Nielsen MAT 2012 data. Management considers that IWSR data more accurately represents the traditional trade in Poland. Since IWSR data for 2013 is not yet available, the 2012 coverage factor has been applied to the 2013 Nielsen data.

Existing markets

Poland

69.7% vodka 68.2% traditional trade 19.8% vodka-based liqueurs 5.6% hypermarkets 6% whiskey 8.9% supermarkets 4.5% others 17.3% discounters €4.2bn

Total spirits 2013 market1 Off-trade structure for the vodka market 20132 2013 spirits market value5

Czech Republic

18.7% vodka 25.5% rum 32.8% others 5.5% liqueurs 17.5% bitters €0.9bn

Total spirits 2013 market3 2013 spirits market value5

Italy

67.6% others 9.5% lemon liqueurs 6.7% brandy 10.1% bitters 6.1% vodka €4.5bn

Total spirits 2013 market4 2013 spirits market value5

Target new territories Target new territories account for c.107m 9 litre cases of spirits volumes

Stock Spirits Group Annual Report 2013 19 SPIRITS MARKET OVERVIEW

Key trends Whilst the spirits market in Desire for affordable luxury Central and Eastern Europe is not As disposable income grows, The key consumer trends driving spirits’ value immune to fluctuations in local greater numbers of Central and growth in Central and Eastern Europe are: economies, its sustainable value Eastern European consumers are • Desire for affordable luxury growth is underpinned by positive able to choose higher quality • Diversification of drinking occasions underlying consumer trends. products for which they are • Increasing spirits consumption by female prepared to pay more. They seek and younger adult drinkers The growth of Stock Spirits reflects spirits from trustworthy brands of • Growing confidence in local provenance our ability to identify and take better and more consistent quality • Raised awareness of health advantage of these trends by than they were able to purchase and social responsibility. evolving our brand portfolio, historically. This can be through a supported by consistent investment desire to display their own success in brand communications, innovation or life style through their choice of and operational capabilities. brands, but the behaviour can also be driven by the desire to retain In the short term, disposable accessible everyday luxuries when incomes fluctuate with economic economic times are challenging. circumstances but the long term Affordable, high perceived quality evolution of Central and Eastern brands remain the preferred choice European markets has seen a and spirits are just such an progressive growth in standards affordable luxury. of living and disposable income and with them an expansion of Diversification of consumer choice which is positively drinking occasions impacting the demand for higher The number and variety of drinking value spirits in the region. occasions in Central and Eastern

Strong local heritage

20 Stock Spirits Group Annual Report 2013 Europe is changing over time, with novelty as these consumers see affordable, high quality local a gradual increase in “on the go” their drinks choice as a means of brands are best placed to act and “out of home” drinking self-expression and want to drink as a bridge to the fulfilment occasions accompanying social new and different flavours. of rising consumer aspirations. change. These new drinking occasions are a growing part of Growing confidence Raised awareness of health consumption routines and are in local provenance and social responsibility opening up opportunities for Immediately after the collapse A combination of government different formats and pack sizes. of the old regimes in Central and regulation and increased consumer For example, ready to drink (RTD) Eastern Europe, there were a awareness of the health and social products are enabling consumers limited number of high quality responsibility issues associated to replicate out-of-home drinking brands of local provenance with alcohol consumption is experiences in a convenient, available, plus a sense that prompting demand for lower practical format on the go or at international brands were alcohol-by-volume spirits ranges home. In home drinking is also superior coupled with a historical and increased consumption of diversifying with a move from suspicion of inconsistent quality spirits in longer mixed drinks traditional meal associated usage and counterfeiting. Now that rather than purely as shots, the to contemporary needs such the new economies are longer traditional mode of consumption as connoisseurship, by choosing established and memories of the in much of Central and Eastern higher quality spirits as a reward old regimes are fading, there is Europe. Spirits brands whose at the end of the day. a resurgence of pride in local ranges include lower alcohol-by- achievements, provenance and volume and versatile mixers are Increased spirits consumption culture and a dawning recognition well placed to take advantage amongst female and younger that local brands can be as good of this trend. adult consumers or superior to imported ones. Changes in society in Central and Local spirits still make up the Spirits well placed to grow Eastern Europe are prompting vast majority of spirits volume in value sustainably greater consumption by female and Central and Eastern Europe and The combination of our younger adult drinkers and these there is a noticeable trend to drink aspirational brands, wide range consumers seek different tastes better quality exponents of those of innovative tastes, breadth of and alcohol-by-volume to those local spirits from trusted brands alcohol-by-volume options and available historically. Flavoured and manufacturers. The fact that flexible packaging formats mean spirits and relatively lower many of these markets are “dark”, Stock Spirits Group is well placed alcohol-by-volume spirits have i.e. marketing communications to grow sustainably in Central and grown faster than traditional are strictly regulated and limited, Eastern Europe by meeting these spirits in recent years as female makes it difficult for imported evolving consumer needs. and younger adult drinkers brands to steal share through seek easy drinkability and tastes the deployment of heavyweight which appeal to mixed gender advertising investment in the groups of friends. There is also a fashion often witnessed in other growing desire for innovation and markets. In this context,

Stock Spirits Group Annual Report 2013 21 REGIONAL REVIEW

Poland Poland is the third largest vodka which has achieved “millionaire” market in the world by value and status3 in 2013, selling in excess of fourth by volume1, and vodka (both 1 million 9 litre cases, and become clear, and vodka-based liqueurs) the Group’s sixth “millionaire” brand. Poland is the principal spirit category, Other markets accounting for approximately Żołądkowa Czysta de Luxe, 90% of the overall spirits market. another of our “millionaire” brands, 60% It is our largest market and we returned to the position of the continue to hold market leadership number one clear vodka in Poland.4 in both clear and vodka-based liqueurs, with an overall market We have continued to grow our share of 37.6%.2 market share in the vodka-based Net sales revenue €m liqueurs category, stretching our 2013 has been another record year share to 60.4%.5 2012 175.3 for Stock Polska with Net sales revenue of €206.2m and EBITDA New product development 2013 206.2 +17.6% before exceptionals of €65.5m, an The Group has established an increase of €11.4m. The growth enviable track record in NPD has been driven by a combination and in 2013 has witnessed further of core brands performance, success with the launch of new successful NPD, costs savings flavours of the top selling EBITDA before exceptionals €m and point of sale innovation. vodka-based liqueurs brand 2012 54.1 Lubelska. The year saw the Core brands successful launch of apple and 2013 65.5 +21.1% We have seen revenue growth pineapple flavoured Lubelska. across all of our Polish core brands, with notable growth of Stock Stock Prestige grapefruit was also Prestige, our premium vodka brand launched during the year which has

Source 1. IWSR 2012. 2,4,5. Nielsen, total Poland, total off trade, total vodka, Key brands flavoured vodka & vodka based liqueurs MAT Dec 2013. 3. Internal SSG sales data.

In the Polish market, vodka-based liqueurs also includes “flavoured vodka”.

22 Stock Spirits Group Annual Report 2013 further extended the appeal of this has undertaken a significant brand, and assisted the delivery investment to install 20,000 of “millionaire” status. fridges in the top traditional trade stores across Poland in 2013. Cost savings This programme was completed In December 2012 the Group in early 2014. The fridges are now acquired the Baltic distillery assets present in traditional trade stores located in Rostock, Germany. representing over 50% weighted Production commenced immediately volume distribution. Results from following the acquisition, and the this innovation have been distillery now supplies around 40% encouraging with extremely of the Group’s alcohol requirement. positive feedback from both consumers and store owners. In-house production of high quality ethanol has brought significant cost Recognition of our synergies to the Group’s cost of sales distribution capability and Stock Polska has been the In September 2013 we announced primary beneficiary. the agreement with Beam Inc to distribute most of their portfolio in Point of sale innovation Poland on an exclusive relationship, Over 68%4 of all vodka sold in with distribution commencing Poland is through small retail and shortly afterwards. Poland is our largest market convenience shops, the traditional trade. The Group’s sales strategy Duty increase and we continue to hold has focused upon maintaining and The Polish government implemented market leadership in both developing the quality of our a 15% increase in excise duty on distribution and relationships strong alcohol on 1 January 2014. clear vodka and vodka-based in the traditional trade stores. The last increase was in January 2009. liqueurs, with an overall In 2013 we recruited additional sales people, taking the total Along with those of our market share of 37.6%. Polish sales force up to 184 people, competitors, our prices have been to provide greater coverage of increased to cover the impact of stores and deepen our customer the duty increase. It is likely that relationships, particularly in the the industry will record some traditional trade stores. In order decline in consumption during to further strengthen our 2014 and, based upon historic distribution, support the experience, we expect that this will traditional trade channel and stabilise during 2014. We believe satisfy consumers’ desire to that we are well placed to manage enjoy chilled vodka, the Group the impact of the duty increase.

Stock Spirits Group Annual Report 2013 23 REGIONAL REVIEW

Czech Republic The Czech Republic spirits market As a result, 2013 has been a record consists of a broad range of year for our Czech Republic categories with the largest being business with growth in Net sales vodka, vodka-based liqueurs, revenue of 15.5% and EBITDA Czech Republic bitters and rum1 (including local before exceptionals growth of Other markets Czech rum, Tuzemsky). These 17.3%. Strong performance on our four categories account for core brands, successful NPD and 19% approximately 80% of the total cost savings have been the primary spirits market by volume. drivers of growth in 2013.

Czech Republic is the second Core brands largest market for the Group, We have seen revenue growth Net sales revenue €m and we are market leader in total across all of our core brands spirits, with a market share of with very strong growth across 2012 54.7 40.4%, as well as holding market our economy positioned Božkov leadership positions in all the range of products. 2013 63.2 +15.5% main categories.2 New product development Against the backdrop of the Given our strong track record temporary ban on high strength in NPD we have launched further alcohol at the end of 2012, we new products in Czech Republic EBITDA before exceptionals €m have seen some recovery in the during 2013. To meet consumer 2012 15.2 market and a bounce back in needs in the growing economy consumer confidence. We have segment, we have extended our 2013 17.8 +17.3% recorded very strong growth Božkov product range with new across our range of high quality flavours and new pack formats economy brands to satisfy (pots and RTD cans), all of which consumers’ needs for affordable, have enjoyed successful launches. safe and high quality products.

Key brands

Source 1,2. Zoominfo, Nielsen & Dunnhumby off trade retail sales data, Dataservis on trade retail sales data MAT Dec 2013.

In the Czech Republic market, vodka-based liqueurs also includes “flavoured vodka”.

24 Stock Spirits Group Annual Report 2013 Cost savings Changes to the The cost synergies that have been regulatory environment delivered as a result of the Baltic Following the temporary ban distillery operation have also on strong alcohol in 2012, which benefitted our vodka products resulted from a number of fatalities in Czech Republic. caused through consumption of illegally produced spirits Recognition of our (none of which were associated distribution capability with products of the Group), In November 2013 we announced the Czech Republic Government We are market leader in total the agreement with Diageo to have implemented a number of distribute their premium brands regulatory changes to bring about spirits, with a market share of in the Czech Republic on an greater control over the production 40.4%, as well as holding exclusive basis, with distribution and distribution of spirits. We commencing in January 2014. have welcomed the changes market leadership positions and believe that this will further in all the main categories. Our Czech Republic business has increase consumer confidence, and over a decade of experience of provide greater protection for the successfully developing and manufacturers of strong alcohol. distributing third party brands on behalf of brand owners . We Given our underlying world-class see the relationship with Diageo operational practices, the changes as a key step in the extension have not proved to be onerous of our capability. for us to implement and we feel confident that any additional requirements can be accommodated within our normal operational capability.

Stock Spirits Group Annual Report 2013 25 REGIONAL REVIEW

Italy The Italian market is predominantly a of the successful Keglevich brand, wine market, with spirits representing to meet the growing consumer approximately 16%1 of the total demand for aperitifs. alcohol market, and consists of a Italy number of different categories such as Duty and VAT increases Other markets vodka, vodka-based liqueurs, bitters, In response to the budget deficit, whiskey and limoncello. Italy is our the Italian Government announced 11% third largest market in the Group and a 13% increase in excise duty we hold leading positions in a number effective from 10 October 2013 of important spirits categories. together with an increase in VAT from 21% to 22% from 1 October Trading in Italy remains difficult in 2013. The Government has Net sales revenue €m a tough economic climate which is increased excise duty by a further impacting on consumer spending. 2% from 1 January 2014 and 2% 41.6 As a consequence, 2013 has shown from 1 March 2014. A further 2012 modest revenue growth of 0.2%. increase of 8% from 1 January 36.6 2015, has also been announced. Following the closure of the Italian There have been no increases in 2013 36.7 +0.2% production facility in the summer excise duty since 2006 and the of 2012, the business has benefited resulting 26% increase over the from significant cost savings which period October 2013 to January EBITDA before exceptionals €m have improved adjusted EBITDA 2015 represents a realignment 11.1 and margin. on inflation increases. 2012 7.2 New product development We have responded by increasing In spite of the difficulties in the Italian our prices to recover the increases 2013 8.1 +11.6% market we remain committed to our and, given the profile of our NPD programme and during 2013 portfolio, believe that we are well we launched “Klamour”, an extension placed to manage the impact. Includes discontinued US operations Excluding discontinued US operations Key brands

Source 1. IWSR 2012. 2. Nielsen, total off trade, total fruit distallates MAT Dec 2013.

26 Stock Spirits Group Annual Report 2013 REGIONAL REVIEW

Other Our smallest regional segment We have commenced the covers the markets of Slovakia, integration process and expect Bosnia & Herzegovina, Croatia to complete it during 2014. and our export activities. Slovakia was also subject to a Other temporary ban on strong alcohol Core markets In each of Slovakia, Bosnia & imported from the Czech Republic Herzegovina and Croatia we at the end of 2012, as a result of the 10% operate our own sales, marketing fatalities in the Czech Republic from and distribution activities. illegal alcohol. As the prohibition During 2013 we closed our only affected imported products, own operations in Slovenia and it has taken longer during 2013 for transferred our brand distribution consumer confidence to return. Net sales revenue €m to a third party distributor in order to market our brands from within In Bosnia & Herzegovina, Croatia 2012 20.8 a broader portfolio and achieve and our export operations we distribution synergies. have undertaken an amount of 2013 34.4 +65.7% restructuring which has resulted At the end of 2012 we acquired a in cost savings, a more focused business in Slovakia which offered portfolio and greater control over us the number two fruit distillates working capital. brand2, a developed range of vodka EBITDA before exceptionals €m products, a broader customer base This regional segment has 2012 0.6 and opportunities for synergies delivered sales revenue growth through integrating the acquired of 65.7% and EBITDA before 2013 2.5 +350.9% business with our existing business. exceptionals growth of 350.9%.

Key brands

Stock Spirits Group Annual Report 2013 27 OPERATIONS

2013 witnessed another Capital investment continued in our Baltic Distillery had a good first facilities in Poland and the Czech year under our control. We had excellent year in operations Republic with the installation of record output throughout the with increasing productivity, packaging equipment and bottling year, developed new maintenance line upgrades. We also commenced regimes, invested in grain handling reducing wastage and a the preparation for the upgrade of / blending and bi-product number of new production our liquid processing and storage production capacity. The site facilities to meet the demands of retained its ISO certification, records in Plzen and Lublin. our increasing liquid portfolio, with received an energy grant and the installation of tanks transferred maintained its “Organic” status. from our former unit in Italy. The record alcohol output and increased by-product production During the year, we completed greatly enhanced the profitability the sale of the former Italian of the business. The distillery now production facility and transferred supplies around 40% of the the production of automated Group’s alcohol requirements. products from Drietoma in Slovakia to Plzen. This was part of the integration plan of the business we acquired in Slovakia at the end of 2012. As part of the integration plan we also consolidated all of our Slovakian logistics to a third party.

28 Stock Spirits Group Annual Report 2013 OUR PEOPLE

Overview Operations Historically the Group has always We continued to train and develop been a low central overhead our employees across operations. business with a very lean Head The Stock Academy in Lublin was Office comprising approximately busy all year with a variety of sixteen people, including six courses in hard and soft skills, members of the Senior Management including technical, health and Team. With the transition from safety, English language, team private ownership to public limited working, communication and company status, additional new computer skills. roles have been created within this support team to increase our The technical training centre competence whilst also maintaining was also used extensively for our very tight cost focus. skill assessments and safe offline We have invested heavily in equipment training. We have not standards and competency Commercial / sales only carried out training using Within the markets, headcount has our own facilities but also using development and brought grown in 2013, particularly within external courses. A number in new talent in line with our Sales and Marketing functions of managers are completing as we have invested heavily in MBAs this year. our sales growth. standards and competency development and brought in new As a matter of routine we review talent in line with our sales growth, team performance, individual e.g. Project Polar. In addition, we’ve performance and carry out also developed greater specificity employee satisfaction surveys. of insight into our consumer brands The employee satisfaction and profiles through the work surveys continue to develop carried out by our Marketing and show us areas where we Academy: a group of undergraduate can improve. The result of all interns working across all markets of these reviews has been our to raise our understanding transformation programmes of consumer segmentation, in Lublin and Plzen, which have emerging trends and social media. involved the need to create new teams, reengineer our business processes and improve our performance through our people.

Stock Spirits Group Annual Report 2013 29 CORPORATE RESPONSIBILITY

Business and Ethics Stock Spirits Group considers that have also pledged to observe good corporate governance is an a code of conduct that strictly A Code of Conduct and Business Ethics, approved essential element of achieving regulates their advertising by the Board in 2008 and updated in 2011, our overall objectives acting as activities. Our company is the sets out the ethics, principles and standards a responsible organisation. Our Chairman of the Spirits Trade which are required to be consistently upheld by strategy is embedded in our Association in Czech Republic. each division, business and corporate function relationships with suppliers This Association was very active within the Group. It also applies to our business and customers; our approach to during the methanol crisis in 2012, partners (suppliers and customers). Together recruitment, where best-in-class supporting the local government with the Code of Conduct and Ethics, the Board people are joining the organisation in creating a new regulatory approved in 2008 an Anti-Corruption and and our commitment to the environment where illegal Bribery Policy which was in compliance with the environment. Our approach to producers of alcohol are US Foreign Corrupt Practices Act. It was adapted corporate responsibility is closely to be exposed and removed in 2011, following the introduction of the UK linked to our business performance. from the marketplace. Anti-Bribery Act. The Code of Conduct and Business Ethics and Anti-Bribery procedures are Alcohol and society Poland available on our website www.stockspirits.com Stock Spirits Group is conscious Stock Spirits Group belongs to that our products can be enjoyed Polish Spirits Industry (Polski The Group acts in accordance with ethical, responsibly by those who choose PrzemysÅ‚ Spirytusowy), the safety and environmental standards. A number to drink them, and we don’t want trade organisation which, as part of initiatives have been put in place to alleviate irresponsible drinking to harm the of its work, promotes responsible the risk associated with not complying with those health of our consumers. Stock drinking through educational standards, as explained further in this section. Spirits Group believes that reducing programmes and public campaigns. the misuse of alcohol is most These include, “Don’t drink and effective if all parties involved drive”, “Pregnant – don’t drink”, (including authorities, individuals and “Responsible drinking”, an and producers) work together educational programme promoting to regulate alcohol consumption. responsible alcohol consumption, including guidelines on ‘How Over €44m Czech Republic and Slovakia to sell and serve alcoholic Has been invested since Our companies in these markets drinks responsibly’. are founding members of Forum 2008 in improving our PSR, which brings together the Italy production facilities and countries’ major spirits producers Our company in Italy belongs ensuring health and safety and distributors to work against to Federvini, the national trade alcohol abuse. The Forum focuses association founded in 1917 standards are put in place. primarily on preventive and which as part of its role educational projects targeting the promotes responsible serving of alcohol to minors and drinking using educational drink-driving. Forum members and informative programmes.

30 Stock Spirits Group Annual Report 2013 Environment in improving our production Human rights Our businesses are fully aware facilities, ensuring health and safety This report does not contain of their responsibilities to the standards are put in place. information about any policies environment. In addition to of the Company in relation to mandatory compliance programmes, We also care about a diverse human rights issues since it is many of our businesses have workforce as described below. not considered necessary for an undertaken a number of voluntary Stock Spirits supports the career understanding of the development, initiatives, which demonstrate development of the next generation performance or position of the the importance that is given of talented young people through Group’s business activities. to environmental matters. the “Stock Academy”, as described The Group complies fully with in page 29 of this report. appropriate legislation in the In our main factory in Lublin, we have countries in which it operates. installed upgraded water metering Community and consumption has decreased, Stock Spirits Group is also engaged reducing the water usage by 4% and in some community projects, like the amount of sewage produced by charity donations on specific critical 13% (compared to 2012). We also situations (eg. L’Alquila earthquake increased our waste control by in central Italy with 297 victims). developing segregation and recycling initiatives for packaging Diversity waste for c.1,500 tonnes of Our markets are generally run recyclables (in six types). Electrical by local nationals who understand consumption was reduced by 11% the cultures in which we operate. (compared to 2012) despite the We have a recruitment policy to higher output. Upgraded cleaning ensure that we recruit high calibre and disinfection of the water supply, individuals matched to the water storage tanks and cooling requirements of the role we wish towers were introduced from May them to undertake, irrespective 2013. A tree planting programme of gender, age or disability. was also initiated on site. As a consumer-focused business Workplace we recognise the value a diverse We continue to support our people mix of employees provides us with through training and development, particularly in terms of consumer so that they can both grow insights. At a Board level 50% of professionally, and meet the our Executive Directors are male, evolving challenges of our industry. at a senior management level 89% are male, and across the Company Since 2008, Stock Spirits Group 60% of all employees are male. has invested more than €44 million

Stock Spirits Group Annual Report 2013 31 FINANCIAL REVIEW

Stock Spirits Group has enjoyed another year of strong performance.

Key Highlights Top line growth driven by volume, price increases and an • Successful listing on the London improving mix has produced a net revenue of €340.5m. Stock Exchange Revenue growth has been further assisted by successful new • Strong top line growth has delivered product launches in Poland and the Czech Republic, with the a 16.4% increase in Net sales revenue launch of new flavours of Lubelska, Stock Prestige and new • Operating profit €47.7m, a decrease pack formats for Božkov. of 44.2% The full year benefit of the closure of the Italian manufacturing • Profit for the year €8.9m (2012: €26.2m) facility in Trieste coupled with the synergies generated from • Closing leverage of 0.55 at the end the first year of operating the Baltic distillery in Germany, of December 2013 acquired at the end of 2012, have improved the production cost base and delivered an underlying cost per case reduction. • EPS of €0.05 During the year the Group invested in a larger sales force in Poland to further develop customer relationships and Excl. Foreign distribution, and to support the implementation of the branded 2013 2012 Movement exchange fridges in the traditional trade stores. In addition, the integration €m €m % % of the Imperator business in Slovakia, acquired at the end of 2012, Revenue 340.5 292.4 +16.4% +17.7% has also resulted in an increased investment in selling expenses. Adjusted EBIT1 74.4 58.7 +26.7% +27.1% Adjusted EBITDA1 83.7 68.4 +22.3% +22.8% Adjusted EBITDA margin 24.6% 23.4% Our underlying results have been impacted by the Polish duty Adjusted free cash flow2 83.3 60.7 +37.2% +42.3% increase. On the 1 January 2014 the Polish Government increased excise duty on strong alcohol by 15%. This resulted

Adjusted free cash flow in a number of customers buying ahead of the duty increase as % adjusted EBITDA2 99.6% 88.8% and thereby increasing Net sales revenue and operating profit in 2013 at the expense of Net sales revenue and operating profit Leverage3 0.55 0.46 in 2014. We estimate that the impact of the duty buy-in was EPS4 0.05 0.20 a 6% increase in sales volumes for Poland and a circa €5m increase in operating profit in 2013. We fully expect this Notes: impact to reverse during 2014. 1. Details of adjusted EBIT and adjusted EBITDA can be found in note 7 to the accounts. 2. Details of adjusted free cash flow can be found in note 7 to the accounts. Our results have also been significantly impacted by: 3. Leverage is net debt (bank borrowings plus finance leases less cash and • The net gain arising on the disposal of the cash equivalents) divided by adjusted EBITDA (see note 7 to the accounts). 4. Details of basic and fully diluted earnings per share can be found in note 14 US business in 2012 to the accounts. • The expenses incurred on the IPO process in 2013 • Other non-recurring costs in 2013.

32 Stock Spirits Group Annual Report 2013 As a consequence, operating profit of £47.7m shows a 44.2% Adjusted EBITDA has been stated to remove the impact of these decrease versus FY2012. The profit for the year of £8.9m costs and a reconciliation is shown in note 7 to the accounts. shows a reduction from reported profit for FY2012 of £26.2m and has also been impacted by the large tax credit in 2013 Finance income & expense and taxation (see note 13). Finance costs shown within the consolidated income statement of €58.2m, primarily reflects the cost of debt within the capital Given the significant impact of the IPO expenses, the financial structure prior to IPO, which consisted predominantly of senior performance measures have also been presented on an unsecured debt instruments. These debt instruments attracted adjusted basis to provide greater transparency of the interest annually which was capitalised and not paid out in cash. underlying commercial results. The Group undertook an extensive capital restructuring The adjustments relate to costs classified as exceptional items exercise prior to IPO which resulted in the senior unsecured (see note 8 to the accounts) and other non-recurring costs, debt instruments being partially repaid and the remaining discussed in note 7 to the accounts. balance converted to a single class of equity shares.

Taking into consideration these adjustments, the reported The devaluation of the Czech Koruna, discussed above, has adjusted EBITDA is £83.7m (see note 7 to the accounts). also crystallised a significant financing foreign exchange loss of approximately €8m on the Czech business’s intercompany Removing the impact of the Polish duty increase in 2013, the loans denominated in Polish Złoty and Euros. A further underlying adjusted EBITDA for the Group for 2013 is £78.7m, financing foreign exchange loss of €2.6m crystallised as revealing an underlying growth of 14.9%. a result of the post-IPO capital restructuring as a result of the movement in the pound / Euro exchange rate On a constant currency basis revenue shows an increase of 17.7% and reported adjusted EBITDA an increase of 22.8%. Following the repayment and conversion of the senior unsecured debt instruments, going forwards interest cost will reflect expense In quarter 4 the Czech National Bank imposed measures to predominantly relating to third party bank debt only. devalue the Czech currency to manage deflationary impacts. The measures taken by the central bank are expected to The total tax charge for the year ended 31 December 2013 was continue throughout 2014. a credit of €17.6m. The Group tax credit in the profit and loss account has been impacted by several non-recurring items: Non-recurring & exceptional costs • Significant loss before tax in the Group holding companies Within other operational overheads are a number of costs largely as a result of the pre-IPO finance structure which are non-recurring. (Details of these costs can be found (shareholder debt service costs) and IPO-related expenses in note 7 to the accounts) and fees • Increased provision relating to potential Group tax risks Following the IPO, the contract relating to management (see note 13) charges reimbursed to Oaktree Capital Management, • Post-IPO corporate restructure which has crystallised the previous majority shareholder, terminated, and as a a deferred tax asset and released a deferred tax liability consequence these costs will not recur. resulting in a net deferred tax credit in the profit and loss account (see note 13). At flotation a new remuneration policy was implemented to bring the remuneration of Directors and senior management Going forward, benefits of the post-IPO corporate restructure in line with a publicly listed company and replace the prior will result in a large reduction to the Group cash tax expense. policy which supported a private equity business model. Under The benefit will flow to the Group profit and loss account, over a the prior policy a number of remuneration arrangements similar time period, but will be largely offset by the amortisation crystallised at IPO, and by their nature will not recur under of the deferred tax asset discussed above for a period of years. the new remuneration policy. A full reconciliation of the Group tax charge can be seen in note Significant costs (classified as exceptional costs within the 13 to the financial statements. consolidated income statement) have been incurred during 2013 in respect of the IPO, the capital restructuring and the partial refinancing activity and are explained in more detail within note 8 to the accounts.

Stock Spirits Group Annual Report 2013 33 FINANCIAL REVIEW CONTINUED

Cash flow Net debt and financing The Group’s business continued to be strongly cash generative Net debt at the end of December 2013 was €46.3m, an increase during the year with adjusted net free cash flow of €83.3m of €15.1m versus December 2012, giving a year end net (see note 7), an increase of €22.6m from 2012, and an adjusted leverage of 0.55 versus 0.46 in 2012. cash flow conversion of 99.6% (88.8% in 2012). During the year a substantial amount of restructuring of the The cash generated has been adjusted for a one off benefit of capital structure was undertaken to prepare the Company for €40.3m relating to VAT which reversed in January 2014, and the IPO. This included the repayment of €162.2m of PECs and arose from the corporate restructuring following the IPO. This CECs (senior unsecured debt instruments), a partial refinancing was purely a timing impact with the corresponding receipt of banking facilities resulting in a net increase of long term debt of VAT having been received at the end of 2013. of €12.9m and the proceeds of €61.4m from the primary issue of shares at IPO. There has continued to be a strong focus on the efficient management of working capital. The Group cash flow shows The partial refinancing undertaken during 2013 resulted in a full year cash inflow on working capital of €62.6m compared amendments to the bank facilities to align them with terms to €2.2m in 2012. common with a public company, following IPO. This included an extension in the maturity profile (maturity profile shown The 2013 inflow includes the €40.3m of VAT payable in Poland, below), relaxation and amendment of a number of clauses and discussed above. When this is excluded the cash inflow on a revision of the covenants. The debt was also restructured working capital is €22.3m. across all the trading balance sheets of the business to provide a more effective and tax efficient capital structure. The Group has continued to invest in its capital asset base with expenditure on its production facilities and on branded fridges Together with the proceeds from the primary issue at IPO, and (“Project Polar”) in Poland. This expenditure was partly offset the net cash flow generated by the business, the Group closed by €4.2m proceeds received on the sale of the former the year with net leverage of 0.55. The headroom within the production site in Trieste, Italy. current bank facilities in addition to underlying cash generation has established an effective financing structure to support both organic and inorganic growth opportunities.

Net debt bridge (€m) Net debt bridge (€m) Cash ﬂows from standard business operations IPO cashﬂows Other The bridge summarises the key 61.4 (10.8) 12.9 (162.2) movements in net debt during the 120 period ending December 2013. 133.2 (10.7) 100 (16.7) 80 (13.5)

20 (31.2) (46.3) 0

-20 (8.7) -40

-60

-80

-100 Opening Operating Income Net Net Share IPO Net Repay FX & Closing net cash tax Capex interest issue costs bank shareholder Other net debt ﬂow paid proceeds loans loans debt

Cash inﬂow Cash outﬂow

Polish VAT €40.3m

34 Stock Spirits Group Annual Report 2013 Debt maturity proﬁle (€m) 124.3

10.1 10.7 6.9 8.4 9.0 6.0

2014 2015 2016 2017 2018 2019 2020 The chart shows undiscounted, contractual capital repayments for the Group’s external bank debt.

Dec 2013 Average closing rate rate All debt is drawn in local currency to provide flexibility in facilities Polish Złoty 4.15 4.20 and a natural hedge for cash flow and balance sheet protection. Czech Koruna 27.40 26.07 To protect the Group from movements in local country central bank lending rate changes, the Group has put in place hedging The average rate above is the weighted average of the monthly to cover a portion of the interest payable in Italy and Czech average rates calculated on Group monthly revenue. Republic with a fixed margin and to provide a cap on the level of the central bank lending rate in Poland. Further details of Equity structure these instruments can be found in note 23 to the accounts. In preparation for the IPO it was necessary to undertake a revision of the equity structure of the Group, effective from Debt maturity profile the date of listing. The previous structure consisting primarily The Group’s bank facilities consist of term loans of €175.4m and of senior unsecured debt instruments were partially repaid a Revolving Credit Facility (RCF) of €70m. Further details can be during the year, with the balance converted to a single class found in note 23. of equity shares at IPO.

As at 31 December 2013 €8.6m of the RCF was utilised to back The previous equity, consisting of seven classes of shares, was excise duty guarantees in both Italy and Germany. This utilisation also converted to a single class of shares at IPO. reduces the available balance of the RCF but does not constitute a drawing, and as such the utilisation of the RCF is not disclosed As a consequence at the date of listing, and at the end of as a liability on the Group balance sheet. There were no drawings December 2013, the equity structure consisted of 200 million under the RCF at 31 December 2013. Since the year end the shares with a nominal value of £0.10 each. excise duty guarantee in respect of our German business is in the process of being reduced by €2.1m. Earnings per share On a fully diluted basis the earnings per share at the end Foreign exchange of December 2013 was €0.05 per share. The Group is exposed to the impact of foreign currency exchange with the major currencies being the Polish Złoty and the Czech Prior to the IPO this was not a measure used in the business, and Koruna. The Group where possible, aims to match currency cash the previous capital structure, did not lend itself to calculate this flows, liabilities and assets through normal commercial business in a meaningful manner. For comparison purposes the EPS as at arrangements. An example of this is all external third party debt December 2012 is calculated on the assumption that the is drawn in local currency. There are no hedging instruments post-IPO capital structure was in place and the shareholder debt in place to manage transaction exposure, where this arises. was converted to new shares in the PLC.

The Group will continue to monitor its foreign currency exposures and where necessary to appropriately manage risk, will implement hedging arrangements. Lesley Jackson Chief Financial Officer 27 March 2014

Stock Spirits Group Annual Report 2013 35 PRINCIPAL RISKS

Stock Spirits Group believes the Risk concerning global economy following to be the principal risks The Group’s results depend on general economic conditions and could be affected by deterioration in the economic facing its business. If any of these conditions of its key markets. risks occur, Stock Spirits Group’s Commentary business, financial condition and The Group’s results are affected by overall economic conditions performance might suffer and the in its key geographic markets and the level of consumer confidence and spending in those markets. The worldwide trading price and liquidity of the financial and economic downturn, which began in late 2008, shares may decline. affected many business sectors including the industry in which the Group operates. The Group’s key geographic markets in Stock Spirits Group operates in a highly competitive Central and Eastern Europe experienced a growth slow-down environment and faces competitive pressures from both local in 2012, reflecting the widespread economic crisis and domestic and international spirits producers. Competitors may adopt policy tightening in the largest economies. According to the aggressive pricing policies and increase their sales through International Monetary Fund, exports declined, confidence discounters, which may lead to downward pressure on prices suffered and Western European banks decreased cross-border and loss of market share. Stock Spirits Group has mechanisms lending to Central and Eastern Europe. It is difficult to determine and strategies in place to mitigate the damage of profit erosion the breadth and duration of the recession and the ways in which but there is no assurance they may work in such economies it may continue to affect the Group’s end consumers, suppliers, and competitive environments. The Group is also dependent customers, distributors and business in general. In recent years, on a few key products in a limited number of markets which some consumers in the Group’s key geographic markets have contribute a significant portion of its revenue. A reduction in chosen to buy fewer spirits or to buy spirits which are heavily revenue and / or a failure to develop successful new products discounted as part of a promotion or to “trade down” by buying may adversely impact the Group. less expensive brands. Consumers may continue to take these actions in the future. In addition, customers may reduce A key strategy of the Stock Spirits Group is (i) the development inventory levels or increase their focus on private label brands. of new products and variants; and (ii) the expansion, in the Competitors may also reduce prices in order to capture market Central and Eastern European region, through the acquisition share. Any worsening of the economic conditions in the Group’s of additional businesses. Unsuccessful launches could hinder the key geographic markets could lead to reduced consumer Group’s growth potential, cause the Group to lose market share confidence and spending, reduced demand for products and and have a material adverse effect on the Group’s performance. limitations on the Group’s ability to increase or maintain the Failure by the Group to fulfil its expansion plans or integrate prices of its products. In addition, governments may impose completed acquisitions could have a material adverse effect taxes and implement other measures to manage the economic on the Group’s growth potential and performance. conditions in ways that adversely affect the Group’s business.

