Building on
our strengths
in spirits
Stock Spirits Group PLC
Annual Report & Accounts 2017
Stock Spirits Group PLC
Annual Report & Accounts 2017
Stock Spirits is
a major force in
Central and Eastern
European spirits
Commanding a major stake in each of our core
operating markets and with a growing presence
in the wider global market.
We have more than 45 brands and
export internationally to more than
50 countries worldwide.
Contents
Strategic Review
02 Group at a glance
06 Chairman’s statement
08 Why invest in Stock Spirits?
10 Our markets
14 Our business model
16 Our strategy
18
20
26
32
32
36
38
40
42
46
KPIs
Principal risks and uncertainties
Chief Executive’s statement
Regional reviews
Poland
Czech Republic
Italy
Other
Responsible business report
Financial review
Governance
52
Board of Directors
54 Chairman’s letter
55
Corporate governance framework
60 Audit Committee report
65 Nomination Committee report
67 Directors’ remuneration report
85 Directors’ report
89
90
Statement of Directors’ responsibilities
Independent auditor’s report
Financial Statements
100 Consolidated income statement
101 Consolidated statement of
comprehensive income
102 Consolidated statement of
financial position
104 Consolidated statement of changes
in equity
105 Consolidated statement of cashflows
106 Notes to the consolidated
financial statements
160 Company statement of financial position
161 Company statement of cashflows
162 Company statement of changes in equity
163 Notes to the Parent Company
financial statements
Shareholders’ information
176 Shareholders’ information
177 Useful links
1.
For more information visit
www.stockspirits.com
2017 financial highlights
Volume in 9 litre cases
Total revenue
13.1m
(2016: 12.3m)
€274.6m
(2016: €261.0m)
Adjusted EBITDA¹
Profit for the year
€56.3m
(2016: €51.4m)
€11.3m
(2016: €28.4m)
Dividend per share for 20172
Basic earnings per share
8.10€cents
(2016: 7.72 €cents plus special)³
6€cents
(2016: 14 €cents)
01
Leverage4
0.94
(2016: 1.16)
Adjusted basic earnings per share1
16€cents
(2016: 14 €cents)
Source(s)
1.
Stock Spirits Group uses alternative performance measures as key financial
indicators to assess the underlying performance of the Group. These include
adjusted EBITDA (note 7), free cashflow (note 7) and adjusted basic EPS (adjusted
for exceptional items; note 14). The narrative in the Annual Report & Accounts
includes these alternative measures and an explanation is set out in note 7 to the
consolidated financial statements included in the Annual Report & Accounts
2.
Interim dividend of 2.38 €cents paid on 22 September 2017 and proposed final
dividend for 2017 of 5.72 €cents
3. A special dividend of 11.90 €cents was also paid during 2016. Total dividend paid
for 2016 was 19.62 €cents
4. Leverage is net debt: adjusted EBITDA. Net debt is defined as bank borrowings
plus finance leases less cash and cash equivalents
Group at a glance
Award winning brands
We have more than 45 brands and export internationally
to more than 50 countries worldwide.
02
Total Group revenue
€274.6m
2016: €261.0m
Czech Republic
25.6% rum
24.0% vodka
22.7% others
15.8% herbal bitters
11.9% liqueurs
Volume share of total spirits
market 20164
€0.5bn
2017 total off-trade total
spirits retail value5
54%
POLAND
2017 Revenue
€147.7m
2016: €136.9m
Headcount
586
Full Regional Review
on Page 32
25%
CZECH REPUBLIC
2017 Revenue
€68.8m
2016: €63.2m
Headcount
204
Full Regional Review
on Page 36
10%
ITALY
2017 Revenue
€28.1m
2016: €29.4m
Headcount
54
Full Regional Review
on Page 38
Stock Spirits Group PLC Annual Report & Accounts 2017 Our markets
Poland
69.2% vodka
15.2% flavoured vodka
and vodka-based liqueurs
9.3% whisky
6.4% others
Volume share of total spirits
market 20161
66% traditional trade
18% discounters
10% supermarkets
6% hypermarkets
Volume share of total vodka, flavoured
vodka and vodka-based liqueurs by
trade channel2
€3.3bn
2016 total off-trade
total spirits retail value3
03
Italy
38.6% others
33.0% bitters
15.5% brandy
7.2% vodka
5.8% lemon liqueurs
Volume share of total spirits market 20166
€1.3bn
2017 total off-trade total
spirits retail value7
11%
OTHER
2017 Revenue
€30.0m
2016: €31.5m
Headcount
136
Full Regional Review
on Page 40
Source(s)
1.
2.
3.
4.
5.
6.
7.
IWSR total Poland spirits MAT Volume December 2016
Nielsen total Poland, total off-trade, total vodka, favoured vodka and vodka based liqueurs MAT
Volume December 2017 (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 historical difference between
IWSR data and Nielsen data. Management considers that IWSR data more accurately represents the
traditional trade in Poland)
Nielsen total Poland, total off-trade, total spirits and spirit based RTD’s MAT Value December 2017
IWSR total Czech Republic, total off and total on-trade, total spirits MAT Volume December 2016
Nielsen total Czech Republic, total off-trade, total spirits MAT Value December 2017
IWSR total Italy, total off-trade and on-trade, total spirits MAT Volume December 2016
IRI total Italy, total modern trade, discounters and cash & carries, total spirits MAT Value December 2017
Strategic Review GovernanceFinancial Statements Stock Spirits Group PLC
Annual Report & Accounts 2017
Strategy in action
04
WE SELL
Stock 84 new
branding and
relaunch
Stock 84 is one of the flagship brands of
the Stock Spirits portfolio with over 130
years of heritage, founded by visionary
Lionello Stock, who first produced his
own Italian brandy in 1884.
Throughout its history, Stock 84 has been available in 24 countries across
the world, with variations to its range, packaging and branding over time.
This redesign brings a renewed consistency to the product range globally,
whilst giving it a fresher and more modern look.
Stock Spirits conducted exhaustive market research to ensure the redesign
was in line with consumers’ high expectations for Stock 84, working with
leading Italian design agencies on the redesign project. The new bottle
stays faithful to the traditional Stock 84 silhouette, but with a modern
twist that adds a premium feel.
130+
years of heritage
Strategy in action
Strategic Review
Governance
Financial Statements
Strategic Review
02 Group at a glance
06 Chairman’s statement
08 Why invest in Stock Spirits?
10 Our markets
14 Our business model
16 Our strategy
18 KPIs
20 Principal risks and uncertainties
26 Chief Executive’s statement
32 Regional reviews
32
36
38
40
Poland
Czech Republic
Italy
Other
42 Responsible business report
46 Financial review
05
Chairman’s statement
Looking to the future with
a stronger base
As Chairman of Stock Spirits Group PLC, I am pleased to present our
Annual Report and Accounts for the year ended 31 December 2017.
After a year of great change in 2016, the Group
While the Board’s major focus remained on
entered 2017 with a significantly strengthened and
returning our Polish business to growth, we also
experienced Board and Executive team who have a
considered the Group’s future wider priorities.
strong commitment to turning round the fortunes
A comprehensive review of the Group’s strategy
of the business. 2017 was a year of stabilisation for
was carried out in the latter half of the year. The
Stock Spirits, embedding the significant changes
chief conclusion from this process was that our
accomplished in 2016 whilst continuing to address
strategy as outlined at the time of the IPO remains
the competitive challenges that remain in our
as relevant as ever. However, to achieve our goals
markets, particularly that of our largest market,
we need to respond better to developments and
06
Poland. We believe we have stabilised in this market
changes in our key markets; to execute those
and the local management team continues to drive
plans more effectively and to focus more on the
through change and improvements.
ultimate consumers of our products, rather than
just on internal KPIs. The major focus of our
updated strategy, therefore, is to concentrate on
our largest value drivers, our brands. Mirek will
cover the detail of our conclusions and plans more
thoroughly in his Chief Executive’s Report.
Given our operational progress we are better able
to return to the other key element of our IPO
strategy which is growth through mergers and
acquisitions (M&A).
During 2017, we continued to review ‘bolt-on’
opportunities and we were pleased to announce our
25% investment in premium Irish whiskey brands,
The Dubliner and The Dublin Liberties in July this
year. Now that Poland has been stabilised, we return
to looking at larger, more strategic opportunities to
deliver enhanced growth and shareholder value for
the future. More detail about the updated strategy is
set out on pages 16 and 17.
Dividend
I am also pleased to announce our proposed final
dividend for the year of 5.72 €cents per share
(2016: 5.45 €cents per share). This takes the total
dividends paid for the year to 8.10 €cents per
David Maloney
Chairman
Stock Spirits Group PLC Annual Report & Accounts 2017 07
share (2016: 19.62 €cents per share, which also
Following the more extensive changes to the Board
included a special dividend of 11.90 €cents per
in 2016, the new members have been fully engaged
share). The adjusted free cashflow conversion of
not only in the strategic review process but have
the Company continues to be a strength and at
also made significant and valuable contributions in
86.3% (2016: 94.1%) remains robust. The dividend
all Board matters. I am pleased with the results.
policy has been revisited and the Board is moving
All Board Committee compositions are fully
from the 35% of net free cashflow (free cashflow
compliant with the Corporate Governance Code.
after investments) approach outlined at IPO, in
See page 55 of this report for further details.
favour of progressive dividends where cashflow
The Board and its various Committees have met
permits. We also reiterate our commitment
regularly throughout the year and an internal
to return surplus cash to shareholders should
Board evaluation exercise was undertaken during
no meaningful capital investment or M&A
the year (see page 58).
opportunities arise.
People
Looking ahead
As I have mentioned previously, the implications of
At the time of our interim results, we announced
Brexit on the Group are not considered material at
that Lesley Jackson, our Chief Financial Officer
this stage, but we will continue to monitor progress
(CFO), would be retiring and would be replaced
on the negotiations currently taking place.
With a stable Board, senior management team
and award-winning brands, I am looking forward
to delivering on our refreshed strategy to ensure
growth and increased shareholder returns.
David Maloney
Chairman
7 March 2018
by Paul Bal. I would like to personally thank Lesley
for her hard work and dedication to Stock Spirits;
she took the Company through the IPO and has
worked tirelessly over the years. Paul took office in
November 2017 and has made a great start in the
Company and I look forward to working with him
more in the future.
Randy Pankevicz, Non-Executive Director, notified
the Board of his resignation as a Director of the
Company to enable him to focus on his personal
investments. He does not intend to seek re-
election at the forthcoming AGM.
The Board would like to thank Mr Pankevicz for
his contribution to the Company over the last two
years and wish him well for the future.
Governance
The retirement of Lesley and the appointment of
Paul as CFO was the only Board change in the year.
“We return to looking at larger, more strategic opportunities to deliver growth and shareholder value for the future.”Strategic Review GovernanceFinancial Statements Stock Spirits Group PLC
Annual Report & Accounts 2017
Why invest in Stock Spirits?
We have many key strengths
which we leverage to deliver
our plans
08
WE PREMIUMISE
Our range commands
higher margins
Consumers’ increasing disposable
WE SELL
Our distribution
platforms
Our markets combine off-trade
WE MARKET
Management of third
party brands
Our distribution, sales and marketing
income prompts growing demand for
distribution platforms with critical mass
capabilities combined with excellent
perceived higher quality, differentiated
and quality of commercial execution
legal and ethical compliance provides
spirits. We develop our brands
in the on-trade. We pride ourselves in
a strong platform for third party brand
and range continuously in selected
our management of customer and key
distributors. We have recently renewed
categories to provide consumers with
account relationships.
our contract with Diageo in the Czech
compelling reasons to pay more and
to build equity that can withstand
price competition.
Revenue from premium brands
Volumes (million 9 litre cases)
market and continue to strengthen
the Beam portfolio in Poland and
other markets.
Jim Beam % volume market share
of whisky in Poland
€56.6m
(2016: €47.2m)
13.1m
(2016: 12.3m)
9.5%
(2016: 7.3%)
Strategic Review
Governance
Financial Statements
09
WE MANUFACTURE
Our manufacturing
capabilities
We have world class manufacturing
WE REINVEST
Low financial
leverage
Our financial leverage allows the
WE GROW
M&A
capabilities
We have completed two bolt-on
capabilities in Poland, the Czech
Company to have an efficient capital
acquisitions since 2016 and have
Republic and Germany, able to produce
structure with headroom to support
financed both from our financing
high volumes to a high quality standard
organic and M&A projects. Our
facilities. In July 2017 we completed
with high levels of customer service.
cashflow conversion is also robust, for
the 25% investment in Quintessential
Having a centralised procurement team
the 2017 financial year we converted
Brands Ireland Whiskey Ltd, gaining
results in significant purchasing power.
86.3% of profits into cash.
access to premium brands in the highest
growth categories in our markets.
Speed of a Polish bottling line
(No. of bottles per hour)
44k
(2016: 42,000)
Leverage
0.94x
(2016: 1.16x)
Consideration paid:
€15m
(2016: €5m)
Our markets
Macro consumer trends contribute
to spirits value growth
10
€261.0m
€274.6m
2016
2017
€51.4m
€56.3m
2016
2017
The performance of spirits in our markets, as
in any other geography, is linked to shifts in
demographics, fluctuations in the performance
of local economies with the associated impact on
consumer confidence and disposable income, plus
the regulatory environment.
A number of positive underlying macro consumer
trends, outlined in more detail below, are
anticipated to contribute to spirits value growth
in our markets.
In the short term, disposable incomes may
fluctuate with economic and regulatory
circumstances, but the long term evolution of
our markets has seen a progressive growth in
standards of living and disposable income and with
them an expansion of consumer choice which is
positively impacting the demand for higher value
spirits in the region.
The sustainable growth of Stock Spirits reflects
our ability to identify and take advantage of these
trends by evolving our brand portfolio, supported
by consistent investment in brand communications,
innovation and operational capabilities.
Geographic breakdown Poland 54% Czech Republic 25% Italy 10% Other 11%€274.6mRevenue – by geography Total Group revenue€274.6m(2016: €261.0m)Adjusted EBITDA €56.3m(2016: €51.4m)Stock Spirits Group PLC Annual Report & Accounts 2017 Desire for affordable luxury
As disposable income grows, greater numbers of
Increased spirits consumption amongst
females and young adults
consumers in our markets are able to choose higher
Changes in society in our markets are prompting
quality products for which they are prepared to pay
greater consumption by female and young adult
more. They seek spirits from trustworthy brands of
drinkers and these consumers seek different tastes
better and more consistent quality than they were
and alcohol by volume to those available historically.
able to purchase historically. This can be through a
Flavoured spirits and relatively lower alcohol spirits
desire to display their own success, expertise, values
have grown faster than traditional spirits in recent
or lifestyle through their choice of brands, but the
years as females and younger adult drinkers seek
behaviour can also be driven by the desire to retain
easy drinkability and tastes which appeal to mixed
accessible everyday luxuries when economic times
gender groups of friends. There is also a growing
are challenging. Affordable, perceived high quality
desire for innovation and novelty as these consumers
brands remain the preferred choice and spirits can
see their drinks choice as a means of self-expression
be just such an affordable luxury.
and want to drink new and different flavours.
Diversification of drinking occasions
Growing confidence in local provenance
The number and variety of drinking occasions in
Immediately after the collapse of the old regimes
our markets is evolving over time, with a gradual
in Central and Eastern Europe, there was a limited
increase in “on the go” and “out of home” drinking
number of high quality brands of local provenance
occasions accompanying social change.
available, a sense that international brands were
These drinking occasions are a growing part of
consumption routines and open up opportunities
for different formats and pack sizes. At home
drinking is diversifying, with a move from traditional
meal associated usage to contemporary needs
such as connoisseurship, by choosing higher quality
spirits as a reward at the end of the day.
superior, coupled with a historical suspicion of
inconsistent quality and counterfeiting. Now that the
new economies are longer established and memories
of the old regimes are fading, there is a resurgence of
pride in local achievements, provenance and culture
and a dawning recognition that local brands can
be as good or superior to imported ones.
11
The new premiumised
Božkov Republica launched
in February 2018
Strategic Review GovernanceFinancial Statements Our markets continued
Macro consumer trends contribute
to spirits value growth
12
Local spirits remain the vast majority of spirits
volume in Central and Eastern Europe and there
Raised awareness of health and social
responsibilities
is a noticeable trend to drink better quality
exponents of those local spirits from trusted
brands and manufacturers. The fact that many
of these markets are “dark”, i.e. marketing
communications are strictly regulated and limited,
makes it harder for imported brands to build
share through the deployment of heavyweight
advertising investment in the fashion often
witnessed in other markets. In this context,
affordable, high quality local brands with
authenticity and provenance are well placed
to act as a bridge to the fulfilment of rising
consumer aspirations.
Increasing international mobility
Before the fall of the old regimes in Central and
Eastern Europe and the reunification of Europe,
A combination of government regulation and
increased consumer awareness of the health and
social responsibility issues associated with alcohol
consumption is prompting demand for lower
alcohol by volume spirits ranges and increased
consumption of spirits in longer mixed drinks,
rather than purely as shots, the traditional mode
of consumption in much of Central and Eastern
Europe. There is also a growth in consumer
interest in the use of perceived “natural” rather
than “artificial” ingredients, sourced where
possible, from identifiable, trustworthy local
producers. Spirits brands whose ranges include
lower alcohol by volume and versatile mixers and
which use natural ingredients are well placed to
take advantage of this trend.
international travel was extremely limited for
Spirits well placed to grow value sustainably
The combination of our aspirational brands,
wide range of innovative tastes, breadth of
options by alcohol content and flexible packaging
formats, mean Stock Spirits is well placed to grow
sustainably in our markets by continuing to meet
these evolving consumer needs.
the residents of our core markets, as were direct
encounters with other international cultures.
There were very limited visits to our markets by
foreign visitors. The situation is radically different
today and is likely to remain so going forward.
A combination of greater numbers of consumers
in our core markets travelling widely abroad for
work, education or pleasure, plus hugely increased
numbers of visitors from abroad visiting our
markets for the same reasons, is influencing local
drinking cultures. New usage categories and size
formats are developing in response to increased
international mobility.
Stock Spirits Group PLC Annual Report & Accounts 2017 Strategic Review
Governance
Financial Statements
Strategy in action
WE PREMIUMISE
Amundsen
Expedition
Stock Spirits saw an opportunity to
launch a top premium clear vodka with
multi-national appeal across all of its
wholly owned sales and marketing
operations. A great example of leveraging
Group synergies.
Comprehensive qualitative and quantitative multi-market consumer
research was conducted to determine the optimal liquid and brand
proposition to achieve this. The result was Amundsen Expedition vodka.
Amundsen Expedition combines a universally recognisable physical
benefit – the chilled, pristine purity of glacial water and the South Pole,
an idea understood by consumers across our markets, with an emotional
proposition with multi-national appeal, the desire for exploration,
discovery and new experiences.
Amundsen Expedition is the first Stock Spirits vodka to be distributed
in all of the markets where we have wholly owned sales and marketing
operations, and has leveraged Group synergies to enter top premium
vodka with a unified solution.
1st
vodka to be distributed in all of the markets where we
have wholly owned sales and marketing operations
13
Our business model
What we do
We reinvest
We see ample opportunities for
acquisitions to complement our
organic growth strategy.
We develop
We develop profitable new
products swiftly, to capitalise on
consumer trends and enhance
our core range.
14
We research
We undertake extensive market
research to understand emerging
consumer trends globally as well
as in our local markets.
We engage
Digital is a core channel, not only
for us to market our brands but
also to engage with consumers,
whose feedback informs our new
product development.
We sell
We employ dedicated sales teams
to serve the differing needs of
on-trade, off-trade and wholesale
customers.
We have wholly owned sales
and marketing operations in
Poland, the Czech Republic, Italy,
Slovakia, Croatia and Bosnia &
Herzegovina. We work with third
party distributors in 40+ other
countries.
We market
Our own 45+ brands span a
range of spirits including vodka,
vodka-based flavoured liqueurs,
rum, whisky, brandy, bitters and
limoncello.
We seek to offer profitable
products across price points and
supplement our in-house portfolio
with premium third party brands.
We source
We operate a central buying
function with the aim of sourcing
raw materials on the most
competitive terms.
We manufacture
We have 382 million litres of
bottling capacity at our two main
production sites in Poland and the
Czech Republic, and an ethanol
alcohol distillery in Germany that
provides more than half of the
Group’s alcohol requirements.
We also operate a small distillery
in the Czech Republic.
Stock Spirits Group PLC Annual Report & Accounts 2017 How we think
Mixing global FMCG best practices and local insights to create
value for our stakeholders.
Investment to grow
From development of our people to
investment in consumer and customer
insights, IT and marketing support,
we allocate resources to drive the
sustainable, profitable growth of
the Group.
Efficiency
We seek to optimise efficiency
– whether in our operations,
marketing, the utilisation of
our working capital or our
financing strategy – but without
compromising quality.
Responsibility
Ethical practices, sustainability
and providing opportunities for
our colleagues are important to us,
and we work hard to promote a
responsible attitude to drinking.
Continuous improvement
We aim to ensure that our product
quality and operational processes
are of the highest standard and
constantly seek to improve.
Accountability
We have cascaded accountability for
shareholder value and profitability
throughout the Group.
To read more about our strengths,
see Why invest in Stock Spirits? on page
08
We deliver...
Financial
performance
Financial
strength
Market
position
Read more about our Key Performance Indicators on page
18
Strategic Review GovernanceFinancial Statements Our strategy
Looking out to 2020
Four priorities for growth built upon a strong foundation.
Premiumisation
Millennials
Meaning
16
Ensuring brand equity is increased, driven
by clear brand marketing strategies and
positioning of our brands, that enables us
to command higher price positions
Increased awareness and focus on this
valuable segment of consumers
Aim
30% of Group revenue to come from
premium brands
Attract internationally-minded
consumers to our local brands
How
• Whisky strategy
• Marketing insight investment
• New Product Development (NPD) process
• Provenance of local brands
• World class brand partners
• High Potential (HIPO) management pipeline
A solid foundation forged from:
Strong governance
• compliance
• ethics
•
transparency
Engaged people
• empowerment
•
•
talent management
line of sight
Stock Spirits Group PLC Annual Report & Accounts 2017 At the IPO in 2013, the Group’s strategy could be summarised as:
1.
2.
Further develop a strong brand portfolio
in existing markets
Utilise purchasing and production capabilities to
deliver quality products with a competitive cost
advantage
3. Expand distribution capability
4.
Invest in people and develop management talent
5.
Invest in markets with strong growth potential
6.
Pursue acquisition opportunities across
Central and Eastern Europe
Digital
M&A
Using digital marketing to underpin brand
execution and to engage and keep pace with
consumer habits
Looking at larger, more strategic opportunities
to deliver growth and shareholder value for
the future
17
Regularly communicating with 75%
of targeted consumers through digital
channels
Consider larger, more transformational
M&A opportunities
• Combined IT/digital strategy
• Common digital marketing architecture
• Digitalised processes
• Cost and growth synergies
• Brand portfolio enhancement
• Geographic expansion
• Strategic move
Focused resources
• sales and operational planning
(S&OP) process
•
insight-driven
• strategic planning
Small company agility
• flat structures
• devolved responsibility
• speed
Strategic Review GovernanceFinancial Statements Key performance indicators (KPIs)
Measuring our success
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.
Financial Performance
Volumes of product
sold
Why we measure it:
To ensure that we are growing
the business in a balanced
manner.
Total clear vodka volume
millions 9 litre cases
2017
2016
6.0
5.4
Total other volume
millions 9 litre cases
2017
2016
7.1
6.9
Total other volume
millions 9 litre cases
18
13.1m
12.3m
Total Group revenue
Why we measure it:
To ensure that we are growing
the revenue of the business.
Total Group revenue
€274.6m
(2016: €261.0m)
EPS
Why we measure it:
To provide a measure of
underlying shareholder value,
excluding exceptional items.
EPS (basic)
€cents per share
6
2017
2016
EPS (basic adjusted)
€cents per share
2017
2016
14
16
14
Adjusted EBITDA
& adjusted EBITDA
margin1
Why we measure it:
To track the underlying
performance of the business
and ensure that sales growth
is translated into profit.
Adjusted EBITDA1
€m
2017
2016
56.3
51.4
Adjusted EBITDA margin
%
2017
20.5
2016
19.7
2016
2017
Source(s)
1. Stock Spirits Group uses alternative performance measures as key financial indicators to assess the underlying performance of the Group. These
include adjusted EBITDA, free cashflow (note 7) and adjusted basic EPS (adjusted for exceptional items; note 14). The narrative in the Annual
Report & Accounts includes these alternative measures and an explanation is set out in note 7 to the consolidated financial statements included in
the Annual Report & Accounts
2. Net debt is defined as bank borrowings plus finance leases less cash and cash equivalents
13.1mStock Spirits Group PLC Annual Report & Accounts 2017
The Group retains very strong liquidity, significant headroom in our
borrowings and a robust balance sheet, providing us with the financial
strength to take the business forward and deal with shocks.
Financial Performance
Financial Strength
Market Position
Leverage
Value market share
Why we measure it:
Why we measure it:
To ensure that we have an
efficient capital structure with
headroom to support organic
and inorganic growth. This is an
important measure for both our
banks and shareholders.
Net debt2 /Adjusted EBITDA1
0.94
(2016: 1.16)
To maintain focus on growing value,
not just volume at any expense.
Poland3
2017
2016
26.7%
26.6%
Czech Republic4
33.6%
32.1%
2017
2016
Italy5
2017
5.6%
2016
5.7%
19
Adjusted free
cashflow conversion1
Why we measure it:
To ensure that we are converting
profit into cash.
Adjusted free cashflow as %
of adjusted EBITDA1
94.1%
86.3%
2016
2017
% of revenue from
premium brands
Why we measure it:
To ensure brand equity is
increased, that enables us to
command higher price positions.
Revenue from premium brands
%
2017
2016
21.6
18.7
Volume market share
Why we measure it:
To ensure that we measure
our underlying market position
relative to our competitors.
Poland3
2017
2016
26.0%
25.3%
Czech Republic4
2017
2016
Italy5
2017
6.0%
2016
6.1%
36.6%
34.2%
3. Nielsen, total Poland, total off-trade, total vodka, flavoured vodka & vodka-based liqueurs MAT
volume and value December 2017
4. Nielsen, total Czech Republic, total off-trade, total spirits, MAT volume and value December 2017
5. IRI retail sales data, total Italy, total modern trade and discounters and C&C, total spirits, MAT
value and volume December 2017
Strategic Review GovernanceFinancial Statements
Principal risks and uncertainties
Our internal controls framework
mitigates the risks
Viability statement
The Directors have assessed the viability of the Group
This assessment has considered the potential impacts of
over a three-year period and confirm that they have a
these risks on the business model, future performance,
reasonable expectation that the Group will continue
solvency and liquidity over the period. Whilst this review
to operate and meet its liabilities, as they fall due. The
does not consider all of the risks that the Group may face,
Directors have determined that the three-year period
the Directors consider that this stress-testing based
to December 2020 is an appropriate period over which
assessment of the Group’s prospects is reasonable in
to provide its viability statement, after taking into
the circumstances.
consideration a number of factors, including that the
Group’s strategic planning process covers a three-year
period and that the spirits industry is considered to be
20
non-cyclical.
Approval of Strategic Report
The Strategic Report comprising pages 1 to 49 was
approved and signed on behalf of the Board.
The Directors’ assessment has been made with reference
to the Group’s current position, the Group’s strategy, the
Board’s risk appetite and the principal risks facing the
Group in severe but plausible scenarios, taking account of
Mirek Stachowicz
the velocity of the risk impact and the effectiveness of any
Chief Executive Officer
mitigating actions, including insurance, as detailed above.
The strategy and associated principal risks underpin the
Group’s three-year plans and scenario testing, which the
7 March 2018
Directors review annually.
Principal risks and uncertainties
Stock Spirits believes the following to be the principal risks facing its
business and the steps we take to manage and mitigate these risks.
Risks are identified and assessed through a combined bottom-up and
top-down robust assessment, as explained in the Corporate governance
framework section of this Annual Report on page 55. If any of these
risks occur, Stock Spirits’ business, financial condition and performance
might suffer and the trading price and liquidity of the shares may
decline. Not all of these risks are within our control and this list cannot
be considered to be exhaustive, as other risks and uncertainties may
emerge in a changing business environment.
Risk level
change key
Risk
rating key
HIGHER
LOWER
LEVEL
HIGH
MEDIUM
LOW
Stock Spirits Group PLC Annual Report & Accounts 2017 Risk description and impact
Change
in 2017
How we manage and mitigate
Risk
rating
Economic and political change, including Brexit
The Group’s results are affected by overall
economic conditions in its key geographic markets
and the level of consumer confidence and spending
in those markets. The Group’s operations are
primarily in Central and Eastern European markets
where there is a risk of economic and regulatory
uncertainty. In the Group’s experience, the
local laws and regulations in the region where
it operates are not always fully transparent, can
be difficult to interpret and may be applied and
enforced inconsistently. In addition, the Group’s
strategy involves expanding its business in several
emerging markets, including in certain Central and
Eastern European countries that are not members
of the European Union. Political, economic and
legal systems and conditions in emerging market
economies are generally less predictable.
The extent of the economic and political instability
created by Brexit remains difficult to predict.
Taxes
Increases in taxes, particularly increases to excise
duty rates and VAT, could adversely affect demand
for the Group’s products.
Demand for the Group’s products is particularly
sensitive to fluctuations in excise taxes, since excise
taxes generally constitute the largest component of
the sales price of spirits.
The Group may be exposed to tax liabilities resulting
from tax audits: the Group has in the past faced,
currently faces and may in the future face, audits and
other challenges brought by tax authorities. Changes
in tax laws and related interpretations and increased
enforcement actions and penalties may alter the
environment in which the Group does business. In
addition, certain tax positions taken by the Group
are based on industry practice and external tax
advice and/or are based on assumptions and involve
a significant degree of judgement.
Strategic transactions
Key objectives of the Group are: (i) the
development of new products and variants; and
(ii) expansion, in the Central and Eastern European
region and certain other European countries,
through the acquisition of additional businesses.
Unsuccessful launches or failure by the Group to
fulfil its expansion plans or integrate completed
acquisitions could have a material adverse effect
on the Group’s growth potential and performance.
Brexit uncertainty
continues, though the
impact on our business is
limited so far: the ongoing
weakening of Sterling
following Brexit has had
a favourable impact on
translation of results of
our UK business.
We monitor and analyse economic
indicators and consumer consumption
trends, which in turn influences our
product portfolio and new product
development.
The majority of countries that we
currently operate in are part of the
European Union, and therefore are
subject to EU regulation. We monitor
the economic conditions within each
market and review our product portfolio,
route to market and adjust our position
accordingly.
We continue to monitor the impact of
Brexit and will react promptly as we
consider appropriate. Given that we do
not produce or export from the UK, we
continue to believe the impact of Brexit
upon the Group will not be significant.
In addition to the ongoing
tax inspections in Italy,
Czech and Poland that
were disclosed in last
year’s Annual Report &
Accounts, during 2017
our German subsidiary
received notification from
the German tax authorities
of the commencement
of a tax audit covering its
2014 and 2015 corporate
income tax return. To date,
no tax assessment has
been received in respect
of this open audit.
Through our membership of local market
spirits associations we seek to engage
with local tax and customs authorities as
well as government representatives and,
where appropriate, provide informed
input to the unintended consequences
of excise increases e.g. growth of illicit
alcohol and potential harm to consumers.
The Group engages the services of a
professional global firm of tax advisors
and undertakes regular audits of our
own tax processes, documentation
and compliance. We aim to operate
the business in a tax-efficient and
compliant manner at all times. We
make appropriate provisions where
tax liabilities appear likely.
Our NPD process has
delivered successful
innovations, including Black
Fox herbal bitter liqueur
in Czech during 2017.
We continuously seek to
strengthen our portfolio.
During 2017, we
acquired a 25% stake in
Quintessential Brands
Ireland Whiskey Ltd,
giving us significant equity
interest in the fast growing
Irish Whiskey category.
We continue to seek value-accretive
acquisition targets and have an
experienced management team capable
of exploring, pursuing and executing
transaction opportunities swiftly and
diligently, however the owners of target
businesses may have price expectations
that are beyond the valuation that
we can place on their business. If we
are unable to complete meaningful
acquisitions, we will consider distributing
surplus cash to shareholders.
21
Strategic Review GovernanceFinancial Statements Principal risks and uncertainties continued
22
Risk description and impact
Consumer preferences
Shifts in consumer preferences may adversely affect
the demand for the Group’s products and weaken the
Group’s competitive position. A decline in the social
acceptability of the Group’s products may also lead to
a decrease in the Group’s revenue. In some countries
in Europe, the consumption of beverages with higher
alcohol content has declined due to changing social
attitudes towards drinking (see Our Markets section).
Talent
The Group’s success depends substantially upon the
efforts and abilities of key personnel and its ability to
retain such personnel. The executive management team
has significant experience and has made an important
contribution to the Group’s growth and success. The
loss of the services of any member of the executive
management team of the Group or of a company
acquired by the Group, could have an adverse effect
on the Group’s operations. The Group may also not be
successful in attracting and retaining such individuals in
the future.
Marketplace and competition
The Group operates in a highly competitive environment
and faces competitive pressures from both local and
international spirits producers, which may result in
pressure on prices and loss of market share. This has
been particularly evident in Poland historically (see
Chief Executive’s statement). Changes in the Group’s
distribution channels may also have an adverse effect on
the Group’s profitability and business.
A significant portion of the Group’s revenue is derived
from a small number of customers. The Group may not be
able to maintain its relationships with these customers or
renegotiate agreements on favourable terms, or may be
unable to collect payments from some customers, which
will lead to an impact in its financial condition.
The Group is also dependent on a few key products in a
limited number of markets which contribute a significant
portion of its revenue.
Change
in 2017
How we manage and mitigate
Risk
rating
Overall, there has
been little change in
consumer preferences
during 2017, although
our Keglevich
brand continues to
suffer from ongoing
changes in its target
consumers’ habits
resulting from poor
macro-economic
conditions in Italy.
During the year
we continued to
strengthen our
management
team with new
appointments in
digital marketing,
NPD, operations,
legal and finance.
In Poland, we
continued to respond
to price reductions
by competitors and
demonstrated our
resilience by growing
our market share
in key categories
without a significant
impact on our profit
margins.
The Group undertakes extensive
consumer research and has a track
record of successful new product
development to constantly meet
changing consumer needs. We have
developed a range of lower alcohol
products and feel confident that we have
the expertise to continue to develop
products that meet and satisfy consumer
needs.
The Group operates a competitive
remuneration policy that aims to retain,
motivate and, where necessary, attract
key individuals. We have developed a
leadership framework to guide our talent
management and a formal succession
planning process to mitigate the risk
of losing key personnel.
The Group has mechanisms and
strategies in place to mitigate the
damage of profit erosion but there
is no assurance they may work in
the economies and competitive
environments in which we operate.
We constantly review our distribution
channels and our customer relationships.
We understand the changing nature
of the trade channels and customer
positions within those channels. We
trade across all channels and actively
manage our profit mix by both channel
and customer.
We have well-established credit control
policies and procedures and we put in
place trade receivables insurance where
it is cost effective to do so.
Stock Spirits Group PLC Annual Report & Accounts 2017 Risk description and impact
Exchange rates
The Group’s business operations and results reported in
Euros are subject to risks associated with fluctuations in
currency exchange rates.
The Group generates revenue primarily in Polish Złoty
and secondarily in Czech Koruna and a large portion of
the Group’s assets and liabilities are denominated in Złoty
and Koruna.
The Group’s non-trading activities are conducted through
its Corporate Office in the UK and are mainly transacted
in GB Pounds.
Additionally, the Group’s financial covenants are tested in
Euros. Consequently, movement in the other currencies
in which the earnings, assets and liabilities of the Group’s
subsidiaries are denominated could adversely impact the
Group’s ability to comply with these financial covenants.
See Financial Review section for more detail about the
impact of foreign exchange.
Disruption to operations or systems
The Group’s operating results may be adversely affected
by disruption to its production and storage facilities, in
particular its main production facilities in Poland and the
Czech Republic, or by a breakdown of its information or
management control systems.
Change
in 2017
How we manage and mitigate
Risk
rating
During the year, the
majority of foreign
exchange exposure
reported within
operating profit arose
on the devaluation
of the British Pound,
which reduced
corporate office costs
on a translated basis.
The Group aims to hedge transaction
risk by matching cashflows, assets and
liabilities through normal commercial
business arrangements where possible.
For example, all debt is currently drawn
in local currency by market.
For locations where we have non-trading
activities, there is a limitation on the
natural hedging that is available to cover
currency exchange risk.
We monitor currency exposure as an
integral part of our monthly review
process and, where appropriate,
implement hedging instruments.
23
During 2017,
we experienced
an equipment
malfunction in our
Baltic distillery,
which resulted in
the temporary shut
down of production
at that site. However,
contingency plans
were enacted, and no
disruption was caused
to our business.
In addition to holding appropriate
insurance cover to protect the business
in the event of a production disruption
or other business interruption, our two
primary bottling sites offer sufficient
flexibility that each site is capable of
bottling all of our core SKUs.
We also have well-established and
tested Business Continuity and Disaster
Recovery policies. Our information and
management control systems are subject
to internal audit following a risk-based
methodology. We also periodically
engage independent specialists to assess
and test the security and resilience of
our network against hacking and other
cyber threats, which include penetration
testing.
Risk level
change key
Risk
rating key
HIGHER
LOWER
LEVEL
HIGH
MEDIUM
LOW
Strategic Review GovernanceFinancial Statements Principal risks and uncertainties continued
Risk description and impact
Laws and regulations
The Group is subject to extensive laws and regulations
limiting advertising, promotions and access to its
products, as well as laws and regulations relating to its
operations, such as health, safety and environmental laws.
These regulations and any changes to these regulations
could limit its business activities or increase costs. In
some cases, such as the recent introduction in Poland of
restrictions on retailers trading on Sundays, the changes
in law impact the Group indirectly.
The Group may be affected by litigation directed at the
alcoholic beverages industry and other litigation such
as intellectual property disputes, product liability claims,
product labelling disputes and administrative claims.
The Group may be exposed to civil or criminal liabilities
under anti-bribery or anti-trust laws and any violation
of such laws could have a material adverse effect on its
reputation and business.
24
Supply of raw materials
Changes in the prices or availability of supplies and raw
materials could have a material adverse effect on the
Group’s business. Commodity price changes may result
in increases in the cost of raw materials and packaging
materials for the Group’s products due to a variety of
factors outside the Group’s control. The Group may not
be able to pass on increases in the costs of raw materials
to its customers and, even if it is able to pass on cost
increases, the adjustments may not be immediate and
may not fully offset the extra costs or may cause a decline
in sales volumes.
Change
in 2017
How we manage and mitigate
Risk
rating
The Group has established clear
processes and controls to monitor
compliance with laws and regulations,
and changes to them, and also any
litigation action. We operate a detailed
anti-bribery and anti-trust policy and
process. Regular update training is
conducted across the business and we
undertake regular reviews to assess
the adequacy and effectiveness of our
policies and processes.
Where possible and appropriate the
Group will negotiate term contracts for
the supply of core raw materials and
services on competitive terms to manage
pricing fluctuations.
Preparations for
the implementation
of the EU General
Data Protection
Regulations in May
2018 are in progress.
The EU is currently
considering regulatory
changes that would
prohibit or restrict
the use of a particular
rum aroma that is
currently used in our
Božkov tuzemsky
product in Czech
Republic. Through
the Czech spirits
industry association
and the relevant
Czech government
departments, we have
closely monitored and
participated in the
process and, although
the final outcome
is not yet clear, we
do not anticipate a
significant impact
upon our business.
Our cost optimisation
initiatives in
procurement,
including more
centralised
purchasing, have
allowed costs of
goods to remain
largely flat.
Stock Spirits Group PLC Annual Report & Accounts 2017 Risk description and impact
Funding and liquidity
Change
in 2017
How we manage and mitigate
Risk
rating
Market conditions could subject the Group to unexpected
needs for liquidity, which may require the Group to
increase its levels of indebtedness. Access to financing
in the longer term depends on a variety of factors
outside the Group’s control, including capital and
credit market conditions.
Significantly lower
finance costs
continued during
2017 as a result of
the refinancing of
bank facilities in 2015.
Higher interest rates and more stringent borrowing
requirements could increase the Group’s financing
charges and reduce profitability.
The Group maintains a strong focus
on cash, our future requirements for
funding and the overall external market
for financing. We undertake regular and
detailed reviews of both short-term and
longer-term liquidity requirements by
market, including our growth ambitions.
We are confident that we have the
appropriate processes and relationships
in place to respond to any unexpected
liquidity needs and have not only
secured lower cost and more flexible re-
financing, but have also placed ourselves
in the best position to access funding in
the longer term.
25
Risk level
change key
Risk
rating key
HIGHER
LOWER
LEVEL
HIGH
MEDIUM
LOW
Strategic Review GovernanceFinancial Statements Chief Executive’s statement
2017 was a year of stabilisation
and turnaround, producing
encouraging tangible results
Stabilisation involved embedding changes set in motion since 2016.
Some of this change enabled the re-allocation of
a restructured sales team and driving efficiencies
resource to the front-end of the business.
across the entire organisation. We invested in
Turning around Poland was 2017’s top priority,
Poland, and we are seeing positive results.
through a combination of aligned pricing,
26
Introducing our four
strategic pillars
Premiumisation
Ensuring brand equity is increased, driven
by clear brand marketing strategies and
positioning of our brands, that enables us
to command higher price positions
Millennials
Increased awareness and focus on this
valuable segment of consumers
Digital
Using digital marketing to underpin brand
execution and to engage and keep pace
with consumer habits
M&A
Looking at larger, more strategic
opportunities to deliver growth and
shareholder value for the future
See our Strategy on page
16
Mirek Stachowicz
Chief Executive Officer
Stock Spirits Group PLC Annual Report & Accounts 2017 Volume: 9 litre cases
13.1m
(2016: 12.3m)
Total Revenue
€274.6m
(2016: €261.0m)
Group financial performance
consumers are up-trading to more premium and
Evidence of stabilisation and turnaround is in
the results: growth in volume, share, revenues,
profitability and cashflow. The balance sheet
strengthened further, as net debt was reduced,
and financing facilities were extended.
Turnaround in Poland
Our first focus was embedding the changes
initiated in 2016, chiefly under the “Root &
Branch review”. This included strengthening
and optimising our entire business to better
compete in an intensely competitive market.
prestige brands, reflecting growing affluence.
We benefit from this, given our brands’ strong
positions in premium price segments. Flavoured
vodka has traditionally seen less premiumisation
and so represents an opportunity, particularly as it
grows ahead of the overall vodka category.