How we manage We monitor and analyse economic indicators and consumer consumption trends, which in turn influences our product portfolio and new product development.

The Group could be subject to unexpected needs for liquidity, which could be exacerbated by factors beyond its control, including adverse capital and credit market conditions.

Commentary Market conditions could subject the Group to unexpected needs for liquidity, which may require the Group to increase its levels of indebtedness. Access to financing in the longer term depends on a variety of factors outside the Group’s control.

36 Stock Spirits Group Annual Report 2013 How we manage We constantly review our distribution channels and our The Group maintains a strong focus on cash, our future customer relationships. We understand the changing nature requirements for funding and the overall external market for of the trade channels and customers positions within those financing. We undertake regular and detailed reviews of both channels. We trade across all channels and actively manage short term and longer term liquidity requirements by market. our profit mix within both channel and customer. We enjoy good relationships with our existing banks and have developed relationships with new banks. The partial refinancing In the markets where Stock Spirits Group operates there are we completed in June 2013 increased flexibility within our banking risks associated with “black market” sales of alcoholic beverages. facilities and we are confident that we have the appropriate processes and relationships in place to respond to any unexpected Commentary liquidity needs and have placed ourselves in the best position There are risks associated with the illegal and unlicensed to access funding in the longer term. production of alcohol in some of the countries in which the Group operates. This parallel market for the production and sale of illegal Risks affecting the industry and unlicensed alcoholic beverages is known as the “black market”. Despite active measures being taken against this market and the Demand of products, consumers’ tastes and preferences active involvement of Stock Spirits Group in fighting against it, the and distribution channels may vary in an adverse way for operation of the “black market” could result in reduced demand for Stock Spirits Group’s interests. the Group’s products and erosion of its competitive position and / or lead to the introduction of regulations that may adversely Commentary impact the Group’s costs or demand for the Group’s products. Shifts in consumer preferences may adversely affect the demand for the Group’s products and weaken the Group’s How we manage competitive position. These shifts may result from factors We are active members of our local market spirits associations over which the Group has no control and even if preventive and seek to work with governments to proactively introduce or mitigating measures are to be put in place by the Group, regulation that helps to reduce the risk of black market alcohol. there are no assurances they will work.

A decline in the social acceptability of the Group’s products may Changes in the prices or availability of supplies and raw materials also lead to a decrease in the Group’s revenue. In some countries in could have a material adverse effect on the Group’s business. Europe, the consumption of beverages with higher alcohol content has declined due to changing social attitudes towards drinking. Commentary Commodity price changes may result in increases in the cost of Changes in the Group’s distribution channels may also have an raw materials and packaging materials for the Group’s products adverse effect on the Group’s profitability and business. For example, due to a variety of factors outside the Group’s control. Also a decrease in sales through traditional trade channels and increased contracts with suppliers of raw materials usually last for certain sales through modern trade distribution channels (hypermarkets time periods, such as one year. The Group cannot ensure that and discounters), may reduce the Group’s profitability. its centralised purchasing team’s strategy can or will offset increases in the price of raw materials or that it will continue A significant portion of the Group’s revenue is derived from to be able to maintain its inventory of raw materials. a small number of customers. The Group may not be able to maintain its relationships with these customers or renegotiate The Group may not be able to pass on increases in the costs of agreements on favourable terms, which will lead to an impact raw materials to its customers, and even if it is able to pass on cost in its financial condition. increases, the adjustments may not be immediate and may not fully offset the extra costs or may cause a decline in sales volumes. How we manage The Group undertakes extensive consumer research and The Group has entered into forward purchase contracts for has a track record of successful new product development to grain alcohol in the past to mitigate its exposure to changes constantly meet changing consumer needs. We have developed in grain price but even if the Group participates in forward a range of lower alcohol products and feel confident that we contracts in the future, these may not be sufficient to protect have the expertise to continue to develop products that meet it against the adverse consequences of significant fluctuations and satisfy consumer needs. in the price of raw materials. Increases in commodity prices, such as the price of oil, could also impact the Group’s operational costs, such as transport costs.

Stock Spirits Group Annual Report 2013 37 PRINCIPAL RISKS CONTINUED

How we manage How we manage Where possible the Group will negotiate term contracts for the Through our membership of local market spirits associations we supply of core raw materials and services on competitive terms seek to engage with local tax and customs authorities as well as to manage pricing fluctuations. government representatives and where appropriate provide informed input to the unintended consequences of excise increases e.g. growth of illicit alcohol and potential harm to consumers. Risks associated to regulations and litigations The Group may be affected by litigation directed at the The Group may be exposed to liabilities under anti-bribery alcoholic beverages industry and other litigation. laws and any violation of such laws could have a material adverse effect on its reputation and business. Commentary The Group is and may in the future be subject to litigation in the Commentary ordinary course of its operations such as intellectual property The Group is subject to laws that prohibit improper payments claims, product liability claims, product labelling disputes and or offers of payments to foreign governments and their officials administrative claims. If such litigation results in fines or damages, and political parties for the purpose of obtaining or retaining payments, or the Group being required to alter its trademarks, business, including the UK Bribery Act. Despite internal policies labels or packaging, or causes reputational damage to the Group and controls, the Group’s activities in Central and Eastern Europe or its brands. Significant claims or a substantial number of small and other markets may create the risk of unauthorised payments claims may also be expensive to defend and may divert time and or offers of payments by employees, consultants, sales agents money away from the Group’s operations. In addition, litigation or distributors, because these parties are not always subject to and complaints from consumers or government authorities may the Group’s control. Existing safeguards (such as the Group’s affect the industry as a whole. At the moment the Group has a anti-bribery and anti-corruption policies and training programmes) litigation in Poland with one of its competitors, which affects the and any future improvements may prove to be ineffective. labelling of the brand Żołądkowa Gorzka. Violations of anti-bribery laws could result in severe criminal or civil sanctions being imposed on the Group and the Group How we manage may be subject to other liabilities and reputational harm. The Group has established clear processes and controls to monitor all product labelling, compliance with local regulations and How we manage litigation action. The Group has a centralised and clear process The Group operates a detailed anti-bribery and anti-corruption for intellectual property protection with an active and on-going policy and process. Regular update training is conducted across coordination with the local markets so any changes in our current the business and we undertake regular reviews to assess the portfolio or new product developments are correctly protected. adequacy and effectiveness of our policy and processes. We also carry on controls and checks in potential key partners Increases in taxes, particularly increases to excise duty rates, before engaging with them. could adversely affect demand for the Group’s products.

The Group may be exposed to tax liabilities resulting from Commentary certain tax audits. Distilled spirits are subject to import duties, excise and other taxes (including VAT) in each of the countries in which the Commentary Group operates. Governments in these countries may increase The Group is subject to tax laws in the jurisdictions where it such taxes. Demand for the Group’s products is particularly operates. The Group’s effective tax rate in any given financial sensitive to fluctuations in excise taxes, since excise taxes year reflects a variety of factors that may not be present generally constitute the largest component of the sales price in succeeding financial years and may be affected by the of spirits. The import duty and excise regimes applicable to interpretation of the tax laws of the jurisdictions in which the the Group’s operations could result in temporary increases Group operates, or changes to such laws. Changes in tax laws or decreases in revenue that are responsive to the timing of and related interpretations and increased enforcement actions any changes in excise taxes. On 1 January 2014 the Polish and penalties may alter the environment in which the Group government implemented a 15% increase in the excise duty does business. In addition, certain tax positions taken by the on spirits. Such increase leads to price increases across the Group are based on industry practice and external tax advice Polish spirits market and may generate a decrease in the and / or are based on assumptions and involve a significant Group’s sales volumes in Poland. degree of judgment.

38 Stock Spirits Group Annual Report 2013 In addition, the Group has in the past faced, currently faces and revenue or in the Group incurring additional marketing or may in the future face, audits and other challenges brought by production expenses. tax authorities. How we manage How we manage The Group monitors all changes to the regulatory environment The Group engages the services of a professional global firm in which we operate. We ensure that we are compliant with all of tax advisors and undertakes regular audits of our own tax requirements, and implement changes to our policies and processes, documentation and compliance. We aim to operate processes as appropriate. For example we were able to adapt the business in a tax efficient and compliant manner at all times. our excise duty management processes immediately following the temporary prohibition in the Czech Republic in 2012 which enabled the Group’s products to return to customers’ shelves The Group is subject to extensive regulations limiting at the earliest opportunity, and limit the impact of the ban upon advertising, promotions and access to its products, and these both consumers and the Groups results. regulations and any changes to these regulations could limit its business activities. Sales and operations facilities are also subject to significant government regulations. Risks related to Stock Spirits Group’s business The Group’s success depends on retaining key personnel Commentary and attracting highly skilled individuals. Governments in the countries in which the Group operates impose prohibitions and / or limitations on the advertising and Commentary promotion of spirits, which can range from selective regulation The Group’s success depends substantially upon the efforts and to a near total ban (as is the case in Poland). Since advertising abilities of key personnel and its ability to retain such personnel. is an important way to reach customers, these limitations may The executive management team has significant experience in inhibit or restrict the Group’s ability to maintain or increase the international alcoholic beverages and FMCG industries and consumer recognition and support for its brands. They may also has made an important contribution to the Group’s growth and limit the Group’s ability to successfully launch new products or success. The loss of the services of any member of the executive brands. In addition, regulatory bodies in certain of the countries management team of the Group or of a company acquired by the in which the Group operates have passed, and may pass, laws or Group, could have an adverse effect on the Group’s operations. regulations that seek to restrict or have the effect of restricting The Group may also not be successful in attracting and retaining consumer access to alcohol by, for example, controlling the such individuals in the future. times when outlets are allowed to sell alcohol or increasing the minimum drinking age. On the other hand, in some of these How we manage countries, these prohibitions and / or limitations act as a barrier The Group operates a competitive remuneration policy that to entry to the alcoholic beverage markets, which, if removed, aims to retain, motivate and, where necessary, attract key could allow more competitors to enter the market in which the individuals. We have developed a formal succession planning Group operates. process to mitigate the risk of losing key personnel.

Production, trade and distribution of alcohol are subject to strict regulations and the Group is required to obtain various Inconsistent quality or contamination of the Group’s products or administrative permits and approvals to carry out its business. similar products in the same categories as the Group’s products Failure to comply with applicable regulations can result in could harm the integrity of, or customer support for, the Group’s criminal sanctions and loss of the permits or approvals brands and adversely affect the sales of those brands. required. In addition, the Group’s production and bottling facilities and the Group’s ethanol distillery are subject to Commentary varying levels of government regulation. The Group may incur The success of the Group’s brands depends upon the positive significant costs to maintain compliance with increasingly image that consumers have of those brands. A lack of consistency stringent environmental and occupational, health and safety in the quality of products or contamination of the Group’s requirements, or to defend challenges or investigations relating products, whether occurring accidentally or through deliberate to such requirements. third-party action, could harm the integrity of, or consumer support for, those brands and could adversely affect their sales. Also, changes to production and sales or labelling requirements Further, a lack of consistency in the quality of or contamination for alcoholic beverages, could cause consumers to shift their of products similar to the Group’s products or in the same beverage preferences and result in a reduction in the Group’s categories as the Group’s products howsoever arising could,

Stock Spirits Group Annual Report 2013 39 PRINCIPAL RISKS CONTINUED

by association, affect sales. In addition, counterfeited versions The Group’s revenue is subject to seasonal fluctuations of the Group’s products, and / or a lack of consistency in the in consumer demand. quality of or contamination of such counterfeit products, could also harm the Group and affect sales. Also, the Group purchases Commentary a large proportion of the raw materials for the production and The Group’s business is affected by holiday and seasonal consumer packing of its products from third-party producers or on the buying patterns, as well as any end of year price increases or open market. It may be subject to liability if contaminants in decreases. If a major unexpected adverse event occurred those raw materials, mislabelling or defects in the distillation or during the high sales periods, this may result in a significant bottling process lead to low beverage quality or illness or injury reduction in revenue and a deterioration in full year’s earnings. to consumers. In addition, the Group may voluntarily recall or withhold from sale, or be required to recall or withhold from sale, How we manage products in the event of contamination or damage. A significant The Group aims to mitigate against such risk by its operations product liability judgement or a widespread product recall may across a number of markets, through a diverse product negatively impact the reputation of the Group’s brands, even portfolio and being present across all distribution channels. if a product liability claim is unsuccessful or is not fully pursued.

The Group’s operating results may be adversely affected How we manage by disruption to its production and storage facilities or by We have strict production processes and quality is one of a breakdown of its information technology systems. the key priorities for our production team. We have developed high quality products and we have invested in our production Commentary facilities (including the construction of our own rectifier The Group would be affected if there were a significant of alcohol in Poland and the acquisition of our own ethanol disruption to any of its production facilities, in particular to its production facility in Germany) in order to keep quality main production facilities in Poland and the Czech Republic. As consistency across our product portfolio. We also have alcohol is highly inflammable, fire is a risk to the Group’s facilities a crisis process and committee to deal with quality issues and employees, particularly at its production and storage sites. in the market. The measures which the Group has in place to mitigate this risk may prove to be insufficient or ineffective. The Group’s operations are primarily in Central and Eastern European markets where there is a risk of economic and How we manage regulatory uncertainty. In addition to holding appropriate insurance cover to protect the business in the event of a production disruption, our two Commentary primary bottling sites offer sufficient flexibility that each site In the Group’s experience, the local laws and regulations in the is capable of bottling all of our core SKU’s. region where it operates are not always fully transparent, can be difficult to interpret and may be applied and enforced inconsistently. The Group’s operations in certain markets may be disrupted In addition, the Group’s strategy involves expanding its business in if it is unable to enter into or maintain distribution agreements several emerging markets, including in certain Central and Eastern on favourable terms or at all. European countries that are not members of the European Union. Political, economic and legal systems and conditions in emerging Commentary market economies are generally less predictable. Any failure to renew agreements with third-party distributors on terms acceptable to the Group, the termination of these How we manage agreements or a dispute with a distributor could result in The majority of countries that we currently operate in are part of disruption of the Groups normal distribution channels, the European Union, and therefore are subject to EU regulation. incurrence of breakage costs and loss of sales or customers. We monitor the economic conditions within each market and review our product portfolio, route to market and adjust our How we manage position accordingly. For example as a consequence of changes The Group monitors both our customer and product mix to to the regulatory environment in Slovenia in recent years, it no ensure that we manage our profit delivery across our range longer became commercially viable for us to operate our own of products, distribution channels and customers. sales and distribution operation. We undertook a review of route to market options and transferred our distribution to a third party distributor and closed our own operation in the country.

40 Stock Spirits Group Annual Report 2013 The Group may not be able to protect its intellectual between financial reporting period as well as fluctuations property rights. in interest rates, mainly through increased interest expense.

Commentary Commentary The Group cannot ensure that third parties will not infringe The Group’s business operations are subject to risks associated on or misappropriate its rights. In addition, the Group may fail to with fluctuations in currency exchange rates. The Group discover infringement of its intellectual property, and / or any steps generates revenue primarily in Polish Złoty and secondarily taken or that will be taken by it may not be sufficient to protect in Czech Koruna and a large portion of the Group’s assets and its intellectual property rights or prevent others from seeking to liabilities are denominated in Złoty and Koruna. Translation risk invalidate its trademarks or block sales of its products by alleging arises from the fact that, for each accounting period, the Group a breach of their trademarks and intellectual property. Applications needs to translate into Euro the foreign currency statements of filed by the Group in respect of new trademarks or patents may not financial position and income statements of its subsidiaries whose be granted. In addition, some of the Group’s intellectual property, functional currency is not the Euro, in order to prepare the such as brands that are deemed generic, may not be capable of consolidated accounts of the Group. This currency translation can being registered as the Group would desire. Further, the Group cause unexpected fluctuations in both the statement of financial may not be able to prevent others from using its brands at all or in position and the income statement. The Group is also subject a particular market. Certain countries in which the Group operates to foreign currency exchange risk in its transactions because may offer less stringent intellectual property protection than is its business involves transactions in a variety of currencies due available in Western Europe or the United States. to its wide distribution market and sourcing of raw materials in various jurisdictions. To the extent that it has incurred expenses How we manage that are not denominated in the same currency as related The Group has a strict and centralised process of intellectual revenue, exchange rate fluctuations could cause the Group’s property protection in coordination with local markets. The expenses to increase as a percentage of its revenue. In addition, Group also works with external advisors at a worldwide level the Group currently does not have any hedging contracts with and within the markets to monitor any potential infringement respect to foreign exchange rates. of our trademarks and intellectual property rights. Higher interest rates and more stringent borrowing requirements, whether mandated by law or required by lenders, could increase The terms of the Group’s financing arrangements may limit the Group’s financing charges and reduce profitability. The Group its commercial and financial flexibility. has entered into hedging arrangements, however, they only continue until 30 September 2014 and there is a risk that any Commentary hedging instruments used may not be completely effective, and The Group’s commercial and financial flexibility is restricted by the Group may be unable to extend or renegotiate on favourable certain restrictive covenants under the terms of the existing credit terms its current arrangements. facilities, which may require some banks’ consents to carry on some big acquisitions and other activities. The financial covenants How we manage are tested in Euro. Consequently, movement in the other The Group aims to hedge transaction risk by matching currencies in which the earnings, assets and liabilities of certain cashflows, assets and liabilities through normal commercial of the Group’s subsidiaries are denominated could adversely activities where possible. For example all debt is currently impact the Group’s ability to comply with these financial drawn in local currency by market. We monitor currency covenants. The facilities also contain certain prepayment exposure as an integral part of our monthly review process and provisions, including the mandatory prepayment of all borrowings where appropriate will implement hedging instruments. and the cancellation of all commitments under this facility upon a change of control of the Company or certain of its subsidiaries. Approval of strategic report The strategic report comprising pages 2 to 41 was approved How we manage and signed on behalf of the Board. The partial refinancing undertaken in 2013 took into consideration the short and medium term liquidity requirements of the Group and was completed to ensure that the Group had sufficient liquidity to support its growth ambitions.

Chris Heath The Group is exposed to foreign currency exchange rate risk Chief Executive Officer that could affect operating results and comparability of results 27 March 2014

Stock Spirits Group Annual Report 2013 41 DIRECTORS AND COMPANY SECRETARY

We have pleasure in introducing our Board which is committed to maintaining high standards of corporate governance and business integrity in a constantly Jack Keenan evolving regulatory Chairman environment. Jack joined Stock Spirits Group as Non-Executive Chairman in 2008. After Board structure retiring as Chairman of Kraft International Chairman in early 1996, he joined the Board of Grand Senior Non-Executive Independent Director Metropolitan, becoming Chief Executive Three other Non-Executive Directors Officer of its global wine and spirits of which two are independent business. There he led the consolidation Two Executive Directors of the global drinks industry by merging the businesses of Grand Metropolitan and Guinness (to form Diageo) and leading the acquisition of Seagrams. He is also the Chairman of Revolymer.

Andrew Cripps Independent Non-Executive Director Andrew was appointed to the Board as an Independent Non-Executive Director in October 2013. He qualified as a chartered accountant before working for twenty years in the tobacco industry with Rothmans International and then British American Tobacco. He is currently the Independent Non-Executive Deputy Chairman of Swedish Match and an Independent Non-Executive Director and Chairman of the Audit Committees of Booker Group and Boparan Holdings.

42 Stock Spirits Group Annual Report 2013 Chris Heath Lesley Jackson David Maloney Chief Executive Officer Chief Financial Officer Senior Independent Chris joined Stock Spirits Group in 2007 Lesley joined Stock Spirits Group Non-Executive Director as Chief Financial Officer and in 2009 in 2011 as Chief Financial Officer. A David was appointed to the Board was appointed Chief Executive Officer. fellow of the Institute of Chartered as Senior Independent Non-Executive He was previously Group Chief Financial Accountants, Lesley has more than 15 Director in October 2013. During Officer and Commercial Director of years of experience in the drinks industry. a long career in finance, he was Chief Gondola Holdings and, before that from She has held senior finance positions in Financial Officer of Le Meridien Hotels 1988 to 2005, held a number of senior Scottish & Newcastle, was Group Chief and Resorts, Thomson Travel Group and positions in Allied Domecq. These Financial Officer of publicly listed United Preussag Airlines and Group Finance included roles as European Finance Breweries in India and most recently, Director of Avis Europe. He is currently Director, Managing Director UK, Group Finance Director at William Deputy Chairman of Micro Focus Managing Director Spain and Global Grant & Sons. International and the Senior Independent Finance Director. Non-Executive Director of Cineworld and Enterprise Inns.

Karim Khairallah John Nicolson Elisa Gomez De Bonilla Non-Executive Director Independent Non-Executive Company Secretary Karim is a Managing Director with Director See page 44. Oaktree Capital Management (UK) John was appointed to the Board as an and led the original investment in Stock Independent Non-Executive Director Spirits Group. Prior to joining Oaktree UK in October 2013. His previous roles in 2005, he was a co-founder and partner include President of Heineken Americas, of Solidus Partners, an investment Executive Director of Scottish & management firm in London. Before that, Newcastle, Chairman of both Baltika he worked at General Atlantic Partners, Breweries (Russia) and Baltic Beverages J.P. Morgan and Lehman Brothers Holding (Sweden) and Executive Director International. Karim is also Chairman for Fosters Europe. He is currently the of Panrico. Vice-chairman of Compania Cervecerias Unidas (Chile) and the Senior Independent Non-Executive Director of A.G. Barr.

Stock Spirits Group Annual Report 2013 43 SENIOR MANAGEMENT

Our Senior Management Team has vast experience in the alcoholic beverages industry and FMCG companies.

In addition to the two Executive Directors, whose biographies are set out on page 43, the other members of Senior Management are set out on here.

Ian Croxford Richard Hayes Elisa Gomez De Bonilla Chief Operating Officer Group Sales & Marketing Director General Counsel Ian joined the Group in December 2007. Richard began working with the Group Elisa joined the Group in 2008 from He has worked in the alcoholic beverages in May 2012. Previously, he worked at Beam Global where she was Associated industry since 1996, when he joined Warburtons Bakery, where he held the General Counsel for International for two United Distillers & Vintners. He was Marketing Director role for five years and a half years. Prior to this, she worked Managing Director of John Dewar & Sons and led the marketing, innovation, insight at Allied Domecq for seven years, as a Ltd for a period of years, and then moved and customer service teams. He has also Senior Legal Advisor to the European to become Managing Director of Banshee held UK and international marketing roles Legal Team, having previously worked in Spirits Ltd, an independent startup at major multinationals including Allied private practice, at an international law business. Prior to joining the Group, he Domecq, Kraft and Nabisco and a former firm in Spain. was also Chief Executive Officer of Inter British brewery, Courage Breweries. Link Foods PLC and Group Operations Director of Premier Foods PLC.

44 Stock Spirits Group Annual Report 2013 Kevin Ringrose Petr Pavlík Mariusz Borowiak Interim Group Human Managing Director, Czech Republic Managing Director, Poland Resources Director Petr joined the Group in September Mariusz joined the Group in 2012. Kevin joined the Group on an interim 2009 from Reckitt Benckiser where he Previously he has held sales and basis in 2013. He is a career Interim was Global Category Director and, prior distribution roles at some of the leading HR Director and has previously held to that, General Manager, Belgium and FMCG companies in Poland. He has been positions at GrandMet Brewing, Geest Luxembourg. He has previously worked a board member responsible for sales Foods, Greencore, Alliance Boots, Direct for Procter and Gamble in various and distribution in Grupa Żywiec, a Line Group and Associated British Foods. sales roles and for Boots Healthcare Polish brewing company controlled International as General Manager by Heineken, Operations Director in with responsibility for the region of Jerónimo Martins Distribution and Central Europe, Turkey and Greece. Purchase Director in Elektromis.

Roman Pocs Claudio Riva Steve Smith Managing Director, Slovakia Managing Director, Italy Managing Director, International Roman joined the Group in January 2011. Claudio joined the Group in March 2008. Steve joined the Group in May 2012 Previously he held various leading roles Prior to joining the Group, he held senior and was appointed Managing Director, in FMCG companies – starting his sales roles in various leading companies in the International in September 2012. He was career at Henkel Slovakia, continuing alcoholic beverages and FMCG markets, previously Supply Chain Director at C&J at Gillette as Key Accounts Director for including Carlsberg Italia where he was Clarks footwear from 2006 to 2012. From Czech Republic and Slovakia where he Managing Director, Allied Domecq, 1988 to 2004, he held a number of senior led various commercial and integration Nestle’s Buitoni, Parmalat Spa, and positions in Allied Domecq including projects within CEE region. He then Del Monte Sud Europa. Finance Director of their Spanish business, moved to the role of Commercial Director SVP Finance and Operations for The at Sodexo Czech and then Bongrain Americas and European Finance Director. Slovakia (a leading cheese producer He has also previously worked for Valspar in Central Europe). Corporation as European Finance Director.

Stock Spirits Group Annual Report 2013 45 Corporate governance Chairman’s letter

Committed to corporate governance.

Dear shareholders and other stakeholders, In the selection of the new Board members we followed a very strict process, specifying the skills and qualities we were seeking I am pleased to introduce our Corporate governance report. in the Directors. Such skills included requirements for financial We became a listed company on 25 October 2013 and this expertise, wide experience in directorship of listed companies represented a significant milestone in the development of and deep knowledge of the spirits or FMCG industries. our business. The year has been one of transformation for Stock Spirits Group, as we evolved from being a private equity The Directors have benefited from corporate governance owned company to a premium listed company on the London training from our external legal advisors and have also been Stock Exchange. meeting with the Senior Executive Management Team for induction purposes. A full programme, including visits to the As a Board, we are focused on high standards of corporate different subsidiaries, markets and production plants in the governance. Since the date of the listing on the London Stock Group is underway. Exchange, we have largely been compliant with the UK Corporate Governance Code in relation to the Board structure, The focus of the Board for 2014 is to strengthen the existing Committees and processes. The Remuneration Committee corporate governance policies and support the growth strategy operates with a majority of Independent Non-Executive of the Group, displaying full commitment and dedication. Your Directors and includes a Non-Independent Non-Executive Board is well placed to challenge robustly the proposals put Director, Karim Khairallah, who is able to make an important before it and to provide independent oversight. contribution due to his former involvement in the remuneration policy of the Group.

Even before the IPO, the Company has always been committed to high standards in corporate governance. We are convinced that Jack Keenan strong corporate governance is good for our business and we take Chairman it very seriously. We firmly believe that corporate governance 27 March 2014 structures and processes will help our business to perform in a more efficient and competitive way in the market place and will lead to strong relationships with all our stakeholders.

In September 2013 the new holding company of the Group, Stock Spirits Group PLC, was set up and its new Board of Directors appointed. The Board comprises four Independent Non-Executive Directors (including me as a Chairman), one Non-Executive Director representing our major shareholder (Oaktree Capital Management) and two Executive Directors.

46 Stock Spirits Group Annual Report 2013 Corporate governance framework

Introduction (iv) Code Provision D.2.1 – Karim Khairallah, who is a member This report explains key features of the Company’s governance of the Remuneration Committee, is not an Independent structure to provide a greater understanding of how the main Non-Executive Director. principles of the UK Corporate Governance Code (Code), published in September 2012 by the Financial Reporting Non-compliance – Explanation Council, have been applied and to highlight areas of focus (i) Code Provisions A.4.2, B.6.1 and B.6.3 – the Board was during the year. The report also includes items required by constituted in October 2013 and in the short period the Disclosure and Transparency Rules. to the end of 2013 its focus was on the development of the business post-IPO and on the implementation and The Board has ultimate responsibility for reviewing and embedding of formal Board processes and procedures. approving the Annual Report and Accounts. It has considered It was considered too early at this stage to undertake and endorsed the arrangements to enable it to confirm the a formal and rigorous evaluation of its own performance, Annual Report and Accounts, taken as a whole, is fair, balanced its committees or that of individual directors or the and understandable and provides the information necessary Chairman. It is intended that an evaluation of the Board’s for shareholders to assess the Company’s performance, performance will be undertaken during 2014; and business model and strategy. (ii) Code Provision D.2.1 – the Board considers that the continuity and experience provided by Karim Khairallah Compliance with the UK Corporate Governance Code will be valuable for the Remuneration Committee The Company completed an IPO in October 2013 and is listed notwithstanding that he is not considered to be “independent”. on the London Stock Exchange. Prior to its listing the Company had no obligation to comply with the requirements of the Code. Governance Overview However, on listing and subsequently, with the exceptions as noted The Board is collectively responsible to the shareholders for below, the Company has complied with the provisions of the Code. the long-term success of the Company. The Board has delegated (i) Code Provision A.4.2 – the Chairman did not hold meetings certain responsibilities to Board Committees to assist it with with the Non-Executive Directors without the Executive discharging its duties. The Board Committees play an essential Directors present; role in supporting the Board to implement its vision and strategy (ii) Code Provision B.6.1 – the Board should state in the Annual and provide focused oversight of key aspects of the business. Report how the performance evaluation of the Board, its The full Terms of Reference for each Committee are available on committees and individual Directors has been conducted; the Company’s website www.stockspirits.com and are available (iii) Code Provision B.6.3 – the Non-Executive Directors, led from the Company Secretary and General Counsel upon request. by the Senior Independent Director should have been responsible for the performance evaluation of the Chairman, taking into account the views of the Executive Directors; and

Stock Spirits Group PLC Board

Audit Remuneration Nominations Disclosure Committee Chair Committee Chair Committee Chair Committee Chair Andrew Cripps John Nicolson David Maloney Jack Keenan

Chris Heath, CEO

Group Management Team Local Managing Directors Lesley Jackson Ian Croxford Mariusz Borowiak Claudio Riva CFO COO MD, Poland MD, Italy

Elisa Gomez De Bonilla Richard Hayes Petr Pavlík Roman Pocs General Counsel Marketing Director MD, Czech Republic MD, Slovakia

Kevin Ringrose Steve Smith Interim Group HR Director MD, International

Stock Spirits Group Annual Report 2013 47 Corporate governance Corporate governance framework

How the Board Works Role of the Chief Executive Officer The Board and its Committees Chris Heath is the Group Chief Executive Officer. Through The Company is led and controlled by the Board. The names, delegation from the Board he is responsible for executive responsibilities and details of the current Directors appointed management of the Group, including the implementation to the Board are set out on pages 42 and 43. The Board agrees of the Group’s strategic objectives. In fulfilling his duties, the strategic direction and governance structure that will help the Chief Executive Officer is supported by the Senior achieve the long-term success of the Company and deliver Management Team whom he also leads (biographies for the shareholder value. The Board takes the lead in areas such Senior Management Team can be found on pages 44 and 45). as strategy, financial policy and making sure the Company maintains a sound system of internal control. The Board’s Interaction between the Chairman and the Chief Executive full responsibilities are set out in the matters reserved for The role of the Chairman and the Chief Executive Officer the Board and are available on the Company website. are separate with a distinct division of responsibilities. The partnership between Jack Keenan and Chris Heath is based on The Board delegates authority to its Committees to carry out mutual trust and facilitated by regular contact between the two. certain tasks on its behalf, so that it can operate efficiently and The separation of authority enhances independent oversight give the right level of attention and consideration to relevant of the executive management by the Board and helps to ensure matters. The composition and role of each Committee is that no one individual on the Board has unfettered authority. summarised on pages 50 to 51. Role of the Senior Independent Director Board composition, qualification and independence The Senior Independent Director (SID) is David Maloney, The Board is committed to the highest standards of corporate who is available to shareholders if they have concerns that governance and as such its composition, and members’ the normal channels of Chairman, Chief Executive Officer or experience and balance of skills are regularly reviewed to other Executive Directors have failed to resolve or for which ensure that there is the right mix of people on the Board and such channels of communication are inappropriate. The SID its Committees and they are working effectively. Following also acts as an internal sounding board for the Chairman admission, the Board comprises seven Directors, which include and serves as intermediary for the other Directors with the an independent Chairman (who, for the purposes of the Code Chairman when necessary. While there were no requests was independent on appointment), three Independent from shareholders or Directors for access to the SID during Non-Executive Directors, two Executive Directors and one the reporting period, the role of the SID is considered to be Non-Executive Director who is not deemed to be independent an important check and balance in the Group’s governance for the purpose of the Code. The current Directors have a wide structure. In accordance with the Code, neither the Chairman range of skills and experience including expertise in the food nor the SID are employed as executives of the Group. and drinks industry within Europe and beyond. Non-Executive Director independence Role of the Chairman The independence of each Non-Executive Director was The Board is chaired by Jack Keenan, a Non-Executive Director considered at the time of appointment in October 2013. Going who met the independence criteria in the Code on his forward on an annual basis the Board will consider and review appointment. It is the Chairman’s duty to lead the Board and each Non-Executive Director’s independence on an annual basis to ensure that Directors have sufficient resources available as part of the Directors’ performance evaluation. In carrying out to them to fulfil their statutory duties. The Chairman is the review, consideration will be given to factors such as their responsible for setting the Board’s agenda, ensuring that character, judgement, commitment and performance on the adequate time is available for discussion of all agenda items Board and relevant Committees and their ability to provide and ensuring a particular focus on strategic issues. The objective challenge to management. Chairman promotes a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors in particular and by encouraging constructive relations between Executive and Non-Executive Directors.