The traditional trade remains the key vodka trade
channel, and one competitor’s effective withdrawal
from direct involvement in this prominent channel
presents another opportunity for us.
In terms of our brands, our priority was
To keep competitive, we had to further engage
distribution-build and consumer-activation over
in the pricing re-alignment that the market has
new product development (NPD). Our NPD
experienced since 2014, as our primary competitor
focused on Saska flavour extensions and re-
continued an aggressive pricing strategy. Working
launching Stock 84 brandy.
with customers, we adjusted pricing architecture
on selected products to stay competitive in on-
shelf pricing. This, along with better execution in
the trade, is the major driver of 2017’s results.
We continued to grow share in volume and value
since December 2016, while monitoring the
clearly divergent strategies, not to mention mixed
fortunes, of our two main competitors.
Our biggest brand, Żołᶏdkowa de Luxe, returned
to growth in sales, out-performing both the overall
and clear vodka categories. Most of the growth
came from the traditional trade. Żołᶏdkowa
Gorzka responded well to activation programmes
directed at younger adult drinkers. We continue
to strengthen Stock Prestige, for example with the
exclusive limited edition Stock Prestige Carbon.
Whilst these results are encouraging, we remain
Above it, in top premium, Amundsen Expedition
vigilant and the market, though stable, has yet to
continues to grow. We achieved more effective
see upward pricing, as the market leader remains
price execution on our economy brands Żubr and
highly competitive.
The economy supported growth, with rising average
incomes. Though the Government will restrict
Sunday trading in 2018, we expect limited impact.
1906, as well as introducing a 9cl variant. In the
flavoured vodka sub-category, impressive growth
from the more premium Stock Prestige flavours
and Saska could not raise our share given slower
growth on Żołᶏdkowa Gorzka and the decline in
The vodka market continues to grow, and it
Lubelska sales.
remains, by far, the largest spirits category. Clear
vodka is the main variant. Despite the aggressive
pricing in economy and mainstream segments,
Our distribution arrangement with Beluga Group,
now in its second year, saw the brand Beluga out-
perform the ultra-premium segment.
27
Strategic Review GovernanceFinancial Statements Stock Spirits Group PLC
Stock Spirits Group PLC
Annual Report & Accounts 2017
Annual Report & Accounts 2017
Strategy in action
28
WE REINVEST
Irish Whiskey
acquisition
Stock Spirits Group PLC entered agreements with
Quintessential Brands Group for the acquisition
of a 25% equity interest in Quintessential Brands
Ireland Whiskey Limited (QBIW).
QBIW owns The Dublin Liberties® and The Dubliner Irish Whiskey® brands,
a range of ultra-premium through to standard Irish whiskies, on sale in over
30 countries. The Dubliner Irish Whiskey was the fastest growing Irish
whiskey globally in 20161.
Whisky is one of the fastest growing categories across the Group’s markets2.
This investment allows the Company to capitalise on the trend and to enhance
our whisky expertise.
We have already developed strong whisky category management capabilities
through distribution agreements with our established whisky brand owner partners.
The QBIW brands are highly complementary to that portfolio.
+15.5%
Irish whiskey category volume CAGR in Stock
markets over last five years3
Source(s)
1.
2.
3.
IWSR 2016, Irish whiskies with <1 litre recorded shipments in both 2015 and 2016.
Year on year % volume growth
IWSR 2016, % volume growth by spirits category in Stock Spirits Group wholly owned distribution
markets (i.e. aggregate of Poland, Czech Republic, Slovakia, Italy, Croatia and Bosnia Herzegovina)
IWSR 2016, % volume CAGR of Irish whiskey category in Stock Spirits wholly owned distribution
markets (i.e. aggregate of Poland, Czech Republic, Slovakia, Italy, Croatia and Bosnia Herzegovina)
Stock Spirits Group PLC Annual Report & Accounts 2017 Chief Executive’s statement continued
In the trade, our brands continue to be celebrated,
The Pražská, Nordic Ice and Dynybyl brands
with prizes for the Lubelska range, Lubelska
acquired in 2016, and integrated ahead of plan,
Cytrynówka, Żołᶏdkowa Gorzka, Żołᶏdkowa de
significantly contributed to our growth in the vodka
Luxe and Żołᶏdkowa de Luxe Peppercorn.
category, as well as our Czech results overall.
Whisky, though a much smaller category,
The Black Fox launch was a strategic entry
experienced strong growth and its profit pool
with a new brand into the premium herbal
now exceeds flavoured vodka. The Beam-Suntory
bitters category at a time of intensifying price-
whisky brands, especially Jim Beam, rapidly grew
competition. The launch highlights increased use
share in the sub-category and beat Jack Daniels
of digital marketing in our campaigns.
to number four position by volume. We see
great interest in Irish whiskey and we will exploit
opportunities through distribution of The Dubliner
and The Dublin Liberties brands.
Our important relationship with Diageo delivered
well for both partners, and is being extended
into 2019, with our leading distribution helping
Diageo to be the 2nd fastest growing spirits
Following the significant changes in 2016,
company in the market. Building on this successful
our Polish organisation benefitted from stable
relationship, we gained approval to distribute
management through the year. We continued to
Beam-Suntory products and to explore synergies
up-skill our salesforce, improving sales execution
that exist between these two complementary
capabilities. We strengthened our modern trade
portfolios. With the Diageo, Beam-Suntory and
sales team to work more closely with customers
Quintessential Brands Irish Whiskey portfolios
and step up intensity and quality of promotions.
leveraging our Czech distribution, we will have the
Progress in the Czech Republic
Our Czech business delivered another set of
robust results, extending leadership in the
overall market. The spirits category continues
to grow in volume and value, supported by the
economy performing well, with earnings rising.
This delivered growth, especially in the premium
off-trade. The on-trade was impacted by increased
smoking restrictions.
We see aggressive pricing across some sub-
categories, and monitor positions closely and
take actions as necessary, for example where
strongest range of third party brands covering all
segments of the growing whisky category.
The impact from a possible EU ban on certain
ingredients in rum ether is being managed, and we
anticipate limited impact, given our plans in hand.
Challenges in Italy
The Italian market continues to be challenging
and high young-adult unemployment continues
to impact our brands, primarily Keglevich, but we
detect some optimism recently. The overall spirits
category grew slightly, mainly through limoncello,
gin and aperitifs, with pricing offsetting flat
we strengthened category-management in the
volumes overall.
modern trade.
Božkov returned to growth – strengthened by focus
and investment, including new Božkov Tradicni
and Božkov Bily variants providing incremental
share. The brand won the “Most Trusted Spirits
We launched Syramusa, an ultra-premium
Limoncé extension to consolidate our leadership
in limoncello. The iconic Stock 84 brandy was
re-launched with overt on-trade focus. The premium
XO variant performs well, enabling us to remain in
Brand” award for the second successive year. It also
2nd place in the brandy category.
delivered better profitability and share growth.
As a result of the challenging environment, the
Italian business’ value suffered impairment (further
details are provided by Paul in the Financial
Review), a risk we had highlighted at the half year.
29
Strategic Review GovernanceFinancial Statements Chief Executive’s statement continued
Our relationship with Beluga continued to deliver
growth in the ultra-premium vodka sub-category.
Other markets
There was good performance in Croatia. Our focus
is in the on-trade and distribution was extended
beyond the Beam-Suntory relationship to include
Beluga Group, Bortran rum and Bols.
Stock 84 brandy became the biggest spirits brand
in Bosnia. It benefitted from the re-vamp, seeing
growing appeal amongst young adult drinkers,
especially in the on-trade. Bosnia also benefitted
from a new Beluga distribution agreement.
Innovations
30
Whilst Keglevich retains leadership in clear vodka
The Group's NPD process was strengthened
Ultra premium spirits
with a strong brand
appeal to millennials
and it extended its leadship in flavoured vodka, this
during the year in order to help extend our reach in
sub-category is declining. In late 2017 we brought
premium and higher price segments. The improved
to market our re-vamped Keglevich fruit variants,
process aims to reduce the number of new launches
to better fit the changing preferences of the young
whilst increasing their impact and speed to market,
adult consumers. This was the initial step of a multi-
thus providing a better return from investment.
year program to strengthen the Keglevich brand.
Operations and supply chain
Nuove Distillerie Vicenze, a liqueur business,
We continue to develop our excellent supply chain
was added as a distribution partner in November,
to further leverage our core competitive strengths of
as was Nordés Gin. The organisation was further
productivity, smart cost management and technical
restructured, investing more in the salesforce,
talent. This delivered further efficiencies and
especially in the on-trade. Though we made
effectiveness and contributed to our overall success.
encouraging progress in the modern trade, our
We invested across people, facilities, processes
insufficient scale hampers results.
Strong results in Slovakia
and systems. We are now well-invested, and future
investment focuses on safety and quality.
This business delivered to expectation, with
Sales and operations planning development was a
solid performance by the Golden Ice range
major enabler of improved performance, integrating
strengthening our position in the premium fruit
all disciplines and markets to drive us forward. Our
spirits sub-category.
operations team won awards in Poland:
To penetrate the premium profit pool further,
• BRC Food and IFS Food Certification (the first
we signed a distribution agreement with
spirits producer to gain both accreditations), and
Beam-Suntory here also. Combining our distribution
•
‘Employer – Organiser of Safe Work’ (from PIP,
capability and Beam-Suntory’s strong investment in
the State Labour Inspectorate).
Jim Beam, we delivered pleasing results.
During the year we suffered an equipment failure
With the Jim Beam, Distell and Quintessential
in our Baltic distillery. Though spirits production
Brands Irish Whiskey portfolios under our
distribution, we now have a range of brands
was interrupted for a brief period, our businesses
were able to operate as normal. The distillery has
covering the rapidly growing whisky category.
since returned to normal operations.
Stock Spirits Group PLC Annual Report & Accounts 2017 Technology
Our strategy
We continue to invest in technology, leveraging
With the turnaround of our Polish business
prior investments made under the “One Network”
underway, we carried out a comprehensive
strategy. Our cyber security kept the business
review of the Group's strategy during the latter
safe, and we stay focused on security.
half of the year. We concluded that the strategy
We completed the first phase implementation
of a software-defined Wide Area Network
(WAN) which has improved service levels. The
second phase will deliver a “Tier 3” datacentre to
house critical technology. As we extend digital
capabilities across our business, we will have a
technology base and capability underpinning this.
The group-wide Intranet, StockNet, was launched
to provide a collaborative platform to quickly
share and deliver further digitalisation. A unified
communicated at the time of the IPO remained
valid, but that developments in our key markets
since then mean that there is a greater need than
ever before to focus on our brands in order to keep
pace with the changing needs and tastes of our
end consumers. Our focus now is therefore on four
pillars of growth: Premiumisation, Millennials, Digital
and M&A. These are supported by a foundation
of engaged and empowered talent, effective
processes, smart resource allocation and world
class partners bringing complementary strengths.
communications suite delivers continued savings in
Further detail is set out on pages 16 and 17.
travel, whilst enabling more engagement through
virtual meetings. Progress to a single group-wide
SAP platform continues.
Our people
StockNet is an effective and exciting mechanism
engaging and energising us into a more aligned
workforce. Through this we leverage the full
power of our people wherever they are. StockNet
was used to conduct our first ever Employee
Engagement Survey. We welcomed high
participation and are studying the feedback.
Our partners
The Group's partnership with Beam-Suntory
was extended beyond Poland into the Czech
Republic and Slovakia and we have mentioned
our continuing partnership with Diageo. There
is a new agreement in place with Beluga Group
to distribute the ultra-premium vodka Beluga in
Croatia and Bosnia. We also changed our route to
market in the UK and moved distribution of our
brands to Distell International.
Following investment in Quintessential Brands’
Irish whiskey business, we have secured the
right, from the owners of our existing whiskey
agency brands, to distribute the brands from the
investment where the brand range will enrich our
portfolios around the Group.
M&A
To penetrate faster growing profit pools, a 25% stake
was taken in Quintessential Brands Ireland Whiskey
Limited, producer of “The Dubliner” and “The Dublin
Liberties” whiskies. The former was the world’s
fastest growing Irish whiskey in 2016. Quintessential
is the second biggest spirits supplier in the UK and
has global reach, selling in over 30 countries. We
expect our investment to be earnings accretive
by 2021, as their new Dublin distillery becomes
operational in 2018.
Outlook
With a strengthened team and a more resilient
Polish business, combined with a strong balance
sheet and cashflow generation, we are
well placed to exploit opportunities
to expand our business.
Mirek Stachowicz
Chief Executive Officer
7 March 2018
31
Strategic Review GovernanceFinancial Statements Regional reviews – Poland
Tangible results from delivering
a turnaround plan in a
competitive market
32
% of Group revenue
54%
(2016: 53%)
Revenue €m
€147.7m
(2016: €136.9m)
Adjusted EBITDA €m
€37.7m
(2016: €35.9m)
Value market share
26.7%
26.6%
2016
2017
Poland is the Group’s largest market in terms of
revenue and profit. The success of Stock Polska is
the highest priority for the Group.
During 2017 the Polish economy grew steadily at
above 4% and average salaries continued to rise,
increasing Polish consumers’ purchasing power.
These positive macro trends were reflected in
continued growth from the vodka category, still by
far the largest spirits category in Poland (c. 80%
of total spirits volume1). Total vodka value grew
+1.7% during 2017, remaining marginally ahead of
volume growth at +1.5%2.
Growth was driven by the flavoured sub-category,
at +9.5% value. Clear vodka’s slight value decline
continued at -1.0%.
The largest channel, the traditional trade,
continues to outperform the market, achieving
+3.2% value growth in marked contrast to the
modern trade where value declined -1.0%.
The ultra-premium (+25.4%), top international
premium (+6.5%) and premium vodka segments
(+2.9%) remained in strong growth ahead of
the total market, dispelling the myth that vodka
in Poland has become commoditised. The
mainstream segment continued to steal share from
economy, achieving value growth well ahead of
Stock Spirits Group PLC Annual Report & Accounts 2017 the category at +3.0%, whilst economy remained
Whilst Stock Polska grew its total flavoured
in severe decline at -9.2% value. Competitive
category volume and value versus last year,
prices on the leading mainstream brands have
achieving impressive growth on premium-priced
switched consumers from economy to higher
Stock Prestige Flavours (volume +36.6%) and
perceived value mainstream, in what is now
Saska Flavours (+47.2%), a return to growth ahead
effectively a single price segment.
of the flavoured category will require further
Core brands
Stock Polska out-performed the market in the
clear vodka category, driving progressive share
gains. A significant contributor was the return
to growth of our largest core brand by volume,
Żołądkowa de Luxe, whose total volume grew
+2.9%, well ahead of the clear vodka category.
Żołądkowa de Luxe’s volume recovery has been
driven in the traditional trade, the largest trade
channel, where at +6.2%, it is well ahead of total
clear vodka growth at +1.4%2.
Żołądkowa Gorzka achieved volume growth
+2.5%, driven by innovative brand activation to
expand consumer consumption occasions at peak
seasonal periods2.
A mark of both Żołądkowa Gorzka’s and
Żołądkowa de Luxe’s continuing appeal was their
recognition at the “Superbrand: Polish Brand”
awards in November 2017.
strengthening of our core flavoured critical mass
brands which, whilst recovering, are still behind
the market in Żołądkowa Gorzka’s case (+2.5%),
and still down on Lubelska (-2.5%)2.
In the premium segment, we continued to
strengthen Stock Prestige with consistent consumer
activation at the point of purchase, including a
unique Stock Prestige Carbon limited edition, which
contributed to a +15.0% growth in volume2.
In top premium vodka, Amundsen Expedition grew
volume by +35.0%, well ahead of top premium
segment growth of +8.0% in volume2.
We revisited our approach to the economy vodka
segment, closely monitoring price execution on our
two economy brands Żubr and 1906, as well as
introducing an innovative 9cl bottle on Żubr instead
of market standard 10cl. This enabled Stock Polska
to grow volume in the economy segment by +8.5%
versus last year, in contrast to the overall economy
segment volume decline of -9.9%2.
33
Strategic Review GovernanceFinancial Statements Regional reviews – Poland continued
NPD
Organisational changes
We focused on building our core brands via a
After a prolonged period of significant
targeted programme of NPD introductions of
organisational and leadership change in Stock
strategic importance.
Polska, a stable management, sales and marketing
Distribution building supported by a strong
team were in place throughout the year.
package of consumer activation on Saska,
The restructuring and strengthening of our
coupled with the launch in H2 of two new flavour
modern trade sales team has resulted in closer
varieties (Cherry with a hint of rum and Quince)
cooperation with key customers. We have
contributed to total Saska (flavoured plus clear
achieved a step-change in the intensity and quality
variants) volume growth of +76.2% versus last
of promotional support, with our brands featured
year2. A pipeline of additional flavour extensions
in almost triple the number of promotional leaflets
to be launched in Q1 2018 will strengthen Saska’s
versus last year4.
range further.
Leveraging the group-wide Stock 84 brandy
relaunch with its new more premium packaging,
achieved growth of +8.1% in volume and +1.4 %
increase in volume market share6.
34
Distribution brands
Future outlook
The Government approved a law that will gradually
impose a ban on Sunday shopping and has given
a right to local councils to forbid alcohol sales in
designated areas from 10pm to 6am, which might
have an impact on spirit sales.
We have continued to grow our share of the
2017 has been a year of stabilisation and
whisky category, with the Beam-Suntory portfolio
strengthening for our core brands. Our clear vodka
outperforming the category dramatically. Beam-
business is back in growth, with strong gains for
Suntory has grown +46.0% in value, well ahead of
Stock Prestige and Żołądkowa de L uxe. Our main
the +14.2% whisky category value growth5.
challenge and key area of focus for 2018 is the
Our cooperation with distribution partner Synergy
Brands, which started in July 2016, is bringing
consistently strong results, with Beluga growing
+60.3% in value, outperforming ultra-premium
segment dynamics of +25.4% growth in value3.
higher-margin flavoured vodka segment, where we
aim to achieve growth ahead of the category. We
are well-placed to address this challenge with our
revised flavoured strategy and plans to increase
focus on our top flavoured brands, Żołądkowa
Gorzka and Lubelska, and to drive continued
Key competitors
growth on Saska.
In December 2017, Roust changed a number of
Source(s)
key players in their senior management team, but
it is too early to assess the impact of this move on
Company strategy or performance.
During 2017, Marie Brizard Wines and Spirits
(MBWS) moved distribution of all their brands
in the traditional trade channel to Eurocash,
the largest spirits wholesaler in Poland. The
1. IWSR. For the purposes of this estimate, total vodka =
total traditional (clear) vodka plus total flavoured vodka
plus total low strength vodka based liqueurs
2. Nielsen, total Poland, total off-trade, total vodka MAT
December 2017. For the purposes of this estimate, total
vodka = total regular vodka plus total flavoured vodka
plus total flavoured vodka based liqueurs
3. Nielsen, total Poland traditional trade, total vodka MAT
December 2017. For the purposes of this estimate, total
vodka = total regular vodka plus total flavoured vodka
plus total flavoured vodka based liqueurs
move does not appear to have improved their
4. Focus Data
performance in the traditional trade to date, where
5. Nielsen, total Poland, total off-trade, total whisky,
they have suffered a value decline of -10.9%3. It
MAT December 2017
6. Nielsen, total Poland, total off-trade, total brandy,
has also experienced senior management changes.
MAT December 2017
7. Nielsen, total Poland, total vodka MAT December 2017
Stock Spirits Group PLC Annual Report & Accounts 2017 Strategic Review
Governance
Financial Statements
Strategy in action
WE MANUFACTURE
Saska
Over many centuries, Polish master distillers
have perfected the art of manufacturing
exquisite spirit drinks. The pursuit of
pleasure is the essence of the Saska range,
which includes both clear and flavoured
variants. Saska’s individual, distinctive range
of tastes have been carefully designed
for contemporary pleasure seekers, to be
enjoyed in an unhurried manner, savoured
rather than shot.
Flavour experts at our Lublin distillery drew inspiration from historical
Polish recipes. The range includes an appealing combination of distinctive
fruit aromas, hints of oak and the taste of the finest Polish vodka. In 2017
two new flavours, Quince and Cherry with a hint of rum, joined the range.
By bringing a new and differentiated range to consumers, Saska achieved
significant volume growth7.
+76.2%
Saska range’s MAT volume growth in Poland7
35
Strategic Review GovernanceFinancial Statements Regional reviews – Czech Republic
Key to success was driving
growth in rum and vodka
Stock Plzeň Božkov has held spirits market leadership
Consequently the total spirits market achieved
in the Czech Republic for over 20 years1 and has
strong value and volume growth during 2017
brand leaders in the key spirits categories of rum2,
and Stock Plzeň Božkov has once again grown
vodka and herbal bitter liqueurs3.
its market share, achieving value share of 33.6%,
The Czech economy is performing well, which
up 1.5% from 20163.
has increased consumer disposable income and
The continued investment behind our core brands,
with it the desire for premium products, which are
successful new product launches and the strong
leading growth in spirits, primarily in the off-trade.
development of the Diageo portfolio have all assisted
This growth outweighed year-on-year declines in
the on-trade associated with new legislation: the
the business to achieve significant growth in both
brand performance and overall financial results.
36
electronic evidence of taxes and a smoking ban.
Revenue for 2017 was €68.8m, an increase of
% of Group revenue
25%
(2016: 24%)
Revenue €m
€68.8m
(2016: €63.2m)
Adjusted EBITDA €m
€21.8m
(2016: €19.6m)
Value market share
33.6%
32.1%
2016
2017
€5.6m versus 2016, with Adjusted EBITDA of
€21.8m a growth of €2.2m from 2016. Adjusted
EBITDA margin has also grown by 0.7% to 31.7%.
Core brands
The key success during 2017 was driving growth on
the Božkov range in the rum and vodka categories,
including the successful execution of price
increases. Božkov grew volume and value ahead of
the category in both rum and vodka, maintaining
its strong leadership position in both categories. In
an indication of the brand‘s continuing popularity,
Božkov won the most trusted spirit brand award for
the second year in a row.
Our integration of the Nordic Ice, Pražská and
Dynbyl brands, acquired in 2016, was well
executed, supporting our growing share in vodka
and achieving year-on-year share growth in vodka.
Our success in the rum and vodka categories was
underpinned by a robust commercial calendar
and promotional evaluation, combined with the
expansion of category management support to
our modern trade customer base.
Stock Spirits Group PLC Annual Report & Accounts 2017 In the herbal bitters category, the Fernet Stock
Organisational changes
range maintained its brand leadership position
despite a decline in volume and value, as consumer
demand grew for premium herbal bitters.
The commercial team moved to a new, modern,
open plan office in Prague which has enhanced
cross functional team work and pace of delivery.
NPD
Future outlook
Our lead Czech NPD initiative in 2017, Black Fox, is
designed to address the premium opportunity and
was launched in October 2017. Its accessible taste,
crafted from selected forest herbs with a hint of
orange, coupled with its impactful, differentiated
packaging, supported by a heavyweight programme
Debate continues in the EU Commission on the
continued use of rum ether. If the aroma is to be
banned from use in domestic rum (tuzemak) it would
require recipe changes by all suppliers throughout
the category, with potential cost implications.
of consumer awareness and sampling activity, will
Price competition remains strong, with specific
build Stock Plzeň Božkov share in the fast growing
competitors in each of our key categories
premium herbal bitters segment.
attempting to drive volume share growth using
Building on our history of successful flavour
innovation on Božkov Tuzemský, the Czech team
A number of major retailers are expanding their
launched a new Božkov Coconut variant which
private label ranges in key spirits categories.
aggressive pricing.
37
In anticipation of these measures we have
undertaken a review of our plans and have begun
to implement a number of changes which we
anticipate will help to mitigate the potential risks
associated with these developments.
The team in the Czech Republic moves forward
from a position of strength with ambitious plans
for the future.
contributed to the double digit growth achieved
by the brand.
Distribution brands
We have now completed our third year as the
exclusive distributor of the core Diageo brands
in the Czech Republic, and are delighted with
the strong growth that has been achieved
across the range.
Both Johnnie Walker and Captain Morgan
performed ahead of their respective categories,
growing market share in both value and
volume terms3.
The integration of the Diageo international brands
with Stock Plzeň Božkov's leading local brands
has brought significant benefits to the combined
portfolio and has further strengthened our overall
offering to customers and consumers.
Source(s)
1.
2.
IWSR
In the Czech Republic the “rum” category of the spirits market includes traditional
rum, which is a spirit drink made from sugar cane, and what is widely referred to
as “local rum”, known as “Tuzemak” or Tuzemský”, which is made from sugar beet.
As used in this Report, “rum” refers to both traditional and local rum, while “Czech
rum” refers to local rum
3. Nielsen MAT to end December 2017, total Czech off-trade
Strategic Review GovernanceFinancial Statements Regional reviews – Italy
Italy is our third largest market
in turnover and profit terms
The spirits market remains highly fragmented from a
Given the challenging environment, overall
supply perspective, consisting of a number of mature
revenue declined versus last year reflecting
categories including bitters, vodka, brandy, whisky
primarily the decline in vodka based flavoured
and liqueurs. Despite our relatively small overall
liqueur volumes. Adjusted EBITDA is slightly lower
share of total spirits in Italy, at circa 5.6% value
than last year, however Adjusted EBITDA margins
share in our key focus modern trade channel1, we
have shown a small improvement, following careful
hold leading positions in a number of key categories
cost management. This decline has led to the
in the off-trade, with number one brands in the
impairment of the value of the Italian business
clear vodka, vodka based liqueurs and limoncello
of €14.9m.
categories and the number two brand in brandy2.
Core brands
38
Italy, there are some improvements in consumer
Whilst trading conditions remain very tough in
confidence, young adult unemployment fell
marginally towards the end of 2017 and the
economy is beginning to show some growth, after
years of decline. The total market has stabilised,
growing slightly (+0.7% value2) in 2017.
Stock Italia achieved market share growth in three
of its four core categories in the priority modern
trade channel during the year.
% of Group revenue
10%
(2016: 11%)
Revenue €m
€28.1m
(2016: €29.4m)
Adjusted EBITDA €m
€6.3m
(2016: €6.9m)
Adjusted to exclude the impairment
charge of €14.9m
In our main categories, Keglevich outperformed
the contracting vodka based flavoured liqueurs
category, maintaining brand leadership and
growing volume and value share. In clear vodka,
Keglevich remains the leading clear vodka in the
off-trade, in spite of aggressive price discounting
by competitor brands from above, and expansion
of private labels from below its price positioning2.
In a flat limoncello category, Limoncé retained
brand leadership and grew volume and value share
in spite of competition from aggressively priced
private label and rival brands2.
The Stock 84 brandy range outperformed the
category, supported by its relaunch with new
improved liquid and repackaging to appeal to
younger adult drinkers. Stock 84 XO premium
brandy, was launched in November 2017 and
has already contributed to the brand’s growth
in volume and value share2.
A full review of the Keglevich flavoured range
resulted in the launch of a new improved liquid.
The new recipe uses six times distilled grain vodka
coupled with pure fruit juice.
Stock Spirits Group PLC Annual Report & Accounts 2017 New Keglevich flavoured packaging was launched
The restructuring of the Italian office was
to customers at the end of 2017, and will be
completed in H1 2017. The savings realised
available to consumers from early 2018. It will be
from this restructure have been reinvested
accompanied by a range of marketing activities
in the sales team.
aimed at millennial consumers, the brand’s key
target group.
Similarly, significant transport cost savings have
been achieved since switching logistics provider
In Q4 2017, Syramusa, a new premium sub-brand
at the start of 2017, which again have been
of Limoncé limoncello, was launched. Produced
reinvested into the business.
and bottled in Italy with an elegant pack inspired
by the classic shapes of Hellenic amphorae,
recalling the Ancient Greek heritage of Syracuse
and its colourful past, Syramusa takes Limoncé
into a more premium future.
Distribution brands
Future outlook
Whilst trading conditions remain very tough in
Italy, there are some improvements in consumer
confidence, young adult unemployment fell
marginally towards the end of 2017 and the
economy is beginning to show some growth, after
The distribution brand range expanded further
years of decline.
during 2017 with the addition of two new
distribution agreements.
Consequently the outlook for the Italian spirits
market is showing early signs of improvement,
A new exclusive distribution agreement with
however, the Italian general election in March
Nuove Distillerie Vicenzi was signed in November
2018 is causing some volatility in the local market.
2017 and the new Vicenzi range of liqueurs
(including the renowned “giadiotto” liqueur) will
be introduced from 1 January 2018.
There was further expansion of the Nordés Gin
brand during the year.
Organisational change
Duty and VAT increases
An expected increase in VAT from 22% to 24.2%
is expected on 1 January 2019 with further
increases expected in 2020 (24.9%) and 2021
(25%). This may dampen some of the economic
recovery seen of late.
The sales team has been restructured so that
Operations
there are new sales teams in three regions and
the number of sales agents has been increased.
On-trade sales have grown significantly (+15%)
in the Northern region since these changes
were implemented.
Our focus on agility and flexibility in supply chain
and investment in structure and processes enabled
similar improvement in performance to other
markets in costs, service levels and working capital.
Value market share
5.6%
5.7%
2016
2017
Source(s)
1.
2.
IRI total Italy, total modern trade, total spirits MAT December 2017
IRI total Italy, total off-trade, MAT December 2017
39
Strategic Review GovernanceFinancial Statements Regional reviews – Other
Revitalised core brands and
extended distribution agreements
The regional report for “Other” markets includes
In Slovakia, new product launches including
Slovakia, Bosnia, Croatia and our export activities.
Fernet Stock Grapefruit and a Fernet Stock
In 2017 we maintained Adjusted EBITDA
performance across our other markets, delivering
€6.9million.
90th Anniversary limited edition, coupled with a
revised price positioning on Fernet Stock Grand,
maintained brand leadership in herbal bitters and
increased Fernet Stock’s volume and value versus
Revenue was slightly down in the year due to a
last year1.
shut down at our Baltic distillery caused by faulty
equipment. The plant was quickly up and running
and there was no loss of supply of vodka to our
operations. The reduction in revenue was due to
lost revenue from sales to third parties.
In the important fruit spirits category, the
continued success of our Golden Ice range
enabled Stock Slovakia’s Golden brand to achieve
number one status and outperform the category,
growing value +3.0% in a total fruit spirit category
Strong growth from Slovakia, where revenues
that declined -2.3%2.
40
were +4% and Adjusted EBITDA +7% versus the
previous year, was off-set by restructuring costs
in our export markets.
% of Group revenue
11%
(2016: 12%)
Revenue €m
€30.0m
(2016: €31.5m)
Adjusted EBITDA €m
€4.9m
(2016: €5.1m)
In the fast growing whisky category, the new
distribution agreement with Beam-Suntory was
well executed, achieving +52.5% value growth
on Jim Beam, well ahead of total whisky category
value growth at +17.0%3.
These initiatives contributed to Stock Slovakia’s
volume and value growth in 2017 and reinforced
our position as the second biggest spirits company
in the Slovakian off-trade1. Adjusted EBITDA
has grown by +7% during the year and Slovakia’s
Adjusted EBITDA margin has improved by just
under 1% point to over 23%.
In Croatia, volume grew by +6%. This was achieved
primarily through up-weighted on-trade focus
supported by the relaunch of Stock 84 and a
widened range of distribution brands from Beam-
Suntory plus Beluga Group, Bortran Rum and
Lucas Bols.
Stock Spirits Group PLC Annual Report & Accounts 2017 In our export markets, the reorganisation of our route
to market in the UK was completed successfully in
H1 2017. Our brands are now distributed in the UK
via Distell’s distribution network.
In total, this regional segment has delivered
revenue of €30.0m and Adjusted EBITDA of
€4.9m, maintaining Adjusted EBITDA margin
at over 16%.
Source(s)
1.
Nielsen, total Slovakia, total off-trade, total herbal bitters
MAT to end December 2017
2. Nielsen, Slovakia, total off-trade, total fruit spirits MAT to
end December 2017
3.
Nielsen, total Slovakia, total off-trade, total spirits MAT to
end December 2017
41
Strategic Review GovernanceFinancial Statements Responsible business report
We operate our business aware
of our wider responsibilities
42
Business and ethics
Alcohol and society
Our Group Code of Conduct and Ethics (our Code)
We are conscious that our products should be
together with our Anti-Corruption and Bribery
enjoyed responsibly by those who choose to
Policy and other related policies, set out the
drink them, and we do not want irresponsible
ethics, principles and standards that are required
drinking to harm the health of our consumers.
to be consistently upheld in each business and
We believe that efforts to reduce the misuse of
corporate function within the Group. It also
alcohol are most effective if all parties involved
applies to our business partners: suppliers, agents
(including authorities, individuals and producers)
and customers.
work together.
The Group has a Speak-Up hotline available in all
Czech Republic and Slovakia
countries where the Group has operations. The
Our companies in these markets are founding
Speak-Up line can be used by any employee in
members of “Fórum PSR”, which brings together the
the Group or by third parties and allows them to
countries’ major spirits producers and distributors
report any incidents or inappropriate behaviours
to work against alcohol abuse. The forum focuses
in their own language. The confidentiality of the
primarily on preventive and educational projects
information reported is correctly protected. The
targeting the serving of alcohol to minors, drink-
Group also carries out refreshment training on the
driving and excessive drinking.
basic principles of our Code as well as the Speak-
Up line, so it is well known and, in the case of the
Speak-Up line, can be used as needed, by any
employee in the organisation.
Additionally, we actively introduced the “PSR,
(drink responsibly)” platform within our media,
in-store and other brand communication. Forum
members have also pledged to observe a code of
Stock Spirits considers that having good corporate
conduct that strictly regulates their advertising
responsibility is an essential element of achieving
activities. Stock Plzeň Božkov is a member
our overall objectives and acting as a responsible
of the Spirits Trade Association in the Czech
organisation. This includes developing strong
Republic. This Association was active during
relationships with our suppliers and customers,
2017 in supporting the local government in its
ensuring best-in-class people are joining the
ongoing efforts to implement a strong regulatory
organisation and our commitment to the
environment in the spirits industry.
environment. We are committed to doing business
responsibly and ensuring a culture of integrity.
Stock Spirits Group PLC Annual Report & Accounts 2017 43
Poland
Environment
Stock Polska belongs to the Association of
Employers Polish Spirits Industry (ZP Polski
Our businesses are fully aware of their
responsibilities to the environment. In addition
Przemysł, Spirytusowy), the trade organisation
to mandatory compliance programmes, many
which, as part of its work, promotes responsible
of our businesses have undertaken a number
drinking through educational programmes and
of voluntary initiatives, which demonstrate the
public campaigns. These include, “Don’t drink
importance that is given to environmental matters.
and drive”; “Pregnant – don’t drink”; “Responsible
drinking”, an educational programme promoting
Poland
responsible alcohol consumption, including
guidelines on “How to sell and serve alcoholic
drinks responsibly”; “Here we check Adulthood”,
where the campaign’s objective is to reduce
the availability of alcohol to the underage, by
encouraging retailers to request identification
During 2017, we continued our environmental
awareness campaign, using the ‘Sztokus’ mascot.
The aim of the campaign was to raise the
eco-awareness of Stock Polska personnel and
employees of external partners and to reduce our
environmental impact as a business.
from younger customers; and the most recent
The campaign was carried out at several levels:
campaign “Alcohol. Always responsibly” which
aims at building knowledge that all alcoholic
beverages contain the same substance, therefore
they have the same impact and all of them should
be consumed responsibly.
Italy
In Italy we are a member of Federvini, the national
trade association founded in 1917 which, as part
• Eco-awareness and behaviours;
• Waste segregation and reduction;
• Water, gas and electricity savings initiatives;
and
• Communication campaigns for environmental
protection, including posters, banners and
stickers displayed throughout the business.
of its role, promotes responsible drinking using
In 2017, the Polish team organised several
educational and informative programmes.
environmental initiatives which included:
encouraging employees to travel to work
using public transport, bicycles or
carpooling (sharing their cars with co-
workers); video conferencing rather
than travelling to meetings and an
initiative aimed at increasing recycling
by offering employees a pot plant in
exchange for their recycling.
Strategic Review GovernanceFinancial Statements Responsible business report continued
In 2017, the amount of waste we produced
As in prior years, we have applied the latest available
increased by 2%. We were able to recycle 89%
DEFRA UK location based conversion factors (2017)
of the waste we produced on site. Electricity
to calculate the current year emissions. All data
increased by 4%. Increased use of the rectification
capture procedures, conversion and reporting have
facility led to 47% higher gas usage, and 14%
undergone independent limited assurance by ERM
higher water consumption compared to last year.
Certification and Verification Services.
Czech Republic
In 2017, we improved efficiency of water and
energy consumption. Water consumption
decreased by 14% due to the installation of
two new water treatments (reverse osmosis) in
production (blending) which increased efficiency of
The Group complies with all current regulations on
emissions including greenhouse gas emissions, where
such regulation exists in our markets. We have
reviewed the impact on the business from the EU
Energy Efficiency Directive (2012/27/EU), and are
conducting audits in line with these requirements.
water use. Reduction in water was also achieved
We have reported on all of the emissions sources
by better planning. Electricity consumption
required under the Companies Act 2006 (Strategic
decreased by 4% due to several projects including
Report and Directors’ Report) Regulations 2013.
the installation of two new highly efficient
These sources fall within our consolidated financial
compressors, better control of the compressed air
statements. We do not have responsibility for
leakage, newly installed efficient lights in blending
any emission sources that are not included in our
44
premises and improvement of behaviour and
consolidated financial statements.
discipline. Gas consumption decreased by 4% due
to better planning. We were able to recycle 96%
of the waste produced through employee training
and improved processes of waste sorting.
Greenhouse gas emissions
In 2017, the Group’s total Scope 1 (direct) and
Scope 2 (indirect) Greenhouse Gas (GHG)
emissions were 31,770 tonnes and 9,001 tonnes
of CO2e respectively (CO2e), a total of 40,771
tonnes. This is a 11.5% decrease compared to
46,055 tonnes in 2016 (35,955 tonnes of Scope
1 and 10,100 tonnes of Scope 2 CO2e), and is
due to reduced production and related energy
consumption at the Baltic distillery because of the
breakdown of the grain dryer in Q2 and Q3 2017.
The emissions intensity for 2017 reduced by
nearly 16% to 367 grams CO2e per litre of
packaged product compared to 436 grams in
2016. An increase in overall production was offset
by a lower proportion of total production from
the Baltic distillery which uses fuel with a high
emission factor. The Baltic distillery accounted for
72.8% of Group emissions in 2017 and remained
the largest single emitter in the Group as its core
activity is energy intensive rectification.
Diversity
The success of a business depends on its people,
therefore we are committed to providing every
employee and potential employee with equal
opportunity in all areas of employment.
The Group recognises the communities in
which it operates and the benefits of having a
diverse workforce at all levels. The Group takes
its responsibilities with regard to equality and
diversity seriously and expects all colleagues to
also observe this.
The senior management teams in our markets
comprise predominantly of local nationals who
understand the cultures in which we operate.
We have an Equality and Diversity policy which
applies to all colleagues as well as a recruitment
policy which is inextricably linked to the Equality
and Diversity policy to ensure that we recruit high
calibre individuals matched to the requirements of
the role we wish them to undertake, irrespective
of gender, age, race, religion, sexual orientation,
national origin or disability. As a consumer-focused
business, we recognise the value that a diverse
mix of employees provides us with, particularly
in terms of consumer insights.
Stock Spirits Group PLC Annual Report & Accounts 2017 45
As an example of our diversity, at 31 December
to adhere to. This requires that they and the
2017 we had a diverse mix of age with 18% under
persons acting on their behalf act without regard
30 (17% in Poland and 19% in Plzeň) and 12%
to gender, age, race, religion, sexual orientation,
over 50 years old (12% in Plzeň and Poland). In the
national origin or disability in accordance with our
The Group has a diverse
workforce in terms of
gender and age
bottling area 3 out of 5 shift leaders in Plzeň and
Equality and Diversity Policy.
3 out of 16 shift leaders in Poland are women. In
our production plant in Czech Republic 60% of the
managerial positions are held by women.
As at 31 December 2017, at Board level, 100% (8
out of 8) of the Directors are male, while at senior
management level 91% (10 out of 11) are male
and across the Group 59% (556 out of 930) of all
employees are male.
Diversity is key to the success of the Group, with
emphasis placed not only on gender but also on
culture, nationality and experience, and our Board
continues to demonstrate diversity in the wider
sense, with Directors from Poland, Canada, and
Italy as well as the UK, bringing a range of both
domestic and international experience to the
Board. The Board’s diverse range of experience and
expertise covers not only a wealth of experience
Employee involvement and policy
regarding disabled persons
A description of the action taken by the Group in
relation to employee involvement, including how
the Group provides employees with information
on matters concerning them and the Group, can
be found on page 31. The Group has an equal
opportunities policy, and procedures are in place
that are designed to provide for full and fair
consideration and selection of disabled applicants to
ensure they are properly trained to perform safely
and effectively, and to provide career opportunities
that allow them to fulfil their potential. Where an
employee becomes disabled in the course of their
employment, the Group will actively seek to retain
them wherever possible by making adjustments to
their work content and environment, or by retraining
of operating in FMCG but also extensive financial,
them to undertake new roles.
marketing and commercial expertise.
Human rights
The Group strives to comply fully with relevant
legislation in the countries in which it operates
Charity
During the year the UK corporate office took part in
the Macmillan Cancer Support coffee morning which
raised £400. Lesley Jackson, former CFO, opened
and ensures that human rights are protected in all
her garden to the public as part of the National
the production plants and offices from which the
Garden Scheme and raised £2,400 for the charity.
Group operates. As mentioned previously, we have
a Code of Conduct that we ask all our suppliers
Strategic Review GovernanceFinancial Statements 46
Financial review
Leveraging our balance
sheet and cashflow strength
operationally and for M&A
Our financial performance in 2017 reflects stabilisation
and turnaround. Revenue increased 5.2% to €274.6m;
or 3.0% in constant currency1.
Volume growth at 6.5%, was driven by Poland and
the Czech Republic. Although revenue per litre
at €2.33 per litre (2016: €2.35)2 was impacted by
pricing alignment in Poland, cost of goods per litre
remained at 2016 levels. Therefore whilst overall
gross profit increased 3.7%, the margin slipped a
little to 50.0% (2016: 50.7%).
New product development (NPD) was more
targeted on premiumising selected brands. As
such, this is reflected in the slight decline in
selling expenses by €0.5m to €60.8m.
Other operating expenses increased marginally,
due to increased people costs, partially offset by
savings elsewhere. The increase was mostly driven
by higher staff incentive awards and bonuses
triggered across the business by the year’s
stronger performance.