48 Stock Spirits Group Annual Report 2013 Appointment and tenure Director election All Directors, with the exception of Lesley Jackson, were Following recommendations from the Nomination Committee, appointed on 21 October 2013. Lesley Jackson was appointed the Board considers that all Directors continue to be effective, on 12 September 2013. committed to their roles and have sufficient time available to perform their duties. Accordingly, all Directors will seek election All Non-Executive Directors including the Chair serve on the at the Company’s first AGM. basis of letters of appointment which are available for inspection at the Company’s registered office. The letters of appointment Directors’ conflicts of interest set out the expected time commitment of Non-Executive Directors have a statutory duty to avoid situations in which Directors who, on appointment, undertake that they will they have or may have interests that conflict with those of have sufficient time to meet what is expected of them. the Board, unless that conflict is first authorised by the Board. This includes potential conflicts that may arise when a Director The Executive Directors’ service contracts are also available takes up a position with another company. The Company’s for inspection at the Company’s registered office. Articles of Association allow the Board to authorise such potential conflicts, and there is in place a procedure to deal The Company does not place a term limit on Director’s service with any actual or potential conflict of interest. The Board as all continuing Directors will present themselves for annual deals with each appointment on its individual merit and takes re-election by shareholders at the Company’s future Annual into consideration all the circumstances. General Meetings. All potential conflicts approved by the Board are recorded in Director induction and training an Interests Register, which is reviewed by the Board at least The Chairman, with the support of the Company Secretary, quarterly to ensure that the procedure is working effectively. is responsible for the induction of new Directors and ongoing development of all Directors. New Directors receive a full, Board evaluation and effectiveness formal and tailored induction on joining the Board designed As outlined above, the Board has not undertaken a formal to provide an understanding of the Group’s business, and rigorous evaluation of its own performance, or that of its governance and key stakeholders. The induction process may individual directors or the Chairman, during the period as the include provision of an induction pack, operational site visits, Board was only established in October 2013. The Board do meetings with key individuals and briefings on key business, intend to undertake such an evaluation process during the legal and regulatory issues facing the Group. 2014 financial year.

As the internal and external business environment changes, Shareholder engagement it is important to ensure the Directors’ skills and knowledge Responsibility for shareholder relations rests with the Investor are refreshed and updated regularly. Accordingly, the Relations Director, Andrew Mills. He ensures that there is effective Chairman, with the assistance of the Company Secretary communication with shareholders on matters such as governance ensures that updates on corporate governance, regulatory and strategy, and is responsible for ensuring that the Board and technical matters are provided to Directors at Board understands the views of major shareholders on such matters. meetings as and when appropriate. In this way, Directors keep their skills and knowledge relevant so as to enable As a part of a comprehensive investor relations programme, them to continue to effectively fulfil their duties. formal meetings with investors are scheduled to discuss the Group’s interim and final results. In the intervening periods, Information and support available to Directors the Company continues its dialogue with the investor community All Board Directors have access to the Company Secretary, by meeting key investor representatives, attending investment who advises them on Board and governance matters. The conferences and holding investor roadshows. Chairman and the Company Secretary work together to ensure that Board papers are clear, accurate, delivered in a timely Since the IPO, the Investor Relations Director has met with manner to Directors, and of sufficient quality to enable the over 100 shareholders and potential shareholders. External Board to discharge its duties. As well as the support of the presentations are posted on the Company’s website at Company Secretary, there is a procedure in place for any www.stockspirits.com/investors. Director to take independent professional advice at the Company’s expense in the furtherance of their duties, where considered necessary.

Stock Spirits Group Annual Report 2013 49 Corporate governance Corporate governance framework

Annual General Meeting Committees The Company’s first AGM will take place at 11.00am on Tuesday Prior to IPO, the Company has established an Audit Committee, 13 May 2014 at Ironmongers Hall, 1 Shaftesbury Place, London a Nomination Committee, a Remuneration Committee and EC2Y 8AA. All shareholders have the opportunity to attend a Disclosure Committee. The Board delegated specific and vote, in person or by proxy, at the AGM. The notice of the responsibilities to the above Board Committees. The role and AGM can be found on our website www.stockspirits.com and responsibilities of each Board Committee are set out in formal in a booklet which is being mailed out at the same time as this Terms of Reference, which will be reviewed at least annually and Report. The Notice of the AGM sets out the business of the are available on the Company’s website. The Board Committees meeting and an explanatory note on all resolutions. Separate make recommendations to the Board as they see fit, as resolutions are proposed in respect of each substantive issue. contemplated by their Terms of Reference.

The AGM is the Company’s principal forum for communication The Committee membership is shown below. with private shareholders. The Chairman of the Board and the Chairmen of the Committees, together with senior management Audit Remuneration Nomination Disclosure will be available to answer shareholders’ questions at the AGM. Director Committee Committee Committee Committee Jack Keenan X X X* Board meeting attendance Chris Heath X Table of Board attendance Lesley X There were four scheduled Board meetings (two of which Jackson took place before the IPO) and the table below summarises Karim the attendance of the Directors. X Khairallah Meetings David X X X* eligible to Meetings Maloney Director Attend Attended Andrew X* X X Jack Keenan 2 2 Cripps Chris Heath 2 2 John X X* Lesley Jackson 4 4 Nicolson Karim Khairallah 2 2 Senior David Maloney 2 2 Managers Elisa Gomez Andrew Cripps 2 2 X de Bonilla John Nicolson 2 2 Andrew Elisa Gomez de Bonilla * 3 3 X Mills * Resigned as a Director 21 October 2013. * Chairman of the Committee since IPO.

Committee meeting attendance • The Audit Committee held one meeting during the reporting period and all the members of the Committee attended • The Remuneration Committee held one meeting during the reporting period and all the members of the Committee attended • The Nomination Committee did not consider it necessary to meet during the short period from IPO in October 2013 to the period end, although it has met subsequently • The Disclosure Committee held one meeting during the reporting period and all the members of the Committee attended.

50 Stock Spirits Group Annual Report 2013 Disclosure Committee Internal control framework The Committee is chaired by Jack Keenan and its members We have a clear framework for identifying, evaluating and are Chris Heath, Lesley Jackson, Elisa Gomez de Bonilla and managing risk faced by the Company on an ongoing basis, both Andrew Mills. at an operational and strategic level. Our risk identification and mitigation processes have been designed to be responsive to Role of the Disclosure Committee the constantly changing environment. Our internal control The Disclosure Committee assists the Board in discharging its process starts with identifying risks, compliance matters and responsibilities for the identification of Inside Information and other issues. We do this through routine reviews carried out makes recommendations about how and when the Company by process owners and facilitated by relevant dedicated, should disclose such information. In doing so, the Committee specialist teams. We record risks in our risk register, assess considers all relevant transactions, projects and other the implications and consequences for the Group and determine circumstances which could potentially give rise to insider the likelihood of occurrence. Appropriate action is taken to information. The Committee is also responsible for analysing manage and mitigate risks identified. market expectations and rumours relating to the Company’s performance and monitoring the materiality of any variance The main features of the Group’s internal control and risk between the Company’s performance and its own forecasts. management systems in relation to the process for preparing consolidated accounts include: Activity of the Disclosure Committee • Organisational structure (delegations of authority and The Disclosure Committee met once during the reporting reporting lines) period as a consequence of legal challenge presented by • Group accounting and control procedures, with a centralised a competitor concerning the labelling on one of the Group’s Group finance function which provides direction and support products, Żołądkowa Gorzka. The Company did not agree to market finance teams as well as managing the Group with the challenge and is waiting for the court resolution. consolidation and reporting requirements The Committee did not consider necessary any disclosure • Budgetary process and financial review cycle, with a as the matter is still open and there is not expected to be any quarterly review of annual budget, business performance material financial impact. and assessment of risks • Risk management through monitoring and maintenance Internal controls of a risk register for each business unit Risk management and internal control • Capital expenditure control The Board recognises its responsibility to present a balanced • Internal Audit regular controls and monitoring and understandable assessment of the Group’s position and • Competence and integrity of our personnel. prospects and has responsibility for ensuring that management maintain an effective system of risk management and internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. Jack Keenan Approved by the Board Effectiveness of internal controls 27 March 2014 The Board has reviewed the effectiveness of our risk management and internal control process, including financial reporting, to ensure it remains robust. The review covered the financial period to 31 December 2013 and the period to the approval of this Annual Report and Accounts. A review of the effectiveness of the risk management and internal control processes will be undertaken at least annually by the Board.

Stock Spirits Group Annual Report 2013 51 Corporate governance Audit Committee report

All the members of the Committee are Independent Non- Executive Directors. Andrew Cripps and David Maloney are each qualified accountants and the Board is satisfied that each of these members brings recent and relevant financial experience to the Committee, as recommended by the Corporate Governance Code.

Elisa Gomez de Bonilla (General Counsel and Company Secretary) serves as Secretary to the Committee. The Chairman of the Company, Chief Executive Officer, Chief Financial Officer and Head of Internal Audit, Risk and Compliance and audit engagement partner from our external auditor generally attend our Audit Committee meetings by invitation. We also ask other members of senior management I am pleased to present the report of the Audit Committee to present to the Committee as appropriate. for 2013. The Audit Committee is required under its terms of reference The Committee was established in its current form as part of the to meet at least three times a year at the appropriate times in governance processes adopted by the Company on admission the financial reporting and audit cycle, with additional meetings of its shares to the premium list of the London Stock Exchange taking place as necessary. The Committee was established by in October 2013. The principal objectives of the Committee resolution of the Board dated 21 October 2013 and met once are to monitor the integrity of the Group’s internal controls, during the remainder of 2013 and then again on 22 January, financial risk management, public reporting, and external audit, and 18, and 24 March 2014. and to report to the Board and shareholders on these. Responsibilities and role of the Audit Committee Our first Audit Committee meeting was held on 11 November The Committee’s main responsibilities are to oversee, monitor 2013, at which the Committee’s terms of reference and annual and make recommendations to the Board on: programme of work were approved and initial findings of the • The effectiveness of the Group’s internal control and risk new internal audit team were reviewed. Subsequent meetings management, including control over financial reporting have approved the work plan for internal audit, reviewed • The effectiveness of internal audit, including co-ordination results of their work, debated the independence and objectivity with the activities of external audit of the external auditors, reviewed their plans for the annual • The Group’s policies and procedures relating to business audit and its execution as well as considered the preparation conduct, including whistleblowing arrangements and and content of this document, culminating in our principal fraud prevention and detection procedures recommendations to the Board that the Annual Report and • The Group’s overall approach to ensuring compliance Accounts be approved and the auditors be proposed for with laws, regulations and policies re-election, all as set out in more detail below. • The appointment of the external auditor, including a tender selection process where appropriate, as well as terms The Audit Committee is satisfied that it is in compliance with of engagement and remuneration the provisions of the UK Corporate Governance Code • The scope of the external audit, its findings and the in relation to audit committees and auditors. effectiveness of the audit process • The overall relationship with the external audit firm Composition of the Committee including the provision of non-audit services to ensure The members of the Committee during the year were as follows: that independence and objectivity are maintained • The integrity of the financial statements, including a review Chairman and Independent of the significant accounting policies and financial reporting Andrew Cripps Non-Executive Director judgments David Maloney Independent Non-Executive Director • Whether, taken as a whole these Annual Report and Accounts are fair, balanced and understandable and provide John Nicolson Independent Non-Executive Director the information necessary for shareholders to assess the Group’s performance, business model and strategy.

52 Stock Spirits Group Annual Report 2013 The Committee’s role is primarily advisory, ultimate Audit Committee in January 2014. This plan contains 16 audits responsibility for internal control, the Annual Report and and reviews that are focused on areas identified as having the Accounts, half-yearly reports and interim management most risk to the business covering all parts of the Group down statements remains with the Board. to individual sites, processes or activities, and all aspects of the business including finance, purchasing, sales, marketing, health, The full Terms of Reference of the Committee are available safety and environment. Results are graded, and where on our website at www.stockspirits.com improvements are identified, appropriate remedial actions are agreed with the management concerned and followed-up. Main activities of the Committee during the year Internal controls and risk management We considered the internal control issues raised in internal At its first meeting, the Committee reviewed the framework audit reports that we received during the year, the adequacy for internal controls and risk management within the Group of internal audit resources and the effectiveness of the internal and found these satisfactory. It was noted that the Group audit function. The Committee also held a session with the has implemented and communicated group-wide policies Head of IARC without other members of management and procedures to provide common standards of best practice being present. across its various sites and that controls themselves are largely implemented at site and business unit level, monitored by In addition to the direct internal audit activity, the Head Group functions. Business risks are formally reviewed by of IARC oversees and administers an annual control self- management at each quarterly business review. assessment process that is completed by each function within each business unit and reports the results to the Subsequent meetings have reviewed the implementation Audit Committee. This is an additional source of assurance and effectiveness of these controls. In January the Committee for the overall control environment within the Group. considered the adequacy of the Group’s financing facilities and insurance arrangements. Whistleblowing Part of our remit is to oversee the Group’s processes for The Committee also considered a “Financial Position and handling reports from whistleblowers. Our Code of Business Prospects Report” prepared by Ernst & Young as part of Conduct encourages all employees to report any potential preparations for the listing. This confirmed the adequacy of the improprieties in financial reporting or other matters. A new, procedures in place and made a number of recommendations independent, compliance hotline operated by an external for their enhancement which the Committee has followed up. agency is being introduced. This will be available to all employees, suppliers, customers and other stakeholders, in Internal audit each of the languages used throughout the Group, and, subject An experienced Head of Internal Audit Risk and Compliance to legal requirements, callers will be able to remain anonymous (IARC) was appointed in July 2013 reporting jointly to the if they wish. All contacts received will be reported to the Audit Chairman of the Audit Committee and the Chief Financial Committee. Where appropriate, our Internal Audit team may Officer. In view of the geographical diversity of the Group’s be asked to investigate issues and report to us on the outcome. operations and need for specialist skills in each location, the Group decided to outsource delivery of internal audit and Review of Annual Report and Accounts PricewaterhouseCoopers were engaged following a competitive The Committee has considered the appropriateness of the tender. The remit of internal audit is to undertake financial, accounting policies used. Further, the Committee considered operational and strategic audits across the Group using a this document as a whole, confirming that the description of risk-based methodology. The Audit Committee meeting on the business and its results for the year accord with our own 11 November 2013 approved the internal audit charter and understanding. Supported by a presentation requested from endorsed an initial internal audit plan. Four major risk areas management, the Committee has recommended to the Board were selected for audit in the balance of 2013 to provide that, taken as a whole, the Annual Report and Accounts are fair, assurance over the adequacy of controls in the Group’s balanced and understandable and provide the information three principal locations and safeguards to prevent bribery necessary for shareholders to assess the Group’s performance, or corruption. In each case the audits confirmed the sufficiency business model and strategy. of controls and proposed areas for improvement which are now being implemented. Internal audit prepared an inventory External audit of the key control and risk areas across the Group, informed At our November 2013 meeting, the Committee reviewed and by the latest quarterly risk registers, which drove priorities approved the audit planning report presented by our external for the internal audit plan for 2014 that was approved by the auditors Ernst & Young LLP (EY), which summarized the scope

Stock Spirits Group Annual Report 2013 53 Corporate governance Audit Committee report

Significant issues considered in relation to the Annual Report Taxation and Accounts As is normal, the Group has a number of outstanding tax assessments, and regularly undertakes reviews to assess tax In reviewing the financial statements with management risks across the Group, for example risks associated with VAT, and the auditors, the Committee has discussed and debated transfer pricing arrangements etc. the critical accounting judgements and key sources of

estimation uncertainty set out in note 4 to the financial The Group has undertaken a review of potential tax risks and statements. As a result of their review, the Committee has current tax assessments, and whilst it is not possible to predict identified the following six issues that require particular the outcome of any pending enquiries, the Committee concur judgement or have significant impact on interpretation with management’s assessment of the additional provisions made of this Annual Report. during the year, and agree that no further provisions are required.

Revenue recognition Exceptional items The Group’s policy is set out on page 87; the general policy is to Certain items have been shown separately in the Income recognise sales when customers take delivery of goods. Ahead Statement to assist understanding of the underlying of the excise duty increase in Poland on 1 January 2014 (see page profitability of the Group. These are detailed in note 8. 23), a number of customers either purchased increased amounts The Committee is satisfied that this treatment aids in December or pre-ordered products for delivery in January 2014 understanding, that it is not aware of similar items, and that we had removed from bond in December thus incurring duty that the treatment accords with guidance including the at the old rate. Production capacity at this, our busiest, time of year Financial Reporting Council’s publication on this topic. limited our ability to meet customer demand, nonetheless there was a beneficial impact on sales and unit costs of production in 2013, to the detriment of 2014. Management estimate the Accounting for the Group reorganisation and IPO favourable effect on sales in 2013 to be a circa 6% uplift in sales The reorganisation of the Group, through which Stock Spirits volumes giving rise to an increase in Operating Profit of circa €5m, Group PLC became the new Parent Company of the Group these figures have been validated by examining sales patterns in and the hybrid instruments through which the business was the new year. The Committee notes that the accounting treatment previously financed were variously redeemed, is set out on is correct, but the trend of sales between the two years is distorted. pages 115 to 117 and note 29. The Committee is satisfied that the pooling of interests method of accounting which has been used is the most appropriate. Carrying value of intangible assets The Group’s policies on accounting for separately acquired intangible assets and goodwill on acquired businesses are Going concern set out on page 90. Goodwill on acquisitions and acquired In assessing whether the Company is a going concern, intangible assets, such as brands, which are judged to have and accordingly making our recommendation to the Board, indefinite lives are initially recorded at fair value and are subject we considered a paper prepared by management based on to testing for impairment at each balance sheet date. As is guidance published by the Financial Reporting Council. customary, such testing involves estimation of the future cash The assessment was made for the period of 18 months to flows attributable to the asset, or cash generating unit of which 30 June 2015, in accordance with accepted practice. Based it is part, and discounting these future cash flows to today’s on internal forecasts, we reviewed the Group’s debt maturity value. The Committee has reviewed the key assumptions profile, including headroom and compliance with financial behind these valuations, notably the expected development covenants. We stress tested this by adjusting the Company’s of future cash flows and the discount rates used, as well as internal full year forecast cash flow by a combination of two considering reasonable sensitivities to these estimates and of the principal risks we have identified – an economic downturn concluded that these support the carrying values set out in leading to loss of revenue and customer default. (See Principal notes 15 and 16. risks and uncertainties – Economic conditions; and Failure to collect payments or to recover assets).

54 Stock Spirits Group Annual Report 2013 and timing of the external audit. This identified certain key fees, which almost entirely related to the listing and corporate financial statement risks upon which the audit would focus. reorganisation, amounted to €5,346k. Further details of the In January 2014, we reviewed a further report from EY which fees paid to the external auditor are set out in Note 12 to the confirmed that no additional matters had come to their attention Group Accounts. which changed their view of the audit scope. EY presented their approach to materiality which informed discussion of the Reappointment of external auditor appropriate level of materiality for the audit. The Committee Stock Spirits Group PLC became the Parent Company of the concurred with EY’s proposals as set out in their report. Group in October 2013; prior to this the parent had been a Luxembourg company and thus the Annual Report and Accounts Before concluding our recommendation on the Annual Report were subject to different regulations. EY have been external and Accounts in March, we reviewed a report from EY on the auditors to the Luxembourg based Group since 2008 and have findings from their audit with particular attention on key issues provided substantial and effective support for the listing as well arising out of the audit, including their views on critical estimates as providing other non-audit services in recent periods which and judgements, key assumptions, clarity of disclosures and has given them a good understanding of the Group. proposed audit adjustments. We discussed these with management and satisfied ourselves that the issues raised In view of this background, and to ensure appropriate had been properly dealt with. We received and considered independence and objectivity, the Committee has overseen confirmation of the independence and objectivity of the appointment by EY of a new relationship partner, to oversee auditors and reviewed the effectiveness of the audit process EY’s overall relationship with the Group, and a new audit by interrogation of management and auditors. The Committee engagement partner responsible for this first audit of Stock also sought assurance from management that all appropriate Spirits Group PLC as a UK listed public company. We believe matters had been brought to the auditors’ attention. this provides an appropriate balance of experience, efficiency, independence and objectivity. Non-audit services policy and auditor independence We have established a policy on non-audit services provided The Committee is mindful of proposed EU legislation governing by the external or internal auditors. Having noted the general auditor rotation and independence as well as recommendations guidance that caution is required if aggregate annual non-audit from the UK Competition Commission and will keep these fees are likely to approach the annual audit fee payable to an matters under review. audit firm, we decided that specific approval must be sought from the Audit Committee for: For the reasons mentioned above the Group did not undertake • Single or linked advice from our auditors, the cost of which a tender process for the supply of external audit services in is likely to exceed €50,000 in the financial year respect of the 2013 Annual Report and Accounts. • Employment into control positions of individuals who have worked directly on the external audit in the previous Having monitored the effectiveness of the audit process this two years. year by enquiry of management and auditors, the Committee recommends reappointment of Ernst & Young LLP as auditors We resolved that the same policy should apply to both our at the AGM. external auditors EY and to PwC who provide internal audit services that also must be free from undue influence. Our Governance policy also states that we require annual confirmation of the The Committee has reported in accordance with its Terms of independence of an audit firm in accordance with its own Reference and in particular has recommended to the Board the and required regulatory and ethical guidelines. We receive adoption of this Annual Report and Accounts and the proposal a quarterly report from the Chief Financial Officer of the to reappointment of Ernst & Young LLP as independent auditors actual level and nature of non-audit work. at the AGM. The Committee believes that it has operated effectively and will formally evaluate its performance in 2014. During 2013, the total fees paid to EY non-audit services were exceptionally high due to the level of work carried out by EY’s transaction services and tax advisory teams in connection with the listing and the related corporate reorganisation. However, we are satisfied that this exceptional level will not continue and that the non-audit work undertaken did not detract from the Andrew Cripps objectivity and independence of our external auditors. EY’s Chairman of the Audit Committee total fees for audit services amounted to €781k and non-audit 27 March 2014

Stock Spirits Group Annual Report 2013 55 Corporate governance Nomination Committee report

The Nomination Committee takes into account the provisions of the UK Corporate Governance Code 2012 and any regulatory requirements that are applicable to the Company. It ensures that the relevant, internal and external, evaluations of the Board are carried out according to the applicable regulations.

The full Terms of Reference of the Committee are available on our website www.stockspirits.com

Main activities of the Committee during the year Given the recent appointment of the Directors of the Company, the Committee did not consider it necessary to meet between listing and the year end. It has subsequently met in January 2014 to determine Directors’ independence or non-independence for I am pleased to introduce the report of the Nomination the purpose of recommending to the Board the re-appointment Committee for 2013. of Directors at the AGM.

The Committee was established as part of the governance processes All of the Company’s Directors will stand for election at the adopted by the Company, prior to the admission of its shares to the forthcoming Annual General Meeting (AGM) as it is the first premium list of the London Stock Exchange in October 2013. AGM since their appointments. The biographical details of the current directors can be found on pages 42 and 43. Composition of the Committee The Committee considers that the performance of each of the The members of the Committee during the year were as follows: Directors standing for re-election continues to be effective and demonstrates commitment to their roles, including commitment Chairman and Senior of time for Board and Committee meetings and any other duties. David Maloney Independent Non-Executive Director In accordance with the recommendation for FTSE 250 Independent Non-Executive companies set out in the UK Corporate Governance Code, Andrew Cripps Director all of the Directors of the Company will be subject to annual re-election. Jack Keenan Chairman of the Board The Corporate Responsibility section on pages 30 to 31 of the All the members of the Committee are Independent report explain the Group’s approach to diversity, including Non-Executive Directors. gender diversity percentages.

Elisa Gomez de Bonilla (General Counsel and Company The terms and conditions of appointment of Non-Executive Secretary) serves as Secretary to the Committee. The Chief Directors, including the expected time commitment, are Executive Officer generally attends our Committee meetings available for inspection at the Company’s registered office. by invitation. We also ask other members of senior management to present to the Committee during the year.

Responsibilities and roles of the Committee The Nomination Committee is responsible for regularly reviewing the structure, size and composition (including the David Maloney skills, knowledge, independence and experience) required Chairman of the Nomination Committee of the Board compared to its current position and making 27 March 2014 recommendations to 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.

56 Stock Spirits Group Annual Report 2013 Directors’ remuneration report Committee Chairman statement

at the levels indicated in the Prospectus. The PSP will apply stretching TSR and EPS performance conditions over each award’s performance period, except for the first awards as explained further in this report.

Under the former Luxembourg holding structure, there was a Remuneration Committee which met during 2013 in order to approve the performance and bonus targets for the year and agree basic salary awards to the Senior Management team.

On 21 October 2013 the new Remuneration Committee met and agreed the transition arrangements for the change from private equity to PLC status, and how to crystallise the pre-IPO Long Term Incentive options awards which had been granted to some members of middle management. I am pleased to introduce the first remuneration report of our Company. In the following pages, we set out further details on the remuneration policy to be applied in 2014 and beyond. It is the Group’s belief that our employees are key to the success I hope that you will find this report clear and helpful and of our Company and our business. As a consequence, our that we will receive your support at our AGM to be held remuneration policy seeks to provide the appropriate reward on Tuesday 13 May 2014. to attract, motivate and retain best in class people within the industry as it is these people who will help us to deliver our strategy and results.

This approach has also been followed when determining our John Nicolson Executive Directors’ remuneration. As we disclosed at the Chairman of the Remuneration Committee time of the IPO, our intention is to ensure that they receive 27 March 2014 a market-competitive remuneration package.

The Group’s strategy is to become a leading company within Central and Eastern Europe. The primary objective of our remuneration policy is to ensure that it supports delivery of this strategy.

Salaries and bonuses for 2013 were based on a very different company structure to the one we have today. Our company was listed on the London Stock Exchange on 25 October 2013, so there has only been two months of “life as public company” during 2013. Taking into account that most of 2013 was performed under a different regime as a private equity owned business, we honoured the commitments of the Company with its employees during this year by applying the remuneration policies (including annual bonus) which existed before the Company was listed.

However, prior to the IPO, the Board approved the amendment of those remuneration policies to apply from 1 January 2014 onwards.

Annual bonuses will continue to be based on a combination of annual company and personal targets which support delivery of the Company’s strategy. We also intend to start making Performance Share Plan (PSP) grants at regular intervals also

Stock Spirits Group Annual Report 2013 57 Corporate governance Directors’ remuneration report Governance

Remuneration policy Elisa Gomez de Bonilla (General Counsel and Company This part of the report has been prepared in accordance Secretary) serves as Secretary to the Committee, and the with Part 4 of The Large and Medium-sized Companies and Chief Executive Officer generally attends our Committee Groups (Accounts and Reports) (Amendment) Regulations meetings by invitation. We also ask other members of senior 2013 and 9.8.6R of the Listing Rules. The Annual Report on management to present to the Committee during the year. Remuneration will be put to an advisory Shareholder vote The Committee of the Company was established by resolution at the 2014 AGM. of the Board dated 21 October 2013.

The Company undertook a thorough review of its remuneration Role of the Remuneration Committee: policy prior to admission. The remuneration arrangements for The Remuneration Committee determines and agrees with the the Executive Directors have been designed in accordance with Board the framework or broad policy for the remuneration of the principles set out in the UK Corporate Governance Code and the Senior Executives. The remuneration of Non-Executive current market and best practice. There have been no changes Directors is a matter for the Chairman of the Board and the to the remuneration policy from that set out in the Prospectus. Executive Directors subject to the constraints contained in the Company’s Articles of Association. No Director or manager In summary, the aim of the remuneration policy is to: shall be involved in any decisions as to their own remuneration. • Align the interests of shareholders with Directors and management of the business The Remuneration Committee will determine the policy for • Enable the Company to offer remuneration packages that and scope of service agreements, termination payments and attract, retain and motivate senior management (including compensation commitments for the Senior Executives. It also the Executive Directors) of the highest calibre ensures that contractual terms on termination are observed, • Balance these with appropriate levels of incentives for both that failure is not rewarded and that the duty to mitigate loss short- and long-term performance. is fully recognised. The Remuneration Committee will also agree the policy for authorising claims for expenses from This remuneration policy set out on pages 59 to 64 will be the Directors. subject to a binding vote by shareholders at the 2014 AGM and will take effect from the date on which it is approved The full Terms of Reference of the Committee are available by shareholders. on our website at www.stockspirits.com

Composition of the Remuneration Committee The members of the Committee of the Company were as follows:

Chairman and Independent John Nicolson Non-Executive Director Jack Keenan Chairman of the Board Independent Non-Executive Andrew Cripps Director Senior Independent Non- David Maloney Executive Director Karim Khairallah Non-Executive Director

The majority of the members of the Committee are Independent Non-Executive Directors, with the exception of Karim Khairallah, who is the representative of the major shareholder of the Company. As disclosed at IPO, Mr. Khairallah’s experience and involvement in the former remuneration policies of the Group, made his presence an important addition to the Remuneration Committee.

58 Stock Spirits Group Annual Report 2013 Directors’ remuneration policy

Remuneration structure This table below sets out the elements which are 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 does not raise environmental, social or governance risks by inadvertently motivating irresponsible behaviour.

Purpose and link Maximum Performance Element to strategy Operation opportunity measures Salary To provide salaries Salaries are paid in equal The current salaries for the Not applicable. that are sufficient monthly instalments and Executive Directors are set to attract and are normally reviewed out in the Annual Report retain experienced on an annual basis. on Remuneration. and capable executives who Having due regard to the can drive the average level of increase for business forward. other Group employees, annual salary reviews will In considering the be conducted taking full base salary (and consideration of external other elements of market relativities through remuneration) of formal published surveys; senior executives, the economic environments the Committee in which the Company operates; takes due regard and the Company’s ability to of the pay and pay based on past performance conditions of the and future outlook. workforce generally. Benefits To operate a Benefits currently provided The Committee monitors the Not applicable. competitive include private medical cover, overall cost of the benefit benefits structure critical illness cover, life provision on a periodic basis. that provides insurance and an annual The current benefit cover adequate car allowance. includes: protection to our – critical illness cover of 75% Directors and Additional benefits may be of salary, aids in their provided as appropriate to – life assurance of 4x salary, recruitment take into account the nature – car allowance of £12,000, and retention. and location of the role. – Private medical benefits. Critical illness cover, life assurance and private medical cover are provided through third party providers and therefore the cost to the Company and the value to the Executive Director may vary from year to year. Pension Provide a The Company will provide a Up to 15% of salary. Not applicable. competitive means monthly cash allowance in lieu of long-term of a contribution to a pension retirement saving scheme or contribute an for executives. amount to a money purchase pension scheme.

Stock Spirits Group Annual Report 2013 59 Corporate governance Directors’ remuneration report Directors’ remuneration policy

Purpose and link Maximum Performance Element to strategy Operation opportunity measures Annual Bonus Rewards The annual bonus may be paid Maximum bonus (inc. cash The performance targets Plan (ABP) and achievement of in cash or in deferred shares and deferred shares) of 140% used for the annual bonus Deferred Annual annual financial (under the DABP). The of salary. will be set by the Committee Bonus Plan objectives whilst Committee’s current intention at the start of each financial (DABP) encouraging a is for 25% of any bonus to be year. The metrics and long-term focus deferred under the DABP. weightings used may vary through the use However, under the rules of the from year to year to reflect of deferred ABP the Committee may decide changing business priorities. share awards. to satisfy it entirely in shares. The measures will be based on financial performance Any deferred shares will and the individual Key be granted in the form of nil Result Areas (KRAs) for (or nominal) cost options or each executive. conditional awards and will normally be subject to a two year vesting period. Dividend equivalents may be payable on the deferred share awards.

Clawback and, in the case of deferred share awards, malus provisions will apply (see below). Performance Encourages At the discretion of the Maximum PSP award The vesting of PSP awards Share Plan (PSP) sustained Committee, Executive opportunity of 200% of granted to Executive performance, Directors will receive salary (or 300% in exceptional Directors will be subject assists with annual awards of shares circumstances). However, to performance conditions retention, in the form of nil (or nominal) awards for 2014 will be set by the Committee incorporates cost options or conditional limited to 140% of salary. prior to grant. long-term awards which will usually incentives vest on the third anniversary For the initial awards to be into the of grant (or, if later, when the made in March or April remuneration Remuneration Committee 2014, 100% of the awards package and determines that the will be based on relative aligns Directors’ performance conditions total shareholder return interests with have been satisfied). (TSR) performance. shareholders’ interests. For subsequent awards, 50% of the awards will be based on adjusted earnings per share (EPS) performance, and 50% will be based on relative total shareholder return (TSR) performance.

60 Stock Spirits Group Annual Report 2013 Purpose and link Maximum Performance Element to strategy Operation opportunity measures Performance The awards will be subject The EPS targets will be set Share Plan (PSP), to forfeiture and prior to each grant taking continued performance conditions. into account the future outlook at that time. A Dividend equivalents may sliding scale of targets be offered and clawback will be set with no more provisions will apply to any than 25% vesting at vested awards. threshold performance.

The TSR condition will be measured relative to an appropriate peer group of companies, with 25% vesting at median performance increasing on a straight line basis to full vesting for upper quartile performance or above. Shareholding To encourage The Executive Directors 100% of salary. Not applicable. guidelines the Executive are required to retain 50% Directors to build of the shares (net of tax) and maintain vesting under the incentive shareholdings schemes until the guideline in the Company. has been achieved.

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 exceptional circumstances, to adjust previously set targets and / or set different performance measures if events occur which cause the Remuneration 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 Remuneration Committee may, acting fairly and reasonably, vary performance conditions applying to existing PSP awards if an event has occurred which causes the Remuneration 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.

In relation to performance conditions applying to future PSP awards, the Remuneration Committee retains the ability to adjust the weightings and / or set different performance measures to those described above if it considers it appropriate to do so. However, the Committee would notify its major shareholders in advance of any such changes.

Stock Spirits Group Annual Report 2013 61 Corporate governance Directors’ remuneration report Directors’ remuneration policy

Clawback provisions Clawback 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 or misconduct on the part of the participant). Clawback may be operated during a period of two years following the vesting of a DABP or PSP award or within two years following the payment of an ABP bonus.

Malus provisions Malus provisions may be operated at the discretion of the Committee in respect of awards granted under the DABP in certain circumstances (including where there has been a material misstatement of accounts, an error in assessing any applicable condition or misconduct on the part of the participant). 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. However, there are some differences between the policy for Executive Directors 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 executive remuneration policy but 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.

Non-Executive Directors Fees The remuneration for the Chairman and Non-Executive Directors takes the form solely of fees.

Purpose and link to strategy Operation Opportunity To attract and retain Fees are paid on a per annum basis and are not varied for The current fees for the Chairman and high calibre Non-Executive the number of days worked. The fees are set to take into Non-Executive Directors are set out in Directors by offering account the responsibilities of the role, the experience of the Annual Report on Remuneration. competitive fees. the Chairman and Non-Executive Directors and the The fee levels may be reviewed bi- expected time commitment involved. annually and may be increased if appropriate to do so. The maximum Additional fees may be paid to reflect extra aggregate fee to all Directors that may responsibilities such as for the Senior Independent be paid is limited to £2,000,000 under Director, or acting as Chairman or a member of any the Company’s Articles of Association. of the Board Committees.

Reward scenarios The chart on page 63 shows the potential reward available to the Executive Directors under the remuneration policy. The awards levels are based on the policy to be implemented in 2014. For illustration, target performance assumes a bonus of 50% of the maximum and threshold vesting under the Performance Share Plan (25% of the maximum). The Directors are paid in Sterling but the chart has been presented in Euro, which is the Group’s reporting currency using an exchange rate of £1:€0.82. No assumptions have been made as to possible share price growth or dividends earned in relation to share awards.