Much of the cost-saving restructuring initiated
over recent years impacted corporate costs.
Consequently, corporate costs include costs
of restructuring of €1.7m (2016: €3.1m).
Total revenue
€274.6m
(2016: €261.0m)
Source(s):
1. Constant currency is calculated by converting 2016 results at
2017 FX rates
2. Revenue per litre is calculated by dividing total Group revenue
by litres sold
€56.3mAdjusted EBITDA for the year(2016: €51.4m)Stock Spirits Group PLC Annual Report & Accounts 2017 Underlying corporate overheads, excluding PSP,
Group tax provisions total €7.5m for the year, an
share based payments and restructuring costs
increase of €0.2m from 2016, see note 13 for further
have declined by more than 26% year-on-year
details. Post-IPO, the Group completed corporate
on a constant currency basis, delivering on
restructuring transactions involving intangible assets
commitments made previously.
which gave rise to a significant deferred tax asset
For performance management purposes,
the Group uses Adjusted EBITDA as a key
measure. The combination of improved revenue
performance and benefits from the restructuring
initiatives reflect delivery of the turnaround
which was being amortised over a five-year period.
Due to tax legislation changes in Poland, from
1 January 2018, amortisation of these intangible
assets is no longer deductible for tax purposes. This
has resulted in an exceptional tax charge of €4.7m.
plans outlined over the past two years, Adjusted
Exceptional items
EBITDA rose 9.5% to €56.3m (2016: €51.4m).
Profit for the year at €11.3m (2016: €28.4m)
Details of the adjustments reconciling Adjusted
declined in the year due to two exceptional items.
EBITDA to operating profit are in note 7 to the
At the interim announcement we referred to
consolidated financial statements.
continuing challenges facing our Italian business,
As reported previously, the Group does not
expect a material impact from the UK’s exit from
the European Union. This will continue to be
monitored similar to all primary risks that the
Group faces (see page 20).
Finance income and expense and taxation
Net finance income and expense was broadly
similar to the prior year at an underlying cost
of around €2.6m as the financing facilities are
namely impacting Keglevich, our vodka-based
flavoured liqueur brand. Whilst the Group is
investing in the brand, the continued decline
of the business has resulted in a non-cash
impairment charge against the carrying value
of the Italian business of €14.9m.
The second exceptional item was the one-off
deferred tax charge of €4.7m in Poland as
outlined above.
unchanged. However, in 2016 there was a foreign
Both items are non-cash adjustments.
exchange gain on intercompany loans of €1.4m
which resulted in the reported net cost of €1.0m.
Earnings per share
The income tax expense, as detailed in note 13 of the
consolidated financial statements, reflects a number
of factors, primarily being: the current year tax
expense, changes in provisions for taxation relating
The basic earnings per share for the year to
31 December 2017 was €0.06 per share versus
€0.14 per share in 2016. Adjusted basic EPS,
eliminating the effect of the exceptional items
in the year, was €0.16 per share, an increase of
to prior years and movements in deferred tax.
some 14.3%.
Profit for the year
€11.3m
(2016: €28.4m)
Net finance costs
€2.6m
(2016: €1.0m)
Leverage
0.94x
(2016: 1.16x)
47
Strategic Review GovernanceFinancial Statements 48
Financial review continued
Irish whiskey investment
Dividend
In July 2017 the Group announced a 25%
The Board has proposed a dividend to
investment in Quintessential Brands Ireland
shareholders which represents a progressive
Whiskey Limited (QBIWL) for cash consideration
underlying increase year-on-year. An interim
of up to €18.3m; with €15m paid initially, and
dividend was paid in September 2017 of 2.38
the balance deferred dependent on certain
€cents per share, an increase of 4.9% compared
future performance conditions. The deferred
to the 2016 interim dividend of 2.27 €cents
consideration has been treated as a discounted
per share. A final dividend is proposed of 5.72
contingent liability, see note 24 to the consolidated
€cents per share in 2017, an increase on the
financial statements. We are pleased to announce
2016 final dividend of 5.0% (2016: 5.45 €cents
that we have secured, from the owners of our
per share). The 2017 dividend pay-out represents
existing whiskey agency brands, the right to
an underlying 4.9% year-on-year increase. Given
distribute the QBIWL brands in our markets.
the Irish whiskey investment of €15.0m, a special
Cashflow and working capital
dividend is not proposed this year. Nevertheless,
the total distribution of 8.10 €cents represents
The Group continues to generate strong cashflow
almost double the pay-out implied by the
from operating activities. Using a measure by
which we judge our underlying operational
cashflow, the Group generated free cashflow
of €48.6m (2016: €48.3m), representing a
conversion rate from Adjusted EBITDA of 86.3%
(2016: 94.1%). The lower conversion rate reflects
Group’s dividend reference point since IPO of
35% of net free cashflow. In the interest of our
shareholders, the Board has decided to no longer
consider dividends in such terms, and instead
pay progressive underlying dividends, subject to
there being sufficient distributable reserves and
us leveraging our cashflow strength to gain
adequate cash generation.
competitive advantage in Poland, without which
conversion would have exceeded 100%.
Net debt and maturity profile
The Group’s revolving credit facility (RCF), which
As stated in previous years, the peak trading
was re-financed in 2015, was amended and
period just prior to the year-end can make material
re-stated in 2017, extending the arrangements
differences to cashflow. Due to a combination of
to 2022. Debt can be drawn and repaid at the
increased trading levels in Poland, and leveraging
Group’s discretion without penalty or charge.
our cashflow capability for commercial advantage,
Further details can be found in note 23 of the
we saw increased trade receivables at year-
consolidated financial statements. At the year-end,
end. This increase has been largely offset by an
€14.3m of the RCF is utilised to back excise duty
increase in payables due to a focus on using the
guarantees in Italy and Germany.
Group’s scale in negotiating better commercial
terms with our suppliers everywhere.
Polish Złoty
Czech Koruna
GB Pound
Swiss Franc
Dec 2017
Closing Rate
2017
Average Rate
2016
Average Rate
4.17
25.55
0.89
1.17
4.25
26.32
0.88
1.11
4.36
27.03
0.80
1.09
Stock Spirits Group PLC Annual Report & Accounts 2017 The continued strong cashflow during the year
performance, it is intended to include proforma
resulted in net debt of €53.1m at the year-end,
12 month reporting (with comparatives) with the
a decrease of €6.6m from December 2016,
30 September 2018 results. The interim results for
despite the €15.0m investment in Irish whiskey.
the six months to 30 June 2018 will be published
Leverage fell to 0.94x from 1.16x at December
as usual. Further details are set out in the 2018
2016. We also retain a factoring facility of €50m.
Financial Calendar on page 176.
The net debt bridge chart below sets out the
evolution over 2017. Our relatively low leverage
combined with the significant headroom in our
bank facilities leaves us well placed to finance
our strategic aspirations.
Foreign exchange
Changes in accounting policies
The Group will adopt IFRS 15 (revenue from
contracts with customers) from 1 January 2018.
We have made an assessment of the impact of
this change in accounting policy: if applied in
2017 there would have been a minor reduction
The Group remains exposed to the impact of
in revenue for the Group of approximately -1.7%.
foreign currency exchange movements, with the
There is no impact on Adjusted EBITDA and the
major trading currencies remaining the Polish Złoty
change in Adjusted EBITDA margin would have
and the Czech Koruna. How the Group manages
been a small improvement of 36bps.
this risk is outlined on page 23. At the year-end,
there were no formal hedging instruments in
place, as the arrangements reported at the interim
results were fully unwound.
The Group has adopted IAS 7 (disclosure initiative)
with a disclosure in note 23, and will adopt IFRS
9 (financial instruments) from 1 January 2018.
There is not expected to be any material impact
A net positive FX gain of €0.4m was reported within
from this adoption. The Group will adopt IFRS 16
Adjusted EBITDA during the year. This has arisen
(accounting for leases) from 1 October 2019.
on the appreciation of the Polish Złoty and Czech
Koruna. The table on the previous page shows the
Equity structure
stated currency versus the Euro.
Change of year-end
As already announced, the year-end moves to
30 September in 2018. Accordingly, the Group
will report a nine month period for 2018 (from
1 January to 30 September), and thereafter a
There has been no change to the equity structure of
the business in 2017, which remains at 200 million
issued shares with a nominal value of £0.10 each.
normal 12 month period, starting from 1 October
Paul Bal
2018 to 30 September 2019. However, in order
Chief Financial Officer
to assist with the understanding of the underlying
7 March 2018
Net debt bridge: 31 December 2016 – 31 December 2017 (€m)
59.7
(46.7)
1.16x
7.0
15.7
15.0
5.1
2.5
(5.2)
53.1
0.94x
Y-YYX
Net debt to
EBITDA ratio
Net debt
Dec 2016
Net cash inflow
from op.
activities
Income
tax paid
Dividends
paid
Whiskey
investment
Net capital
exp. & sales
proceeds for
PPE
Net interest
paid
FX
Net debt
Dec 2017
49
Strategic Review GovernanceFinancial Statements Stock Spirits Group PLC
Annual Report & Accounts 2017
Strategy in action
50
WE MARKET
Digital
campaigns
The maintenance of Stock Spirits’ brand
leadership in herbal bitters with Fernet
Stock, and in tuzemský with Božkov,
demands staying relevant to young adult
drinkers whose media habits are very
different to those of their predecessors
and are evolving rapidly.
Historical communication via traditional TV advertising was becoming less
relevant and too expensive.
Our Czech team developed a series of engaging and entertaining videos
specifically tailored to appeal to millennials using digital and social media,
which raised awareness of Fernet Stock’s 90th birthday and Božkov’s new
flavour launches.
During 2017, the videos were viewed over 8.9 million times by our target
drinkers and allowed the brands to achieve high coverage of a notoriously
elusive emerging audience in a cost effective, relevant manner.
8.9m
video views by our target drinkers
Strategy in action
Strategic Review
Governance
Financial Statements
51
Governance
52 Board of Directors
54 Chairman’s letter
55 Corporate governance framework
60 Audit Committee report
65 Nomination Committee report
67 Directors’ remuneration report
85 Directors’ report
89 Statement of Directors’ responsibilities
90 Independent auditor’s report
Board of Directors
An experienced international
team with strong experience
Our Board is committed to maintaining high standards of
corporate governance and business integrity in a constantly
evolving regulatory environment.
52
1
4
7
N
2
A
N
R
A
R
5
8
3
6
9
A
N
R
N
R
A
N
R
Board structure
Committee status
• Non-Executive Chairman
• One Non-Independent,
A Audit Committee
• Senior Independent Non-
Non-Executive Director
Executive Director
• Two Executive Directors
• Three other Independent,
Non-Executive Directors
N Nomination Committee
R Remuneration Committee
Relevant Committee
Chairman
Stock Spirits Group PLC Annual Report & Accounts 2017 1 David Maloney
2 Mirek Stachowicz
3 Paul Bal
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
David was appointed to the Board as Senior
Independent Non-Executive Director
in October 2013 and in May 2015 was
appointed Non-Executive Chairman. During a
long career in finance, he was Chief Financial
Officer of Le Méridien Hotels and Resorts,
Thomson Travel Group and Preussag Airlines,
and Group Finance Director of Avis Europe.
He is currently Non-Executive Director of Ei
Group plc.
Mirek was appointed to the Board as an
Independent Non-Executive Director in
November 2015 and as Chief Executive
Officer in August 2016. During a highly
international career of more than 20 years,
Mirek’s previous roles include General
Manager of Bestfoods (Romania), Managing
Director of ICI Paints (Poland, Eastern Europe
and Russia) and more recently Managing
Director of AkzoNobel Deco (Central Europe).
Currently Mirek serves as a Non-Independent
Supervisory Board member of Paged S.A.
Paul was appointed to the Board as Chief
Financial Officer in November 2017. A Fellow
of the Institute of Chartered Accountants,
Paul has 20 years of experience in the tobacco
industry. In a very international career, he has
held various senior finance and management
positions in the British American Tobacco
plc Group. Several of these also included
responsibility for IT. Most recently, he held
a senior finance, IT and strategy role in the
EEMEA business of Tupperware Brands
Corporation Inc.
4 John Nicolson
Senior Independent,
Non-Executive Director
John was appointed to the Board as an
Independent Non-Executive Director in
October 2013 and in October 2016 was
appointed Senior Independent Non-Executive
Director. His previous roles include President
of Heineken Americas, Executive Director of
Scottish & Newcastle plc, Deputy Chairman
of CCU SA (Chile), Chairman of both Baltika
Breweries (Russia) and Baltic Beverages
Holding (Sweden) and Executive Director for
Fosters Europe. He is currently the Chairman
of A.G. Barr and a Non-Executive Director
at North American Breweries and Senior
Independent Director at P Z Cussons plc.
5 Mike Butterworth
6 Diego Bevilacqua
Independent Non-Executive Director
Independent Non-Executive Director
Mike was appointed to the Board as an
Independent Non-Executive Director in
October 2016. He is a Chartered Accountant
and previous roles include Group Finance
Director of Cookson Group plc, Group Finance
Director of Incepta Group plc and Group
Financial Controller at BBA Group plc. He
commenced a Non-Executive career in 2012
and is currently Senior Independent Director
and the Chairman of the Audit Committee
for Johnston Press plc and St Ives Group plc
and Independent Non-Executive Director
and Chairman of the Audit Committee for
Cambian Group plc.
Diego was appointed to the Board as
an Independent Non-Executive Director
in October 2016. With over 40 years’
experience in the food and beverage sector,
he has recently been an advisor to Bain
& Company and serves on the Advisory
Board of 24Insights GmBH. His most recent
executive positions were as Chief Customer
and Marketing Officer of Metro AG, having
previously been President of Africa, Middle
East and Turkey for Unilever. He has served as
a Non-Executive Director of both Danisco AS
and Pepsi Lipton International.
53
7 Tomasz Blawat
8 Randy Pankevicz¹
9 Sally Kenward
Independent Non-Executive Director
Non-Independent Non-Executive
Company Secretary
Tomasz was appointed to the Board as an
Independent Non-Executive Director in
October 2016. He is currently the Managing
Director of Carlsberg Poland. Previous roles
have included Chief Executive Officer of
ING in Poland and a number of roles for SAB
Miller and Procter and Gamble (Poland, Czech
Republic, Slovakia, UK and Baltic States).
Tomasz is a Polish national and also speaks
fluent Czech.
Director
Randy was appointed to the Board as a
Non-Independent, Non-Executive Director
at the AGM held on 23 May 2016. His
previous roles include working with PepsiCo
International over the last 27 years, including
VP General Manager Czech, Hungary and
Slovakia; Chief Financial Officer of the Central
Europe Group; VP Finance and Chief Financial
Officer of the Russia/CIS business unit and
the Chief Financial Officer of the Czech
and Slovakia Division. Currently Randy is
an entrepreneur and private investor.
Sally joined the Group in 2015 as Deputy
Company Secretary and was appointed
Company Secretary in April 2017. An
Associate of the Institute of Company
Secretaries (ICSA), Sally has over 20 years’
experience in the drinks industry. Sally joined
JD Wetherspoon Plc in 1997 and worked in
a number of roles before being promoted to
Deputy Company Secretary in 2013.
The biographies for the Senior Management team can be found on the website www.stockspirits.com
1. On 6th March 2018, Randy Pankevicz, Non-Executive Director, notified the Board of his resignation as a Director of the Company to enable him
to focus on his personal investments. He does not intend to seek re-election at the AGM in 2018.
Strategic Review GovernanceFinancial Statements Chairman’s letter
Dear Shareholders
I am pleased to present our Corporate Governance report for the year ended 31 December 2017. As you can read in more
detail in the Audit Committee Report, we have continued to strengthen the governance policies, controls and processes to
support the growth strategy of the Group during the year, and the years to come.
The Board is firmly committed to ensuring that our corporate governance policies are complied with in all jurisdictions in
which the Group operates, by setting up proper processes. We are convinced that strong corporate governance is good
for our business and underpins the delivery of shareholder value. We believe that corporate governance structures and
processes will help our business to perform in a more efficient and competitive way in the marketplace and will lead to strong
relationships with all of our stakeholders.
In November 2017, Lesley Jackson (CFO) stepped down from the Board and following an external search process, Paul Bal
was appointed as CFO in November 2017. Elisa Gomez de Bonilla (Group General Counsel & Company Secretary) decided
not to return following a period of maternity leave; Steve Weatherley was promoted to Group General Counsel and Sally
Kenward to Group Company Secretary.
The Board acknowledges that with the departure of Lesley Jackson in November 2017 there are currently no women on
the Board. Any future appointments will be made in line with the Board Diversity Policy and will continue to be made on
merit and take into account diversity, in terms of gender and ethnicity, as well as the appropriate mix of skills, background,
knowledge, international and industry experience.
54
As Chairman of the Board, I work with the Company Secretary to set the agenda for Board meetings. These are structured to
ensure that sufficient time is spent on important matters, and all Directors have the opportunity to contribute. During the year,
the Board discussed, reviewed and updated the Group’s refreshed strategy. The Board also regularly reviews, among other
things, the performance of each of the markets and in particular Poland, our largest market and considers the principal risks and
associated procedures and processes to mitigate them. Further detail on the principal risks can be found on pages 20 to 25.
Another area of focus for the Board was succession planning including actions to strengthen the pipeline through the
development of the leadership framework. Management continued to work on the pool of emerging talent within the Group
providing bespoke training and development plans to create a strong pipeline of internal candidates.
In the second half of the year, an internal evaluation of the Board was carried out to review the performance of the Board,
its Committees and the individual Directors, including the Chairman. The exercise was facilitated by the Company Secretary
under my direction and details of the process and outcomes are shown on pages 58 and 59. I believe regular and appropriate
Board and Committee evaluation is an area that is fundamental to improving Board effectiveness and ensuring objectives
can be met. It enables us to review the effectiveness of individual Directors, the processes under which the Board operates,
and the quality, timeliness and appropriateness of information submitted by management. In 2018 we will carry out an
internal evaluation.
Your Board regularly meets with Group Management, both at Board and Board Committee meetings
and in other routine meetings, which enables the Non-Executive Directors (NEDs) to gain a good
understanding of the business and what is happening on the ground. We believe that this is an
essential requirement for Directors. We have set out in the following pages, details of how the Company
has applied the main principles of the 2016 version of the UK Corporate Governance Code
and its compliance with the various provisions.
David Maloney
Chairman
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017 Corporate governance framework
Introduction
This report explains key features of the Company’s governance structure to provide a greater understanding of how the main
principles of the UK Corporate Governance Code, published in 2016 by the Financial Reporting Council (the Code), have
been applied, and to highlight areas of focus during the year. The report also includes items required by the Disclosure and
Transparency Rules. A copy of the Code can be obtained at www.frc.org.uk.
Compliance with the UK Corporate Governance Code
The Company has complied with the provisions of the Code in this financial year.
Governance overview
The Board is collectively responsible to the shareholders for the long-term success of the Company. The Board has delegated
certain responsibilities to Board Committees to assist it with discharging its duties. The Board Committees play an essential
role in supporting the Board to implement its vision and strategy, and to provide focused oversight of key aspects of the
business. The full terms of reference for each Committee are available on the Company’s website www.stockspirits.com.
How the Board works
The Board
The Company is led and controlled by the Board. The names, responsibilities and details of the current Directors
appointed to the Board are set out on pages 52 and 53. The Board agrees the strategic direction and governance
structure that will help achieve the long-term success of the Company and deliver shareholder value. The Board takes
the lead in areas such as strategy, financial policy and ensuring the Company maintains a sound system of internal control.
The Board’s full responsibilities are set out in the ‘Matters Reserved for the Board’ and are available on the Company’s
55
website www.stockspirits.com
Role of the Chairman
The Board is chaired by David Maloney, a NED who met the independence criteria in the Code on his appointment. It is the
Chairman’s duty to lead the Board and to ensure Directors have sufficient resources available to them to fulfil their statutory
duties. The Chairman is responsible for setting the Board’s agenda, ensuring adequate time is available for discussion of all
agenda items and ensuring a particular focus on strategic issues.
The Chairman promotes a culture of openness and debate by facilitating the effective contribution of NEDs in particular, and
by encouraging constructive relations between Executive Directors and NEDs.
Role of the Chief Executive Officer (CEO)
Mirek Stachowicz is the CEO. Through delegation from the Board, he is responsible for executive management of the Group,
including the implementation of the Group’s strategic objectives. In fulfilling his duties, the CEO is supported by the senior
management team, whom he also leads.
Interaction between the Chairman and the CEO
The roles of the Chairman and the CEO are separate, with a distinct division of responsibilities.
The partnership between David Maloney and Mirek Stachowicz is based on mutual trust and is facilitated by regular contact
between the two. The separation of authority enhances independent oversight of the executive management by the Board
and helps to ensure that no one individual on the Board has unfettered authority.
Strategic Review GovernanceFinancial Statements Corporate governance framework continued
Role of the Senior Independent Director (SID)
John Nicolson is the SID and is available to shareholders if they have concerns that the normal channels of Chairman, CEO
or other Executive Directors have failed to resolve, or for which such channels of communication are inappropriate. The
SID also acts as an internal sounding board for the Chairman, and serves as intermediary for the other Directors, with the
Chairman, when necessary. During the year Mr Nicolson consulted with major shareholders to discuss the proposed changes
to the Directors’ Remuneration Policy both prior to and following the AGM. The role of the SID is considered to be an
important check and balance in the Group’s governance structure. In accordance with the Code, neither the Chairman nor
the SID are employed as executives of the Group.
Non-Executive Director independence
The Board considers and reviews each NED’s independence on an annual basis, as part of the Directors’ performance
evaluation. In carrying out the review, consideration is given to factors such as their character, judgement, commitment and
performance on the Board and relevant Committees, and their ability to provide objective challenge to management. The
Board has considered the findings from the internal Board evaluation exercise and reviewed the independence of each NED.
The Board is of the view that all were and continue to be, independent in accordance with the provisions of the Code, with
the exception of Randy Pankevicz, who is considered non-independent. His status does not preclude him from making a full
contribution to the Board. He has participated in all Board and Board Committee meetings.
Meetings and attendance
56
The attendance of Directors at scheduled Board and Committee meetings during the year ended 31 December 2017 were
as follows:
Director
David Maloney
Mirek Stachowicz
Lesley Jackson1
Paul Bal2
John Nicolson3
Randy Pankevicz
Mike Butterworth
Diego Bevilacqua
Tomasz Blawat
Board
Maximum 7
Audit Committee
Maximum 5
Remuneration
Committee
Maximum 6
Nomination
Committee
Maximum 4
7
7
7
2
7
7
7
7
7
–
–
–
–
4
–
5
–
5
–
–
–
–
6
–
6
6
6
4
–
–
–
3
–
4
4
–
1. Retired as a Director on 7 November 2017
2. Appointed as a Director on 7 November 2017
3. Mr Nicolson was unable to attend one Audit Committee and one Nomination Committee due to overseas business commitments
During 2017, certain Executive and Non-Executive Directors who are not Committee members attended Committee
meetings by invitation (other than meetings where there would be a conflict). These details have not been included in
the table.
In addition to the scheduled Board meetings, the Board holds regular meetings by telephone, generally to review the financial results.
Stock Spirits Group PLC Annual Report & Accounts 2017
In the event that a Director is unable to attend a meeting, they will receive the papers scheduled for discussion at the relevant
meeting, giving them the opportunity to raise any issues and give any comments to the Chairman in advance of the meeting.
The Board delegates authority to its Committees to carry out certain tasks on its behalf, so that it can operate efficiently
and give the right level of attention and consideration to relevant matters. The composition and role of each Committee is
summarised in each of the respective Committee reports.
Board composition, qualification and independence
The Board is committed to high standards of corporate governance and as such, its composition, members’ experience,
balance of skills and effectiveness are regularly reviewed to ensure the right mix of people are on the Board and its
Committees. Following the retirement of Lesley Jackson and the appointment of Paul Bal as CFO, both on 7 November
2017, the Board continues to comprise eight Directors: a Chairman (who, for the purposes of the Code, was independent on
appointment); a SID; three Independent NEDs; one Non-Independent NED and two Executive Directors.
The Directors have a wide range of skills and experience including expertise in the food and drinks industry, within Europe
and beyond.
Appointment and tenure
All NEDs, including the Chairman, serve on the basis of letters of appointment that are available for inspection at the
Company’s registered office. The letters of appointment set out the expected time commitment of NEDs who, on
appointment, undertake that they will have sufficient time to meet what is expected of them.
57
The Executive Directors’ service contracts are also available for inspection at the Company’s registered office.
The Company does not place a term limit on a Director’s service, as all continuing Directors will present themselves for annual
re-election by shareholders at the Company’s Annual General Meetings (AGMs).
Director induction and training
The Chairman, with the support of the Company Secretary, is responsible for the induction of new Directors and the ongoing
training and development of all Directors. New Directors receive a full, formal and tailored induction on joining the Board,
designed to provide an understanding of the Group’s business, governance and key stakeholders. The induction process
includes site visits, meetings with key individuals, and briefings on key business, legal and regulatory issues facing the Group.
As the internal and external business environment changes, it is important to ensure the Directors’ skills and knowledge are
refreshed and updated regularly. Accordingly the Chairman, with the assistance of the Company Secretary, ensures that
regular updates on corporate governance, regulatory and technical matters are provided to Directors at Board meetings.
During the year, operational site visits for the Board were arranged in Poland, Czech Republic and Italy which included
meetings with the local senior management teams. In this way, Directors keep their skills and knowledge relevant so as to
enable them to continue to fulfil their duties effectively.
Strategic Review GovernanceFinancial Statements Corporate governance framework continued
Information and support available to Directors
All Board Directors have access to the Company Secretary, who advises them on Board and governance matters.
The Chairman and the Company Secretary work together to ensure Board papers are clear, accurate, delivered in a timely
manner to Directors and of sufficient quality to enable the Board to discharge its duties. As well as the support of the
Company Secretary, there is a procedure in place for any Director to take independent professional advice at the Company’s
expense in the furtherance of their duties, where considered necessary.
Director re-election
In accordance with the Code and the Directors’ letters of appointment, the Directors will put themselves forward for annual
re-election. Following recommendations from the Nomination Committee, the Board considers that all Directors continue to
be effective, committed to their roles and to have sufficient time available to perform their duties. Accordingly, all Directors
will seek re-election at the Company’s forthcoming AGM.
Directors’ conflicts of interest
Directors have a statutory duty to avoid situations in which they have, or may have, interests that conflict with those of the
Company, unless that conflict is first authorised by the Board. This includes potential conflicts that may arise when a Director takes
up a position with another company. The Company’s Articles allow the Board to authorise such potential conflicts, and there is a
procedure in place to deal with any actual or potential conflict of interest. The Board deals with each appointment on its individual
58
merit and takes into consideration all relevant circumstances. All potential conflicts approved by the Board are recorded in an
Interests Register, which is reviewed by the Board at least quarterly to ensure the procedure is working effectively.
Board evaluation and effectiveness
An internal evaluation of the performance of the Board, its Committees and the Chairman was carried out during the year.
The process of evaluating the performance was undertaken by the Company Secretary under the direction of the Chairman.
A tailored, high-level questionnaire was distributed for the Directors to complete. This was structured to provide Directors
with an opportunity to express their views about:
• The performance of the Board and its Committees, including how the Directors work together as a whole;
• The balance of skills, experience, independence and knowledge of the Directors; and
•
Individual performance, and whether each Director continues to make an effective contribution.
Following evaluation, it was agreed that all Directors contribute effectively, demonstrate a high level of commitment to
their role, and together provide the skills and experience that are relevant and necessary for the leadership and direction
of the Company.
The evaluation highlighted that following Mrs Jackson’s departure, the Board is currently lacking in gender diversity, however,
it is diverse in terms of ethnicity, culture, nationality and international experience. In line with the Board Diversity Policy,
gender diversity will be considered alongside race, merit, skills, background, knowledge and international and industry
experience when the next opportunity arises on the Board.
The responses to the evaluation of the Board and its Committees were reviewed with the Chairman and considered by the
Board. The results of the evaluation indicated that the Board is working well and that there were no significant concerns
among the Directors about its effectiveness. It was generally felt that the actions agreed as a result of the previous year’s
external evaluation had been progressed. These actions included succession planning and promoting a stronger culture of
value creation in the Board and throughout the Company. For the year ahead, the actions agreed included a continued focus
on succession planning, continued engagement with the management teams in each market and a focus on improving the
management information provided to the Board.
Stock Spirits Group PLC Annual Report & Accounts 2017 The results of the evaluation of the Chairman’s performance were considered by the SID and were discussed with the
Chairman at a separate one-to-one meeting. The performance of individual Directors was evaluated by the Chairman,
with input from the Committee Chairmen and other Directors.
For 2018, an internal evaluation of the performance of the Board, its Committees and the Chairman will take place.
The process of evaluation will be undertaken by the Company Secretary under the direction of the Chairman.
Annual General Meeting (AGM)
The Company’s AGM will take place at 11.30am on Tuesday, 22 May 2018 at the offices of Numis Securities Limited at The
London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. All shareholders have the opportunity to attend
and vote, in person or by proxy, at the AGM. The notice of the AGM can be found on our website www.stockspirits.com, and
in a booklet that is being issued at the same time as this Report. The Notice of the AGM sets out the business of the meeting
and an explanatory note on all resolutions. Separate resolutions are proposed in respect of each substantive issue.
The AGM is the Company’s principal forum for communication with shareholders. The Chairman of the Board and Directors
will be available to answer shareholders’ questions at the AGM.
Committees
The Company has established an Audit Committee, a Nomination Committee, a Remuneration Committee and a Disclosure
Committee. The Board delegated specific responsibilities to these Committees. The role and responsibilities of each Board
Committee are set out in formal Terms of Reference, which are available on the Company’s website. The Board Committees
59
make recommendations to the Board as they see fit, as contemplated by their Terms of Reference.
Shareholder engagement
The Company has regular discussions with and briefings for analysts, investors and institutional shareholders. Primary
responsibility for shareholder relations rests with Mirek Stachowicz, CEO and Paul Bal, CFO. They ensure there is effective
communication with shareholders on matters such as governance and strategy, and are responsible for ensuring the Board
understands the views of major shareholders on such matters.
As part of a comprehensive investor relations programme, formal meetings with investors are scheduled to discuss the
Group’s interim and final results. In the intervening periods, the Company continues its dialogue with the investor community
by meeting key investor representatives and attending investor conferences.
During the year, the CFO and CEO met with a number of shareholders and potential shareholders. External presentations are
posted on the Company’s website at www.stockspirits.com/investors.
The Chairman is always available to meet individual shareholders on request. In addition, all Directors are available to meet
shareholders at the Company’s AGM.
David Maloney
Chairman
7 March 2018
Strategic Review GovernanceFinancial Statements Audit Committee report
I am pleased to report on the role and activities of the Audit Committee for the year
The principal objectives of the Committee are to monitor the Group’s internal controls and financial risk management, to review
the integrity of the Group’s published financial reports, including the ARA, and to oversee the conduct of the external audit.
The Audit Committee is satisfied that it is in compliance with the provisions of the UK Corporate Governance Code in
relation to Audit Committees and auditors.
The Committee has complied with the Competition and Markets Authority Order on Statutory Audit Services for Large
Companies for the year ended 31 December 2017, having completed a formal competitive tender process for the
appointment of the external auditor during the year ended 31 December 2014.
Composition of the Committee
During the year ended 31 December 2017, the Audit Committee held five meetings. The members of the Committee during
the year were as follows:
Mike Butterworth
Chairman and Independent NED
John Nicolson
Tomasz Blawat
Senior Independent NED
Independent NED
60
All the members of the Committee are independent and collectively have competence relevant to the beverage sector in which the
Company operates, in accordance with Provision C.3.1 of the UK Corporate Governance Code. Mike Butterworth is a chartered
accountant and the Board is satisfied that he brings recent and relevant financial experience to the Committee, as recommended
by the Corporate Governance Code, having served as CFO of a FTSE 250 company for eight years until December 2012.
Sally Kenward (Company Secretary) served as Secretary to the Committee with the exception of two meetings where Steve
Weatherley (Group General Counsel) acted as Secretary to the meeting whilst in his capacity as Acting Company Secretary.
The Chairman of the Company, NEDs not on the Audit Committee, CEO, CFO, 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 to present to the Committee as appropriate.
Committee meetings are planned so as to enable review of trading statements, the half-yearly report and the ARA, with
additional meetings taking place as necessary.
Responsibilities and role of the Audit Committee
The Committee’s main responsibilities are to oversee, monitor and make recommendations to the Board on:
• The effectiveness of the Group’s internal control and risk management, including control over
financial reporting
• The effectiveness of internal audit, including co-ordination with the activities of external audit
• The Group’s policies and procedures relating to business conduct, including whistle-blowing
arrangements and fraud prevention and detection procedures
• The Group’s overall approach to ensuring compliance with laws, regulations and policies
• The appointment of the external auditor, including a tender selection process, where appropriate,
as well as terms of engagement and remuneration
• The scope of the external audit, its findings and the effectiveness of the audit process
• The overall relationship with the external audit firm, including the provision of non-audit services
to ensure that independence and objectivity are maintained
Stock Spirits Group PLC Annual Report & Accounts 2017 • The integrity of the financial statements, including a review of the significant accounting policies and financial reporting judgements
• Whether, taken as a whole, the ARA is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model and strategy.
Risk management and internal control framework
We have a clear framework for identifying, evaluating and managing risk faced by the Group on an ongoing basis, both at an
operational and strategic level, which has been in place for the year under review and up to the date of this report, and which accords
with ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ issued by the Financial Reporting
Council (FRC). Our risk identification and mitigation processes have been designed to be responsive to the constantly changing
environment. Our internal control process starts with identifying risks, compliance matters and other issues at a local level in each
of the Company’s markets, and then consolidates it at a Group level at the Board. We do this through routine reviews carried out by
process owners and facilitated by relevant dedicated, specialist teams. We record risks in our risk registers, assess the implications and
consequences for the Group, and determine the likelihood of occurrence. The Group’s risk register is subject to regular review and
scrutiny by the Board, as well as by the Audit Committee with regards to the financial risks. Appropriate action is taken to manage
and mitigate the risks identified. The Audit Committee receives an update on risk management and internal controls at every meeting.
The report includes significant changes in risk registers, personnel and systems changes that may impact upon controls; any detected
breaches of controls or investigations into possible breaches; and any concerns reported via our speak-up hotline.
The main features of the Group’s internal control and risk management systems in relation to the process for preparing
consolidated accounts include:
61
• Organisational structure, delegations of authority and reporting lines
• Group accounting and control procedures, with a centralised Group finance function that provides direction and support
to market finance teams as well as managing the Group consolidation and reporting requirements
• Budgetary process and financial review cycle, with a quarterly review of annual budget, business performance and
assessment of risks
• Risk management through monitoring and maintenance of a risk register for each business unit
• Capital expenditure control
•
Internal Audit regular reports on controls
• Competence and integrity of our personnel.
Effectiveness of internal controls
The Committee has reviewed the effectiveness of our risk management and internal control process, including financial
reporting, to ensure it remains robust. The review covered all material controls, including financial, operational and
compliance controls, in the financial period to 31 December 2017 and the period to the approval of this ARA.
The full 'Terms of Reference of the Committee', which have been subject to review and updated during the course of the
year are available on our website at www.stockspirits.com.
The Committee’s role is primarily advisory: it reports its findings to the Board. Ultimate responsibility for internal control, the
ARA, half-yearly reports and trading statements remains with the Board.
Main activities of the Committee during the year
Internal controls and risk management
As part of our continuous monitoring of risk management and internal controls, we receive and review the corporate risk
register together with a report on changes in significant risks in our main businesses and other control related information on
a quarterly basis. Over the year, we have reviewed reports from the CEO and the Company Secretary, as well as from other
members of management and the internal audit team.
Strategic Review GovernanceFinancial Statements Audit Committee report continued
At each meeting, the Committee continued to review progress on a major project that was initiated in 2015, to develop and
implement more comprehensive controls across the business. This has involved cross functional teams across our principal
markets challenging and redeveloping procedures and controls to ensure they are effective and not open to misuse. The process
of implementing and embedding this enhanced internal control framework across all our markets has, following implementation
in our German distillery, been completed and the ongoing internal audits of compliance with the controls are now producing
very high pass rates in all markets. With this enhanced control framework now in place in all our principal markets, the focus in
2017 has been on the extensive auditing of the controls to ensure that they are operating effectively.
In addition, the Committee reviewed a number of matters relevant to the financial structure of the Group. These included
the adequacy of the Group’s financing facilities, updates on the Group’s risk management and insurance programmes, the
availability of distributable reserves within the Company and its ability to pay dividends.
Internal audit
The remit of internal audit is to undertake financial, operational and strategic audits across the Group using a risk-based
methodology. During the year, Monika Krenz was appointed as Head of Internal Audit, following the appointment of the
previous Head of Internal Audit to the role of Group General Counsel, and Deloitte replaced PricewaterhouseCoopers as
our internal audit service providers. In line with our usual practice, internal audit prepared an inventory of the key auditable
control and risk areas across the Group, informed by the Principal Risks identified in our ARA and the latest quarterly risk
registers prepared by our businesses, which drove priorities for the internal audit plan for 2017. This plan contained audits
62
and reviews focused on areas identified as having the most risk to the business, covering all parts of the Group down to
individual sites, processes and activities, and all aspects of the business.
During 2017, the main focus of internal audit activity continued to be on extensive auditing post-implementation of the
controls project referred to above in our principal markets, to ensure compliance with controls is fully embedded. The results
of the post-implementation audits were reported to the Committee, as it continued to provide strong oversight for this
important project. During the year, the remit of the controls project was extended from its initial focus on the purchase-to-
pay, order-to-cash and hire-to-retire processes, to additionally cover the sales and operations planning process. In addition,
the Committee received internal audit reports on the design and operating effectiveness of controls around compliance with
the Listing Rules of the London Stock Exchange and Market Abuse Regulation and health and safety management. In each
case, the audits confirmed the general adequacy of controls and proposed areas for improvement. Results were graded, and
where improvements were identified, appropriate remedial actions were agreed with the management concerned, with the
Committee ensuring that these are followed up. We considered the internal control issues raised in internal audit reports that
we received during the year, the adequacy of internal audit resources and the effectiveness of the internal audit function.
The Committee also held a session with the Head of Internal Audit without other members of management being present.
Whistle-blowing
Part of our remit is to oversee the Group’s processes for handling reports from whistle-blowers. Our Code of Business
Conduct encourages all employees to report any potential improprieties in financial reporting or other matters. We have
an independent compliance hotline (Speak-Up) operated by an external agency. This is available to all employees, suppliers,
customers and other stakeholders, in each of the languages used throughout the Group and, subject to legal requirements,
callers can remain anonymous if they wish. All contacts received are reported to and reviewed by the Audit Committee.
Where appropriate, our legal and/or internal audit teams may be asked to investigate issues and report to us on the outcome.
During 2017, we received only one Speak-Up hotline contact, which related to an alleged conflict of interest between
an employee in Poland and a supplier. However, when we investigated the allegation, the informant provided no specific
information and we found no evidence to suggest any wrongdoing.
The Committee also received regular updates from the Group General Counsel on significant litigation and disputes, initiated
by or against the Company.
Stock Spirits Group PLC Annual Report & Accounts 2017 Review of ARA and preliminary results announcement
The Committee has considered the appropriateness of the accounting policies used. Further, the Committee carried out a
comprehensive review of the ARA as a whole and considered a number of factors, including the balance between reporting of
positive and negative aspects, consistency throughout the ARA and the results of enquiries made of business unit managers and
other relevant management of the most significant challenges, set-backs and achievements during the year. Based on that review,
the Committee has recommended to the Board that, taken as a whole, the ARA is fair, balanced and understandable, and provides
the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
Significant issues considered in relation to the ARA
In reviewing the financial statements with management and the auditors, the Committee has discussed and debated the
critical accounting judgements and key sources of estimation uncertainty set out in note 4 to the financial statements. As a
result of their review, the Committee has identified the following issues that require particular judgement or have significant
impact on interpretation of this ARA.
Revenue recognition
In the Group’s main markets, seasonal sales peaks occur around the Christmas period, therefore procedures for appropriate cut-
off and recording of revenue and related rebates to the correct period are important. In line with normal practice, the businesses
within the Group provide a variety of discounts, rebates, promotions and marketing support to customers across a number of
geographies. We reviewed the procedures performed by management and the auditors to ensure the accuracy and completeness
of such reserves at the year-end. The Group’s policy is set out in note 3 to the consolidated financial statements.
63
Carrying value of intangible assets
The Group’s policies on accounting for separately acquired intangible assets and goodwill on acquired businesses, are set
out in note 3 to the consolidated financial statements. The results of this year’s testing showed positive headroom in all
cash generating units, with the exception of Italy, where the continued low profitability resulted in a deficit of approximately
€14.9m below the net asset value, requiring an impairment charge which is shown in the financial statements as an
exceptional item due to its size and infrequent occurrence.
As part of the testing, the Committee has reviewed the key assumptions behind these valuations, notably the expected
development of future cashflows and the discount rates used, as well as considering reasonable sensitivities to these
estimates, and concluded that these support the carrying values set out in notes 15 and 16.
Taxation
As is normal, the Group has a number of outstanding tax assessments, and regularly undertakes reviews to assess tax risks
across the Group – for example, risks associated with VAT and transfer pricing. As described in note 13 to the consolidated
financial statements, we are facing a number of tax investigations at subsidiary level. The Group has undertaken a review of
potential tax risks and current tax assessments, and while it is not possible to predict the outcome of any pending enquiries,
the Committee concurs with management’s assessment of the changes to provisions made during the year.
Going concern
In assessing whether the Company is a going concern, and accordingly making our recommendation to the Board, we
considered a paper prepared by management based on guidance published by the Financial Reporting Council and
reviewed the findings of the external auditors. The assessment was made for the period of 12 months from the date of this
report, in accordance with accepted practice. Based on internal forecasts, we reviewed the Group’s debt-maturity profile,
including headroom and compliance with financial covenants, and its capital structure. We stress-tested this by adjusting
the Company’s internal full-year forecast cashflow by a combination of the principal risks we have identified – notably an
economic downturn leading to loss of revenue and customer default (see Principal Risks – Economic and Political Change;
and Marketplace and Competition). See note 2 to the accounts (Going concern). The Committee concluded that the
application of the going-concern basis for the preparation of the financial statements remained appropriate.
Strategic Review GovernanceFinancial Statements Audit Committee report continued
Changes to accounting standards
The Committee reviewed analysis and proposals from the Group finance team on the implementation of several changes to
accounting standards starting on or after 1 January 2018. These are outlined in note 3 to the financial statements and the
Committee concurs with the assessments of the impacts, which are deemed to not be material.