Legacy arrangements This provides details on certain arrangements that were entered into with the Executive Directors prior to Admission and which were fully disclosed in the Prospectus. No further awards will be granted under either Agreement. Details of the outstanding awards under the Agreements are set out below and further details are provided in the Annual Report on Remuneration.

Joint ownership equity (JOE) agreements Prior to admission, the Executive Directors owned shares in a Group Company under a joint ownership equity arrangement. As part of the corporate reorganisation on admission, these shares were exchanged for shares in the Company and the Executive Directors each entered into a new joint ownership equity agreement (the JOE agreements) in relation to such shares. Under these agreements, each of the Executive Directors was granted an option to purchase the interest in shares held by the trustee. Each option is exercisable for five years from the date of admission and is not subject to performance conditions or forfeiture. Details

62 Stock Spirits Group Annual Report 2013 Reward scenarios • To provide 30 working days’ paid holiday per annum, or pay

2500 in lieu of any accrued but untaken holiday on termination of employment 2250 • To provide sick pay as specified in the contract 2000 €1,952 • To terminate the contract on not less than 12 months’ notice by either the Company or the Director or to make 1750 a payment in lieu of notice equal to value of the base salary 1500 either in one lump sum or in phased instalments and €1,270 reduced by amounts earned from alternative remunerative 1250 €1,095 positions obtained during the notice period. 1000

750 €713 Each of the Non-Executive Directors is appointed by letter of €508 appointment for an initial term of three years. Their appointments 500 €379 may be terminated earlier without compensation on three months’ 250 notice and are subject to annual re-election by the shareholders.

0 Threshold Target Stretch Threshold Target Stretch The Executive Directors’ service contracts and the Non- Executive Directors’ letters of appointment are kept available Christopher Heath Lesley Jackson for inspection at the Company’s registered office. (Chief Executive Ofﬁcer) (Chief Financial Ofﬁcer)

Fixed Pay Bonusa Performance Share Planb Payments for loss of office a. 140% of salary at stretch, assumes bonus of 50% of max at target. In the event of an Executive Director’s departure, the Company b. Assumes grant of 140% of salary and threshold vesting (25% of max) at target. will honour the contractual entitlements of that Director. The Company’s approach to payments for loss of office will be of the awards are set out in the Annual Report on based on the following principles: Remuneration. Dividends are payable on the JOE shares. Notice period / pay in lieu Top-up option agreements and substitute option agreement Executive Directors have rolling contracts with 12-month notice The Top-up option agreements document one-off share option periods. The Company may elect to terminate employment awards granted to the Executive Directors on admission to immediately by making a payment in lieu of notice equivalent reward management for bringing the company to admission. to the Executive Director’s salary for the notice period. The The substitute agreement documents a one-off share award payment in lieu of notice may be made in monthly instalments, granted to the Chief Financial Officer on admission in which can be reduced to the extent the Executive Director substitution for a commitment over shares in another Group obtains alternative paid employment. All other benefits Company given in 2012. These nil-cost options are not subject including pension contributions or allowance (as the case to forfeiture or performance conditions and are ordinarily may be) will cease on termination. exercisable up until the tenth anniversary following grant. The Chief Executive Officer was granted a top-up option over The Company may terminate a Director’s employment without 535,137 shares. The Chief Financial Officer was granted a notice (or payment in lieu) in certain circumstances including top-up option over 226,728 shares and a substitute option where the executive commits a serious breach of his or her over 531,773 shares. Dividend equivalents are payable on service agreement or is found guilty of gross misconduct. the vested shares between grant and exercise. Outstanding incentive awards Service contracts and letters of appointment Leavers Each Executive Director has been appointed under a service As a general rule, incentive awards (e.g. outstanding PSP and contract. These contracts contain the following obligations DABP awards and entitlement to annual bonus) will lapse upon on the Company which could give rise to, or impact on, a participant ceasing to hold employment or be a Director remuneration payments or payments for loss of office: within the Company’s Group. • To provide pay, contributions to a pension scheme (or a cash allowance in lieu) and benefits as specified in the contract Good leavers • To give the Executive Director eligibility at the discretion However, if the reason for the cessation for employment of the Remuneration Committee to participate in short- falls within certain good leaver categories (which include, and long-term incentive plans for example, cessation due to a participant’s injury, disability,

Stock Spirits Group Annual Report 2013 63 Corporate governance Directors’ remuneration report Directors’ remuneration policy

retirement, redundancy, the employing company or JOE agreements, top-up option agreements and substitute business being sold out of the Company’s Group) or in option agreement other circumstances at the discretion of the Remuneration In the event of the Director’s loss of office or a change of Committee then the incentive award will ordinarily vest / be control, any unexercised option will remain exercisable in payable, on the normal vesting / payment date, subject to accordance with the terms of the relevant agreement until performance and time pro-rating. the expiry of the relevant exercise period.

The Remuneration Committee retains the discretion not to time Outplacement services may be provided where appropriate and pro-rate if it considers it appropriate to do so. Under the rules any statutory entitlements or sums to settle or compromise claims of the PSP the Committee may allow the outstanding share in connection with a termination would be paid as necessary. award to vest early to a good leaver and if a participant dies, his award will ordinarily vest early (unless the Remuneration Recruitment of Directors Committee decides otherwise). Where a new Executive Director is appointed, the principles outlined above in relation to the structure, components and In the case of DABP awards, outstanding awards for a good maximum opportunities of the existing Executive Directors’ leaver will vest early to such extent as the Committee remuneration package and service contract terms will also determines appropriate. apply to any newly appointed Director. Salaries for new hires will be set to reflect their skills and experience, the Company’s Takeovers intended pay positioning and the market rate for the role. In In the event of a takeover or winding up of the Company (not accordance with the above policy table, the maximum variable being an internal corporate reorganisation), all PSP awards will pay that may be offered is 340% of salary (440% in exceptional vest early, subject to: (i) performance and (ii) time pro-rating, circumstances). although the Remuneration Committee can decide to reduce or eliminate the pro-rating of a PSP award or to disapply (or It may be necessary to buy out incentive awards which would partially disapply) any performance conditions if it regards be forfeited on leaving the previous employer. In determining it as appropriate to do so in the particular circumstances. the structure of any buy out award the Committee will take into account the form of the awards forgone (cash or shares), the In the event of a takeover or winding up of the Company, timing of the awards and their expected value. Replacement the Remuneration Committee may allow bonuses for that share awards, if used, may be granted under the PSP, although financial year to be paid early, subject to: (i) the extent that awards may also be granted outside of these schemes if the performance conditions have been satisfied at that time; necessary and as permitted under the Listing Rules. and (ii) the pro-rating of the bonus to reflect the reduced period of time between grant and the date of such event, In the case of an internal promotion, any outstanding variable although the Remuneration Committee can decide to pay awarded in relation to the previous role will be allowed to reduce or eliminate the pro-rating of a bonus. pay out according to its terms of grant.

In the event of a takeover or winding up of the Company Fees for a new Chairman or Non-Executive Director will be set (not being an internal corporate reorganisation), all DABP in line with the approved policy. awards will vest early in full. Non-Executive positions by Executive Directors Internal corporate reorganisation The Company’s policy is to allow the Executive Directors to take In the event of an internal corporate reorganisation, PSP only one Non-Executive role in another company with prior and DABP awards may, at the discretion of the Remuneration consent from the Board, which cannot be unreasonably withheld. Committee, be replaced by equivalent new awards over shares in a new holding company, provided that the Board of Directors Consideration of shareholder views of the new holding company agrees. If such replacement is not The Remuneration Committee is committed to open and agreed before the internal corporate reorganisation takes transparent dialogue with shareholders and seeks major place, then the PSP and DABP awards will vest on the basis shareholder views in advance of proposing significant which would apply in the case of a takeover. changes to its policy.

Given the short time frame between listing and the drawing up of the remuneration policy, it was not practicable to consult with shareholders on this occasion.

64 Stock Spirits Group Annual Report 2013 Corporate governance Directors’ remuneration report Annual Report on Remuneration

Directors’ remuneration (audited) The table below sets out the total remuneration for the Directors in 2013 and 2012. Considering the Company was listed in October 2013, most of this information relates to remuneration paid under the pre-IPO remuneration policy (Executive Directors’ salaries and pension and Non-Executive Directors’ fees were set up in October 2013 as explained in the notes below). The Directors are paid in £ sterling, but figures in this report are disclosed in Euro (the Group’s reporting currency). The exchange rate used is £1:€0.82 unless otherwise noted.

Total amount Annual Long-term of salary All taxable incentive incentive €’000 and fees benefits arrangementsa arrangements Pension Otherb Total 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Executive Directors Chris Heath 468 377 20 20 853 909 – – 19 – 1,486 – 2,846 1,306 Lesley Jackson 334 268 18 17 733 687 – – 12 – 629 1,281 1,726 2,253 Non- Executive Directors Jack Keenanc 167 148 – – – – – – – – – – 167 148 David Maloneyd 16 – – – – – – – – – – – 16 – Karim Khairallahe – – – – – – – – – – – – – – Andrew Crippsd 15 – – – – – – – – – – – 15 – John Nicolsond 14 – – – – – – – – – – – 14 – a. The annual bonus amounts disclosed in the table include all bonuses accrued in 2012 irrespective of date of payment, including transaction bonus if applicable. This amount differs to the information disclosed in the Prospectus in this regard, which only contained bonuses paid during 2012. b. The 2013 figures under “Other” relate to the award of Top-up Options made on IPO of 535,137 and 226,728 nil-cost options to Chris Heath and Lesley Jackson respectively. The options were granted on admission and were immediately exercisable. They have been valued using the IPO price of 235p per share and converted into Euro using an exchange rate of 0.8466 (being the exchange rate on the date of the IPO). The 2012 figure under “Other” relates to, what is referred to in the Prospectus and elsewhere in this remuneration report as, the Substitute Options. The Substitute Options were granted on IPO to replace a commitment over shares in OCM Luxembourg Holdings S.à.r.l. (another Group Company) entered into with Lesley Jackson in December 2012. The commitment was over 46 A shares and 31 A1 shares in OCM Luxembourg Holdings S.à.r.l. valued at €1,280,751 in December 2012. These shares were converted into an award over 531,773 shares in Stock Spirits Group PLC on IPO. c. Part of this amount was paid to Grand Cru Consulting Limited in respect of Jack Keenan’s role as Chairman of the Group (he was chairman of the former holding company of the Group, Stock Spirits Group Luxembourg Holdings S.à.r.l.). Grand Cru Consulting Limited is a private limited company incorporated and registered in England and Wales with registered number 04302451. Jack Keenan owns 99.9% of the shares in Grand Cru Consulting Limited and is the sole director of Grand Cru Consulting Limited. Jack Keenan was appointed as Chairman of the Board of the Company on 21 October 2013. d. David Maloney, Andrew Cripps and John Nicolson were appointed to the Board of the Company on 21 October 2013. e. Karim Khairallah was appointed to the Board of the Company on 21 October 2013 and represents Oaktree Capital Management (OCM). Karim Khairallah receives no fee in respect of his services to the Company, as Director and Remuneration Committee member, but OCM does in the amount of £51,000 per annum since Karim’s appointment at IPO. Pre-IPO, the Group paid a management fee to OCM for a variety of services rendered by OCM to the Group, including Karim Khairallah’s services. As at 31 December 2013 €11,360 was accrued in respect of services provided to the Company by Karim Khairallah for the period since the IPO.

Stock Spirits Group Annual Report 2013 65 Corporate governance Directors’ remuneration report Annual Report on Remuneration

Annual bonus awarded for 2013 (audited) The annual bonus for 2013 was awarded under the Stock Spirits Group Annual Bonus Scheme, the pre-IPO bonus plan. The bonuses were based on challenging financial and personal targets. 50% of the bonus was based on EBITDA, 30% on cash flow targets and 20% on specific personal objectives. A minimum of 75% of the specific personal objectives needed to be achieved in order for the annual bonus to be paid. For the financial measures, a sliding scale of targets was applied. The targets themselves are considered to be commercially sensitive. The potential reward available under the financial metrics was uncapped. The Group achieved strong EBITDA and cash flow performance during the year and the executives performed well against their personal objectives. The total bonuses payable in relation to 2013 were €852,970 for the Chief Executive (182% of salary) and €733,049 for the Chief Financial Officer (219% of salary).

Long-term incentives awarded in 2013 (audited) There were no long-term incentive awards granted in 2013. The first awards under the new Performance Share Plan will be made in 2014.

As set out in the Prospectus, the Executive Directors received Top-Up Options on IPO. The Top-Up Options are nil-cost options that were granted to nine senior executives (including the Executive Directors) on IPO. The options were not subject to performance or service conditions and were exercisable immediately upon grant. Full details of the options have been set out in the table of outstanding share interests below.

Outstanding share options (audited)

Face value No. shares Share Vesting of awards Interest as at under any options as at date or Exercise granted Performance 31 December No. shares lapsed portion 31 December (for options) price per share in 2013 Type of interest Date of grant condition 2012 under award of the award 2013 exercise period (if applicable) (£) (€’000)a Chris Heath 21.10.13 JOE Agreement 21.10.13b None a 2,861,795 Nil 2,861,795 0.001183258 N/A – 24.10.18 Top-up Option 21.10.13 21.10.13 None Nil 535,137 Nil 535,137 Nil 1,486 Agreement – 20.10.23 Lesley Jacksonc 21.10.13 JOE Agreement 21.10.13b None a 715,449 Nil 715,449 0.001183258 N/A – 24.10.18 Top-up Option 21.10.13 21.10.13 None Nil 226,728 Nil 226,728 Nil 629 Agreement – 20.10.23 Substitute 21.10.13 Option 21.10.13c None a 531,773 Nil 531,773 Nil N/A – 20.10.23 Agreement a. Valued using the IPO price of 235p per share and converted into Euro using an exchange rate of 0.8466 (being the exchange rate on the date of the IPO). b. The JOE agreements were put in place prior to Admission to replace existing JOE arrangements over F shares in another Group Company (OCM Luxembourg Holdings S.à.r.l.). The shares were converted on IPO at a rate of 17,886 shares in Stock Spirits Group PLC for each F share held. c. The Substitute Option agreements were put in place on Admission to replace a commitment over shares entered into with Lesley Jackson in December 2012.

66 Stock Spirits Group Annual Report 2013 Payments to past directors (audited) There have been no payments to past Directors in the year. Elisa Gomez de Bonilla was a Director of the Company between 12 September 2013 and 21 October 2013, but she did not receive any remuneration because of this position.

Payments for loss of office (audited) There been no payments made to directors for loss of office during the year.

Directors share interests (audited) The table below sets out the Directors’ shareholdings and, for the Executive Directors, a summary of their outstanding scheme interests (being the JOE and option awards).

The Executive Directors are subject to shareholding guidelines requiring them to build and maintain a shareholding equivalent to 100% of base salary. Their achievement against these guideline limits is set out in the table below.

The Directors are also subject to a 365-day lock-up period during which they will not dispose of any interest in any ordinary shares which they did not sell at admission.

As at Beneficially Outstanding Value of shares counting towards 31 December 2013 owned shares Scheme Interests the shareholding guidelinea Executive JOE Top-Up and £’000 % salary Directors agreements Substitute Options Chris Heath 737,184 2,861,795 535,137 10,077 2624% Lesley Jacksonb 156,259 715,449 758,501 2,441 891% Non-Executive Directors Jack Keenanc 985,180 – – – – David Maloney – – – – – Karim Khairallah – – – – – Andrew Cripps – – – – – John Nicholson – - – – – a. Only the shares beneficially owned and those shares held pursuant to the JOE agreements at the time of IPO counts towards the thresholds set out in the share ownership guidelines (please note the Top-Up and Substitute Options also held by Executive Directors). Achievement against the guideline calculated using the year-end share price of £2.80 and expressed as a percentage of the post-IPO salary. b. Lesley Jackson transferred her 156,259 shares to Mark Jackson, her husband, on 13 December 2013. Mark Jackson is bound by the same 365 day lock-up period mentioned above. c. 357, 724 shares are held by Grand Cru Consulting Limited, a private limited company incorporated and registered in England and Wales with registered number 04302451. Jack Keenan owns 99.9% of the shares in Grand Cru Consulting Limited and is the sole Director of Grand Cru Consulting Limited. There were no changes in the Directors’ shareholdings between 31 December and the date of the report.

Stock Spirits Group Annual Report 2013 67 Corporate governance Directors’ remuneration report Annual Report on Remuneration

Total shareholder return performance Percentage change in the remuneration of the Chief Executive The chart below shows the Company’s total shareholder return The table below shows the movement in salary, benefits and performance relative to the FTSE 250 Index (excluding investment bonus for the Chief Executive between the current and prior trusts) and a Bespoke Index comprising 13 international food and year compared to the average remuneration for all employees. beverage companies. The FTSE 250 Index (excluding investment trusts) and the Bespoke Index have been chosen as comparators % change in: Chief Executive All employeesa as they represent broad UK equity market indices. Base salary 24% 2%

d Total shareholder return Benefits 95% 11% Total annual bonus (6%) 26% 130 c b 126 Total remuneration 4.2% 8% 122 a. Also including Chief Executive Officer’s remuneration. b. The long term incentive plan existing prior to IPO is included as part 118 of the remuneration. 114 c. Excluding share-based compensation. 110 d. Benefits include car allowance, health and dental cover, and pension contributions.

Value (£) Value 106 102 Relative importance of the spend on pay 98 The following table shows the relative importance of the 94 spend on pay which compares the total remuneration paid to 90 all employees to the amount distributed to shareholders by 22 Oct 2013 31 Dec 2013 way of dividend or share buy-back. Shareholders have been Stock Spirits Group defined as shareholders of Stock Spirits Group PLC and FTSE 250 (excluding investment trusts) therefore relate to the shareholders since Admission. The TSR Comparator Group 2012 2013 % change Source: Thomson Reuters Remuneration paid to all employees 33.3 38.6 16.1% Total remuneration of Chief Executive (€m)a The table below shows a summary of the total remuneration Distributions to received by the Chief Executive during the current and prior year. – – N/A shareholders (€m) 2012 2013 a. Excluding share-based compensation. Headcount increased from 898 to 962 Single figure total due to the integration of the two acquired businesses, Baltic Distillery and 1,306 2,846a Imperator, and two of our main markets (Italy and Czech Republic) did not remuneration (€’000) receive any bonus payment for the year 2012. Total annual bonus pay-out N/Aa N/Ab (as % of maximum opportunity) How the remuneration policy will be applied for 2014 Long-term incentive vesting The remuneration policy to be applied for 2014 is consistent N/Ab N/Ac (as % of maximum opportunity) with that set out in the Remuneration Policy Report. a. Prior to IPO, a significant portion of the remuneration package was in the form of share based incentives and performance uncapped annual bonuses After Base salaries IPO, base salary was brought in line with market median of FTSE250 and The base salaries for the Executive Directors were set on IPO an annual bonus cap and PSP were introduced. b. Under the pre-IPO bonus scheme, the bonus opportunity was uncapped. and no changes are proposed for 2014. The current salaries c. There have been no long-term incentives vesting in either 2012 or 2013. for the Chief Executive Officer and Chief Financial Officer are £490,000 (€597,561) and £318,000 (€387,805) respectively.

Annual bonus The annual bonus plan for 2014 will be based on achievement against a range of financial targets and individual “Key Result Areas” (KRAs). The KRAs are linked to the financial, strategic and operational performance of the business and include measures relating to business and sales growth, market share, brand building and organisational targets. The Annual Bonus

68 Stock Spirits Group Annual Report 2013 will be based on 50% achievement of the EBITDA target, 30% Shareholding vote at the AGM of the cash target and 20% of the KRAs. These performance The 2013 Directors’ remuneration report is the first Directors’ targets are the key drivers to sustain the growth of the Group, remuneration report for the Company, and will be put to the and the individual KRAs ensure that the Executive Directors shareholder vote at the 2014 AGM, upon which the are committed to the Group’s strategy. The forward-looking remuneration policy will become enforceable. targets are deemed to be commercially sensitive. Under the post-IPO remuneration policy, the maximum bonus Approved and signed on behalf of the Board: opportunity is 140% of salary and 25% of any bonus paid for 2014 will be issued in the form of deferred shares.

Performance share plan The first awards of shares under the Performance Share Plan John Nicolson will be made in March or April 2014, following the preliminary Chairman of the Remuneration Committee results announcements. Awards of 140% of salary will be 27 March 2014 granted. The awards vest after three years subject to continued employment and the achievement of the performance target.

In the prospectus we stated that it was anticipated at that time that the performance conditions for the first grants would be based on earnings per share and relative TSR performance. Whilst this still remains the intention for future awards, the Remuneration Committee has decided that 100% of the first awards to be made will be subject to a relative total shareholder return (TSR) performance condition which compares Stock Spirits Group TSR performance to a peer group of 13 international food and beverage companies. 25% of the award vests for median performance, increasing to full vesting for upper quartile performance or above. The base period for calculating TSR has been taken as the average share price over the period from 21 October 2013 (IPO) to 31 December 2013. The end average will be measured over the 90 days to 31 December 2016. However, there will be an underlying requirement for any vesting to occur which will be that, at the time of vesting, the Remuneration Committee must be satisfied with the overall financial performance of the Group.

Fees for the Chairman and Non-Executive Directors The annual fee policy for the Chairman and Non-Executive Directors was set on IPO and is as follows: • Chairman – £200,000 (€243,902) • Basic Board fee for Non-Executive Directors – £46,000 (€56,098) • Additional fees for membership of a Committee and the role of Senior Independent Director – £5,000 (€6,098) • Additional fees for Chairmanship of a Committee – £5,000 (€6,098) paid in additional to membership fees.

Stock Spirits Group Annual Report 2013 69 Corporate governance Directors’ report

The Directors’ report, prepared in accordance with the changes in trading performance, shows that the Group will requirements of the Companies Act 2006 and the UK Listing continue in operation for the foreseeable future and has Authority’s Rules, and the Disclosure and Transparency Rules, neither the intention nor the need to liquidate or materially comprises pages 70 to 72 and page 73. Copies of the Code curtail the scale of its operations. For this reason the Group can be obtained from the UK FRC website at www.frc.org.uk. continues to adopt the Going Concern basis in preparing its financial statements. More information can be seen in note 2 Going concern to the financial statements. The Directors have considered the Group’s debt maturity and cash flow projections and an analysis of projected debt Directors covenance compliance. The Board is satisfied that the Group’s The following Directors served during the period and up to the forecasts and projections, taking into account reasonable date of signing the financial statements:

Name: Position Date of appointment Date of resignation Jack Keenan Chairman 21 October 2013 Chris Heath Chief Executive Officer 21 October 2013 Lesley Jackson Chief Financial Officer 12 September 2013 Karim Khairallah Non-Executive Director 21 October 2013 David Maloney Senior Independent 21 October 2013 Non-Executive Director Andrew Cripps Independent 21 October 2013 Non-Executive Director John Nicolson Independent 21 October 2013 Non-Executive Director Elisa Gomez de Bonilla Director 12 September 2013 21 October 2013 Directors’ biographies can be found on pages 42 to 43.

The Board and its Committees Appointment and replacement of Directors In order to operate efficiently and to give appropriate attention The rules about the appointment and replacement of Directors and consideration to matters, the Board has delegated are contained in the Company’s Articles. They provide that authority to Committees to carry out tasks as defined in the Directors may be appointed by ordinary resolution of the Committees’ Terms of Reference, which are available on our members or by a resolution of the Directors. website www.stockspirits.com. Details about the workings of the Board and the Committees’ structure, together with details Directors’ election of their activities during the year, are set out on pages 50 to 51. Following recommendations from the Nomination Committee, the Board considers that all Directors continue to be effective, Powers of Directors committed to their roles and have sufficient time available to Our Directors’ powers are determined by UK legislation and perform their duties. Accordingly, all Directors must retire and the Company’s Articles of Association (the Articles), which put themselves forward for election at the Company’s first are available on our website www.stockspirits.com. The Articles AGM following their appointment. In accordance with provision may be amended by a special resolution of the members. The B.7.1 of the UK Corporate Governance Code and the Directors’ Directors may exercise all of the Company’s powers provided letters of appointment, the Directors will be subject to annual that the Articles or applicable legislation do not stipulate that re-election. any such powers must be exercised by the members. Indemnification of Directors Further details of Directors’ contracts, remuneration and their The indemnification for Directors provided by the Company interests in the shares of the Company at 31 December 2013 are has been arranged in accordance with the Company’s given in the Directors’ remuneration report on pages 57 to 69. 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.

70 Stock Spirits Group Annual Report 2013 Board evaluation known agreements on restrictions on share transfers or on Given that the Board has only been constituted since October voting rights. 2013, and has been focused principally on the development of the business post-IPO and the installation of formal Board Shares acquired through our share schemes and plans rank processes, the Board has not undertaken a formal and rigorous equally with the other shares in issue and have no special rights. evaluation of its own performance, or that of its individual Directors, or the Chairman, during the period. Whilst the Board Particulars of acquisitions of own shares intends to undertake such an evaluation process during the 2014 The Company has not acquired any of its own shares in the financial year, the Company has not complied with provisions financial year to 31 December 2013, nor in the subsequent period. A.4.2 or B.6 of the Code during the period under review. The Company is due to have its first AGM on 13 May 2014, Compensation for loss of office whereby the Directors will be seeking approval from shareholders, We do not have arrangements with any Director that would to authorise the Company to purchase up to 10% of its existing provide compensation for loss of office or employment ordinary share capital. This authority would expire at the Company’s resulting from a takeover, except that provisions of the 2015 AGM; however, it is intended that this authority be renewed Company’s share plans may cause options and awards each year. For more information on this resolution refer to the granted under such plans to vest on a takeover. Notice of AGM and explanatory notes, which are being sent separately to shareholders entitled to vote at the AGM. Statement on disclosure to auditors So far as each Director is aware, there is no relevant audit Substantial share interests information, which would be needed by the Company’s auditors in connection with preparing their audit report (which appears As at 31 As at 24 December 2013 March 2014 on pages 74 to 76), of which the auditors are not aware; and each % of % of Director, in accordance with Section 418(2) of the Companies Act Significant direct / Ordinary Voting Ordinary Voting 2006, has taken all reasonable steps that he ought to have taken indirect interests shares rights shares rights as a Director to make himself aware of any such information and Oaktree Capital to ensure that the auditors are aware of such information. Group Holdings GP, LLC 73,665,895 36.83 73,665,895 36.83 Political donations Schroders Plc 14,970,990 7.49 20,101,278 10.05 There were no political donations during the period. M&G Investment Share capital and control Management Details of our issued share capital as at 31 December 2013 can Limited 12,281,314 6.14 12,281,314 6.14 be found in note 29 to the financial statements, on page 115. Capital Group The Company’s share capital comprises 200,000,000 ordinary Companies Inc. 11,622,300 5.81 12,237,300 6.12 shares and are listed on the London Stock Exchange. Deutsche Asset & Wealth Holders of ordinary shares are entitled to receive dividends Management 10,412,130 5.21 10,412,130 5.21 (when declared), copies of the Company’s Annual Report, Ameriprise attend and speak at general meetings of the Company, appoint Financial, Inc. proxies and exercise voting rights. and its Group 10,225,709 5.11 10,225,709 5.11

Other than the lock-up periods for the Directors and Senior The majority shareholder (Oaktree Capital Management) and Management Team described in the Prospectus, there are no the Company entered into a Relationship Agreement on 22 restrictions on the transfer, or limitations on the holding, of October 2013, the principal purpose of which is to ensure that ordinary shares and no requirements to obtain approval prior the Company is capable at all times of carrying on its business to any transfers. No ordinary shares carry any special rights independently of the majority shareholder and their affiliates with regard to control of the Company and there are no and ensure all transactions and relationships between them restrictions on voting rights. Major shareholders have the and the Group will be conducted at arm’s length and normal same voting rights per share as all other shareholders. commercial terms. Terms of the Relationship Agreement remain unchanged from the Prospectus. There are no known arrangements under which financial rights are held by a person other than the holder of the shares and no

Stock Spirits Group Annual Report 2013 71 Corporate governance Directors’ report

The Directors are aware of substantial interests in the shares Significant agreements of Stock Spirits Group PLC as shown in the table above. This During 2013 the Group entered into the following significant includes notifications received in accordance with FCA agreements containing change of control clauses: Disclosure and Transparency Rule 5.1.2. • Amended and Restated Senior Facilities agreement in June 2013, which amended some clauses and covenants of the Financial risk management former Senior Facilities Agreement entered into on The Group’s financial risk management objectives and policies, 30 September 2011 by the subsidiaries of the Company including its use of financial instruments, are set out in note 30 with, amongst others, ING Bank N.V., London Branch. to the Group’s consolidated financial statements on pages 118 The Facilities comprise of seven Term Loans (totalling to 123. €240 million, which includes the New Term Loans totalling €70 million) and an RCF (totalling €70 million) Post-balance sheet events • In August 2013, the Group entered into an agreement As a consequence of outsourcing its sales force to a third-party with Beam Inc to distribute Beam’s portfolio of brands in distributor in Slovenia, at year end the Group was in the process Poland on an exclusive basis starting in September 2013 of liquidating this entity on a solvent basis. The liquidation • In November 2013, the Group entered into an agreement process was completed on 25 February 2014. with Diageo PLC to distribute Diageo’s portfolio of brands in the Czech Republic on an exclusive basis starting in Since the year end the excise duty guarantee in respect of our January 2014. German business is in the process of being reduced by €2.1m. Dividend Future business developments The Directors recommend that no dividend be paid in respect Further details on these are set out in the strategic report of the year ended 31 December 2013. on pages 2 to 41. Auditors Research and development Ernst & Young LLP is proposed as statutory auditor of the The Company does not undertake any material research Company and a resolution for its reappointment as auditor and development activities. of the Company will be submitted to the AGM.

The existence of branches outside the UK Approval of Directors’ report Other than the subsidiaries of the Group, the Company This Directors’ report was approved for and on behalf does not hold any branches outside the UK. of the Board.

Employee involvement The Company provides employees with information on matters concerning them and the Group on a regular basis. Once a year the Company holds an Annual Conference for employees with Chris Heath Lesley Jackson managerial responsibilities and specific employees of the Group. Chief Executive Officer Chief Financial Officer 27 March 2014 Greenhouse gas emissions The Group complies with all current regulations on emissions including greenhouse gas emissions, where such regulation exists in our markets.

We are establishing detailed processes and controls to enable regular and routine reporting of greenhouse gas emissions on a consistent basis. It has therefore not been practicable to provide data concerning the annual quantity of emissions from activities for which the Group is responsible (including the combustion of fuel and the operation of any facility); nor has it been practicable to disclose the annual quantity of emissions resulting from the purchase of electricity, heat, steam, or cooling by the Group for our own use. We fully anticipate complying in full, in future years, with the required reporting requirements.

72 Stock Spirits Group Annual Report 2013 Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual Report • They consider that the Annual Report and Accounts, and Accounts including the consolidated financial statements taken as a whole, is fair, balanced and understandable and the Company financial statements, Directors’ report, and provides the information necessary for shareholders including the Remuneration report and the strategic report in to assess the Company’s performance, business model accordance with applicable law and regulations. Under that law and strategy. the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards By order of the Board (IFRS) as adopted by the European Union.

Company law requires the Directors to prepare such financial statements for each financial year. Under company law the Directors must not approve the financial statements unless Chris Heath Lesley Jackson they are satisfied that they give a true and fair view of the state Chief Executive Officer Chief Financial Officer of affairs of the Company on a consolidated and individual basis 27 March 2014 and of the profit or loss of the Company on a consolidated basis for that period.

In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently • Make judgements and estimates that are reasonable • State whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements • Prepare the financial statements on a going concern basis unless it is not appropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the company’s financial position and enable them to ensure compliance with the Companies Act 2006; they are also responsible for safeguarding the Company’s assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Each of the Directors, whose names and functions are listed on pages 42 and 43, confirms that: • To the best of their knowledge, the consolidated financial statements and the Company financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company on a consolidated and individual basis • To the best of their knowledge, the strategic report and the Directors’ Report includes a fair review of the development and performance of the business and the position of the Company on a consolidated and individual basis, together with a description of the principal risks and uncertainties that it faces

Stock Spirits Group Annual Report 2013 73 Independent auditor’s report to the members of Stock Spirits Group PLC

We have audited the financial statements of Stock Spirits material misstatements or inconsistencies we consider Group PLC for the year ended 31 December 2013 which the implications for our report. comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, the Consolidated Opinion on financial statements and Parent Company Statements of Financial Position, the In our opinion: Consolidated and Parent Company Statements of Changes • The financial statements give a true and fair view of the state in Equity, the Consolidated and Parent Company Statements of the Group’s and of the Parent Company’s affairs as at of Cash Flows and the related notes 1 to 38 to the Consolidated 31 December 2013 and of the Group’s profit for the year financial statements and notes 1 to 14 to the Parent Company then ended financial statements. The financial reporting framework that • The Group financial statements have been properly prepared has been applied in their preparation is applicable law and in accordance with IFRSs as adopted by the European Union International Financial Reporting Standards (IFRSs) as adopted • The Parent Company financial statements have been by the European Union and, as regards the Parent Company properly prepared in accordance with IFRSs as adopted by financial statements, as applied in accordance with the the European Union and as applied in accordance with the provisions of the Companies Act 2006. provisions of the Companies Act 2006 • The financial statements have been prepared in accordance This report is made solely to the Company’s members, as a body, with the requirements of the Companies Act 2006 and, in accordance with Chapter 3 of Part 16 of the Companies Act as regards the Group’s financial statements, Article 4 of the 2006. Our audit work has been undertaken so that we might IAS Regulation. 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. Our assessment of risks of material misstatement To the fullest extent permitted by law, we do not accept or We identified the following risks that have had the greatest assume responsibility to anyone other than the Company and effect on the overall audit strategy, the allocation of resources the Company’s members as a body, for our audit work, for this in the audit, and directing the efforts of the engagement team: report, or for the opinions we have formed. • Revenue recognition including related sales reserves • Taxation provisions Respective responsibilities of Directors and auditor • Carrying value of goodwill and intangible assets with As explained more fully in the Directors’ Responsibilities indefinite lives for impairment Statement on page 73, the Directors are responsible for the • Accounting impact of the IPO and PLC reorganisation preparation of the financial statements and for being satisfied • Exceptional items. that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance Our application of materiality with applicable law and International Standards on Auditing Materiality is a key part of planning and executing our audit (UK and Ireland). Those standards require us to comply with strategy. For the purposes of determining whether the financial the Auditing Practices Board’s Ethical Standards for Auditors. statements are free from material misstatement, we define materiality as the magnitude of an omission or misstatement Scope of the audit of the financial statements that, individually or in the aggregate, in light of the surrounding An audit involves obtaining evidence about the amounts circumstances, could reasonably be expected to influence the and disclosures in the financial statements sufficient to give economic decisions of the users of the financial statements. As reasonable assurance that the financial statements are free we develop our audit strategy, we determine materiality at the from material misstatement, whether caused by fraud or error. overall financial statement level and at the individual account This includes an assessment of: whether the accounting policies level. Performance materiality is the application of materiality are appropriate to the Group’s and the Parent Company’s at the individual account level. circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant Planning the audit solely to detect individually material accounting estimates made by the Directors; and the overall misstatements overlooks the fact that the aggregate of presentation of the financial statements. In addition, we read individually immaterial misstatements may cause the financial all the financial and non-financial information in the Annual statements to be materially misstated, and leaves no margin Report and Accounts to identify material inconsistencies with for possible undetected misstatements. the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially When establishing our overall audit strategy, we determined a inconsistent with, the knowledge acquired by us in the course magnitude of uncorrected misstatements that we judged would of performing the audit. If we become aware of any apparent be material for the financial statements as a whole.

74 Stock Spirits Group Annual Report 2013 We determined materiality for the Group to be €2 million which Revenue recognition focussing on sales related reserves is approximately 5% of profit before tax before exceptional We have performed audit procedures on the key controls to items and interest on the Preferred Equity Certificates (PECs) ensure recognition was appropriate and applied in line with and Convertible Equity Certificates (CECs). This provided a management’s policies and procedures. We performed controls basis for determining the nature, timing and extent of risk testing and audit procedures to validate the revenue and related assessment procedures, identifying and assessing the risk costs throughout the year and specifically around cut off at the of material misstatement and determining the nature, timing year end. For a sample of contracts we have challenged and extent of further audit procedures. management in respect of the reasonableness of judgements made affecting the recognition including the appropriateness On the basis of our risk assessment, together with our of sales related reserves. assessment of the Group’s overall control environment, our judgment was that overall performance materiality (i.e. our Taxation provisions tolerance for misstatement in an individual account or balance) We challenged the risk analysis and related tax provisions for the Group should be 50% of materiality, namely €1 million. estimated by management along with claims or assessments Our objective in adopting this approach was to ensure that total made by international tax authorities in the territories in which uncorrected and undetected audit differences in all accounts the Company operates to date. We engaged specialists in the did not exceed our materiality level. areas of corporation tax, indirect tax and transfer pricing to assist us and inspected advice provided by local tax advisors. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of €0.1 million, Assessing the carrying value of goodwill and intangible assets as well as differences below that threshold that, in our view, with indefinite lives for impairment warranted reporting on qualitative grounds. We challenged management’s assumptions used in its impairment model for goodwill as set out in note 17. We An overview of the scope of our audit focused on the appropriateness of the methodology applied Following our assessment of the risk of material misstatement and engaged a specialist in determining the appropriate to the Group financial statements, we selected 8 components assumptions were applied including the discount rate. We which represent the principal business units within the Group challenged management on cash flow forecasts including and account for 93% of the Group’s revenue and 97% of the growth rates used and we assessed the historical accuracy Group’s profit before exceptionals and interest on the of cash flow forecasting. We reviewed and challenged Preferred Equity Certificates (PECs) and Convertible Equity management’s sensitivity analysis. Certificates (CECs). Four of these were subject to a full scope audit and four were subject to a specific scope audit where the Accounting impact of the IPO and PLC reorganisation extent of audit work was based on our assessment of the risks We challenged the use of the pooling of interests method of material misstatement and of the materiality of the Group’s of accounting for the Group reorganisation and incorporation business operations in that component. They were also of the new Parent Company. We performed audit procedures selected to provide an appropriate basis for undertaking audit on the IPO related costs to ensure the appropriate allocation work to address the risks of material misstatement identified between financing costs and those capitalised within equity above. For the remaining components, we performed other which were directly attributable to the issue of new shares in procedures to confirm that there were no significant risks of the Parent Company. material misstatement in the Group financial statements. Exceptional items The audit work in the 8 components was executed at levels of We challenged items classified as exceptional to assess that the materiality applicable to each individual division, which were nature of each item is consistent with the criteria set out in the lower than Group materiality. Group’s accounting policy as described in note 3 and assessed the consistency in the application of the exceptional classification The Group audit team interacted regularly with the component with previous accounting periods. We performed substantive teams where appropriate during various stages of the audit, procedures to audit both the amount and related disclosure for visited key accounting locations including Poland and Czech all exceptional items deemed material. Republic, reviewed key working papers and was responsible for the scope and direction of the local audit process.

The principle ways in which we responded to the risks described above included:

Stock Spirits Group Annual Report 2013 75 Independent auditor’s report to the members of Stock Spirits Group PLC, continued

Opinion on other matters prescribed by the Companies Under the Listing Rules we are required to review: Act 2006 • The Directors’ statement on page 70 in relation In our opinion: to going concern • The part of the Directors’ Remuneration Report to be • The part of the Corporate Governance Statement audited has been properly prepared in accordance with relating to the Company’s compliance with the nine the Companies Act 2006 provisions of the UK Corporate Governance Code • The information given in the Strategic Report and the specified for our review. Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception Christopher Voogd (Senior statutory auditor) We have nothing to report in respect of the following: For and on behalf of Ernst & Young LLP, Statutory auditor Under the ISAs (UK and Ireland), we are required to report London to you if, in our opinion, information in the annual report is: 27 March 2014 • Materially inconsistent with the information in the audited financial statements • Apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit • Is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion: • Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us • The Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns • Certain disclosures of directors’ remuneration specified by law are not made • We have not received all the information and explanations we require for our audit.

1. The maintenance and integrity of the Stock Spirits Group PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

76 Stock Spirits Group Annual Report 2013 Consolidated income statement for the year ended 31 December 2013

2013 2012 Notes €000 €000 Revenue 5 340,538 292,445 Cost of goods sold (166,962) (149,058)

Gross profit 173,576 143,387 Selling expenses (69,673) (55,043) Other operating expenses (41,136) (29,929)

Operating profit before exceptional items 62,767 58,415 Exceptional items 8 (15,088) 27,001

Operating profit 47,679 85,416 Finance revenue 9 1,847 1,769 Finance costs 9 (58,206) (58,172)

(Loss)/profit before tax (8,680) 29,013 Income tax credit/(expense) 13 17,573 (2,852) Profit for the year 8,893 26,161

Attributable to: Equity holders of the Parent 8,893 26,161 Non-controlling interests – – 8,893 26,161

Earnings per share, (cents), attributable to equity holders of the Parent Basic and diluted 14 0.05 0.20

Stock Spirits Group Annual Report 2013 77 Consolidated statement of comprehensive income for the year ended 31 December 2013

2013 2012 €000 €000 Profit for the year 8,893 26,161

Other comprehensive (expense)/income: Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences arising on translation of foreign operations (1,690) 6,911 Income tax effect – – 7,203 33,072

Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Re-measurement gains/(losses) on employee severance indemnity 57 (64) Income tax effect – – Total comprehensive income for the year, net of tax 7,260 33,008

78 Stock Spirits Group Annual Report 2013 Consolidated statement of financial position as at 31 December 2013

2013 2012 Notes €000 €000 Non-current assets Intangible assets – goodwill 15 60,366 60,303 Intangible assets – other 16 293,869 313,002 Property, plant and equipment 18 66,439 57,515 Deferred tax assets 13 21,974 9,240 Other assets 21 4,467 9,826 447,115 449,886

Current assets Inventories 19 26,944 30,826 Trade and other receivables 20 166,776 129,722 Other assets 21 1 250 Current tax assets 13 1,795 1,629 Assets classified as held for sale 22 – 4,200 Cash and cash equivalents 32 129,610 138,718 325,126 305,345 Total assets 772,241 755,231

Non-current liabilities Financial liabilities 23 163,275 155,922 Other financial liabilities 25 229 1,448 Deferred tax liabilities 13 44,794 62,704 Provisions 26 1,086 5,295 209,384 225,369

Current liabilities Trade and other payables 28 74,017 58,744 Financial liabilities 23 5,841 8,119 Loans from shareholder 24 215 264,640 Other financial liabilities 25 712 242 Income tax payable 13 8,513 8,870 Indirect tax payable 27 149,910 74,986 Provisions 26 3,577 109 242,785 415,710

Total liabilities 452,169 641,079 Net assets 320,072 114,152

Stock Spirits Group Annual Report 2013 79 Consolidated statement of financial position for the year ended 31 December 2013

2013 2012 Notes €000 €000 Capital and reserves Issued capital 29 23,625 15,246 Share premium 29 183,541 – Merger reserve 29 100,799 – Consolidation reserve 29 5,130 5,130 Other reserve 34 7,507 – Foreign currency translation reserve 29 15,239 16,929 Retained earnings (15,769) 21,069 Equity attributable to equity holders of the Parent 320,072 58,374 Non-controlling interests – 55,778 Total equity 320,072 114,152

Total equity and liabilities 772,241 755,231

Notes 1 to 38 are an integral part of the financial statements.

The consolidated financial statements of Stock Spirits Group PLC, registered number 08687223, on pages 77 to 130, were approved by the Board of Directors and authorised for issue on 27 March 2014 and were signed on its behalf by:

Chris Heath Lesley Jackson Chief Executive Officer Chief Financial Officer

80 Stock Spirits Group Annual Report 2013 Consolidated statement of changes in equity for the year ended 31 December 2013

Foreign currency Non- Issued Share Consolidation Other translation Retained controlling Total capital premium Merger reserve reserve reserve earnings Total interests equity €000 €000 reserve €000 €000 €000 €000 €000 €000 €000 Balance at 1 January 2012 15,259 – – 5,130 – 10,018 (5,028) 25,379 55,522 80,901 Profit for the year – – – – – – 26,161 26,161 – 26,161 Other comprehensive income/(expense) – – – – – 6,911 (64) 6,847 – 6,847 Total comprehensive income – – – – – 6,911 26,097 33,008 – 33,008

Cancellation of shares (13) – – – – – – (13) – (13) Share-based compensation charge (note 34) – – – – – – – – 256 256 Balance at 31 December 2012 15,246 – – 5,130 – 16,929 21,069 58,374 55,778 114,152

Profit for the year – – – – – – 8,893 8,893 – 8,893 Other comprehensive income/(expense) – – – – – (1,690) 57 (1,633) – (1,633) Total comprehensive income/(expense) – – – – – (1,690) 8,950 7,260 – 7,260

Issue of new shares in the course of the Group’s reorganisation 59 – – – – – – 59 – 59 Issue of new ordinary shares in Stock Spirits Group PLC 2,614 58,812 – – – – – 61,426 – 61,426 Share issue costs – (3,663) – – – – – (3,663) – (3,663) Issue of new shares in exchange for convertible and preferred equity certificates 5,706 128,392 – – – – 55,011 189,109 (55,011) 134,098 Reserve resulting from shares issued in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l – – 100,799 – – – (100,799) – – – Transfer of share-based payments obligation – – – – 767 – – 767 (767) – Share-based compensation charge (note 34) – – – – 6,740 – – 6,740 – 6,740 Balance at 31 December 2013 23,625 183,541 100,799 5,130 7,507 15,239 (15,769) 320,072 – 320,072

Stock Spirits Group Annual Report 2013 81 Consolidated statement of cash flows for the year ended 31 December 2013

2013 2012 Notes €000 €000 Operating activities Profit for the year 8,893 26,161 Adjustments to reconcile profit for the year to net cash flows: Income tax (credit)/expense recognised in income statement 13 (17,573) 2,852 Interest expense and bank commissions 45,604 58,172 Exceptional income relating to net gain on disposal of US operations and brands – (54,898) Loss on disposal of tangible and intangible assets 548 688 Other financial income (1,847) (1,309) Depreciation and impairment of property, plant and equipment 18 7,557 9,330 Amortisation and impairment of intangible assets and goodwill 16 1,697 18,419 Net foreign exchange loss/(gain) 12,602 (460) Share-based compensation 34 6,740 256 Movement in provisions (741) (662) 63,480 58,549 Working capital adjustments Increase in trade receivables and other assets (31,446) (3,263) Decrease/(increase) inventories 3,882 (2,513) Increase in trade payables and other liabilities 90,197 7,942 62,633 2,166 Cash flows from operating activities 126,113 60,715 Income tax paid 13 (10,660) (4,328) Net cash flows from operating activities 115,453 56,387 Investing activities Interest received 1,171 1,309 Payments to acquire intangible assets (1,463) (1,355) Purchase of property, plant and equipment (19,411) (9,950) Acquisition of subsidiary, net of cash acquired 35 – (6,071) Proceeds from asset previously classified as held for sale 4,200 – Net proceeds from disposal of US operations and brands 8 – 55,425 Net cash flow from investing activities (15,503) 39,358

82 Stock Spirits Group Annual Report 2013 2013 2012 Notes €000 €000 Financing activities Repayment of borrowings 23 (57,057) (6,400) Repayment of PECs and CECs 24 (162,185) – New borrowings raised 70,000 – Interest paid (14,635) (18,329) Other financial costs (55) (345) Proceeds from shares issued 61,426 – Share issue costs (3,663) – Net cash flow from financing activities (106,169) (25,074) Net (decrease)/increase in cash and cash equivalents (6,219) 70,671 Cash and cash equivalents at the start of the year 138,718 64,787 Effect of exchange rates on cash and cash equivalents (2,889) 3,260 Cash and cash equivalents at the end of the year 32 129,610 138,718

IPO Costs

Exceptional costs relating to the IPO included in cash flow from operating activities 7,100 – Exceptional costs relating to the IPO included in financing activities 3,663 – Total IPO costs 10,763 –

Stock Spirits Group Annual Report 2013 83 Notes to the consolidated financial statements at 31 December 2013

1. Corporate information Agreement (ARA) with the syndicate of banks. The ARA added These consolidated financial statements were approved and a new variable rate loan, Term Loan C (TLC). The Group met authorised for issue by the Board of Directors of Stock Spirits its covenant requirements throughout the year ended Group PLC (the Company) on 27 March 2014. 31 December 2013.

The Company was incorporated on 12 September 2013 under The Group is cash generative and has access to short-term the laws of England and Wales with the registered number funding through its revolving credit facility. See note 23 for 08687223 as Stock Spirits (UK) Limited. The Company was further details. re-named Stock Spirits Group Limited on 2 October 2013 and was re-registered as a public limited company on 7 October The Group’s forecasts and projections, taking account of 2013 with the name Stock Spirits Group PLC. The Company’s possible changes in trading performance, show that the Group registered office is at Solar House, Mercury Park, Wooburn will be able to operate within the level of its current available Green, Buckinghamshire, HP10 0HH, United Kingdom. facilities and maintain comfortable covenant headroom. The revolving credit facility is available as part of wider borrowing As a result of the reorganisation implemented by way of the arrangements with the syndicate of banks and is not subject to share exchange offer made by the Company for the shares annual renewal. Stock Polska Sp. z.o.o. also has a debt factoring of OCM Luxembourg Spirits Holdings S.à.r.l. on 21 October facility of €51,084,000 which can be utilised to meet short term 2013, the Company became a new parent entity of OCM working capital requirements if necessary. Pursuant to the Luxembourg Spirits Holdings S.à.r.l., a private limited company ING Credit facility, the total amount of receivables subject registered in Luxembourg in 2006. OCM Luxembourg Spirits to a factoring facility may not in aggregate exceed €40 million. Holdings S.à.r.l. is a holding company which owns companies See note 20 for further details. involved in the production and distribution of spirits. See note 29 for further details. After making enquiries, the Directors have reasonable expectation that the Company and the Group will have adequate resources The Company, together with its subsidiaries (the Group) is to continue their operational existence for the foreseeable future involved in the production and distribution of branded spirits and remain compliant with the covenant requirements for a period in Central and Eastern Europe. of at least 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern 2. Going concern basis for preparing the financial statements. The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and 3. Accounting policies the Group have adequate resources to continue in operational Basis of preparation existence for the foreseeable future. Thus they continue to These consolidated financial statements of the Group have adopt a going concern basis of accounting in preparing the been prepared in accordance with International Financial financial statements. Reporting Standards (IFRS), as adopted by the European Union. International Financial Reporting Standards are issued by the The financial position of the Group, its cash flows, liquidity International Accounting Standards Board (IASB). position and borrowings facilities are described in the paragraphs below. In addition note 30 to the financial statements includes These consolidated financial statements have been prepared the Group’s objectives, policies and processes for managing its on a going concern basis as the Directors believe there are no capital, its financial risk management objectives, details of its material uncertainties that lead to significant doubt that the financial instruments and hedging activities, and its exposure entity can continue as a going concern in the foreseeable future. to credit risk and liquidity. The consolidated financial statements have been prepared Full details of the terms of each external loan facility are set out under the historical cost convention, except as disclosed in in note 23, and until June 2013 included two variable rate loans the accounting policies below. Exceptions include but are and a revolving credit facility with a syndicate of banks led by not limited to assets classified as held for sale measured at ING. In June 2013 the Group signed an Amended and Restated the lower of their carrying amount or fair value less costs to sell and post-employment benefits measured at fair value.

84 Stock Spirits Group Annual Report 2013 Group reorganisation in 2013 on how to measure fair value under IFRS. IFRS 13 defines fair As the Group has been formed through a reorganisation in which value as an exit price. IFRS 13 also requires additional disclosures Stock Spirits Group PLC became a new parent entity of the which have been provided where required in the individual notes Group (see note 29), these consolidated financial statements relating to the assets and liabilities. The fair value hierarchy is have been prepared as a continuation of the existing Group using provided in note 30. the pooling of interests method. The difference in share capital and reserves resulting from the use of the pooling of interests IAS 19 Employee Benefits (Revised) method of €5,130,000 was recorded as an adjustment to the The revised standard includes a number of amendments regarding consolidation reserve. the recognition of actuarial gains and losses, expected returns on plan assets and termination benefits. It further clarifies the Changes in accounting policies distinction between short-term and other long-term employee In the preparation of these consolidated financial statements, benefits should be based on the expected timing of settlement the Group followed the same accounting policies and methods rather than the employee’s entitlement to the benefits. In Italy of computation as compared with those applied in the previous there is a provision for employee severance indemnity, which is year, except for the adoption of new standards and interpretations mandatory for Italian companies pursuant to Law No. 297/1982. and revision of the existing standards as of 1 January 2013. Per IAS 19 (Revised 2011) this represents an unfunded defined benefit plan. New / revised standards and interpretations adopted in 2013 The following amendments to existing standards and Resulting from the changes to IAS 19 (Revised 2011) actuarial interpretations were effective for the year, but either they were gains and losses should be recognised in OCI rather than profit not applicable to or did not have a material impact on the Group: or loss. Additionally there should be no subsequent recycling to profit or loss. Effective dates* IFRS 7 Financial Instruments: The Group has applied IAS 19 (Revised 2011) retrospectively in Disclosures – Offsetting Financial Assets the current period in accordance with the transitional provisions and Financial Liabilities (Amendments) 1 January 2013 set out in the revised standard. The impact of the application IFRS 1 Government Loans – of the revised standard on the current year and prior period is Amendments to IFRS 1 1 January 2013 shown in the table below:

IFRIC 20 Stripping Costs in the 31 December 31 December Production Phase of a Surface Mine 1 January 2013 2013 2012 €000 €000 Annual Improvements to IFRSs 2009–2011 Cycle 1 January 2013 Changes to Consolidated Income Statement:

The following amendments to existing standards and interpretations, (Decrease)/increase in finance costs (57) 64 effective from 1 January 2013, which have had an impact on the Increase/(decrease) in tax charge – – Group’s financial statements, are outlined below: Net impact to equity (57) 64

IAS 1 Presentation of Items of Other Comprehensive Income – Changes to Consolidated Statement Amendment to IAS 1 of Comprehensive Income: The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that Increase/(decrease) in actuarial gain/ will be reclassified (recycled) to profit or loss at a future point loss on pension scheme assets 57 (64) in time (e.g. exchange differences arising on the translation Increase/(decrease) in tax charge/ of foreign operations) have to be presented separately from credit relating to actuarial gain/loss items which will not be reclassified. The amendments affect on pension scheme assets and liabilities – – presentation only and have no impact on the Group’s financial Net other comprehensive income position or performance. for the year 57 (64) Total net comprehensive income IFRS 13 Fair Value Measurement for the year – – IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance

Stock Spirits Group Annual Report 2013 85 Notes to the consolidated financial statements at 31 December 2013, continued

The application of the revised standard has no impact on Group’s Effective dates* basic or diluted EPS. It also has no impact on total equity or on Annual Improvements to IFRSs the pension liability reported in the balance sheet. As a result, 2011–2013 Cycle 1 January 2014+ the Group has not included comparative information in respect of the opening statement of balance sheet position as at IFRS 14 Regulatory Deferral Accounts 1 January 2016+ 1 January 2012. no earlier than 1 IFRS 9 Financial Instruments January 2017+ See note 26 for further details. The Directors do not expect the adoption of these standards and IAS 19 (Revised 2011) also requires more extensive disclosures. interpretations to have a material impact on the consolidated or However due to the immateriality of the value of the provision company financial statements in the period of initial application. in place no additional disclosures have been made. * The effective dates stated above are those given in the original IASB/IFRIC The long-term incentive plan (LTIP) also falls under IAS 19 standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the (Revised). Settlement of the LTIP plan will take place in 2014 application of new standards and interpretations will be subject to their having and therefore this has been classified as a current liability. been endorsed for use in the EU via the EU Endorsement mechanism. In the Refer to note 26 for details. 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. IFRS 10, IFRS 11, New / revised standards and interpretations not applied IFRS 12 and IAS 27 and IAS 28 have been adopted by the EU with an effective The following standards and interpretations in issue are not yet date of 1 January 2014. + At the date of authorisation of these financial statements, these standards and effective for the Group and have not been adopted by the Group: interpretation have not yet been endorsed or adopted by the EU.

Effective dates* Basis of consolidation IFRS 10 Consolidated The consolidated financial statements incorporate the financial Financial Statements 1 January 2013 statements of the Company and its subsidiaries controlled by IFRS 11 Joint Arrangements 1 January 2013 the Company for the years to 31 December 2013 and 31 IFRS 12 Disclosure of Interests December 2012. in Other Entities 1 January 2013 IAS 27 Separate Financial Statements 1 January 2013 Subsidiaries Subsidiaries are part of the Group from the date of their IAS 28 Investments in Associates acquisition, being the date on which the Group obtains control, and Joint Ventures 1 January 2013 and continue to be part of the Group until the date that such IAS 32 Financial Instruments: control ceases. Control comprises the power to govern the Presentation – Offsetting Financial financial and operating policies of the investee so as to obtain Assets and Financial Liabilities benefit from its activities and is achieved through direct or (Amendments) 1 January 2014 indirect ownership of voting rights currently exercisable or IAS 36 Impairment of Assets – convertible potential voting rights or by way of contractual Recoverable Amount Disclosures for agreement. The subsidiary financial statements are prepared Non-Financial Assets (Amendments) 1 January 2014 for the same reporting year as the Parent Company and are IAS 39 Financial Instruments: based on consistent accounting policies. All intragroup balances Recognition and Measurement – and transactions including unrealised profit arising from them Novation of Derivatives and are eliminated in full. Continuation of Hedge Accounting (Amendments) 1 January 2014 A change in the ownership interest of a subsidiary, without IFRIC 21 Levies 1 January 2014+ loss of control, is accounted for as an equity transaction. If the Group loses control of a subsidiary it (i) derecognises the IAS 19 Employee Benefits – Defined assets (including goodwill) and liabilities of the subsidiary; Benefit Plans: Employee Contributions (ii) derecognises the carrying amount of any non-controlling (Amendments) 1 January 2014+ interest; (iii) derecognises the cumulative translation Annual Improvements to IFRSs differences recorded in equity; (iv) recognises the fair value 2010–2012 Cycle 1 January 2014+

86 Stock Spirits Group Annual Report 2013 of the consideration received; (v) recognises the fair value of Purchases of controlling interests in subsidiaries from entities under any investment retained; (vi) recognises any surplus or deficit common control in profit or loss; (vii) recognises the Parent’s share of any Purchases of controlling interests in subsidiaries from entities components previously recognised in other comprehensive under common control are accounted for using the pooling of income to profit or loss or retained earnings, as appropriate. interests method.

Business combinations The assets and liabilities of the subsidiary transferred under Business combinations are accounted for using the acquisition common control are recorded in these financial statements method. The cost of any acquisition is measured as the aggregate at the historical cost of the controlling entity (the Predecessor). of the consideration transferred, measured at acquisition date Related goodwill inherent in the Predecessor’s original acquisition fair value and the amount of any non-controlling interest in the is also recorded in the financial statements. Any difference acquiree. For each business combination the acquirer measures between the total book value of net assets, including the the non-controlling interest in the acquiree either at fair value Predecessor’s goodwill, and the consideration paid is accounted or at the proportionate share of the acquirer’s identifiable net for in the consolidated financial statements as an adjustment to assets. Acquisition costs incurred are expensed and included the shareholders’ equity. within exceptional items. These financial statements, including corresponding figures, When the Group acquires a business it assesses the financial are presented as if a subsidiary had been acquired by the Group assets and liabilities assumed for appropriate classification on the date it was originally acquired by the Predecessor. and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the Acquisition of subsidiaries acquisition date. This includes the separation of embedded The initial accounting for a business combination involves derivatives in host contracts by the acquiree. identifying and determining the fair values to be assigned to the acquiree’s identifiable assets, liabilities and contingent liabilities Goodwill is initially recognised at cost being the excess of the and the cost of the combination. If the initial accounting for aggregate of the consideration transferred and the amount a business combination can be determined only provisionally recognised for non-controlling interest over the net identifiable by the end of the period in which the combination is effected assets acquired and liabilities assumed. If this consideration is because either the fair values to be assigned to the acquiree’s lower than the fair value of the net assets of the subsidiary identifiable assets, liabilities or contingent liabilities or the cost acquired, the difference is recognised in profit and loss. of the combination can be determined only provisionally, the Group accounts for the combination using those provisional After initial recognition goodwill is measured at cost less any values. The Group recognises any adjustments to those accumulated impairment losses. For the purpose of impairment provisional values as a result of completing the initial testing goodwill acquired in a business combination is from the accounting within twelve months of the acquisition date. acquisition date allocated to each of the Group’s cash-generating units that are expected to benefit from the combination Revenue recognition irrespective of whether assets or liabilities of the acquisition Revenue is recognised to the extent that it is probable that the are assigned to those units. economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of Where goodwill forms part of a cash-generating unit and part the consideration received or receivable, taking into account of the operation within that unit is disposed of, the goodwill contractually defined terms of payment and excluding taxes associated with the operation disposed of is included in the or duty. Revenue is reduced for estimated customer returns, carrying amount of the operation when determining the gain rebates and other similar allowances. The Group has concluded or loss on disposal of the operation. Goodwill disposed of in this that it is the principal in its revenue arrangements as it is the circumstance is measured based on the relative values of the primary obligor in these revenue arrangements, has pricing operation disposed of and the portion of the cash-generating latitude and is also exposed to inventory and credit risks. unit retained.

Stock Spirits Group Annual Report 2013 87 Notes to the consolidated financial statements at 31 December 2013, continued

Sale of goods Management monitors the results of all operating segments Revenue from the sale of goods is recognised when all the separately as each of the geographic areas require different following conditions are satisfied: marketing approaches. Segment performance is evaluated • The Group has transferred to the buyer the significant risks based on EBITDA, adjusted for exceptional items and non- and rewards of ownership of the goods; in general this is recurring expenses including long-term incentive plan, share- deemed to occur when customers take delivery of the goods based compensation and OCM management fee. • The Group retains neither continuing managerial involvement to the degree usually associated with Foreign currencies ownership nor effective control over the goods sold The individual financial statements of each Group entity are • The amount of revenue can be measured reliably presented in the currency of the primary economic environment • It is probable that the economic benefits associated in which the entity operates (its functional currency). For the with the transaction will flow to the entity purpose of the Group financial statements, the results and • The costs incurred or to be incurred in respect of the financial position of each entity are expressed in Euro (€), which transaction can be measured reliably. is the presentational currency for the Group financial statements.

Sales are stated net of price discounts, sales taxes and duties In preparing the financial statements of the individual entities, as it is considered that the Group acts as agent. Indicators of transactions in currencies other than the entity’s functional this include: currency (foreign currencies) are recorded at the rates of • Taxes and duties being refundable in the event that exchange prevailing at the dates of the transactions. At each stock becomes damaged or obsolete, or receivables end of the reporting period, monetary items denominated in not being collected foreign currencies are retranslated at the rates prevailing at • Taxes and duties are included in the selling price of the goods the end of the reporting period. • Taxes and duties become payable to the government only when the sale has occurred. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates Finance revenue as at the dates of the initial transactions. Non-monetary items Revenue is recognised as interest accrues using the effective measured at fair value in a foreign currency are translated using interest method. The effective rate is the rate that exactly the exchange rates at the date when the fair value was determined. discounts estimated future cash receipts through the expected All resulting differences are taken to the income statement. life of the financial instrument to its net carrying amount. For the purpose of presenting Group financial statements, Segmental analysis the assets and liabilities of the Group’s foreign operations are The accounting policy for identifying segments is based on expressed in Euros using exchange rates prevailing at the end of internal management reporting information that is regularly the reporting period. Income and expense items are translated reviewed by the chief operating decision-maker. at the average exchange rates for the period. Exchange differences arising, if any, are classified as other comprehensive For management purposes, the Group is organised into income and transferred to the Group’s translation reserve. business units based on geographical area, and has five reportable segments: Goodwill and fair value adjustments arising on the acquisition • Poland of a foreign operation are treated as assets and liabilities of the • Czech Republic foreign operation and translated at the closing rate. • Italy • Other operational, including the Slovakian, International and Baltic Distillery entities • Corporate, including the expenses and central costs incurred by non-trading Group entities.

88 Stock Spirits Group Annual Report 2013 The closing foreign exchange rates used in the consolidation Deferred income tax is recognised on all temporary are as follows: differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial 2013 2012 statements with the following exceptions: Polish Złoty 4.15 4.09 • Where the temporary differences arises from the initial Czech Koruna 27.40 25.12 recognition of goodwill or of an asset or liability in a Sterling 0.83 0.82 transaction that is not a business combination and, at the time of the transaction, affects neither the accounting Employee benefits – severance indemnity profit nor taxable profit or loss The provision for employee severance indemnity, mandatory • In respect of taxable temporary differences associated for Italian companies pursuant to Law No. 297/1982, represents with investments in subsidiaries, associates and interests an unfunded defined benefit plan, according to IAS 19 (Revised), in joint ventures, where the timing of the reversal of the and is based on the working life of employees and on the temporary differences can be controlled and it is probable remuneration earned by an employee over the course of that the temporary differences will not reverse in the a pre-determined term of service. foreseeable future.

For details of the actuarial assumptions used, see note 26. Deferred income tax assets are recognised only to the extent For the severance indemnity, the cost of providing benefits that the Directors consider that it is probable that there will be is determined using the Projected Unit Credit Method, with taxable profits from which the deductible temporary differences, actuarial valuations being carried out at each reporting period. carried forward tax credits or tax losses can be utilised. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on Deferred income tax assets and liabilities are measured on a straight-line basis over the average period until the benefits an undiscounted basis at the tax rate that is expected to apply become vested. when the related asset is realised or liability is settled, based on tax rates enacted or substantively enacted by the balance The severance indemnity obligation recognised in the sheet date. statement of financial position represents the present value of the obligation as adjusted for unrecognised actuarial gains The carrying amount of deferred income tax assets is reviewed and losses and unrecognised past service cost, and as reduced at each balance sheet date. Deferred income tax assets and by the fair value of plan assets. Any asset resulting from this liabilities are offset, only if a legally enforcement right exists calculation is limited to unrecognised actuarial losses and past to set off current tax assets against current tax liabilities, the service cost, plus the present value of available refunds and deferred income taxes relate to the same taxation authority and reductions in future contributions to the plan. that authority permits the Group to make a single net payment.

Contributions for severance indemnity are recognised as Income tax is charged or credited to other comprehensive an expense in the income statement when employees have income if it relates to items that are charged or credited to rendered service entitling them to the contributions. other comprehensive income. Similarly, income tax is charged or credited directly to equity if it relates to items that are Income taxes credited or charged directly to equity. Otherwise income Current income tax assets and liabilities are measured at the tax is recognised in the income statement. amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Stock Spirits Group Annual Report 2013 89 Notes to the consolidated financial statements at 31 December 2013, continued

Property, plant and equipment fair values can be measured reliably. The cost of such intangible Land and buildings held for use in the production or supply of assets is their fair value at the acquisition date. goods or services, or for administrative purposes, are stated in the statement of financial position at their cost less depreciation. Fair value of identifiable brands acquired and recognised as part of a business combination are determined using the royalty Properties in the course of construction for production, rental or or multi-period excess methods. All of the Group’s brands have administrative purposes, or for purposes not yet determined, are indefinite useful lives, are not amortised but are subject to an carried at cost, less any recognised impairment loss. Depreciation annual impairment test or whenever there is an indication that of these assets, on the same basis as other property assets, the asset may be impaired. commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less accumulated In arriving at the conclusion that a brand has an indefinite life, depreciation and any accumulated impairment losses. management considers future usage, commercial position, stability of industry and all other aspects that might have an Depreciation is charged so as to write off the cost or valuation impact on this accounting policy. Management considers the of assets, other than land and properties under construction, business to be a brand business and expects to acquire, hold over their estimated useful lives, using the straight-line method. and support brands for an indefinite period. Subsidiary company The estimated useful lives, residual values and depreciation history goes back to 1884 in Italy, 1920 in the Czech Republic method are reviewed at each year end, with the effect of any and for over 100 years in Poland. Brands have a long tradition changes in estimate accounted for on a prospective basis. and companies have built customer loyalty over their history.