External audit
During the year, the Audit Committee assessed the ongoing effectiveness and quality of the external audit process on the
basis of a questionnaire-based internal review completed by members of the Audit Committee, the external auditors and key
members of the finance team. The Committee concluded that the audit process was effective, while identifying a number of
learnings that will be applied to future audits as part of our commitment to continuous improvement.
The Committee maintained a dialogue with our external auditors, KPMG, on the key financial statement risks on which the
half-year review and full-year audit would focus. KPMG’s approach to materiality informed discussion of the appropriate level
of materiality for the audit, and the Committee concurred with KPMG’s proposals as set out in their report. The Committee
continued to meet regularly with the external auditors in the absence of management.
Before concluding our recommendation on the ARA in March 2018, we reviewed a report from KPMG on the findings from their
audit with particular attention on key issues arising out of the audit, including their views on critical estimates and judgements, key
assumptions, clarity of disclosures and proposed audit adjustments. We discussed these with management and satisfied ourselves
64
that the issues raised had been properly dealt with. We received and considered confirmation of the independence and objectivity
of the auditors, and reviewed the effectiveness of the audit process by interrogation of management and auditors. The Committee
also sought assurance from management that all appropriate matters had been brought to the auditors’ attention.
Non-audit services policy and auditor independence
We have a policy on non-audit services provided by the external auditors, which was updated in line with EU Regulation No.
537/2014 on the statutory audit of public interest entities. Specific approval must be sought from the Audit Committee for:
• Single or linked advice from our auditors, the cost of which is likely to exceed €50,000 in the financial year or bring the
aggregate non-audit fee for that firm over €300,000 in the financial year; and
• Employment into control positions of individuals who have worked directly on the external audit in the previous two years.
Our policy also states that we require annual confirmation of the independence of an audit firm in accordance with its own
and required regulatory and ethical guidelines. We review a quarterly report from the CFO of the actual level and nature of
non-audit work and periodic confirmation from KPMG of their independence.
The total fees paid to KPMG for audit services for the year were €676,000 and audit-related assurance services fees amounted to
€54,000. The audit-related assurance services work entirely comprised of a half year interim review. We are satisfied that this audit-
related assurance services work did not detract from the objectivity and independence of our external auditors. Further details of the
fees paid to the external auditors are set out in note 12.
Governance
The Committee has reported in accordance with its Terms of Reference and in particular has recommended to the Board the
adoption of the ARA and the proposal to reappoint KPMG LLP as independent auditors at the AGM. A formal evaluation of
the effectiveness of the Committee was carried out during the year (see page 58); based upon the results of that evaluation,
the Committee believes that it has operated effectively during the year.
Mike Butterworth
Chairman of the Audit Committee
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017 Nomination Committee report
I am pleased to present the report of the Nomination Committee for 2017.
Composition of the Committee
The members of the Committee are:
David Maloney
John Nicolson
Chairman
Senior Independent NED
Mike Butterworth
Independent NED
Diego Bevilacqua
Independent NED
Meetings
The Nomination Committee met four times during the year. David Maloney, John Nicolson, Mike Butterworth and Diego
Bevilacqua met the independence criteria in the Code on appointment. Sally Kenward (Company Secretary) served as
Secretary to the Committee, except for two meetings where Steve Weatherley (Group General Counsel) acted as Secretary
whilst in his capacity as Acting Company Secretary. The CEO and NEDs who do not sit on the Committee generally attend
our Committee meetings by invitation (other than when there would be a conflict). We also ask other members of the senior
management team, such as the Group HR Director, 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
skills, knowledge, independence and experience) required of the Board compared to its current position, and making
65
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.
The Nomination Committee takes into account the provisions of the UK Corporate Governance Code 2016 (the Code) and
any regulatory requirements that are applicable to the Company. It ensures that 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
The Committee met in March 2017 to determine Directors’ independence or non-independence
for the purpose of recommending to the Board the reappointment of Directors at the AGM.
Succession planning and development of senior management pipeline
In June and November 2017 the Committee met to discuss and agree the succession planning
of senior management, both in terms of permanent succession and also short-term cover
for senior roles. Succession planning is a key area for the Company and continues to be
enhanced and developed. Emerging talent within the middle management team was discussed
and individual development plans have been put in place to strengthen the pipeline for the
future. Effective succession planning is fundamental to Board effectiveness and ensures there is
continuous development of talented personnel to provide cover in the short-term and promotion,
where appropriate, into senior positions in the long term. This approach helps to mitigate the risks
associated with unforeseen events such as the departure of a key individual, and also assists in
promoting diversity.
Strategic Review GovernanceFinancial Statements Nomination Committee report continued
At the meeting held in January 2017, the Chairman recommended introducing a mentoring programme between the
NEDs and the senior management team. The programme was established to help the NEDs gain a greater understanding
of a particular area of the business and to also provide advice to the individual where required. Everyone involved in the
programme has found the exercise beneficial and the plan is to continue the mentoring programme in 2018. The Committee
will continue to focus on succession planning and development of both middle and senior management during 2018.
Board Changes
Following Mrs Jackson’s notification to the Committee that she intended to step down from the Board from November 2017,
the Nomination Committee conducted an external search through Odgers Berndtson, an international executive search firm,
who were given a brief to provide a diverse long list of candidates taking into account gender, ethnicity, skill, experience,
background, knowledge, international and industry experience. The Committee agreed a short list of candidates and a
number of interviews were conducted by the members of the Nomination Committee and other Board Directors. Following
the final interviews with candidates, the Nomination Committee proposed to the Board, and the Board unanimously agreed,
to appoint Paul Bal as CFO of the Company in November 2017.
Diversity
Following Mrs Jackson’s retirement and Mr Bal’s appointment to the Board, there are currently no females on the Board. The
Board is diverse in terms of the race, nationality and international experience of its members. The Committee will continue
to monitor and consider diversity for future Board appointments and it is the Company’s policy to maintain and develop the
66
diversity of its Board Directors without compromising on the calibre of new Directors appointed. Appointments to the Board
will be based on merit while complementing and enhancing the existing diversity of skills, knowledge, and experience of the
Board as a whole.
The Nomination Committee will continue to engage with Executive Search firms in a manner which enhances opportunities
for diverse candidates to be considered for appointment; the Committee will support Board-level diversity throughout
the Succession Planning process and will support efforts to increase diversity in the senior management pipeline towards
Executive and Non-Executive Board positions.
In accordance with the recommendation for FTSE 350 companies set out in the Code, all of the Company’s Directors will
stand for re-election at the forthcoming AGM. The biographical details of the current Directors can be found on pages 52
and 53. The Committee considers that the performance of each of the Directors standing for re-election continues to be
effective and that they each demonstrate commitment to their role, including commitment of time for Board and Committee
meetings and any other duties.
The terms and conditions of appointment of NEDs, including the expected time commitment, are available for inspection at
the Company’s registered office.
David Maloney
Chairman of the Nomination Committee
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017 Directors’ remuneration report
I am pleased to present our Remuneration Report for 2017.
Our Directors’ remuneration policy (the Policy) was approved at the AGM in 2017 with a vote in favour of more than 79%,
and applied during the year. As noted in the 2016 Directors’ Remuneration Report, we consulted with major shareholders
and representative bodies in respect of the proposed changes to the Policy and in my position as Chairman of the
Committee I spoke with a number of the Company's largest shareholders following the AGM. No changes to the Policy
are proposed for 2018.
The Annual Report on remuneration (pages 77 to 84) sets out how the Policy was applied in 2017 and details the rewards
earned by Directors. It also sets out how we intend to apply the Policy in 2018.
As no changes are proposed to the Directors’ remuneration policy this year, it will not be subject to a vote at the AGM.
The Annual Report on remuneration will be subject to an advisory vote by shareholders at the AGM.
The outturn for 2017 can be summarised as follows:
• Base salary
Mirek Stachowicz’s salary for 2017 remained at the level of £425,000 (€482,955) as reported last year. Paul Bal was
appointed as CFO during the year with a salary of £300,000 (€340,909), which is less than the salary earned by the
former CFO. Further information in relation to Paul Bal’s remuneration on joining the Company is set out below.
• Annual bonus
67
Mirek Stachowicz’s and Lesley Jackson’s bonus opportunity for 2017 was up to 140% of salary. The bonus was based
on three performance metrics: (1) EBITDA (50% of the opportunity); (2) cashflow (30% of the opportunity); and (3)
individual KPIs linked to the financial, strategic and operational performance of the business (20% of the opportunity).
Performance achieved against the two financial measures of EBITDA and cashflow conversion was between threshold
and target. This has resulted in an annual bonus being paid to Mirek Stachowicz and Lesley Jackson at 32.1% of salary;
further information is included on page 78. 25% of the bonus earned by Mirek Stachowicz will be deferred into shares.
In line with the Directors’ remuneration policy and as agreed in connection with her retirement from the Board,
all of Lesley Jackson’s bonus will be paid in cash. Paul Bal was not eligible for a bonus in respect of 2017.
• LTIP (Long Term Incentive Plan)
The PSP (Performance Share Plan) award granted to Lesley Jackson in 2015 was subject to an EPS performance
condition (as regards 50% of the award) and a TSR performance condition (as regards 50% of the award).
Each performance condition was assessed over the three year performance period ended
31 December 2017; the performance required for threshold vesting was not achieved and
the award has lapsed.
Executive Director changes
Lesley Jackson retired from the Board on 7 November 2017 and will leave the Company on
8 August 2018. The remuneration arrangements in relation to Lesley’s retirement from the
Board have been determined in accordance with the Policy; further information is set out
on page 81.
Paul Bal was appointed as CFO with effect from 7 November 2017. His salary was set at
£300,000 (€340,909) which is lower than Lesley Jackson’s (£318,000 (€361,364)). We
agreed to compensate Paul for incentive awards he forfeited in his previous role. Details
of the compensation award are set out on page 80, the award will vest in December 2020
and has been granted in the form of an award over the Company’s shares to align his
interests with those of shareholders.
Strategic Review GovernanceFinancial Statements
Directors’ remuneration report continued
Remuneration for 2018
An increase of 3% is proposed for Mirek Stachowicz for 2018 to a level of £437,750 (€497,443), this is in line with the range
of increases awarded to the wider workforce. No change is proposed to Paul Bal’s base salary for 2018, which will remain at
the level of £300,000 (€340,909).
The Executive Directors’ annual bonus opportunity and LTIP awards for 2018 will be pro-rated to reflect the shortened 2018
financial year for the Company.
• The bonus opportunity will be up to 140% of salary earned during the nine month financial year from 1 January 2018 to
30 September 2018 (i.e. up to 105% of the annualised salary); 25% of any bonus earned will be deferred into shares for
two years. Further information is given on page 84.
• PSP awards will be granted at the level of 125% of the pro-rated salary (i.e. 93.75% of the annualised salary). Awards will
be subject to EPS and cash conversion targets as set out on page 84, and will be subject to a two year holding period
after vesting.
No changes are proposed in respect of fees for 2018 for the NEDs or the Chairman.
Because the Policy is not subject to a shareholder vote at the 2018 AGM, we have not included it in full in this year’s
Directors’ Remuneration Report. We have set out below the parts of the Policy that we consider shareholders will find most
useful, but with the "Reward Scenarios" on page 73 updated to reflect the application of policy in 2018. The full policy as
68
approved at the Company’s Annual General Meeting on 23 May 2017 is set out on pages 77 to 84 of the Company’s 2016
Annual Report and Accounts, which is available on the Company’s website at: https://www.stockspirits.com/investors/
results_reports_presentations/annual_report_2016.aspx
We remain committed to a responsible approach to executive pay as I trust that this Remuneration Report demonstrates, and
value all shareholders’ views on our remuneration arrangements.
John Nicolson
Chairman of the Remuneration Committee
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017 Governance
Directors’ remuneration policy
This part of the report sets out those parts of the Directors’ remuneration policy approved at the 2017 Annual General
Meeting on 23 May 2017 that we consider shareholders will find most useful, but with the "Reward Scenarios" on page
73 updated to reflect the application of policy in 2018. The full policy, as approved, is set out on pages 77 to 84 of the
Company’s 2016 Annual Report and Accounts, which is available on the Company’s website at: https://www.stockspirits.
com/investors/results_reports_presentations/annual_report_2016.aspx
Remuneration structure
The table below sets out the elements that 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.
Element
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Salary
To provide salaries that are
sufficient to attract and retain
experienced and capable
Executives who can drive the
business forward. In considering
the base salary (and other
elements of remuneration)
of Executive Directors, the
Committee takes due regard of
the pay and conditions of the
workforce generally.
Salaries are paid
in equal monthly
instalments and
are normally
reviewed on
an annual basis.
No maximum salary has been set. However,
any increase will normally be within the range
of increases (in percentage terms) awarded
to the wider workforce. Increases may be
awarded above the level awarded to other
employees in appropriate circumstances,
which include but are not limited to:
Not applicable, but the
performance of the
individual is taken into
account when determining
the amount of any increase.
69
• A change in the scope of the role
• An increase in the complexity or size of
the business
• To take account of the individual’s
performance in the role, which can include
aligning a newly appointed Executive
Director’s salary with the market over time
• To take account of changes in market
practice.
Strategic Review GovernanceFinancial Statements Directors’ remuneration report continued
Element
Benefits
Retirement
benefits
70
Annual Bonus
Plan (ABP) and
Deferred Annual
Bonus Plan
(DABP)
Purpose and
link to strategy
Operation
Maximum opportunity
Performance measures
To operate a
competitive
benefits structure
that aids in the
recruitment and
retention of our
Directors.
Provide a
competitive
means of long-
term retirement
saving for
Executives.
Rewards
achievement of
annual financial
objectives
or other
performance
measures which
support the
delivery of the
Company’s
strategy while
encouraging a
long-term focus
through the use
of deferred share
awards.
Benefits currently provided include
private medical cover, critical illness
cover, life insurance, an annual car
allowance and allowances to cover
tax and legal advice to reflect the
nature and location of the role.
There is no maximum value of
benefits that may be provided,
but the Committee monitors
the overall cost of the benefit
provision on a periodic basis. The
current benefit cover includes:
Not applicable.
Additional benefits may be
provided as appropriate to take
into account the nature and
location of the role.
The Company will provide a
monthly cash allowance in lieu of a
contribution to a pension scheme
or contribute an amount to a
money-purchase pension scheme.
The annual bonus may be paid in
cash or in deferred shares (under
the DABP). The Committee’s
current intention is for 25% of any
bonus to be deferred under the
DABP. However, under the rules
of the ABP, the Committee may
decide to satisfy up to 100% of the
annual bonus in shares.
Where the amount of the bonus to
be deferred into shares is less than
£5,000, the Committee may pay
the whole bonus in cash.
Any deferred shares will be granted
in the form of nil (or nominal) cost
options or conditional awards,
and will normally be subject to a
two year vesting period. Dividend
equivalents may be payable on the
deferred share awards in respect
of dividends paid over the period
from grant of the award to vesting
calculated on such basis as the
Committee shall determine, which
may assume the reinvestment of
dividends into shares.
Clawback and, in the case of
deferred share awards, malus
provisions, will apply as referred
to below.
• Critical illness cover of 75%
of salary
• Life assurance of 4x salary
• Car allowance of £12,000 p.a.
• 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.
Up to 15% of salary.
Not applicable.
Maximum annual bonus
(including cash and deferred
shares) of 140% of salary.
The performance targets used for
the annual bonus will be set by
the Committee at the start of each
financial year. The metrics and
weightings used may vary from
year to year to reflect changing
business priorities. The measures
will be based on financial
performance and the individual
Key Result Areas (KRAs) for each
Executive, with at least 50% of
the bonus opportunity being
based on financial targets.
In the case of financial
performance measures, there
is no minimum bonus payment
for threshold performance,
with up to 50% of the maximum
opportunity paid for target
performance increasing to the full
potential being paid for maximum
performance. In the case of non-
financial performance measures,
the bonus will be earned between
0% and 100% based on the
Committee’s assessment of the
extent to which the relevant
metric has been achieved.
Stock Spirits Group PLC Annual Report & Accounts 2017 Element
Purpose and
link to strategy
Operation
Maximum opportunity
Performance measures
Maximum PSP award opportunity
of 125% of salary (or up to 250%
in exceptional circumstances) in
respect of a financial year.
The vesting of PSP awards
granted to Executive Directors
will be subject to performance
conditions set by the Committee
prior to grant.
Performance conditions will be
based on financial measures
aligned to the Company’s strategy
which may include, but are not
limited to, earnings per share or
other earnings based measures,
cash conversion or other cash
based measures and return based
measures. Where more than one
performance measure applies,
the Committee will determine the
weightings of the measures at the
time of grant. Awards will vest on
a sliding scale from up to 25% for
threshold performance rising to
100% for maximum performance.
71
Performance
Share Plan (PSP)
Encourages
sustained
performance,
assists with
retention,
incorporates
long-term
incentives into
the remuneration
package and
aligns Directors’
interests with
shareholders’
interests.
At the discretion of the Committee,
Executive Directors will receive
awards of shares in the form
of nil (or nominal) cost options
or conditional awards, which
will usually vest following the
assessment of performance
conditions measured over a period
typically of at least three years.
Awards will be subject to a two
year holding period following
vesting, taking the form of either:
(1) an additional period before the
vested shares can be acquired; or
(2) a requirement that any shares
acquired pursuant to the award
should be retained for the holding
period (subject to sales to cover tax
liabilities arising on the acquisition
of the shares).
Dividend equivalents may be
payable in respect of dividends
over the period from grant to
vest (or if the holding period is
structured as an additional period
before the vested shares can be
acquired, from grant to the date
on which those shares become
capable of acquisition) calculated
on such basis as the Committee
shall determine, which may assume
the reinvestment of dividends into
shares.
Clawback and malus provisions will
apply, as referred to below.
Shareholding
guidelines
To encourage
the Executive
Directors to build
and maintain
shareholdings in
the Company.
The Executive Directors are
required to retain 50% of the
shares (net of tax) vesting under
the incentive schemes until the
guideline has been achieved.
200% of salary.
Not applicable.
Further details on the operation of the incentive schemes
Annual bonus
The payment of any bonus is ultimately at the discretion of the Committee. The Committee retains the ability, in appropriate
circumstances, to adjust previously set targets and/or set different performance measures if events occur that cause the
Committee to determine that the measures are no longer appropriate, and that amendment is required so that they achieve
their original purpose.
Performance share awards
The Committee may, acting fairly and reasonably, vary performance conditions applying to existing PSP awards if an event
has occurred that causes the Committee to consider that it would be appropriate to amend the performance conditions,
and the varied conditions are not materially less challenging than the original conditions would have been but for the event
in question.
Strategic Review GovernanceFinancial Statements Directors’ remuneration report continued
Operation of incentive plans
The Committee has discretion to operate the PSP and DABP in accordance with their rules, including the ability to settle
awards in cash in appropriate circumstances and to adjust awards in the event of a variation of the Company’s share capital
or any other relevant event.
Claw-back provisions
Claw-back provisions may be operated at the discretion of the Committee in respect of awards granted under the ABP, the
DABP and the PSP in certain circumstances (including where there has been a material misstatement of accounts, an error
in assessing any applicable performance condition or misconduct on the part of the participant). Claw-back may be operated
during a period of two years following the vesting of a DABP award, or within two years following the payment of an ABP
bonus. Claw-back may be applied during a period of two years following the vesting of a PSP award i.e. during the holding
period.
Malus provisions
Malus provisions may be operated at the discretion of the Committee in respect of awards granted under the DABP 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
72
between the policy for Executive Directors as set out above and its approach to payment of employees generally. For
example, there is an increased emphasis on performance-related pay for Executive Directors through a higher annual
bonus opportunity and participation in the PSP, plus a higher proportion of their total remuneration is also at risk. The
Committee has not consulted directly with employees on the Executive remuneration policy, but it takes into account the
pay and employment conditions of the general workforce when considering any changes to the quantum or structure of the
Executive remuneration packages.
Non-Executive Directors
Purpose and link to strategy
Operation
Opportunity
To attract and retain high-calibre
Non-Executive Directors by
offering competitive fees.
The fee levels are usually
reviewed biannually, and may be
increased if appropriate to do so.
The maximum aggregate fee to
all Directors that may be paid is
limited to the amount permitted
under the Company’s Articles of
Association from time to time.
Fees are paid on a per-annum basis and are not varied
for the number of days worked. The fees are set
to take into account the responsibilities of the role,
the experience of the Chairman and NED and the
expected time commitment involved.
Additional fees may be paid to reflect extra
responsibilities such as for the SID or when acting
as Chairman or a member of any of the Board
Committees.
The Chairman and NEDs may also be eligible to
receive benefits relevant to their role such as travel
costs and secretarial support, or other benefits that
may be appropriate.
Stock Spirits Group PLC Annual Report & Accounts 2017 Reward scenarios
The charts below show the potential reward available to the Executive Directors under the Policy, based on the application
of the Policy in the shortened nine month financial year from 1 January 2018 to 30 September 2018. Although the Executive
Directors are paid in Sterling, the charts have been presented in Euros using an exchange rate of 0.88, which is the Group’s
reporting currency. The charts are prepared on the basis of the following assumptions.
• Fixed Pay is:
– nine months of the € salary for 2018, as referred to on page 83;
– a pension contribution at 15% of that salary; and
– benefits calculated in the case of Mirek Stachowicz on the basis of nine months’ worth of his € value benefits for
2017 as reported in the single figure of remuneration table on page 78 and in the case of Paul Bal nine months’
worth of Lesley Jackson’s € value benefits for 2017 as reported in the single figure of remuneration table on page 78
(recognising that Paul Bal’s benefits figure for 2017 in the single figure of remuneration table is not for a full year).