Assets held under finance leases are depreciated over their A core element of the Group’s strategy is to invest in building its expected useful lives on the same basis as owned assets or, brands through an ongoing programme of spending on consumer where shorter, the term of the relevant lease. marketing and through significant investment in promotional support. This policy is appropriate due to the stable long-term The gain or loss arising on the disposal or retirement of an nature of the business and the enduring nature of the brands. item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying Subsequent to initial recognition, other intangible assets amount of the asset and is recognised in the income statement. acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, The following useful lives are used in the calculation on the same basis as intangible assets acquired separately. of depreciation: Land and buildings 20 – 50 years Impairment of tangible and intangible assets excluding goodwill Technical equipment 7 – 20 years At each reporting period, the Group reviews the carrying Other equipment 3 – 10 years amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered Intangible assets an impairment loss. If any such indication exists, the recoverable Intangible assets acquired separately amount of the asset is estimated in order to determine the extent Intangible assets including brands, agency contracts, customer of the impairment loss (if any). Where it is not possible to estimate lists and patents acquired separately are reported at cost less the recoverable amount of an individual asset, the Group accumulated amortisation and accumulated impairment losses. estimates the recoverable amount of the cash-generating unit to Intangible assets with a definite life are amortised on a straight- which the asset belongs. Where a reasonable and consistent basis line basis over their estimated useful lives of between two and of allocation can be identified, corporate assets are also allocated 15 years. The estimated useful life and amortisation method to individual cash-generating units, or otherwise they are are reviewed at the end of each reporting period, with the allocated to the smallest group of cash-generating units for which effect of any changes in estimate being accounted for on a a reasonable and consistent allocation basis can be identified. prospective basis. Amortisation expense is included within selling expenses in the consolidated income statement. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and Intangible assets acquired in a business combination whenever there is an indication that the asset may be impaired. Intangible assets acquired in a business combination are identified and recognised separately from goodwill where Recoverable amount is the higher of fair value less costs to sell they satisfy the definition of an intangible asset and their and value-in-use. In assessing value in use, the estimated future

90 Stock Spirits Group Annual Report 2013 cash flows are discounted to their present value using a pre-tax Assets classified as held for sale discount rate that reflects current market assessments of the Non-current assets and disposal groups are classified as time value of money and the risks specific to the asset for which held for sale only if available for immediate sale in their the estimates of future cash flows have not been adjusted. present condition; a sale is highly probable and expected to be completed within one year from the date of classification. If the recoverable amount of an asset (or cash-generating unit) Such assets are measured at the lower of carrying amount is estimated to be less than its carrying amount, the carrying and fair value less costs to sell and are not depreciated amount of the asset (cash-generating unit) is reduced to its or amortised. recoverable amount. An impairment loss is recognised immediately in the income statement. Cash and cash equivalents Cash and cash equivalents in the statement of financial position Cash-generating units comprise cash at banks and in hand and short-term deposits The Group has identified the cash-generating units, used with an original maturity of three months or less. in the impairment review of intangible assets with indefinite lives, to be the Czech region (including Imperator), Italy region Financial assets and Poland region. Refer to note 17 for further details. Financial assets in the statement of financial position are loans and receivables. Loans and receivables are non-derivative financial Goodwill assets with fixed or determinable payments that are not quoted in Following initial recognition, goodwill is measured at cost an active market. They are included in current assets, except for less any accumulated impairment losses. For the purpose those with maturities greater than 12 months after the end of the of impairment testing, goodwill is allocated to the Group’s reporting period. These are classified as non-current assets. cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other When loans and receivables are recognised initially, they are assets or liabilities of the Group are assigned to those units. measured at fair value plus directly attributable transaction costs.

Goodwill is reviewed for impairment annually or more frequently Loans and receivables are subsequently carried at amortised if there is an indication of impairment. Impairment of goodwill cost using the effective interest method if the time value of is determined by assessing the recoverable amount of the money is significant. Gains and losses are recognised in income cash-generating unit to which the goodwill relates. Where the when the loans and receivables are derecognised or impaired, recoverable amount of the cash-generating unit is less than the as well as through the amortisation process. carrying value of the cash-generating unit to which goodwill has been allocated, an impairment loss is recognised. Impairment Trade receivables are recognised and carried at the lower of losses relating to goodwill cannot be reversed in future periods. their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried Inventories at amortised cost. Provision is made when there is objective Inventories are stated at the lower of cost and net realisable evidence that the Group will not be able to recover balances value. Costs, including an appropriate portion of fixed and in full. Balances are written off when the probability of recovery variable overhead expenses, are assigned to inventories held is assessed as being remote. by the method most appropriate to the particular class of inventory, with the majority being valued on a first-in-first-out Purchases or sales of financial assets that require delivery basis. Net realisable value represents the estimated selling of assets within a time frame established by regulation or price for inventories less all estimated costs of completion convention in the market place (regular way trades) are and costs necessary to make the sale. recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Trade and other receivables Trade and other receivables are recognised when it is probable Provisions that a future economic benefit will flow to the Group. Trade Provisions are recognised when the Group has a present and other receivables are carried at original invoice or contract obligation (legal or constructive) as a result of a past event, amount less any provisions for discounts and doubtful debts. it is probable that the Group will be required to settle the Provisions are made where there is evidence of a risk of obligation, and a reliable estimate can be made of the amount non-payment taking into account ageing, previous experience of the obligation. and general economic conditions.

Stock Spirits Group Annual Report 2013 91 Notes to the consolidated financial statements at 31 December 2013, continued

The amount recognised as a provision is the best estimate and not the holder redemption of the CPECs and yield can be of the consideration required to settle the present obligation made by the issue of shares rather than the payment of cash. at the statement of financial position, taking into account the Convertible Equity Certificates (CECs) are classified as risks and uncertainties surrounding the obligation. Where a compound instruments, consisting of a liability component and provision is measured using the cash flows estimated to settle an equity component. At the date of issue, the fair value of the the present obligation, its carrying amount is the present value liability component is estimated using the prevailing market of those cash flows. interest rate. The difference between the proceeds of the issue of the CECs and the fair value assigned to the liability When some or all of the economic benefits required to settle component, representing the option to convert the liability a provision are expected to be recovered from a third party, into the equity of the Company, is included in equity. the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the The interest expense on the liability component is calculated receivable can be measured reliably. applying the effective interest rate for the liability component of the instrument. This is added to the carrying amount of the CECs. The timing of cash outflows are by their nature uncertain and Immediately prior to admission to the London Stock Exchange are therefore best estimates. Provisions are not discounted in October 2013, the residual PECs and CEC balances, including as the time value of money is not deemed to be material. accrued interest, were converted into ordinary shares in Stock Spirits Group PLC. See note 24 for further details. Exceptional items Exceptional items are disclosed and described separately in Derivative financial instruments the financial statements where it is necessary to do so to provide The Group enters into derivative financial instruments to manage a better understanding of the financial performance of the Group. its exposure to interest rate and foreign exchange rate risk, They are material items of expense or income that have been including foreign exchange forward contracts, interest rate swaps shown separately due to the significance of their nature or amount. and cross currency swaps. Further details of derivative financial Exceptional items include significant costs of restructuring and instruments are disclosed in note 30 to the financial statements. reorganisation of the business, refinancing costs and other income and costs that are considered to be non-recurring. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently Financial liabilities remeasured to their fair value at the reporting period date. The Borrowings and other financial liabilities resulting gain or loss is recognised in profit or loss immediately. Borrowings and other financial liabilities, including loans, are initially measured at fair value, net of transaction costs. The fair value of derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the Borrowings and other financial liabilities are subsequently relationship is more than 12 months and as a current asset or a measured at amortised cost using the effective interest method, current liability if the remaining maturity of the relationship is with interest expense recognised on an effective yield basis. less than 12 months.

The effective interest method is a method of calculating the Fair value measurement amortised cost of a financial liability and of allocating interest The Group measures financial instruments, such as, derivatives expense over the relevant period. The effective interest rate is at fair value at each balance sheet date. Fair value is the price the rate that exactly discounts estimated future cash payments that would be received to sell an asset or paid to transfer a through the expected life of the financial liability, or, where liability in an orderly transaction between market participants appropriate, a shorter period. On modification of borrowings at the measurement date. The fair value measurement is based and other financial liabilities, such as a voluntary repayment on the presumption that the transaction to sell the asset or or change in repayment profile, the outstanding liability is transfer the liability takes place either: re-measured to revised amortised cost. • In the principal market for the asset or liability • In the absence of a principal market, in the most Hybrid instruments advantageous market for the asset or liability. Preferred Equity Certificates (PECs) are regarded as debt instruments. The principal or the most advantageous market must be accessible to by the Group. Convertible Preferred Equity Certificates (CPECs) are regarded as equity. At the discretion of the Company

92 Stock Spirits Group Annual Report 2013 The fair value of an asset or a liability is measured using the Payments under operating leases are charged to the income assumptions that market participants would use when pricing statement on a straight-line basis over the term of the lease. the asset or liability, assuming that market participants act in their economic best interest. Share-based payments Equity-settled transactions A fair value measurement of a non-financial asset takes into The cost of equity-settled transactions is recognised together account a market participant’s ability to generate economic with a corresponding increase in other reserves in equity, over benefits by using the asset in its highest and best use or by the period in which the performance and / or service conditions selling it to another market participant that would use the are fulfilled. The cumulative expense recognised for equity asset in its highest and best use. settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has The Group uses valuation techniques that are appropriate in expired and the Group’s best estimate of the number of equity the circumstances and for which sufficient data are available to instruments that will ultimately vest. The expense or credit for measure fair value, maximising the use of relevant observable the period represents the movement in cumulative expense inputs and minimising the use of unobservable inputs. recognised as at the beginning and end of the period and is recognised in general and administrative expenses. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within Where the terms of an equity-settled transaction award are the fair value hierarchy, described as follows, based on the modified, the minimum expense recognised is the expense as lowest level input that is significant to the fair value if the terms had not been modified, if the original terms of the measurement as a whole: award are met. An additional expense is recognised for any • Level 1 — Quoted (unadjusted) market prices in active modification that increases the total fair value of the share- markets for identical assets or liabilities based payment transaction, or is otherwise beneficial to the • Level 2 — Valuation techniques for which the lowest level employee as measured at the date of modification. input that is significant to the fair value measurement is directly or indirectly observable Where an equity-settled award is cancelled, it is treated as if • Level 3 — Valuation techniques for which the lowest level it vested on the date of cancellation, and any expense not yet input that is significant to the fair value measurement recognised for the award is recognised immediately. This includes is unobservable. any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new For assets and liabilities that are recognised in the financial award is substituted for the cancelled award, and designated as a statements on a recurring basis, the Group determines whether replacement award on the date that it is granted, the cost based transfers have occurred between levels in the hierarchy by on the original award terms continues to be recognised over the re-assessing categorisation (based on the lowest level input original vesting period and an expense is recognised over the that is significant to the fair value measurement as a whole) remainder of the new vesting period for the incremental fair at the end of each reporting period. value of any modification.

Leases and hire purchase commitments When employees of subsidiary companies are issued equity- Leases are classified as finance leases whenever the terms of the settled compensation awards over shares in the Parent lease transfer substantially all the risks and rewards of ownership Company, the Parent Company shall recognise an increase to the lessee. All other leases are classified as operating leases. in the value of its investment in the subsidiary and an increase in reserves. The subsidiary in turn will recognise the fair value Finance leases are capitalised on commencement of the lease of the award in its profit and loss account with an associated at the lower of the fair value of the asset and the present value increase in reserves to reflect the deemed capital contribution of the minimum lease payments. Each payment is allocated from the Parent Company. 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 and borrowings.

The finance charges are charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Stock Spirits Group Annual Report 2013 93 Notes to the consolidated financial statements at 31 December 2013, continued

Cash-settled transactions Impairment of goodwill The cost of cash-settled transactions is measured initially at fair The Group’s impairment test for goodwill is based on a value at the grant date using a binomial model, further details of value-in-use calculation using a discounted cash flow model. which are given in note 34. This fair value is expensed over the The cash flows are derived from the Group’s five year-plans. period until the vesting date with recognition of a corresponding The recoverable amount is most sensitive to the discount liability. The liability is re-measured to fair value at each reporting rate used for the discounted cash flow model as well as the date up to, and including the settlement date, with changes in fair expected future cash-inflows and the growth rate used value recognised in employee benefits expense. for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different cash- 4. Critical accounting judgements and key sources generating units, including a sensitivity analysis, are further of estimation uncertainty explained in note 17. The Group tests annually whether In the application of the Group’s accounting policies, which goodwill has suffered any impairment. are described in note 3, management is required to make judgements, estimates and assumptions about the carrying Taxation amounts of assets and liabilities that are not readily apparent The Group establishes provisions, based on reasonable from other sources. estimates, for possible consequences of audits by tax authorities of the respective countries in which it operates. The amounts of The estimates and underlying assumptions are reviewed such provisions are based on various factors, such as experience on an ongoing basis. Revisions to accounting estimates are with previous tax audits and differing interpretations of tax recognised in the period in which the estimate is revised if regulations by the taxable entity and the responsible authority. the revision affects only that period, or in the period of the revision and future periods if the revision affects both Management judgement is required to determine the amount current and future periods. of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with The following are the critical judgements (apart from those an assessment of the effect of future tax planning strategies. involving estimations), that management has made in the Further details are included in note 13. process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised Uncertainties exist with respect to the interpretation of in financial statements: complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of Measurement and impairment of indefinite life intangible assets international business relationships and the long-term nature The estimates and associated assumptions are based on and complexity of existing contractual agreements, differences historical experience and other factors that are considered arising between the actual results and the assumptions made, to be relevant. Actual results may differ from these estimates. or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying The Italian tax authorities have an open enquiry in the Italian amounts of assets and liabilities within the next financial subsidiary, Stock S.r.l., covering the years 2006, 2007 and 2008. year are the measurement and impairment of indefinite life Management are confident that adequate provisions are included intangible assets. The measurement of intangible assets other within the Group accounts to cover any future settlement. than goodwill on a business combination involves estimation of future cash flows 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 cash flows and choosing a suitable discount rate (note 17). 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.

94 Stock Spirits Group Annual Report 2013 Transfer pricing 6. Segmental analysis The Group is an international drinks business and, as such, In identifying its operating segments, management follows transfer pricing arrangements are in place to cover the the Group’s geographic split, representing the main products recharging of management and stewardship costs, as well traded by the Group. The Group is considered to have five as the sale of finished goods between Group companies. reportable operating segments: Poland, Czech Republic, Italy, Other Operational and Corporate. The ‘Other Operational’ Fair value measurement of financial instruments segment consists of the results of operations of the Slovakian, When the fair values of financial assets and financial liabilities International and Baltic Distillery entities. The ‘Corporate’ recorded in the statement of financial position cannot be segment consists of expenses and central costs incurred by measured based on quoted prices in active markets, their non-trading Group entities. fair value is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these Each of these operating segments is managed separately as models are taken from observable markets where possible, each of these geographic areas require different marketing but where this is not feasible, a degree of judgement is required approaches. All inter-segment transfers are carried out at arm’s in establishing fair values. Judgements include considerations length prices. The measure of revenue reported to the chief of inputs such as liquidity risk, credit risk and volatility. Changes operating decision-maker to assess performance is based on in assumptions about these factors could affect the reported fair external revenue for each operating segment and excludes value of financial instruments. See note 30 for further disclosures. intra-Group revenues. The measure of adjusted EBITDA reported to the chief operating decision-maker to assess 5. Revenue performance is based on operating profit and excludes An analysis of the Group’s revenue is set out below: intra-Group profits, depreciation, amortisation, exceptional items and non-recurring expenses. 2013 2012 €000 €000 The Group has presented a reconciliation from operating profit Gross revenue from the sale of spirits 980,589 874,930 per the consolidated income statement to adjusted EBITDA below: Other sales 5,649 908 Excise taxes (645,700) (583,393) 2013 2012 €000 €000 Net revenue 340,538 292,445 Operating profit 47,679 85,416 Depreciation and amortisation (note 11) 9,254 9,694 Exceptional items (note 8) 15,088 (27,001) EBITDA before exceptionals 72,021 68,109 Non-recurring expenses (note 7) 11,648 315 Adjusted EBITDA 83,669 68,424

Stock Spirits Group Annual Report 2013 95 Notes to the consolidated financial statements at 31 December 2013, continued

Total assets and liabilities are not disclosed as this information is not provided by segment to the chief operating decision-maker on a regular basis.

Poland Czech Republic Italy Other Operational Corporate Total 2013 €000 €000 €000 €000 €000 €000 External revenue 206,244 63,203 36,688 34,403 – 340,538 US revenue – – – – – – External revenue excluding US 206,244 63,203 36,688 34,403 – 340,538 EBITDA before exceptionals 65,531 17,835 8,058 2,480 (21,883) 72,021 Non-recurring expenses 2,788 410 663 119 7,668 11,648 Adjusted EBITDA 68,319 18,245 8,721 2,599 (14,215) 83,669

Poland Czech Republic Italy Other Operational Corporate Total 2012 €000 €000 €000 €000 €000 €000 External revenue 175,314 54,742 41,624 20,765 – 292,445 US revenue – – (5,005) – – (5,005) External revenue excluding US 175,314 54,742 36,619 20,765 – 287,440 EBITDA before exceptionals 54,129 15,204 11,068 550 (12,842) 68,109 Non-recurring expenses/income 164 (187) (38) (250) 626 315 Adjusted EBITDA 54,293 15,017 11,030 300 (12,216) 68,424 US EBITDA – – (3,847) – – (3,847) Adjusted EBITDA excluding US 54,293 15,017 7,183 300 (12,216) 64,577

96 Stock Spirits Group Annual Report 2013 7. Adjusted EBITDA, adjusted EBIT and free cash flow bridges The Group defines adjusted EBIT as operating profit before exceptional items and non-recurring expenses, and adjusted EBITDA as operating profit before depreciation and amortisation, exceptional items and non-recurring expenses. Adjusted EBIT and adjusted EBITDA are supplemental measures of the Group’s performance and liquidity that are not required to be presented in accordance with IFRS.

2013 2012 €000 €000 Operating profit 47,679 85,416 Exceptional items (note 8) 15,088 (27,001) Non-recurring expenses* 11,648 315

Adjusted EBIT 74,415 58,730

Depreciation and amortisation (note 11) 9,254 9,694

Adjusted EBITDA 83,669 68,424 Adjusted EBITDA margin 24.6% 23.4% * Non-recurring expenses constitute OCM management fee, share-based payments, charges relating to the long-term incentive plan and profits or losses relating to disposals of fixed assets. Following admission to the London Stock Exchange the Group no longer pays management fees to Oaktree. In addition shares of OCM Luxembourg Spirits Holdings S.à.r.l. issued under the share-based payments and commitments to grant options over share of OCM Luxembourg Spirits Holdings S.à.r.l. were exchanged for ordinary shares and options to acquire ordinary shares respectively, upon the corporate reorganisation. The long-term incentive plan which existed prior to admission was amended so that 50% – 70% of accrued awards crystallised upon admission, being paid out in cash, with the remaining balances payable in October 2014. Non-recurring expenses represent the difference between EBITDA before exceptionals and adjusted EBITDA.

The Group defines free cash flow as net cash generated from operating activities (excluding income tax paid, certain exceptional items and their related impact on working capital adjustments), plus net cash used in or generated from investing activities (excluding interest received, net cash paid for acquisitions and net proceeds from the sale of subsidiaries).

2013 2012 €000 €000 Net cash generated from operating activities 115,453 56,387 Income tax paid 10,660 4,328 IPO costs included within cash flow from operating activities 7,100 – Net cash pre investing and financing activities 133,213 60,715 Net cash generated from investing activities (15,503) 39,358 Interest received (1,171) (1,309) Cash flow pre financing activities 116,539 98,764 Proceeds from asset previously classified as held for sale (4,200) – Cash impact of IPO costs included within financing activities 3,663 – Cash impact of non-IPO exceptional items 7,628 7,771 Investments – 9,634 Net proceeds from disposal of US operations and brands – (55,425) Free cash flow 123,630 60,744 Free cash flow as a percentage of adjusted EBITDA 147.8% 88.8% Polish VAT (due to timing of payment) (40,306) – Adjusted free cash flow 83,324 60,744 Adjusted free cash flow as a percentage of adjusted EBITDA 99.6% 88.8%

Stock Spirits Group Annual Report 2013 97 Notes to the consolidated financial statements at 31 December 2013, continued

8. Exceptional items 2013 2012 €000 €000 Restructuring of Italian business(1) (112) 5,802 Costs associated with the IPO(2) 7,100 – Costs associated with potential disposal of the Group by majority shareholder(3) 460 2,972 Refinancing costs(4) 4,091 367 Czech alcohol ban(5) 73 1,006 Impairment of Italian goodwill(6) – 16,500 Restructuring and merger of Slovakian businesses(7) 810 119 Corporate restructuring(8) 1,391 – Other(9) 1,168 1,131 Disposal of US operations and brands(10) 107 (54,898) Total exceptional items 15,088 (27,001) 1. Restructuring costs in respect of the Group’s Italian production, sales, distribution and administrative operations, including a relocation of some functions from Trieste to Milan. The credit for 2013 includes release of accruals previously made for redundancy costs and site restoration which were no longer required, offset by costs associated with the disposal of the property at Trieste, which is classified in the balance sheet as ‘assets held for sale’ as at 31 December 2012. In 2012 these costs were largely tax deductible. 2. Advisory and legal costs including unrecoverable VAT in connection with the IPO. These costs represent the portion of costs incurred which were not capitalised. An additional €3,663,000 of costs were incurred, representing those costs capitalised in relation to the issue of new ordinary shares in Stock Spirits Group PLC, and were therefore directly attributable to the IPO. 3. Advisory and legal costs including unrecoverable VAT in connection with the potential disposal of the Group by the majority shareholder. 4. Legal and advisory costs including unrecoverable VAT in connection with the refinancing of the Group completed in October 2011 and June 2013. See note 23. 5. Costs associated with the relaunch of products following the lifting of the Czech alcohol ban in September and October 2012. 6. Impairment of Italian goodwill as set out in note 17. 7. Reorganisation of the Slovakian businesses, including termination payments and legal costs incurred in relation to the merger of Stock Slovakia s.r.o. and Imperator s.r.o. 8. Legal and advisory costs associated with the restructuring of the Group following completion of the IPO. This includes restructuring of IP arrangements in Poland, representing the internal transfer of trademarks from Stock Wodka Polska S.A. to Stock Polska Sp. z.o.o. 9. 2013 represents reorganisation of the Group’s operations function, including termination payments, outsourcing of sales in Slovenia to a third party distributor and costs associated with the corresponding liquidation of Slovenian entity Stock Trade d.o.o., Ljubljana, costs relating to the acquisition and integration of Baltic Distillery GmbH and a provision for historic unrecoverable VAT in certain of the Group’s subsidiaries. Costs in 2012 include legal and advisory costs associated with the asset purchase of Baltic Distillery GmbH and reorganisation of the UK and International businesses, including termination payments and increases in allowances for doubtful debts. 10. The charge in 2013 relates to the write off of Gran Gala labels and legal costs associated with the disposal of the US operations and brands. 2012 represents the net gain from the disposal in October 2012 of the Gran Gala and Gala Caffe brands as well as the disposal of the US operations relating to Stock Spirits Group USA, Inc. The trading results of this business are included in Group operating profit up to the date of disposal as the activities do not fall within the definition of discontinued activities. Accordingly, the gain on disposal is included in operating profit as an exceptional item as detailed below. This disposal qualified for substantial shareholdings exemption, and consequently was exempt from capital gains tax.

The major categories of historic assets disposed of were:

Year ended 31 December 2012 €’000 Brands 527 Net assets disposed of 527

The net disposal proceeds were:

Year ended 31 December 2012 €’000 Net consideration received 55,425 Net assets disposed of (527) Gain on disposal 54,898

98 Stock Spirits Group Annual Report 2013 9. Finance revenue and costs 2013 2012 €000 €000 Finance revenue: Foreign currency exchange gain – 460 Interest rate swap instruments 676 – Interest income 1,171 1,309 Total finance revenue 1,847 1,769

Finance costs: Interest payable on bank overdrafts and loans 10,506 11,990 Coupon interest on PECs 12,055 19,407 Interest payable on CECs 1,007 1,147 Interest payable on PECs 18,823 20,913 Foreign currency exchange loss 12,602 – Interest rate swap instruments – 714 Bank commissions, guarantees and other payables 2,950 2,556 Other interest expense 263 1,445 Total finance costs 58,206 58,172 Net finance costs 56,359 56,403

10. Staff costs 2013 2012 €000 €000 Wages and salaries 29,628 25,043 Social security costs 4,887 4,615 Other pension costs 1,945 1,667 Termination benefits 669 1,879 Long-term incentive plan (note 26) 1,505 73 Share-based compensation (note 34) 6,740 256 45,374 33,533

Other pension costs relate primarily to the Group’s contributions to defined contribution pension plans. Also included is €250,000 (2012: €264,000) relating to the employee severance indemnity in Italy, which represents an unfunded defined benefit plan. Refer to note 26 for further details.

Average monthly number of employees in the year

2013 2012 No. No. Production and logistics 455 481 Sales 291 251 Other 216 166 962 898

Stock Spirits Group Annual Report 2013 99 Notes to the consolidated financial statements at 31 December 2013, continued

2013 2012 €000 €000 Short-term employee benefits 7,005 6,626 Post-employment benefits 105 19 Long-term incentive plan (note 26) 150 – Share-based compensation (note 34) 6,740 256 Termination benefits – 593 14,000 7,494

Executive and Non-Executive Directors received remuneration for their services to the Company. Please refer to pages 65 to 67 of the Directors’ remuneration report for further details.

11. Operating profit Operating profit for the year has been arrived at after charging:

2013 2012 €000 €000 Costs of goods sold 166,962 149,058 Advertising, promotion and marketing costs 31,138 23,152 Indirect costs of production 9,198 7,492 Logistics costs 5,671 5,617 Operating lease payments 2,735 2,405 Legal and professional fees 3,527 3,112 Tangible and intangible asset disposals 548 688 Net foreign exchange translation gain (419) (559) Depreciation and amortisation – production cost 4,800 5,150 Depreciation and amortisation – selling cost 3,386 2,806 Depreciation and amortisation – administration cost 1,068 1,738 Total depreciation and amortisation 9,254 9,694

100 Stock Spirits Group Annual Report 2013 12. Auditors’ remuneration The Group paid the following amounts to its auditors Ernst & Young LLP and other firms in respect of the audit of the financial statements and for other services provided to the Group: 2013 2012 €000 €000 Fees payable for audit of the Parent and Group financial statements 294 62 Fees payable for local statutory audits for subsidiaries 487 614 Fees payable for audit-related assurance services 70 94 Fees payable for taxation compliance services 231 71 Fees payable for taxation advisory services 1,449 19 Fees payable for corporate finance services 3,596 1,333 Total 6,127 2,193

Included in the analysis above are fees payable to Ernst & Young LLP totalling €667,000 which were included as share issue costs.

Stock Spirits Group Annual Report 2013 101 Notes to the consolidated financial statements at 31 December 2013, continued

13. Income taxes (a) Income tax recognised in profit or loss:

2013 2012 €000 €000 Tax (credit)/expense comprises: Current tax expense 4,565 8,215 Tax expense relating to prior year 2,589 1,167 Deferred tax credit (27,041) (6,530) Other taxes 2,314 – Total tax (credit)/expense (17,573) 2,852 Consolidated statement of OCI Net gain/(loss) on actuarial gains and losses – – Income tax (credited)/charged to OCI (17,573) 2,852

2013 2012 Reconciliation of total tax expense €000 €000 (Loss)/profit before tax (8,680) 29,013 Accounting (loss)/profit multiplied by United Kingdom combined rate of corporation tax of 23.25% (2012 – 24.5%) (2,018) 7,108 Expenses not deductible for tax purposes 8,922 14,556 Income not taxable – (14,980) Effect of difference in tax rates (3,180) (4,982) Impact of post-IPO corporate restructuring (26,200) – Tax charge relating to prior year 2,589 1,168 Other taxes 2,314 – Foreign exchange differences – (18) Total tax (credit)/expense reported in the income statement (17,573) 2,852 Effective tax rate (202.5)% 9.8%

102 Stock Spirits Group Annual Report 2013 Current tax liability:

2013 2012 €000 €000 Tax prepayments as of 1 January 1,629 2,832 Tax liability as of 1 January (8,870) (4,946) Tax charge relating to prior year (2,589) (1,167) Payments in year 10,660 4,328 Current tax expense (4,565) (8,215) Other taxes (2,314) – Provision for historic unrecoverable VAT (810) – Foreign exchange adjustment 141 (73) Net current tax liability (6,718) (7,241)

Analysed as: Tax prepayment 1,795 1,629 Current tax liability (8,513) (8,870) (6,718) (7,241)

Transfer pricing The Group is an international drinks business and, as such, transfer pricing arrangements are in place to cover the recharging of management and stewardship costs, as well as the sale of finished goods between Group companies.

Tax inspection The Italian tax authorities have an open enquiry in the Italian subsidiary, Stock S.r.l., covering the years 2006, 2007 and 2008. Management are confident that adequate provisions are included within the Group accounts to cover any future settlement.

(b) Unrecognised tax losses: The Group has tax losses which arose in the UK, Luxembourg and the Czech Republic of €40,000,000 as at 31 December 2013 (2012: €29,000,000) that are available indefinitely for offset 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 known when the losses will be utilised in the relevant entities.

(c) Temporary differences associated with Group investments: At 31 December 2013, there were €15,696,867 (2012 – €nil) of unprovided deferred tax liabilities in respect of taxable temporary differences in certain Group subsidiaries. The amounts are unprovided as the Group has determined that the payments which would crystallise the tax liability will not be made.

Stock Spirits Group Annual Report 2013 103 Notes to the consolidated financial statements at 31 December 2013, continued

(d) Deferred tax balances: Deferred tax assets and liabilities arise from the following:

Credited Acquisition Translation 1 January 2013 to income (note 35) difference Transfer 31 December 2013 2013 €000 €000 €000 €000 €000 €000 Temporary differences: Brands (52,639) 23,800 – 3,425 – (25,414) Other assets and liabilities (825) 3,241 – 178 – 2,594 (53,464) 27,041 – 3,603 – (22,820)

Deferred tax asset 9,240 19,101 – 1,152 (7,519) 21,974 Deferred tax liability (62,704) 7,940 – 2,451 7,519 (44,794) (53,464) 27,041 – 3,603 – (22,820)

(Charged)/credited Acquisition Translation 1 January 2012 to income (note 35) difference Transfer 31 December 2012 2012 €000 €000 €000 €000 €000 €000 Temporary differences: Brands (48,223) (2,305) (613) (1,498) – (52,639) Other assets and liabilities (9,895) 8,835 (192) 427 – (825) (58,118) 6,530 (805) (1,071) – (53,464)

Deferred tax asset 7,514 1,155 – 571 – 9,240 Deferred tax liability (65,632) 5,375 (805) (1,642) – (62,704) (58,118) 6,530 (805) (1,071) – (53,464)

Corporate restructuring Post-IPO the Group completed corporate restructuring transactions which have given rise to a significant deferred tax asset which will be amortised over a five-year period.

14. Earnings per share Basic earnings per share amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the Parent adjusted for the effect of dilution by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. In this regard the dilutive effect of the convertible equity certificates (CECs) over shares in OCM Luxembourg Spirits Holdings S.à.r.l. has been considered in both 2012 and 2013. However the impact of the CECs is anti-dilutive and has therefore been excluded from the calculation of diluted EPS.

The resulting calculations for basic and diluted EPS for both 2012 and 2013 deliver the same figure to two decimal places.

104 Stock Spirits Group Annual Report 2013 Details of the earnings per share are set out below:

2013 2012 €000 €000 Profit attributable to the equity shareholders of the Company 8,893 26,161 Profit attributable to ordinary equity holders of the Parent adjusted for the effect of dilution 8,893 26,161 No. No. ‘000 ‘000 Weighted average number of ordinary shares for basic EPS 181,944 129,548 Potentially dilutive share options 1,544 – Weighted average number of diluted ordinary shares adjusted for the effect of dilution 183,488 129,548

€ € Basic and diluted earnings per share 0.05 0.20

There have been no other transactions involving ordinary shares between the reporting date and the date of authorisation of these financial statements.

15. Intangible assets – goodwill

2013 2012 €000 €000 Cost: As at 1 January 76,803 75,310 Goodwill arising on acquisition of Imperator (note 35) – 1,480 Net foreign currency exchange differences 63 13 As at 31 December 76,866 76,803

Amortisation: As at 1 January 16,500 – Impairment loss recognised during the year – 16,500 As at 31 December 16,500 16,500 Carrying amount at 31 December 60,366 60,303

Goodwill arising on acquisition of subsidiary in 2012 reflects a purchase price adjustment on this acquisition of €360,000 in 2013. See note 35.

During 2012, the impairment assessment resulted in an impairment charge of €16,500,000 relating to the Italian CGU. See note 17 for further details.

Stock Spirits Group Annual Report 2013 105 Notes to the consolidated financial statements at 31 December 2013, continued

16. Intangible assets – other Agency contracts, Brands customer lists, patents Other Total 2013 €000 €000 €000 €000 Cost: As at 1 January 2013 305,353 17,771 897 324,021 Additions – 1,352 111 1,463 Disposals – (6) (51) (57) Transfers (504) 659 (155) – Net foreign currency exchange differences (18,595) (177) (7) (18,779) As at 31 December 2013 286,254 19,599 795 306,648

Amortisation: As at 1 January 2013 – 10,527 492 11,019 Amortisation expense – 1,691 6 1,697 Disposals – – – – Net foreign currency exchange differences – 63 – 63 As at 31 December 2013 – 12,281 498 12,779 Carrying amount As at 31 December 2013 286,254 7,318 297 293,869

Agency contracts, Brands customer lists, patents Other Total 2012 €000 €000 €000 €000 Cost: As at 1 January 2012 292,898 14,905 801 308,604 Additions – 1,265 90 1,355 Acquisition of subsidiary (note 35) 3,228 1,052 – 4,280 Asset purchase – Baltic Distillery GmbH – – 4 4 Disposal of US operation and brands (note 8) (527) – – (527) Net foreign currency exchange differences 9,754 549 2 10,305 As at 31 December 2012 305,353 17,771 897 324,021

Amortisation: As at 1 January 2012 – 8,586 488 9,074 Amortisation expense – 1,915 4 1,919 Net foreign currency exchange differences – 26 – 26 As at 31 December 2012 – 10,527 492 11,019 Carrying amount As at 31 December 2012 305,353 7,244 405 313,002

106 Stock Spirits Group Annual Report 2013 Brands are not amortised, as it is considered that their useful economic lives are not limited. An annual impairment assessment is performed to ensure carrying values are recoverable. Agency contracts, customer lists and patents are amortised over a period of between two and 15 years.

The gross carrying value of fully amortised intangible assets that are still in use is €1,916,000 (2012: €1,944,000).

For all classes of intangible assets amortisation is included within selling expenses in the consolidated income statement.

17. Impairment of goodwill and intangibles with indefinite lives Goodwill acquired through business combinations and brands have been allocated for impairment testing purposes to three cash-generating units (CGU) based on the geographical location of production plants and the ownership of intellectual property. This represents the lowest level within the Group at which goodwill and brands are monitored for internal management purposes.

Czech Republic Italy Poland Total €000 €000 €000 €000 31 December 2013 Carrying amount of brands 191,094 49,745 45,415 286,254 Carrying amount of goodwill 35,522 22,632 2,212 60,366 Value in use headroom 27,249 15,813 674,490 717,552

Czech Republic Italy Poland Total €000 €000 €000 €000 31 December 2012 Carrying amount of brands 208,691 50,572 46,090 305,353 Carrying amount of goodwill 35,479 22,632 2,192 60,303 Value in use headroom 26,517 – 465,559 492,076

Impairment review Under IAS 36 the Group is required to complete a full impairment review of intangible assets using a value-in-use (VIU) calculation based upon DCF models. During the year ended 31 December 2013 the goodwill and brands in the Czech Region, Italy Region and Poland Region were subject to impairment review.

(i) Czech Region The recoverable amount of the Czech Region unit has been determined based on a value-in-use calculation using cash flow projections from the five-year planning process approved by senior management. The pre-tax discount rate applied to cash flow projections is 11.4% (2012: 11.1%) and cash flows beyond the five-year period are extrapolated using a 2.5% (2012: 3.0%) growth rate.

The following sensitivity analysis shows the impact on VIU headroom of different pre-tax weighted average cost of capital rates (WACC) and EBITDA delivery in the cash flow projections used in the impairment review models.

WACC 10.5% 11.0% 11.4% 12.0% 12.5% EBITDA delivery €000 €000 €000 €000 €000 –10% 26.5 11.8 2.0 (12.9) (23.5) –5% 40.5 25.0 14.6 (1.2) (12.3) 0% 54.5 38.2 27.2 10.6 (1.1) 5% 68.5 51.3 39.9 22.4 10.1 10% 82.5 64.5 52.5 34.2 21.4

Stock Spirits Group Annual Report 2013 107 Notes to the consolidated financial statements at 31 December 2013, continued

(ii) Italy Region The recoverable amount of the Italy Region unit was determined based on a value-in-use calculation using cash flow projections from the five-year planning process approved by senior management. The pre-tax discount rate applied to cash flow projections is 12.9% (2012: 13.7%) and cash flows beyond the five-year period are extrapolated using a 2.5% (2012: 2.5%) growth rate.

During 2012 the value-in-use calculation performed for the Italian CGU resulted in an impairment of €16,500,000 which has been booked. The impairment occurred as a result of the disposal of the Italian Gran Gala brand combined with an increased WACC rate used in the value-in-use calculation.

The following sensitivity analysis shows the impact on VIU headroom of different pre-tax weighted average cost of capital rates and EBITDA delivery in the cash flow projections used in the impairment review models.

WACC 12.0% 12.5% 12.9% 13.5% 14.0% EBITDA delivery €000 €000 €000 €000 €000 –10% 13.8 9.7 7.0 2.6 (0.5) –5% 18.6 14.3 11.4 6.7 3.5 0% 23.4 18.8 15.8 10.9 7.5 5% 28.2 23.4 20.2 15.1 11.5 10% 33.0 28.0 24.6 19.3 15.5

(iii) Poland Region The recoverable amount of the Poland Region unit has been determined based on a value-in-use calculation using cash flow projections from the five-year planning process approved by senior management. The pre-tax discount rate applied to cash flow projections is 11.5% (2012: 13.7%) and cash flows beyond the five-year period are extrapolated using a 2.5% (2012: 2.5%) growth rate.

WACC 10.5% 11.0% 11.5% 12.0% 12.5% EBITDA delivery €000 €000 €000 €000 €000 –10% 683.2 634.4 591.9 552.4 517.5 –5% 729.5 678.1 633.2 591.4 554.6 0% 775.9 721.7 674.5 630.5 591.8 5% 822.2 765.4 715.8 669.6 628.9 10% 868.6 809.0 757.0 708.7 666.1

Key assumptions used in the value-in-use calculations 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 historic data • Growth in spirits market – assumed to be static or slightly declining in all markets based on recent historic 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 regional factors • Raw material cost –assumed to be at industry average of sales price • Excise duty – no future duty changes have been used in projections • Growth rate used to extrapolate cash flows beyond the forecast period.

The value-in-use headroom for each cash-generating unit where these sensitivities would be applicable has been detailed above. Management believes that no reasonable change in the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable value.

108 Stock Spirits Group Annual Report 2013 18. Property, plant and equipment Technical Other Assets under Land and buildings equipment equipment construction Total 2013 €000 €000 €000 €000 €000 Cost: As at 1 January 2013 32,563 35,986 4,085 6,432 79,066 Additions 521 5,378 13,216 296 19,411 Disposals (60) (1,211) (1,221) (3) (2,495) Foreign currency adjustment (1,242) (402) (54) (187) (1,885) As at 31 December 2013 31,782 39,751 16,026 6,538 94,097

Depreciation: As at 1 January 2013 6,954 12,307 2,290 – 21,551 Depreciation expense 932 4,854 1,771 – 7,557 Disposals (57) (988) (959) – (2,004) Foreign currency adjustment 333 61 160 – 554 As at 31 December 2013 8,162 16,234 3,262 – 27,658 Carrying amount: As at 31 December 2013 23,620 23,517 12,764 6,538 66,439

Technical Other Assets under Land and buildings equipment equipment construction Total 2012 €000 €000 €000 €000 €000 Cost: As at 1 January 2012 35,777 34,943 4,752 3,079 78,551 Additions 567 2,021 690 3,113 6,391 Acquisition of subsidiary (note 35) 704 267 86 3 1,060 Asset purchase – Baltic Distillery 884 2,658 17 – 3,559 Disposals (71) (4,248) (1,497) – (5,816) Assets reclassified as held for sale (6,180) (883) – – (7,063) Foreign currency adjustment 882 1,228 37 237 2,384 As at 31 December 2012 32,563 35,986 4,085 6,432 79,066

Depreciation: As at 1 January 2012 6,601 11,412 2,831 – 20,844 Depreciation expense 1,735 5,150 890 – 7,775 Disposals (55) (3,774) (1,299) – (5,128) Impairment (note 22) 1,386 169 – – 1,555 Assets reclassified as held for sale (2,552) (311) – – (2,863) Foreign currency adjustment (161) (339) (132) – (632) As at 31 December 2012 6,954 12,307 2,290 – 21,551 Carrying amount: As at 31 December 2012 25,609 23,679 1,795 6,432 57,515

The net book value of assets held under finance leases amounts to €430,000 (2012: €539,000).

The gross carrying value of fully depreciated property, plant and equipment that is still in use is €14,862,000 (2012: €12,887,000).

Stock Spirits Group Annual Report 2013 109 Notes to the consolidated financial statements at 31 December 2013, continued

19. Inventories

31 December 2013 31 December 2012 €000 €000 Raw materials 7,073 7,786 Work in progress 2,568 3,526 Finished goods and merchandise 19,468 20,338 Provision for obsolescence (2,165) (824) 26,944 30,826

During the year ended 31 December 2013, inventories with a total value of €2,877,000 (2012: €1,370,000) were written off. All write-offs were incurred as part of normal activities.

20. Trade and other receivables

2013 2012 €000 €000 Trade receivables 135,051 122,222 Allowance for doubtful debts (2,677) (7,173) 132,374 115,049 Other debtors and prepayments 34,402 14,673 166,776 129,722

Out of the carrying amount of trade receivables of €132,374,000 (2012: €115,049,000), no amount is due from related parties (2012: €882,000). Out of the carrying value of other debtors and prepayments of €34,402,000 (2012: 14,673,000), no amount is due from related parties (2012: €1,246,000).

110 Stock Spirits Group Annual Report 2013 The movement on the allowance for doubtful debts is set out below.

2013 2012 €000 €000 As at start of year (7,173) (6,212) Charge for the year (403) (1,064) Amounts utilised 4,831 471 Foreign currency adjustment 68 (368) As at end of year (2,677) (7,173)

Sale of receivables under non-recourse factoring The Group via Stock Polska Sp. z.o.o. has entered into two non-recourse receivables financing with BRE Faktoring (formerly: Polfactor), a part of Commerzbank, and Coface, supported by Natixis Bank. It may sell up to €17,349,000 (PLN 72,000,000) and €33,735,000 (PLN 140,000,000) with each party respectively (at any one time) at face value less certain reserves and fees. As at 31 December 2013 BRE Faktoring charge interest on the drawn amounts of WIBOR 1M + 1.3% and a fee per invoice of 0.175%. Coface charge interest on the drawn amounts of WIBOR 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 capital purposes of the Group. Pursuant to the ING Credit Facility the total amount of receivables subject to a factoring facility may not in aggregate exceed €40,000,000.

Trade receivables are denominated in the following currencies:

2013 2012 €000 €000 Polish Złoty 96,817 75,821 Euro 19,516 21,942 US Dollar 119 390 Czech Koruna 12,295 12,946 Other currencies 3,627 3,950 132,374 115,049

As at 31 December, the analysis of trade receivables that were past due but not impaired is as follows:

2013 2012 €000 €000 Overdue 0 –30 days 12,338 13,050 Overdue more than 30 days 1,640 3,495 13,978 16,545

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.

Information about major customers: Annual revenue from one customer in the Poland segment totalled more than 10% of total Group revenue. In 2013 revenue from this customer amounted to €51,681,000 (2012: €46,761,000).

Stock Spirits Group Annual Report 2013 111 Notes to the consolidated financial statements at 31 December 2013, continued

21. Other assets

Current Non-current Current Non-current 2013 2013 2012 2012 €000 €000 €000 €000 Customs guarantees 1 4,467 7 8,916 Capitalised transfer taxes – – 243 910 Total 1 4,467 250 9,826

Customs guarantees are lodged with local Customs and Excise authorities and represent assets belonging to the Group. The guarantees are to provide comfort to local Customs and Excise authorities that liabilities will be settled.

Transfer taxes were incurred in Poland as part of the refinancing undertaken by the Group during 2011. An appeal was launched to recover the transfer taxes from Polish tax authorities, and in 2013 these were received in full.

22. Assets classified as held for sale During 2012 the Trieste manufacturing facility in Italy was closed, with production being transferred to the Group’s manufacturing facilities in the Czech Republic. Following this closure the site was made available for sale, and was written down to €4,200,000, representing the fair value less costs to sell. Additionally an impairment of €1,555,000 was made for assets that had previously been held a fair value but which were disposed of or scrapped as part of the closure of the site.

In July 2013 the Trieste manufacturing facility was sold for €4,200,000.

23. Financial liabilities

Current Non-current Current Non-current 2013 2013 2012 2012 €000 €000 €000 €000 Secured – at amortised cost ING loan1 6,893 168,556 9,323 160,076 Cost of arranging bank loan2 (1,052) (5,281) (1,223) (4,154) Interest payable – – 19 – Total 5,841 163,275 8,119 155,922 1. At 31 December 2012 the facility consisted of 2 variable rate loans Term Loan A (TLA) and Term Loan B (TLB) and a Revolving Credit Facility (RCF) with a banking club consisting of 9 banks including ING who also acted as the agent. On 24 June 2013 the Group signed an Amended and Restated Agreement (ARA) with the banking club. The ARA added a new Term Loan C (TLC) of €70,000,000 and increased the size of the RCF, as well as extending the maturity dates of TLA and TLB. Each of the term loans have been drawn down in multiple tranches in the local currencies of the drawers. 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. Please refer to the table below for the balances drawn down for the various tranches. Each of the loans has 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. The principal value of TLA is €68,000,000 and is an amortising loan with payments being made over the period to the maturity date of 2019 (2012:2017). The principal value of TLB is €102,000,000 and is a non-amortising loan, with full payment being made at the maturity date of 2020 (2012:2018). TLC is an amortising loan with a maturity date of 2020. The maturity dates of both TLA and TLB were extended by two years as part of the ARA signed in June 2013. The Group also has an RCF facility which allows the drawdown of up to €70,000,000 (2012: €50,000,000) of funds to assist with working capital requirements and to provide funding for acquisitions. As at 31 December 2013 €8,624,000 (2012: €6,300,000) of the RCF was utilised for customs guarantees in Italy and Germany. In December 2013 voluntary repayments were made for TLA, TLB and TLC totalling €51,600,000, thereby utilising the net proceeds from the primary issue of shares. 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.

112 Stock Spirits Group Annual Report 2013 The following table shows the distribution of loan principal balances as at 31 December 2013 in Euros.

Term loan Term loan Term loan Total A B C €000 €000 €000 €000 Poland 32,823 26,415 42,428 101,666 Czech Republic 11,692 42,341 – 54,033 Italy – 7,753 – 7,753 Imperator – – 6,590 6,590 Baltic Distillery – – 5,407 5,407 44,515 76,509 54,425 175,449

– Current 5,829 – 1,064 6,893 – Non-current 38,686 76,509 53,361 168,556

In 2011 the Group contracted to hedge 67% of interest payments, relating to the Czech Republic and Italian TLA and TLB balances with 2 interest rate swaps exchanging variable interest for fixed. There is also an interest rate cap relating to the Polish TLA and TLB balances. Refer to note 30 for more details. The interest payments relating to TLC are unhedged. These hedging arrangements expire in September 2014.

The security given in favour of the banking club as at 31 December 2013 consists primarily of security over the shares and assets in each of Stock S.r.l., Stock Plzen Bozkov s.r.o., Stock Polska Sp. z.o.o., Baltic Distillery GmbH and Imperator s.r.o.

The Transaction Security given in favour of the banking club as at 31 December 2013 consists primarily of pledges, assignments and charges over the shares, receivables, bank accounts, intellectual property rights, trademarks, assets (movable and immovable) and mortgage over properties, in all of or each of Stock Spirits Group Luxembourg Holdings S.à.r.l., Stock Spirits Group Limited, Stock S.r.l., Stock Plzen Bozkov s.r.o., Stock Polska Sp. z.o.o., Wodka Polska Sp. z.o.o., F.lli Galli, Camis & Stock A.G., Baltic Distillery GmbH and Imperator s.r.o.

24. Loans from shareholder

Current Non-Current Current Non-Current 2013 2013 2012 2012 €000 €000 €000 €000 Unsecured – at amortised cost PECsi 215 – 243,855 – CECsii – – 20,785 – 215 – 264,640 – i. PECs: Preferred Equity Certificate. In November 2006, July 2007, March 2008 and June 2010, OCM Luxembourg Spirits Holdings S.à.r.l. issued Preferred Equity Certificates totalling €172,037,029. These were redeemable after 49 years from the date of issue, if not previously redeemed by the holder. The PECs were not secured and carried interest at rates between 6% and 8.375%. In April 2013 OCM Luxembourg Spirits Holdings S.à.r.l. redeemed a portion of PECs totalling €80,000,000. In August 2013 OCM Luxembourg Spirits Holdings S.à.r.l. redeemed additional PECs totalling €82,185,000. The payment on redemption was made to PEC Holders. These repayments were permitted distributions under the Group’s ING loan facility and no events of default in relation to borrowing covenants have or will occur as a result of this transaction. Immediately prior to admission to the London Stock Exchange in October 2013 the residual PEC payable balance, including accrued interest, were redeemed to 40,457,392 ordinary shares in Stock Spirits Group PLC. As at year end the PEC payable balance was fully paid with the exception of €215,000. This has subsequently been settled in full in March 2014. ii. CECs: Convertible Equity Certificate. In November 2006, January 2008 and March 2008 OCM Luxembourg Spirits Holdings S.à.r.l. issued Convertible Equity Certificates totalling €21,778,258. These were redeemable after 51 years from the date of issue, if not previously converted or redeemed by the holder. The CECs were not secured and did not carry interest. CECs are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated using the prevailing market interest rate for similar non convertible debt. The difference between the proceeds of the issue of the CECs and the fair value assigned to the liability component, representing the option to convert the liability into the equity of OCM Luxembourg Spirits Holdings S.à.r.l., was included in equity. The fair value of the convertible equity certificates was calculated using a useful life of 7 years. Immediately prior to admission to the London Stock Exchange in October 2013 the CEC payable was redeemed to 7,850,067 ordinary shares in Stock Spirits Group PLC. As at year end the CEC payable balance was €nil.

Stock Spirits Group Annual Report 2013 113 Notes to the consolidated financial statements at 31 December 2013, continued

Other fnancial liabilities .25 Current Non-current Current Non-current 2013 2013 2012 2012 €000 €000 €000 €000 Finance leases 214 229 242 220 Derivative financial instruments 498 – – 1,228 712 229 242 1,448

26. Provisions Employee Severance Other Legal and contract benefits indemnity provisions related provisions Total 2013 €000 €000 €000 €000 €000 As at 1 January 2013 3,317 330 1,407 350 5,404 Arising during the year 1,505 250 976 302 3,033 Utilised (1,814) (362) (1,504) (162) (3,842) Transfer – – 200 (200) – Net foreign currency exchange differences 94 – (26) – 68 As at 31 December 2013 3,102 218 1,053 290 4,663

– Current 3,102 – 185 290 3,577 – Non-current – 218 868 – 1,086

2012 As at 1 January 2012 3,642 642 902 880 6,066 Arising during the year 650 264 818 – 1,732 Utilised (1,022) (590) (398) (530) (2,540) Net foreign currency exchange differences 47 14 85 – 146 –As at 31 December 2012 3,317 330 1,407 350 5,404

– Current – – 109 – 109 – Non-current 3,317 330 1,298 350 5,295 i. The provision for employee benefits represents expenses recognised in relation to a long-term incentive plan (LTIP) operated by the Group and accounted for under IAS 19 (Revised) Employee Benefits. The long-term incentive plan which existed prior to admission was amended so that 50% – 70% of accrued awards crystallised upon admission, being paid out in cash, with the remaining balances due being payable in October 2014. 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. The most recent actuarial valuations of the present value of the severance indemnity obligation were carried out at 31 December 2013 by an actuary. 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 3.85% p.a. (2012: 3.50% p.a.), inflation rate 2.0% p.a. (2012: 2.0% p.a.), revaluation rate 75% of inflation rate + 1.5 points = 1.67% p.a. (2012: 3.23% p.a.)

114 Stock Spirits Group Annual Report 2013 The amounts recognised in the consolidated statement of financial position are as follows:

2013 2012 €000 €000 Defined benefit obligation 1 January 330 642 Interest cost 5 9 Benefits paid (129) (364) Other (57) 64 Defined benefit obligation 149 351 Other 69 (21) Non-current provision 218 330 iii. Other provisions relate primarily to retirement benefits, sales agents indemnity fees and other various miscellaneous provisions. iv. Legal and contract related provisions relate to exposures for potential contractual penalties arising in the normal course of business.

27. Indirect tax payable 2013 2012 €000 €000 Excise taxes 95,622 58,244 VAT 54,288 16,742 149,910 74,986

28. Trade and other payables 2013 2012 €000 €000 Trade payables 37,126 32,723 Accruals 31,166 23,087 Social security and staff welfare costs 2,461 1,222 Other payables 3,264 1,712 74,017 58,744

29. Authorised and issued share capital and reserves Prior to the reorganisation implemented by way of the share exchange offer made by the Company for the shares of OCM Luxembourg Spirits Holdings S.à.r.l. on 21 October 2013, the share capital of the Group comprised the share capital of OCM Luxembourg Spirits Holdings S.à.r.l.

Share capital of OCM Luxembourg Spirits Holdings S.à.r.l.

Total A B C E F G A1 Number of Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary shares Nominal value Allotted, called up and fully paid €25 €25 €25 €25 €25 €25 €25 – At 1 January 2013 5,800 205 128 157 831 80 3,945 11,146 Redeemed in year – – – – (16) – – (16) At 25 October 2013 5,800 205 128 157 815 80 3,945 11,130

The total nominal value of shares in OCM Luxembourg Spirits Holdings S.à.r.l. as at 21 October 2013 was €278,250 (2012: €278,650).

Stock Spirits Group Annual Report 2013 115 Notes to the consolidated financial statements at 31 December 2013, continued

Share capital of Stock Spirits Group PLC

Number of shares 2013 2012 Ordinary shares of £0.10 each, issued and fully paid 200,000,000 129,064,871

In 2013, following the decision by the Board of Directors, the Group was listed on the Premium Listing segment of the Official List of the UK Listing Authority and trading on the main market of the London Stock Exchange. Following a reorganisation implemented by way of the share exchange offer made by the Company for the shares of OCM Luxembourg Spirits Holdings S.à.r.l. on 21 October 2013, the Company became a new parent entity of OCM Luxembourg Spirits Holdings S.à.r.l.

On 21 October 2013 129,064,871 shares were issued for shares in OCM Luxembourg Spirits Holdings S.à.r.l. These shares have a nominal value of £0.10 each. Following the date OCM Luxembourg Spirits Holdings S.à.r.l. became a wholly-owned subsidiary of Stock Spirits Group PLC.

As the Group has been formed through a reorganisation in which Stock Spirits Group PLC became a new parent entity of the Group these consolidated financial statements have been prepared as a continuation of the existing Group using the pooling of interests method (or merger accounting).

The movements in called up share capital and share premium accounts are set out below:

Number of ordinary shares Ordinary shares Share premium €’000 €’000 At 31 December 2012 129,064,871 15,246 –

At 21 October 2013 Issue of shares by Stock Spirits Group PLC on incorporation 500,010 59 – Issue of shares to OCM and management in exchange for convertible and preferred equity certificates 48,307,459 5,706 128,392

At 25 October 2013 Primary issue of shares on admission to the London Stock Exchange 22,127,660 2,614 58,812 Share issue costs (3,663) At 31 December 2013 200,000,000 23,625 183,541

Stock Spirits Group PLC was incorporated on 12 September 2013, issuing 1 ordinary share of £1 to OCM Luxembourg POF IV S.à.r.l. On 2 October 2013 the Company issued 50,000 non-voting redeemable preference shares of £1 to OCM Luxembourg POF IV S.à.r.l. On 21 October these shares were sub-divided into 500,010 £0.10 shares. Also on 21 October 2013 the Company issued 48,307,459 shares in exchange for PECs and CECs held by Oaktree Capital Management and current and former members of management.

On 25 October 2013 the Company was admitted to the London Stock Exchange under conditional trading and placed 22,127,660 ordinary £0.10 shares at a premium of £2.25 pence per share.

All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders’ meetings.

116 Stock Spirits Group Annual Report 2013 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 €116,045,000, which resulted in €100,799,000 being credited to the merger reserve in line with merger relief provided by Section 612 of the Company Act 2006. The shares issued have a nominal value of £0.10 each. Following the date OCM Luxembourg Spirits Holdings S.à.r.l. became a wholly-owned subsidiary of Stock Spirits Group PLC.

Consolidation Reserve As the Group has been formed through a reorganisation in which Stock Spirits Group PLC became a new parent entity of the Group these consolidated financial statements have been prepared as a continuation of the existing Group using the pooling of interests method (or merger accounting). Merger accounting principles for this combination have given rise to a consolidation reserve of €5,130,000.

Other reserves Other reserves includes the credit to equity for equity-settled share-based payments. Please see note 34 for full details. The charge for the period ending 31 December 2013 was €6,740,000.

Jointly owned equity scheme The business has entered into a number of Jointly Owned Equity (JOE) Share Subscription Agreements with key members of Group staff.

Non-controlling interests Non-controlling interests in 2012 represent the equity component of PECs and CECs. This relates to payables which are due to Oaktree Capital Management by OCM Luxembourg Spirits Holdings S.à.r.l., and are not instruments which have been issued by Stock Spirits Group PLC. As such they are deemed to be non-controlling interests in the opening reserves of Stock Spirits Group PLC.

Immediately prior to the Group listing on the London Stock Exchange PECs and CECs were acquired from Oaktree, with shares being issued in exchange. The amount included in non-controlling interests in 2012 represented the element of PECs and CECs which under IFRS was disclosed as equity. Following the share exchange this amount was reclassified to retained earnings.

Also included in non-controlling interests in 2012 is the share-based compensation reserve. This represents an arrangement between key management personnel and OCM Luxembourg Spirits Holdings S.à.r.l. They are considered to be non-controlling interests as this is an equity interest in a subsidiary of the Group rather than with Stock Spirits Group PLC.

In 2013 this amount has been reclassified to Other reserves as these options have been converted into options over Stock Spirits Group PLC shares. Please see note 34 for full details of share-based compensation.

Foreign currency translation reserve 2013 2012 €000 €000 Foreign currency translation reserve 15,239 16,929

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.

Stock Spirits Group Annual Report 2013 117 Notes to the consolidated financial statements at 31 December 2013, continued

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.

The Group’s senior management oversees the management of these risks, and agrees the policies for managing each of these risks. These are summarised below.

Derivative financial instruments In 2011 the Group entered into derivative financial instruments to manage its exposure to interest rate risk, with the instrument continuing until 30 September 2014. There were no new derivative financial instruments entered into the years ended 31 December 2013 and 31 December 2012.

Market risk Market risk is the risk that the fair value of future cash flows 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 and derivative financial instruments.

In 2011 the Group entered into derivative financial instruments for a 3 year period to manage its exposure to interest rate risk. Under the ING loan facility agreement (see note 23) the Group is required to hedge 67% of the variable interest charge which is based upon WIBOR, PRIBOR and EURIBOR in Poland, Czech Republic and Italy respectively.

As at 31 December 2013 the Group had an interest rate swap to hedge 67% of its exposure to interest rate risk in relation to the ING loan facility borrowed by the Czech subsidiary Stock Plzen Bozkov s.r.o. This swaps variable interest based upon PRIBOR for a fixed interest rate of 1.375%. As at 31 December 2013 the derivative had a fair value liability of €358,000 (2012: €909,000).

As at 31 December 2013 the Group had an interest rate swap to hedge 67% of its exposure to interest rate risk in relation to the ING loan facility borrowed by the Italian subsidiary Stock S.r.l. This swaps variable interest based upon EURIBOR for a fixed interest rate of 1.435%. As at 31 December 2013 the derivative had a fair value liability of €58,000 (2012: €144,000).

As at 31 December 2013 the Group had an interest rate cap to hedge 67% of its exposure to interest rate risk in relation to the ING facility borrowed by the Polish subsidiary Stock Polska Sp. z.o.o. This caps the variable interest rate based upon WIBOR to 5.5%. As at 31 December 2013 the derivative had a fair value liability of €82,000 (2012: €175,000).

The Group has entered into no derivatives to hedge foreign currency risk in relation to the ING facility. Each facility and the resulting cash outflows are denominated in local currency. The cash flows are therefore economically hedged within each market. Management have considered the foreign currency risk exposure and consider the risk to be adequately mitigated.

Sensitivity analysis The Company recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might affect the value of its derivatives and also the amounts recorded in its equity and its profit and loss for the period. Therefore the Company has assessed: (a) What would be reasonably possible changes in the risk variables at the end of the reporting period (b) The effects on profit or loss and equity if such changes in the risk variables were to occur.

118 Stock Spirits Group Annual Report 2013 Interest rate risk The following table demonstrates the sensitivity to a reasonable change in interest rates on the Group’s floating rate loans and borrowings at which at the end of 31 December 2013 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/(loss) before tax Increase in basis points €’000 31 December 2013 Euro –50/+50 99/(99) Polish Złoty –50/+50 508/(508) Czech Koruna –50/+50 270/(270)

31 December 2012 Euro –50/+50 50/(50) Polish Złoty –50/+50 409/(409) Czech Koruna –50/+50 388/(388)

The assigned movement in basis points for interest rate sensitivity analysis is based upon the currently observable market environment.

The above analysis is calculated excluding the impact of the interest rate hedges. Refer to the detail included on market risk for further information.

The Group cash balances are held in current bank financial statements and earn immaterial levels of interest. Management have concluded that any changes in the EURIBOR 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 of several changes to the spot €/CZK, €/PLN, €/GBP and €/USD exchange rates of +/– 5%. If these changes were to occur the tables below reflect the impact on profit before tax. Only the impact of changes in the Czech Koruna, Polish Złoty, Sterling and US Dollar denominated balances have been considered as these are the most significant non- Euro denominations used by the Group.

Change in EUR vs. USD/GBP/PLN rate 2013 2012 EUR – PLN + 5% 256 88 – 5% (283) (98)

USD – PLN + 5% (5) (36) – 5% 6 40

GBP – PLN + 5% 1 – – 5% (2) –

EUR – CZK + 5% 124 (8) – 5% (137) 9

GBP – CZK + 5% 1 – – 5% (1) –

Stock Spirits Group Annual Report 2013 119 Notes to the consolidated financial statements at 31 December 2013, continued

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.

Trade receivables Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored and credit insurance is used where applicable. 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 the age of accounts receivable which are past due.

The carrying amount of accounts receivable is reduced by an allowance account 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 accounts. Subsequent recoveries of amounts previously written off are credited to the consolidated income statement. Refer to note 20 for details the movement in allowance for doubtful debts.

Management does not believe that the Group is subject to any significant credit risk in view of the Group’s large and diversified client base which is located in several jurisdictions.

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 considered to be minimal and therefore no further analysis has been performed.

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 loss to be remote. The Group’s maximum exposure to credit risk for the components of the statement of financial position at 31 December 2013 and 31 December 2012 is the carrying amounts as illustrated in notes 23 and 32. The Group’s maximum exposure for financial guarantees and financial derivative instruments are noted in either note 25 or in the liquidity table above, respectively.

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 cash flows and matching the maturity profiles of financial assets and liabilities.

The table on page 121 summarises the maturity profile of the Group’s undiscounted financial liabilities at 31 December 2013 and 2012.

120 Stock Spirits Group Annual Report 2013 As at 31 December 2013 Less than Between two More than one year and five years five years Total Financial liabilities €000 €000 €000 €000 Interest bearing loans and borrowings 7,108 38,304 130,252 175,664 Interest payable on interest bearing loans 11,267 35,173 9,715 56,155 Derivative financial instruments (note 25) 498 – – 498 Other financial liabilities (note 25) 214 229 – 443 Trade and other payables (note 28) 71,556 – – 71,556 90,643 73,706 139,967 304,316 As at 31 December 2012 Between two Less than one year and five years More than five years Total Financial liabilities €000 €000 €000 €000 Interest bearing loans and borrowings 273,980 55,938 104,140 434,058 Interest payable on interest bearing loans 9,821 19,905 875 30,601 Derivative financial instruments (note 25) – 1,228 – 1,228 Other financial liabilities (note 25) 242 220 – 462 Trade and other payables (note 28) 57,522 – – 57,522 341,565 77,291 105,015 523,871

The Group has a further €61,376,000 of undrawn facilities available to it under the terms of RCF. Refer to note 23.

Fair values of financial assets and financial liabilities Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments that are carried in the financial statements.

As at 31 December 2013 Cash and receivables Derivatives Amortised cost Total book value Fair value €000 €000 €000 €000 €000 Financial assets: Cash 129,610 – – 129,610 129,610 Trade and other receivables 166,776 – – 166,776 166,776 Financial liabilities: Interest-bearing loans and borrowings: (i) Finance lease obligations – – (443) (443) (443) (ii) Floating rate borrowings – banks – – (169,116) (169,116) (169,116) Derivative financial instruments – Interest rate swaps and cap (*) – (498) – (498) (498) Trade and other payables – – (71,556) (71,556) (71,556)

Stock Spirits Group Annual Report 2013 121 Notes to the consolidated financial statements at 31 December 2013, continued

As at 31 December 2012 Cash and receivables Derivatives Amortised cost Total book value Fair value €000 €000 €000 €000 €000 Financial assets: Cash 138,718 – – 138,718 138,718 Trade and other receivables 129,722 – – 129,722 129,722 Financial liabilities: Interest-bearing loans and borrowings: (i) Finance lease obligations – – (462) (462) (462) (ii) Floating rate borrowings – banks – – (164,041) (164,041) (164,041) (iii) Fixed rate borrowings – – (264,640) (264,640) (264,640) Derivative financial instruments – Interest rate swaps and cap (*) – (1,228) – (1,228) (1,228) Trade and other payables – – (57,522) (57,522) (57,522) * The fair value of the interest rate swaps was determined with reference to the fixed rate to the date of maturity for all outstanding interest rate swaps at period end.

Capital risk management The primary objective of the Group’s capital management is to ensure that it has the capital required to operate and grow the business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital structure to ensure it meets changing business needs. The Group defines its capital as its share capital, share premium account, merger reserve, consolidation reserve, other reserves and retained earnings. In addition, the Directors consider the management of debt to be an important element in controlling the capital structure of the Group. The Group may carry significant levels of long term structural and subordinated debt to fund investments and acquisitions and has arranged debt facilities to allow for fluctuations in working capital requirements. There have been no changes to the capital requirements in the current period.

Management manage capital on an ongoing basis to ensure that covenants requirements on the third party debt are met.

As mentioned above the Board periodically monitor the capital structure of the Group. The table below details the net capital structure at the relevant balance sheet dates.

2013 2012 €000 €000 Cash and cash equivalents 129,610 138,718 Interest payable (note 23) – (19) Floating rate loans and borrowings (note 23) (175,449) (169,399) Finance leases (note 25) (443) (462) Total net debt (46,282) (31,162)

Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: • Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities • Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly • Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

122 Stock Spirits Group Annual Report 2013 Carrying value Fair value Level 1 Level 2 Level 3 31 December 2013 31 December 2013 €000 €000 €000 €000 €000 Liabilities measured at fair value Interest rate swaps and cap – 498 – 498 498

Carrying value Fair value 31 December 2012 31 December 2012 €000 €000 Liabilities measured at fair value Interest rate swaps and cap – 1,228 – 1,228 1,228

Interest rate swaps and cap were remeasured to fair value at 31 December 2013.

There have been no transfers between Level 1 and Level 2 during the period.

Fair value Management assessed that cash and cash equivalents, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

As per the table above the carrying amounts of the Group’s financial instruments are considered to be a reasonable approximation of their fair values.

The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

31. Related party transactions Note 33 below provides details of the Group’s structure including information about the subsidiaries of Stock Spirits Group PLC. The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year.

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, Non-Executive and local Managing Directors are deemed to be key management personnel. It is the Board and the local Managing Directors which have responsibility for planning, directing and controlling the activities of the Group. Total compensation to key management personnel were included in general and administrative and other operational expenses in the consolidated income statement.

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.

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.

Prior to the reorganisation in which Stock Spirits Group PLC became a new parent entity of the Group (see note 29), the immediate Parent Company of the Group was Oaktree Capital Management. In 2012 there were balances outstanding with related parties of Oaktree Capital Management. These balances, with the exception of €215,000 were settled as part of the reorganisation.

Stock Spirits Group Annual Report 2013 123 Notes to the consolidated financial statements at 31 December 2013, continued

Amounts Amounts Sales of Purchases owed by owed to goods/ of goods/ related related 2013 services services parties parties Parties €000 €000 €000 €000 OCM Luxembourg EPOF S.à.r.l. – – – 23 OCM Luxembourg EPOF A S.à.r.l. – – – 35 OCM Luxembourg POF IV S.à.r.l. – – – 155 Other related parties – – – 2 Total – – – 215

Amounts Amounts Sales of Purchases owed by owed to goods/ of goods/ related related 2012 services services parties parties Parties €000 €000 €000 €000 OCM Luxembourg EPOF S.à.r.l. – – 1,889 48,755 OCM Luxembourg EPOF A S.à.r.l. – – – 45,329 OCM Luxembourg POF IV S.à.r.l. – – 239 186,738 Other related parties – – – 3,657 Total – – 2,128 284,479

32. Cash and cash equivalents

For the purposes of the cash flow 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 cash flow statement can be reconciled to the related items in statement of financial position as follows:

2013 2012 €000 €000 Cash and bank balances 129,610 138,718

Cash and cash equivalents are denominated in the following currencies:

2013 2012 €000 €000 Sterling 8,667 594 Euro 21,052 71,680 US Dollar 346 726 Czech Koruna 11,136 11,645 Polish Złoty 84,158 52,143 Other currencies 4,251 1,930 Total 129,610 138,718

124 Stock Spirits Group Annual Report 2013 33. Group structure and acquisition details Details of Group undertakings as of 31 December 2013 and 31 December 2012 are as follows:

Proportion of voting rights shares held Country of Group company incorporation Relation 31 December 2013 31 December 2012 Stock Spirits (UK) Limited1 * England Subsidiary 100% 100% Stock Plzen Bozkov s.r.o.* Czech Republic Subsidiary 100% 100% Stock Slovakia s.r.o. 2 * Slovakia Subsidiary – 100% Stock S.r.l. * Italy Subsidiary 100% 100% Stock Trade d.o.o., Ljubljana3 * Slovenia Subsidiary 100% 100% F.lli Galli, Camis & Stock A.G. * Switzerland Subsidiary 100% 100% Stock Polska Sp. z.o.o. * Poland Subsidiary 100% 100% Stock Wodka Polska S.A. 4* Poland Subsidiary 100% 100% Wodka Polska Sp. z.o.o. * Poland Subsidiary 100% 100% Stock International s.r.o* Czech Republic Subsidiary 100% 100% Stock Spirit Group Luxembourg Holding S.à.r.l. * Luxembourg Subsidiary 100% 100% OCM Luxembourg Spirits Holdings S.à.r.l. Luxembourg Subsidiary 100% 100% Stock Spirits Group Services AG* Switzerland Subsidiary 100% 100% Stock BH d.o.o. * Bosnia Subsidiary 100% 100% Stock d.o.o. * Croatia Subsidiary 100% 100% Baltic Distillery GmbH (incorporated December 2012) * Germany Subsidiary 100% 100% Imperator s.r.o. 2 * Slovakia Subsidiary 100% 100% Stock Finance (Euro) Limited5* England Subsidiary 100% – Stock Finance (Złoty) Limited5 * England Subsidiary 100% – Stock Finance (Koruna) Limited5* England Subsidiary 100% – * Wholly owned held indirectly through subsidiary undertakings. 1. Stock Spirits (UK) Limited was named Stock Spirits Group Limited until 2 October 2013 when, in connection with the corporate reorganisation, it was re-named Stock Spirits (UK) Limited. 2. Stock Slovakia s.r.o. was merged into Imperator s.r.o. in May 2013. 3. As a consequence of outsourcing its sales force to a third-party distributor in Slovenia, at year end the Group was in the process of liquidating this entity on a solvent basis. The liquidation process was completed on 25 February 2014. 4. In connection with an internal corporate reorganisation unconnected with the listing of the Group, Stock Wodka Polska S.A. was, on 3 October 2013, transformed from a limited partnership (Wodka Polska Sp. z.o.o. K) to a limited joint stock partnership. 5. On 10 October 2013 three new entities were incorporated, namely Stock Finance (Koruna) Limited, Stock Finance (Euro) Limited and Stock Finance (Złoty) Limited. The purpose of these entities is to lend to other Group entities in local currency.

34. Share-based compensation Jointly owned equity scheme The Company and the shareholder (Oaktree) have entered into a number of Jointly Owned Equity (JOE) Share Subscription Agreements with key members of Group management employees.

Prior to IPO the management employees were invited to subscribe for an interest in the growth in value of Class F ordinary shares (F shares) in OCM Luxembourg Spirits Holdings S.à.r.l. jointly with Ogier Employee Benefit Trustee Limited acting in its capacity as trustee of the Stock Spirits Employee Benefit Trust (EBT). The EBT holds the JOE scheme shares and the vested options on behalf of the employees.

The objective of the JOE arrangements is to align the interests of the Company’s key employees and the shareholders in order to retain those employees who are considered critical to the success of the business.

The value of F shares was dependent and conditional upon Oaktree crystallising a return on a future sale or flotation of more than 50% of the issued share capital of the Company (Exit Event). Oaktree’s return could comprise a combination of the capital gain realised on its

Stock Spirits Group Annual Report 2013 125 Notes to the consolidated financial statements at 31 December 2013, continued

equity investments and any interest paid (or deemed to be paid) on the Preferred Equity Certificates (PECs) they hold. In outline on a qualifying Exit Event F shares are entitled to a percentage of Oaktree’s ‘equity’ return.

The number of F shares subscribed for under this arrangement to the date of IPO as follows:

2013 2012 No No At 1 January 216 216 Issued – 16 Cancelled (16) (16) Total number of shares 200 216

During 2013 one employee who had previously been issued shares under the JOE scheme left the Group. Per the terms of the scheme 16 shares were cancelled.

During 2012 one employee was issued 16 shares in the JOE scheme.

During 2012 one employee who previously had been issued shares under the JOE scheme left the Group. Per the terms of the scheme 16 shares were cancelled.

The shares issued had a fair value at the date of issue of €21,837 (2012 – €14,315) per share.

For the purposes of recognising the share-based compensation expense through the Group profit and loss an estimated Exit Event date was used, being October 2013. As such the full fair value of the share-based compensation had been recognised as an expense at the date of IPO.

At IPO the F Shares issued under the JOE scheme were converted into ordinary £0.10 shares of Stock Spirits Group PLC (PLC) the new ultimate Parent Company of the Group at the rate of 1 F share to 17,886 PLC ordinary shares. The conversion was accounted for as a replacement under IFRS 2. At the date of conversion the fair value of the F shares and replacement instruments was the same. As such no additional charge has been recognised as an expense in the profit and loss as a result of the replacement.

Other equity-settled share-based compensation In late 2012 several members of the key management team were issued a total of 129 A-class and A1-class share options over shares of OCM Luxembourg Spirits Holdings S.à.r.l. The share options were granted with an exercise price below fair value at a grant date and gave rise to a share-based compensation of €1,280,751. During 2013 the share-based compensation expense has been recognised on a straight-line basis from the date of grant to estimated Exit Event date in October 2013.

In late 2012 one member of key management purchased a total of 28 E-class shares in OCM Luxembourg Spirits Holdings S.à.r.l.. The value of E shares was dependent and conditional upon Oaktree crystallising a return on Exit Event. In outline on a qualifying Exit Event E shares are entitled to a percentage of Oaktree’s ‘equity’ return. The shares were purchased at a price below fair value giving rise to a share-based compensation expense of €716,660. During 2013 the share-based compensation expense has been recognised on a straight-line basis in relation to the deemed Oaktree exit event in October 2013. At IPO the E shares were converted into £0.10 ordinary shares in Stock Spirits Group PLC at the rate of 1 E share to 12,033 ordinary PLC shares. The conversion has been accounted for as a replacement under IFRS 2. At the date of conversion the fair value of the E shares and replacement ordinary shares was the same. As such no incremental increase in the fair value of the share-based compensation has been recognised.

In January 2013 one member of key management was issued F shares in OCM Luxembourg Spirits Holdings S.à.r.l. 16 F shares were issued at a price below fair value giving rise to a share-based compensation expense of €674,597 which was recognised in the income statement during 2013. At IPO the F shares were converted into 286,176 ordinary £0.10 shares in Stock Spirits Group PLC.

126 Stock Spirits Group Annual Report 2013 During May 2013 a number of key management were issued a total of 78 A-class and A1-class share options over shares in OCM Luxembourg Spirits Holdings S.à.r.l.. One member of key management received options which vest at the estimated Exit Event date in October 2013. These were granted with an exercise price below fair value at a grant date and gave rise to a share-based compensation of €654,224 which was recognised on a straight-line basis. The remaining options issued will vest over a two year period. These options were granted with an exercise price below fair value at a grant date and gave rise to a share-based compensation expense of €589,268 which will be recognised on a straight-line basis over the vesting period.

At IPO the A and A1 share options were converted into options over ordinary £0.10 shares in Stock Spirits Group PLC. The exercise price of the replacement award is €nil (2013 pre-IPO: €9,268). The 207 A and A1 options were converted into 1,469,365 ordinary £0.10 PLC share options. The conversion has been accounted for as a replacement under IFRS 2. At the date of replacement the fair value of the original and replacement options was the same. As such no incremental increase in the fair value of the options has been recognised. All but 244,792 of the new options vested immediately. The unvested options vest in May 2015 and the fair value will continue to be recognised on a straight-line basis.

The following table lists the inputs to the Black Scholes model used to value the shares and share options issued pre-IPO:

2013 2012 Volatility 48% 46% Expected life 1 year 1 year Share price €21,837 €13,815 Exercise price €9,268 €3,609 Risk free rate 0.2% 0.3% Dividend yield 0% 0%

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. These options were valued using the share price at admission date of Stock Spirits Group PLC at IPO of £2.35. Using the applicable GBP/EURO FX rate at IPO of 1.18125 this award was valued at €4,269,736. The options vested immediately upon grant.

Included within the terms of the grant the Group has discretion over whether the employees receive their options gross or net of a deduction to allow the Group to settle any personnel income tax liabilities on behalf of the recipient. Under IFRS 2 this results in an element of the award being treated as a cash-settled share-based compensation. The cash-settled share-based compensation has been calculated using the applicable income tax rate for each country of the recipients applied to a potential gain based upon the market value of the shares of £2.80 as at 31 December 2013. The cash-settled share-based compensation is €2,151,000. This will be accounted for as a liability on the Group balance sheet.

2013 2012 Exercisable options No outstanding 2,762,697 – Weighted average exercise price €nil – Expiration period 10 years – Outstanding share options No outstanding 244,792 – Weighted average exercise price €nil – Weighted average contractual life 17 months –

Stock Spirits Group Annual Report 2013 127 Notes to the consolidated financial statements at 31 December 2013, continued

Share-based compensation expense The expense recognised in general and administrative and other operational expenses for employee services received during the year is shown in the following table.

2013 2012 €000 €000 Total share-based compensation expense recognised in Statement of Changes in Equity 6,740 256 Total cash-settled share-based compensation awards recognised in liabilities 2,151 – 8,891 256

35. Business combinations During 2012, the Group made two acquisitions. The acquisition of the share capital of Imperator s.r.o. was accounted for as a business combination, as set out below. The Group also acquired an off the shelf company which was named Baltic Distillery GmbH. Baltic Distillery GmbH then acquired an ethanol manufacturing plant based in Germany. This acquisition was accounted for as an asset purchase mainly impacting additions to other intangible assets and property, plant and equipment.

Business combinations in 2012 On 14 December 2012, the Group acquired 100% of the share capital of Imperator s.r.o., an unlisted company based in Slovakia specialising in the production, distribution and sale of alcoholic spirits. The Group acquired Imperator s.r.o. to enhance its presence in the Slovakia market, as well as to acquire a number of fruit distillate brands.

The following table summarises fair values, including measurement period adjustments recognised during the reporting period, of the identifiable assets and liabilities of Imperator s.r.o. at the date of acquisition:

Consideration paid €’000 Cash paid 7,140 Total consideration 7,140

128 Stock Spirits Group Annual Report 2013 Recognised amount of identifiable assets acquired and liabilities assumed

Fair value recognised on acquisition €’000 Assets Cash and cash equivalents 1,069 Property, plant and equipment (note 18) 1,060 Trade and other receivables 2,403 Inventories 922 Brands, patents and licences (note 16) 4,280 Deferred tax assets 13 9,747 Liabilities Trade and other payables (3,282) Deferred tax liability (805) (4,087)

Total identifiable net assets at fair value 5,660

Goodwill arising on acquisition (note 15) 1,480 Purchase consideration 7,140

The goodwill of €1,480,000 comprises the value of expected synergies 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 Imperator trademark, Imperator brands and customer relationships.

In August 2013 a purchase price adjustment of €360,000 was agreed and received relating to the acquisition of Imperator s.r.o. The sales and purchase agreement included a purchase price mechanism relating to net debt and working capital, on which this settlement was based. This reduced the initial purchase consideration from €7,500,000 to €7,140,000, thereby reducing the goodwill arising on acquisition from €1,840,000 to €1,480,000.

Stock Spirits Group Annual Report 2013 129 Notes to the consolidated financial statements at 31 December 2013, continued

36. Operating lease commitments The Group has entered into commercial leases on certain items of plant and machinery and buildings. These leases have an average life of between three and five years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these contracts.

Future minimum rentals payable under non-cancellable operating leases are as follows:

2013 2012 €000 €000 Within one year 2,912 2,372 After one year but not more than five years 7,057 5,581 More than five years – 15 9,969 7,968

The total charge under operating leases as of 31 December 2013 was €2,735,000 (2012: €2,405,000).

37. Commitments for capital expenditure Commitments for the acquisition of property, plant and equipment as of 31 December 2013 are €98,000 (2012: €1,030,000).

38. Events after the balance sheet date As a consequence of outsourcing its sales force to a third-party distributor in Slovenia, at year end the Group was in the process of liquidating this entity on a solvent basis. The liquidation process was completed on 25 February 2014. See note 33.

Since the year end the excise duty guarantee in respect of our German business is in the process of being reduced by €2.1m.

130 Stock Spirits Group Annual Report 2013 Company statement of financial position at 31 December 2013

31 December 2013 Notes £000 Non-current assets Investments 6 255,923 255,923 Current assets Other receivables and prepayments 7 570 Cash and cash equivalents 8 6,226 6,796

Total assets 262,719

Current liabilities Trade and other payables 9 6,313 6,313

Total liabilities 6,313

Net assets 256,406

Capital and reserves Issued share capital 10 20,000 Share premium 10 155,428 Merger reserve 10 85,332 Share based compensation reserve 12 6,280 Profit and loss account (10,634)

256,406

Notes 1 to 14 are an integral part of the financial statements.

The standalone financial statements of Stock Spirits Group PLC, registered number 08687223, on pages 131 to 142, were approved by the Board of Directors and authorised for issue on 27 March 2014 and were signed on behalf by:

Chris Heath Lesley Jackson Chief Executive Officer Chief Financial Officer

Stock Spirits Group Annual Report 2013 131 Company statement of cash flows for the period from 12 September 2013 to 31 December 2013

2013 Notes £000 Operating activities Loss for the period (10,634) Adjustments to reconcile loss to net cash flows: Other financial income (816) Net foreign exchange loss 2,283 Share-based compensation 12 1,790 (7,377)

Working capital adjustments Increase in trade receivables and other assets (570) Increase in trade payables and other liabilities 4,528 3,958

Net cash flows from operating activities (3,419)

Investing activities Capital contribution to subsidiary undertaking 6 (39,304) Net cash flow from investing activities (39,304)

Financing activities Proceeds from shares issued 52,000 Share issue costs (3,051) Net cash flow from financing activities 48,949

Net increase in cash and cash equivalents 6,226 Cash and cash equivalents at the start of the period – Effect of exchange rates on cash and cash equivalents – Cash and cash equivalents at the end of the period 8 6,226

IPO Costs

Exceptional costs relating to the IPO included in cash flow from operating activities 5,964 Exceptional costs relating to the IPO included in financial activities 3,051 Total IPO costs 9,015

132 Stock Spirits Group Annual Report 2013 Company statement of changes in equity for the period from 12 September to 31 December 2013

Share-based Issued Share Merger compensation Retained capital premium reserve reserve earnings Total £000 £000 £000 £000 £000 £000 Balance at 12 September 2013 – – – – – – Loss for the period – – – – (10,634) (10,634)

Total comprehensive expense – – – – (10,634) (10,634)

Issue of new shares on incorporation 50 – – – – 50 Issue of new shares in exchange for convertible and preferred equity certificates 4,831 108,692 – – – 113,523 Shares issued in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l. 12,906 – 85,332 – – 98,238 Issue of new shares 2,213 49,787 – – – 52,000 Share issue costs – (3,051) – – – (3,051) Share-based compensation charge (note 12) – – – 6,280 – 6,280

Balance at 31 December 2013 20,000 155,428 85,332 6,280 (10,634) 256,406

Stock Spirits Group Annual Report 2013 133 Notes to the Parent Company financial statements at 31 December 2013

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 27 March 2014.

The Company was incorporated on 12 September 2013 under the laws of the England and Wales with the registered number 08687223 as Stock Spirits (UK) Limited. The Company was re-named Stock Spirits Group Limited on 2 October 2013 and was re-registered as a public limited company on 7 October 2013 with the name Stock Spirits Group PLC. The Company’s registered office is at Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH, United Kingdom.

As a result of the reorganisation implemented by way of the share exchange offer made by the Company for the shares of OCM Luxembourg Spirits Holdings S.à.r.l. on 21 October 2013, the Company became a new parent entity of OCM Luxembourg Spirits Holdings S.à.r.l., a private limited company registered in Luxembourg in 2006. OCM Luxembourg Spirits Holdings S.à.r.l. is a holding company which owns companies involved in the production and distribution of spirits. See note 10 for further details.

2. Accounting policies Basis of preparation These separate financial statements of the Company are presented as required by the Companies Act 2006. 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 Standards Board (IASB).

The financial statements have been prepared on a going concern basis as the Directors believe there are no material uncertainties that lead to significant doubt that the entity can continue as a going concern in the foreseeable future.

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 period from the Company’s incorporation, 12 September 2013, to 31 December 2013.

Exemptions The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented an income statement or a statement of comprehensive income for the Company alone. The loss for the period has been disclosed in the statement of changes in equity.

Use of assumptions and estimates The preparation of financial statements in conformity with IFRS requires the use of judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

These 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.

134 Stock Spirits Group Annual Report 2013 The following amendments to existing standards and interpretations were effective for the year, but either they were not applicable to or did not have a material impact on the Company:

Effective dates* IAS 1 Presentation of Financial Statements – Presentation of Items of Other Comprehensive Income (Amendments) 1 July 2012 IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments) 1 January 2013 IFRS 13 Fair Value measurement 1 January 2013 IAS 19 Employee Benefits (Revised) 1 January 2013 IFRS 1 Government Loans — Amendments to IFRS 1 1 January 2013 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 Annual Improvements to IFRSs 2009–2011 Cycle 1 January 2013

The following standards and interpretations in issue are not yet effective for the Company and have not been adopted by the Company:

Effective dates* IFRS 10 Consolidated Financial Statements 1 January 2013 IFRS 11 Joint Arrangements 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities 1 January 2013 IAS 27 Separate Financial Statements 1 January 2013 IAS 28 Investments in Associates and Joint Ventures 1 January 2013 IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities (Amendments) 1 January 2014 IAS 36 Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets (Amendments) 1 January 2014 IAS 39 Financial Instruments: Recognition and Measurement– Novation of Derivatives and Continuation of Hedge Accounting (Amendments) 1 January 2014 IFRIC 21 Levies 1 January 2014+ IAS 19 Employee Benefits – Defined Benefit Plans: Employee Contributions (Amendments) 1 January 2014+ Annual Improvements to IFRSs 2010–2012 Cycle 1 January 2014+ Annual Improvements to IFRSs 2011–2013 Cycle 1 January 2014+ IFRS 14 Regulatory Deferral Accounts 1 January 2016+ no earlier than IFRS 9 Financial Instruments 1 January 2017+

The directors do not expect the adoption of these standards and interpretations to have a material impact on the consolidated or company financial statements in the period of initial application.

* 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. IFRS 10, IFRS 11, IFRS 12 and IAS 27 and IAS 28 have been adopted by the EU with an effective date of 1 January 2014. + At the date of authorisation of these financial statements, these standards and interpretation have not yet been endorsed or adopted by the EU.

Stock Spirits Group Annual Report 2013 135 Notes to the Parent Company financial statements at 31 December 2013, continued

Investments The liability is re-measured to fair value at each reporting date Investments in subsidiary undertakings are valued at cost, up to, and including the settlement date, with changes in fair less accumulated impairment. value recognised in employee benefits expense.

Share-based compensation Loans and receivables Equity-settled transactions Loans and receivables are non-derivative financial assets with The cost of equity-settled transactions is recognised together fixed or determinable payments that are not quoted in an active with a corresponding increase in other reserves in equity, over market. They are included in current assets, except for maturities the period in which the performance and / or service conditions greater than 12 months after the end of the reporting period. are fulfilled. The cumulative expense recognised for equity- These are classified as non-current assets. The Company’s loans settled transactions at each reporting date until the vesting date and receivables comprise “Other receivables” and “Cash and reflects the extent to which the vesting period has expired and cash equivalents” in the balance sheet. the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for the period Other receivables represents the movement in cumulative expense recognised Other receivables are non-interest bearing and are recognised as at the beginning and end of the period and is recognised in initially at fair value, and subsequently at amortised cost, reduced general and administrative expenses. by appropriate allowances for estimated irrecoverable amounts.

Where the terms of an equity-settled transaction award are Cash and cash equivalents modified, the minimum expense recognised is the expense as Cash and cash equivalents in the statement of financial position if the terms had not been modified, if the original terms of the comprise cash at banks and in hand and short-term deposits award are met. An additional expense is recognised for any with an original maturity of three months or less. modification that increases the total fair value of the share- based payment transaction, or is otherwise beneficial to the Trade and other payables employee as measured at the date of modification. Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest Where an equity-settled award is cancelled, it is treated as rate method. if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This 3. Critical accounting estimates and assumptions includes any award where non-vesting conditions within the The preparation of the Company financial statements requires control of either the entity or the employee are not met. the use of certain judgements, estimates and assumptions that However, if a new award is substituted for the cancelled award, affect the reported amount of assets, liabilities, income and and designated as a replacement award on the date that it is expenses. Estimates and judgements are continually evaluated granted, the cost based on the original award terms continues and are based on historical experience and other factors, to be recognised over the original vesting period and an including expectations of future events that are believed expense is recognised over the remainder of the new vesting to be reasonable under the circumstances. period for the incremental fair value of any modification. The Company makes estimates and assumptions concerning When employees of subsidiary companies are issued equity- the future. The resulting accounting estimates will, by settled compensation awards over shares in the Parent definition, seldom equal the related actual results. The Company, the Parent Company shall recognise an increase estimates and assumptions relevant to the consolidated in the value of its investment in the subsidiary and an increase financial statements are embedded with the relevant notes in reserves. The subsidiary in turn will recognise the fair value to the consolidated financial statements. of the award in its profit and loss account with an associated increase in reserves to reflect the deemed capital contribution from the Parent Company.

Cash-settled transactions The cost of cash-settled transactions is measured initially at fair value at the grant date using a binomial model, further details of which are given in note 34 to the consolidated financial statements. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability.

136 Stock Spirits Group Annual Report 2013 4. Auditor’s remuneration 6. Investments 2013 During the period, the Company obtained the following £000 services from its auditors, Ernst & Young LLP: At 12 September 2013 – Period from Conversion of opening shareholding 50 12 September to 31 December 2013 Shares issued to Oaktree Capital Management and £000 management in exchange for shares in OCM Audit services Luxembourg Spirits Holdings S.à.r.l. 98,238 Fees payable for audit of the Company financial Capitalisation of PECs and CECs 112,056 statements 6 Capital contribution to OCM Luxembourg Spirits Non-audit services Holdings S.à.r.l. 39,304 Fees payable for taxation compliance services 13 Contribution to subsidiary undertakings relating to Fees payable for corporate finance services * 2,241 share-based compensation scheme 6,275

Total 2,260 Carrying value at 31 December 2013 255,923 * Primarily comprises services relating to preparation before the Listing of the Company. As described in note 10 the Company was incorporated with Included in the analysis above are fees payable to Ernst & share capital of £50,001, with this payable OCM Luxembourg Young LLP totalling £560,000 which were included as share POF IV S.à.r.l. Subsequent to incorporation this receivable was issue costs. capitalised as an investment.

5. Employee information The Company acquired OCM Luxembourg Spirits Holdings S.à.r.l. Executive and Non-Executive Directors received remuneration by means of the share exchange offer made by the Company to for their services to the Company. the shareholders of OCM Luxembourg Spirits Holdings S.à.r.l. In addition shares in the Company were issued in exchange for Period from 12 September to Preferred Equity Certificates (PEC) and Convertible Equity 31 December 2013 Certificates (CEC) held by OCM Luxembourg Spirits Holdings £000 S.à.r.l., with PEC and CEC receivable being capitalised. Short-term employee benefits 1,527 Post-employment benefits 26 In November 2013 a capital contribution was made to subsidiary undertaking OCM Luxembourg Spirits Holdings Share-based compensation 1,790 S.à.r.l. totalling £39,304,000. Total 3,343 Also included in investments are contributions to subsidiaries Please refer to pages 65 to 67 of the Directors’ remuneration Stock Plzen Bozkov s.r.o., Stock S.r.l., Stock Spirits (UK) Ltd, Report for further details. Stock Polska Sp. z.o.o. and Stock Spirits Group Services AG relating to share-based compensation scheme. Refer to note 12 for further details.

Stock Spirits Group Annual Report 2013 137 Notes to the Parent Company financial statements at 31 December 2013, continued

7. Other receivables and prepayments 2013 £000 Amounts owed by subsidiary undertakings 67 Other debtors and prepayments 503 570

No security has been granted over other receivables.

8. Cash and cash equivalents 2013 £000 Cash and bank balances 6,226

9. Trade and other payables 2013 £000 Trade payables 54 Accruals 3,486 Social security and staff welfare costs 347 Amounts due to subsidiary undertakings 2,426 6,313

Accruals include £1,785,000 which represents personal income tax in relation to cash-settled share-based compensation.

Social security and staff welfare costs include £295,000 which represents social security costs in relation to share- based compensation.

138 Stock Spirits Group Annual Report 2013 10. Share capital, share premium and merger 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 21 October 2013 Issue of ordinary shares following subdivision of preference shares to 500,010 ordinary shares 500,010 50,001 – Issue of ordinary shares in exchange for convertible and preferred equity certificates 48,307,459 4,830,746 108,691,782

At 25 October 2013 Issue of ordinary shares in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l. 129,064,871 12,906,487 – Primary issue of ordinary shares on admission to the London Stock Exchange 22,127,660 2,212,766 49,787,234 Share issue costs – – (3,050,936) At 31 December 2013 200,000,000 20,000,000 155,428,080

The Company was incorporated on 12 September 2013, issuing 1 ordinary share of £1 to OCM Luxembourg POF IV S.à.r.l. On 2 October 2013 the Company issued 50,000 non-voting redeemable preference shares of £1 to OCM Luxembourg POF IV S.à.r.l. On 21 October these shares were sub-divided into 500,010 £0.10 pence shares. Also on 21 October 2013 the Company issued 48,307,459 shares in exchange for PECs and CECs held by Oaktree Capital Management and current and former members of management.

On 25 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 £98,239,000, which resulted in £85,332,000 being credited to the merger reserve in line with merger relief provided by Section 612 of the Company Act 2006. The shares issued have a nominal value of £0.10 each. Following the date OCM Luxembourg Spirits Holdings S.à.r.l. became a wholly-owned subsidiary of Stock Spirits Group PLC. Also 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 pence per share.

Also included in share premium are capitalised listing costs, which have been incurred directly in connection with the registration and distribution of shares.

Share-based compensation reserve Share-based compensation reserve includes the credit to equity for equity-settled share-based payments. Please see note 12 for full details. The equity charge for the period ending 31 December 2013 was £6,280,000.

11. Financial instruments 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 the management of these risks, 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.

Stock Spirits Group Annual Report 2013 139 Notes to the Parent Company financial statements at 31 December 2013, continued

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 31 December 2013 is the carrying amounts as illustrated in note 8.

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.

Cash and Amortised Total book Fair receivables Derivatives cost value value As at 31 December 2013 £000 £000 £000 £000 £000 Financial assets: Cash and cash equivalents (note 8) 6,226 – – 6,226 6,226 Other receivables and prepayments (note 7) 570 – – 570 570 Trade and other payables (note 9) – – (5,966) (5,966) (5,966)

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 cash flows and matching the maturity profiles of financial assets and liabilities.

The table below summarises the maturity profile of the Group’s undiscounted financial liabilities at 31 December 2013.

Between two and On Less than five More than demand one year years five years Total Financial liabilities £000 £000 £000 £000 £000 Trade and other payables (note 9) – (5,966) – – (5,966) – (5,966) – – (5,966)

Market risk Market risk is the risk that the fair value of future cash flows 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 are held in foreign currencies. Due to the Company’s lack of exposure to currency risk no sensitivity analysis has been performed.

Interest rate risk The Company has no interest-bearing financial liabilities, and its interest-bearing financial assets consists of only cash and cash equivalents. As such exposure to interest rate risk is limited and no sensitivity analysis has been performed.

140 Stock Spirits Group Annual Report 2013 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.

12. Share-based compensation Jointly owned equity scheme The Company and the shareholder (Oaktree) have entered into a number of Jointly Owned Equity (JOE) Share Subscription Agreements with key members of staff. See note 34 to the Group financial statements for further details.

No. of shares At incorporation – 12 September 2013 – At IPO – 25 October 2013 3,577,244 Total JOE scheme shares at year end 3,577,244

At IPO, 200 Class F shares of OCM Luxembourg Spirits Holdings S.à.r.l. issued under the JOE scheme (see note 34 to the Group financial statements) were converted into ordinary £0.10 shares of Stock Spirits Group PLC (PLC) at the rate of 1 F share to 17,886 PLC ordinary shares. The conversion was accounted for as a replacement under IFRS 2. At the date of conversion the fair value of the F shares and replacement instruments was the same. As such no additional charge has been recognised as an expense in the profit and loss as a result of the replacement.

Based upon the share price at the date of admission to the London Stock Exchange, each share held in the JOE scheme has a fair value of £2.35. The fair value of each share at 31 December 2013 is £2.80.

Other equity-settled share-based compensation At IPO key managers of the Group, were awarded Company share options over the Company’s shares which vested immediately. Based upon the market value of the Company shares upon admission to the London Stock Exchange the options had a fair value of £2.35.

Included within the terms of the grant the Group has discretion over whether the employees receive their options gross or net of a deduction to allow the Group to settle any personnel income tax liabilities on behalf of the recipient. Under IFRS 2 this results in an element of the award being treated as a cash-settled share-based compensation. The cash-settled share-based compensation has been calculated using the applicable income tax rate for each country of the recipients applied to a potential gain based upon the market value of the shares of £2.80 as at 31 December 2013. The cash-settled share-based compensation is £1,785,719. This will be accounted for as a liability on the Company balance sheet.

Share options issued at IPO 2013 Exercisable options Number outstanding 2,762,697 Weighted average exercise price £nil Expiration period 10 years

Share-based compensation expenses Recognised in the Company profit and loss account are expenses related to share-based compensation arrangements with its employees.

2013 £000 Equity-settled share-based compensation 1,790

Stock Spirits Group Annual Report 2013 141 Notes to the Parent Company financial statements at 31 December 2013, continued

The Group has awarded share-based compensation to employees of subsidiary companies. See note 6 for details of deemed capital contributions to other subsidiary companies. The following table details the movement in the share-based compensation reserve and balance sheet for both equity-settled and cash-settled share-based compensation arrangements with both employees of the Company and the Group. 2013 £000 Equity-settled share-based compensation recognised in reserves 6,280 Cash-settled share-based compensation recognised as a liability 1,785 8,065

Employee Benefit Trust Ogier Employee Benefit Trustee Limited is acting in its capacity as trustee of the Stock Spirits Employee Benefit Trust (EBT). The EBT holds the JOE scheme shares and the vested options on behalf of the employees.

13. Subsidiaries The principal subsidiary undertakings of the Company and their details are set out in note 33 to the consolidated financial statements.

The Company also holds an investment in other subsidiary undertakings, which in the Directors’ opinion do not significantly affect the figures in the consolidated financial statements.

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.

Purchases of goods/ Amounts owed by Amounts owed to 2013 Sales of goods/services services related parties related parties Parties £’000 £’000 £’000 £’000

Stock Plzen Bozkov s.r.o. – – 7 – Stock Spirits (UK) Limited – – – 974 Stock Spirits Group Luxembourg Holding S.à.r.l. – – – 1,452 OCM Luxembourg Spirits Holdings S.à.r.l. – – 60 – Oaktree Capital Management L.P. – 9 – 9

– 9 67 2,435

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 have responsibility for planning, directing and controlling the activities of the Group.

Executive and Non-Executive Directors received remuneration for their services to the Company. Please refer to note 5 for further details.

142 Stock Spirits Group Annual Report 2013 Shareholders’ information

Financial calendar Corporate Brokers Annual General Meeting: 13 May 2014 J.P. Morgan Cazenove, 25 Bank Street Results announcement London, E14 5JP Interim results – for the period ending 30 June 2014: 28 August 2014 Nomura 1 Angel Lane Shareholder information online London, EC4R 3AB Stock Spirits Group’s registrars are able to notify shareholders by e-mail of the availability of an electronic version of Legal Advisors shareholder information. Slaughter & May 1 Bunhill Row Whenever new shareholder information becomes available, London, EC1Y 8YY such as Stock Spirits Group’s interim and full year results, Capita will notify you by e-mail and you will be able to access, Independent Auditors read and print documents at your own convenience. To take Ernst & Young advantage of this service for future communications, please go 1 More London Place to https://www.capitashareportal.com where full details of the London, SE1 2AF shareholder portfolio service are provided. Firstly you will need to search for the Company, but once you have logged in you Registrars can check your account details, change your address details, Capita Asset Services or review FAQs, one of which will explain how to request a new The Registry share certificate. 34 Beckenham Road Beckenham When registering for this service, you will need to have your Kent, BR3 4TU 11 character Investor Code (IVC) to hand, which is shown on your dividend tax voucher, share certificate or form of proxy. Tel: 0871 664 0300 You can then select “Send me all communications by email (Calls cost 10p a minute plus network extras, lines are open (most environmentally friendly)”. Should you change your mind 8.30am – 5.30pm Monday to Friday) at a later date, you may amend your request by entering your (From overseas: +44 20 8639 3399) portfolio online and selecting your preferred method of communication to “Send me paper copies of all communications”. Email: [email protected] If you wish to continue receiving shareholder information in the current format, there is no need to take any action.

Stock Spirits Group Annual Report 2013 143 Useful links:

Capita share portal: www.capitashareportal.com

Capita Asset Services website: www.capitaassetservices.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: Andrew Mills Investor Relations Director 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

Registered in England Company number 6288038

For more information www.stockspirits.com

144 Stock Spirits Group Annual Report 2013 Designed and produced by: Addison Group www.addison-group.net

Printed by: CPI Colour

This report is printed utilising vegetable based inks on Heaven 42 which is sourced from well managed forests independently certified according to the rules of the Forest Stewardship Council® (FSC).

The report was printed by an FSC and CarbonNeutral® printing company and Heaven 42 is manufactured at a mill that is certified to the ISO 14001 and EMAS environmental standards. Stock Spirits Group PLC Solar House Mercury Park Wooburn Green Buckinghamshire HP10 0HH United Kingdom www.stockspirits.com Tel: +44 1628 648500