• Annual Bonus for maximum performance is 140% of nine months of the € salary for 2018, with 50% of this maximum
vesting for target performance.
• PSP for maximum performance is 125% of nine months of the € salary for 2018, as referred to on page 83, with 25% of
this maximum vesting for target performance.
• No assumptions have been made as to possible share price growth or dividends earned in relation to shares.
73
Reward Scenarios (€000)
€1,437
33%
36%
31%
€826
14%
32%
54%
1,400
1,000
800
€449
400
100%
0
€983
33%
36%
31%
€564
14%
32%
54%
€305
100%
Fixed pay
Annual bonus
Performance Share Plan (PSP)
Minimum
Target
Maximum
Minimum
Target
Maximum
Mirek Stachowicz
Paul Bal
Strategic Review GovernanceFinancial Statements Directors’ remuneration report continued
Service contracts and letters of appointment
Each Executive Director has been appointed under a service contract. These contracts contain the following obligations on
the Company that could give rise to, or impact on, remuneration payments or payments for loss of office:
• To provide pay, contributions to a pension scheme (or a cash allowance in lieu) and benefits as specified in the contract
• To give the Executive Director eligibility at the discretion of the Committee to participate in short- and long-term
incentive plans
• To provide 30 working days’ paid holiday per annum, or pay in lieu of any accrued but untaken holiday on termination
of employment
• To provide sick pay as specified in the contract
• To terminate the contract on not less than 12 months’ notice by either the Company or the Director or to make a
payment in lieu of notice equal to value of the base salary either in one lump sum or in phased instalments and reduced
by amounts earned from alternative remunerative positions obtained during the notice period.
•
In the case of Mirek Stachowicz, to receive, subject to the prior agreement of the Company, of up to £4,500 per year in
respect of legal and tax advice for the duration of his employment and for up to five years thereafter.
Each of the NEDs is appointed by letter of appointment for an initial term of three years. Their appointments may be
terminated earlier without compensation on three months’ notice and are subject to annual re-election by the shareholders.
74
The Executive Directors’ service contracts and the NEDs’ letters of appointment are kept available for inspection at the
Company’s registered office.
Payments for loss of office
In the event of an Executive Director’s departure, the Company will honour the contractual entitlements of that Director.
The Company’s approach to payments for loss of office will be based on the following principles:
Notice period/pay in lieu
Executive Directors have rolling contracts with 12-month notice periods. The Company may elect to terminate employment
immediately by making a payment in lieu of notice equivalent to the Executive Director’s salary for the notice period. The
payment in lieu of notice may be made in monthly instalments, which can be reduced to the extent the Executive Director
obtains alternative paid employment. All other benefits including pension contributions or allowance (as the case may be) will
cease on termination, unless the Committee determines otherwise.
The Company may terminate a Director’s employment without notice (or payment in lieu) in certain circumstances, including
where the Executive commits a serious breach of his or her service agreement or is found guilty of gross misconduct.
Outstanding incentive awards
Leavers
As a general rule, unvested incentive awards (e.g. outstanding PSP and DABP awards and entitlement to annual bonus) will
lapse on a participant ceasing to hold employment or to be a Director within the Company’s Group.
Stock Spirits Group PLC Annual Report & Accounts 2017 Good leavers
However, if the reason for the cessation of employment falls within certain good leaver categories (which include, for
example, cessation due to a participant’s injury, disability, retirement, redundancy, the employing company or business being
sold out of the Company’s Group) or in other circumstances at the discretion of the Committee, then the unvested incentive
award may vest and be payable as set out below:
• PSP: Awards will usually vest on the normal vesting date subject to performance and time pro-rating and be released
at the end of the originally envisaged holding period. The Committee retains the discretion not to time pro-rate if it
considers it appropriate to do so. The Committee may allow the outstanding share award to vest and be released early to
a good leaver and if a participant dies, his or her award will ordinarily vest and be released early (unless the Committee
decides otherwise)
• Annual Bonus: A good leaver’s annual bonus for the year of cessation will ordinarily be paid in respect of the period
of service during the year. Any payment will be subject to the performance conditions and be paid at the usual time,
although the Committee retains discretion to make payments earlier in appropriate circumstances. Bonuses for the year
of cessation or preceding year may be paid wholly in cash (with no deferral into shares) at the election of the Committee
• DABP: In the case of DABP awards, outstanding awards for a good leaver will vest early to such extent as the Committee
determines appropriate.
•
If a participant ceases employment after a PSP award has vested but during the holding period applying to it for any reason
(other than summary dismissal, in which case his award will lapse), the holding period will usually continue until its originally
scheduled end date, although the Committee retains discretion to bring the holding period to an end on cessation.
75
Takeovers
In the event of a takeover or winding up of the Company (not being an internal corporate reorganisation), all unvested PSP
awards will vest early, subject to: (i) performance and (ii) time pro-rating, although the Committee can decide to reduce or
eliminate the pro-rating of a PSP award or to disapply (or partially disapply) any performance conditions if it regards it as
appropriate to do so in the particular circumstances.
In the event of a takeover or winding up of the Company (not being an internal reorganisation), vested PSP awards which
are subject to a holding period, will be released early to the extent already vested. In the event of a takeover or winding up
of the Company, the Committee may allow bonuses for that financial year to be paid early, subject to: (i) the extent that the
performance conditions have been satisfied at that time; and (ii) the pro-rating of the bonus to reflect the reduced period of
time between grant and the date of such event, although the Committee can decide to reduce or eliminate the pro-rating of
a bonus.
In the event of a takeover or winding up of the Company (not being an internal corporate reorganisation), all DABP awards
will vest early in full.
Internal corporate reorganisation
In the event of an internal corporate reorganisation, PSP and DABP awards may, at the discretion of the Committee, be
replaced by equivalent new awards over shares in a new holding company, provided that the Board of Directors of the new
holding company agrees. If such replacement is not agreed before the internal corporate reorganisation takes place, then the
PSP and DABP awards will vest on the basis that would apply in the case of a takeover.
Other payments and benefits
Outplacement services may be provided where appropriate and any statutory entitlements, sums to settle or compromise
claims in connection with a termination would be paid as necessary, along with any accrued but untaken holiday and where
appropriate, payments in respect of legal fees.
Strategic Review GovernanceFinancial Statements Directors’ remuneration report continued
Recruitment of Directors
Where a new Executive Director is appointed, the principles outlined above in relation to the structure, components and
maximum opportunities of the existing Executive Directors’ remuneration package and service contract terms will also apply to
any newly appointed Director. Salaries for new hires will be set to reflect their skills and experience, the Company’s intended
pay positioning and the market rate for the role. In accordance with the above policy table, the maximum variable pay that may
be offered is 265% of salary (390% in exceptional circumstances), excluding any “buy-out award” as referred to below.
It may be necessary to buy out incentive awards that would be forfeited on leaving the previous employer. In determining the
structure of any buy-out award, the Committee will take into account the form of the awards forgone (cash or shares), the
timing of the awards and their expected value. Replacement share awards, if used, may be granted under the PSP, although
awards may also be granted outside of this scheme if necessary and as permitted under the Listing Rules.
The Committee may also alter the performance measures, performance period, vesting period and holding period of the
annual bonus, DABP or PSP if the Committee determines that the circumstances of the recruitment merit such alteration.
The rationale will be clearly explained in a subsequent Directors’ Remuneration Report.
In the case of an internal promotion, any outstanding variable pay awarded in relation to the previous role will be allowed to
pay out according to its terms of grant.
Fees for a new Chairman or NED will be set in line with the approved policy.
76
Non-Executive positions by Executive Directors
The Company’s policy is to allow the Executive Directors to take only one NED role in another company with prior
consent from the Board, which cannot be unreasonably withheld. The Committee may permit an Executive Director to
take on additional roles following the giving of notice to terminate his employment with the Company. During 2017, Mirek
Stachowicz was a Non-Independent Member of the Supervisory Board of Paged S.A., for which he received a fee of 310,920
PLN (€43,128).
Consideration of shareholder views
The Committee is committed to open and transparent dialogue with shareholders, and seeks major shareholder views in
advance of proposing significant changes to its policy. The Committee considers shareholder feedback received in relation to
the AGM each year plus, any additional feedback received during any meetings from time to time. When there are material
issues relating to executive remuneration or proposed changes in policy, we engage actively with major shareholders to
ensure we understand the range of their views.
Stock Spirits Group PLC Annual Report & Accounts 2017 Annual Report on Remuneration
This part of the report provides details of remuneration earned by Executive Directors in respect of 2017 and how the
Remuneration Policy, which was approved at the 2017 AGM, will be implemented during 2018. It will be put to an advisory
shareholder vote at the 2018 AGM. The information in this section has been audited where stated.
Role of the Remuneration Committee
The Remuneration Committee determines and agrees with the Board the framework or broad policy for the remuneration of
the Executive Directors and the senior management team. The remuneration of NEDs is a matter for the Chairman of
the Board and the Executive Directors, subject to the constraints contained in the Company’s Articles of Association.
No Director or Manager shall be involved in any decisions as to their own remuneration.
The Remuneration Committee will determine the policy for and scope of service agreements, termination payments and
compensation commitments for the Executive Directors and the senior management team. It also ensures that Directors’
contractual terms on termination are observed, ‘that failure is not rewarded’ and that the duty to mitigate loss is fully
recognised. The Remuneration Committee will also agree the policy for authorising claims for expenses from the Directors.
The full Terms of Reference of the Remuneration Committee are available on our website at www.stockspirits.com.
Composition of the Remuneration Committee
The members of the Remuneration Committee during the year were as follows:
77
John Nicolson
Mike Butterworth
Diego Bevilacqua
Tomasz Blawat
Chairman and SID
Independent NED
Independent NED
Independent NED
During the year ended 31 December 2017 the Committee held six meetings.
All members of the Committee are independent.
Sally Kenward (Company Secretary) served as Secretary to the Committee with the exception of two meetings where Steve
Weatherley (Group General Counsel) served as Secretary whilst in his capacity as Acting Company Secretary. The Chairman
and CEO generally attend our Committee meetings by invitation, but not for matters that affect them directly. We also asked
other members of the senior management team (such as the Group HR Director) to present to the Committee during
the year.
Advice provided to the Committee
Deloitte LLP acted as adviser to the Committee during 2017. Deloitte is a founding member of the Remuneration Consultants
Group and adheres to its Code of Conduct in relation to Executive remuneration consulting in the UK. Deloitte’s fees for
advice to the Committee during 2017 were £21,750 (€24,716) plus VAT.
The Committee reviewed the potential for conflicts of interest and the safeguards against them, and is satisfied that Deloitte
does not have any such interests, or connections with the Group, that may impair its independence.
Strategic Review GovernanceFinancial Statements Directors’ remuneration report continued
Directors’ remuneration (audited)
The table below sets out the total remuneration for the Directors in 2017 and 2016.
The Directors are paid in Sterling, but figures in this report are disclosed in Euros (the Group’s reporting currency).
The exchange rate used is €1:£0.88 (2016: €1:£0.80) unless otherwise noted.
Total amount
of salary
and fees
All taxable
benefits3
Annual incentive
arrangements
Long-term
incentive
arrangements
Pension
Total
€‘000
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Executive Directors
Mirek Stachowicz1
Lesley Jackson2
Paul Bal
Independent NEDs
David Maloney
John Nicolson
Tomasz Blawat
Mike Butterworth
Diego Bevilacqua
78
Non-Independent NEDs
Alberto da Ponte4
Randy Pankevicz
483
308
85
360
398
–
26
15
3
11
19
–
155
99
–
193
213
81
64
75
64
4
52
84
13
16
13
35
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
744
557
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
72
46
13
31
60
–
1,480
1,025
201
402
476
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
193
213
81
64
75
64
4
52
84
13
16
13
35
35
1. Mirek Stachowicz’s salary for 2017 was £425,000 (€482,955) the same as for 2016; differences in the reported number reflect that his salary for
2016 as an Executive Director was for part of the year only, and differences in the exchange rates
2. The salary of Lesley Jackson (prior to her retirement from the Board on 7 November 2017) has remained unchanged from 2015. Her salary for
2017 was £318,000 (€361,364) (2016: £318,000 (€397,500)); differences in the reported numbers reflect differences in the exchange rates. In
the table above, the 2017 remuneration for Lesley Jackson is in respect of the period to her retirement from the Board. Information on payments
made to her in respect of the period after her retirement from the Board is set out on page 81
3. Taxable benefits include car allowances, medical and dental insurance
4. Alberto da Ponte passed away on 21 January 2017
Annual bonus earned for 2017 (audited)
Mirek Stachowicz’s and Lesley Jackson’s bonuses for 2017 were based on a mix of financial (translated at the Group's
budget exchange rates for the year) and personal performance measures (KRA's), as summarised below. The maximum
bonus opportunity was 140% of salary. Paul Bal was not eligible for a bonus in respect of 2017. Based on the performance
achieved, bonuses were earned as follows:
Mirek Stachowicz:
Lesley Jackson:
32.1% of salary
32.1% of salary
Measure
Adjusted EBITDA ( at budget rates)
Free cashflow (at budget rates)
Individual KRAs
Weighting
of measure
50%
30%
20%
Performance targets
Threshold
€53.01m
€43.92m
Target
Maximum
€58.9m
€48.8m
€67.7m
€53.68m
See summary on page 79
Actual
€53.3m
€45.3m
Bonus earned
(% of salary)
8.9%
9.2%
14.0%
Stock Spirits Group PLC Annual Report & Accounts 2017 Individual KRAs
The individual KRAs were linked to the financial, strategic and operational performance of the business. Performance against
them was assessed by the Committee on the following basis:
Mirek Stachowicz
KRAs
Performance achieved
Strategy "refresh"
Review of the Group Strategy including M&A opportunities
People Management
Launch of updated strategy to be announced by end of Q1 2018
There were two senior appointments made which included an
internal promotion to Group General Counsel and the recruitment
of a new CFO
For the first time a Group colleague opinion survey was launched to
measure the "engagement levels and leadership" within the business
Remuneration Committee
performance achieved
Achieved
Achieved
Deliver a "Turnaround"
of the business
Delivered year-on-year growth in 2017 as measured by the annual
results, analysts comments and growth in share price
Achieved
On the basis of the above performance and having regard to overall performance, the Committee determined that Mirek
Stachowicz receive a payment of 14% out of a maximum of 20% of the personal element.
Lesley Jackson
KRAs
Performance achieved
Cost controls and savings
Delivery of €3.2m savings across the Group in 2017, including
a reduction in the number of Group roles
Change in the year-end
Preparation for the change in year-end from December to
September completed
M&A activity
A full review of M&A opportunities undertaken with a 25% stake
in Quintessential Brands Ireland Whiskey Limited
Remuneration Committee
performance achieved
79
Achieved
Achieved
Achieved
On the basis of the above performance and having regard to overall performance, the Committee determined that Lesley
Jackson receive a payment of 14% out of a maximum of 20% of the personal element.
Long-term incentives vesting in respect of 2017 (audited)
The PSP award granted in 2015 to Lesley Jackson was subject to an EPS performance condition (as regards 50% of the
award) and a TSR performance condition (as regards 50% of the award). Each performance condition was assessed over the
three year performance period ending 31 December 2017; the performance required for threshold vesting was not achieved
and the award has lapsed.
Strategic Review GovernanceFinancial Statements Directors’ remuneration report continued
Long term incentives awarded in 2017
As discussed in the Committee Chairman’s statement last year, PSP awards in 2017 were granted at the level of 175% of
salary. This reflected an “ordinary” grant at the reduced policy level of 125% of salary and an additional grant of 50% of
salary recognising that awards were not granted in 2016.
We also granted Paul Bal an award on his recruitment in respect of the 2017 annual bonus and share options he forfeited
in his previous role. The award has been granted over Company shares to align his interests with those of shareholders. The
value of the shares subject to the award was calculated by reference to the value of the forfeited remuneration as described
above. We agreed with Paul that this award would be subject to a three year vesting period.
Paul Bal did not receive a PSP award in respect of 2017.
Director
Basis of award
Face value
of award (£)
No of share
awards
%vesting
at threshold
End of performance period
PSP awards1
Mirek
Stachowicz
Lesley
Jackson3
Joiner award
175% of salary4
£743,7501
416,667
25%
175% of salary4
£556,5001
311,765
25%
The end of the Company’s
financial year ending in 20192
The end of the Company’s
financial year ending in 20192
80
Paul Bal6
Compensation for bonus
and share options forfeited in
previous role
£100,0005
40,184
N/A
N/A
1. The face value of each PSP award is calculated by multiplying the number of shares by £1.7850 (being the average share price over the five dealing
days preceding the grant)
2. Each PSP award is subject to the following performance conditions assessed over the Company’s 2017, 2018 and 2019 financial years:
Performance condition
Weighting
Threshold (25% vesting)
Maximum (100% vesting)
Annual compound growth in fully
diluted adjusted EPS
Average cash conversion for each
year in the performance period
50%
50%
6%
75%
12%
90%
Straight line vesting will apply between the performance levels stated. Each award is also subject to underpin conditions. The award will vest
only to the extent that the Committee determines that the level of vesting reflects the overall financial performance of the Group over the
Performance Period. In addition, the element of the award subject to the cash conversion performance measure shall vest only if the mean
average of the Adjusted EBITDA for each Financial Year in the Performance Period is at least €58.87m
3. To the extent Lesley Jackson’s award vests by reference to the performance conditions, it will be reduced to reflect her service to 8 August 2018
4. Representing the 125% award plus 50% additional grant
5. The face value of the award is calculated by multiplying the number of shares by £2.4885 (being the five day average share price from
2 October 2017 to 6 October 2017)
6. Paul Bal’s joiner award is not subject to any performance conditions, but is subject to continued employment conditions to vesting in
October 2020
Stock Spirits Group PLC Annual Report & Accounts 2017
Outstanding share options (audited)
The following table summarises the Executive Directors’ share awards as at 31 December 2017 or, if earlier, the date of
retirement from the Board.
Interest
as at 31
December
2016
No. shares
under award
No. shares
under any
lapsed
portion of the
award
Share options as at
31 December 2017
(or, if earlier, the
date of retirement)
Vesting date
or (for options)
exercise period
Exercise
price per
share (if
applicable) (£)
Date
of grant
Performance
condition
Type of interest
Mirek Stachowicz
PSP 20171
15.03.17
EPS and Cash
conversion
Paul Bal
Joiner option
10.10.17
None
Lesley Jackson
PSP 20171
15.03.17
EPS and Cash
conversion
–
–
–
PSP 20152
22.04.15
TSR & EPS
226,565
JOE agreement3
21.10.13
None
715,449
Top-up option
agreement4
Substitute option
agreement5
21.10.13
None
226,728
21.10.13
None
531,773
416,667
40,184
311,765
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
416,667
15.03.20
40,184
10.10.20
311,765
15.03.20
–
–
226,728
531,773
–
21.10.13–
24.10.18
21.10.13–
20.10.23
21.10.13–
20.10.23
Nil
Nil
Nil
Nil
0.001183258
Nil
Nil
81
1. The performance conditions for the 2017 PSP awards are set out on page 80. To the extent Lesley Jackson’s award vests by reference to the
performance conditions, it will be reduced to reflect her service to 8 August 2018
2. The performance conditions for the 2015 PSP awards have not been achieved and the awards have lapsed
3. Lesley Jackson exercised her JOE award, which had been put in place prior to admission, on 15 September 2017
4. The top-up options are nil-cost options that were granted at IPO. The options were not subject to performance or service conditions and were
exercisable immediately on grant
5. The substitute option agreements were put in place on admission to replace a commitment over shares entered into with Lesley Jackson in
December 2012
Payments to past Directors and payments for loss of office (audited)
Lesley Jackson retired from the Board on 7 November 2017. Her remuneration earned to that date, including the bonus
she has earned in respect of 2017 to that date, is included in the single figure of remuneration table on page 78. From
8 November 2017 until the end of the year, Lesley Jackson continued to assist with and provide support in connection with
certain specific matters. Lesley received payments of £56,057 (€63,701) in aggregate in respect of her salary and other
contractual benefits and a payment of £15,080 (€17,137) in respect of her bonus earned for the year. Lesley will leave the
business on 8 August 2018 and will continue to receive her salary and benefits until that date of £228,448 (€259,600) in
aggregate and will also receive payments of £7,000 (€7,955) in respect of the costs of legal and tax advice in connection
with her departure, £94,425 (€107,301) by way of compensation and a payment of £10,169 (€11,556) in respect of accrued
but untaken holiday. She will continue to benefit from medical and dental insurance cover and death in service benefits until
7 November 2018. Lesley is not eligible for a bonus in respect of 2018.
Strategic Review GovernanceFinancial Statements
Directors’ remuneration report continued
Directors’ share interests (audited)
The table below sets out the Directors’ shareholdings and, for the Executive Directors, a summary of their outstanding
scheme interests. The Executive Directors are subject to shareholding guidelines requiring them to build and maintain a
shareholding of a specified level. For 2017, this was 200% of salary, which reflects the current policy. Their achievement
against these guideline limits is set out in the table below.
Outstanding scheme interests
Value of shares counting
towards the shareholding
guideline1
As at 31 December 2017
(or, if earlier, the date of stepping
down from the Board)
Beneficially
owned shares
PSP
JOE
Agreement
Top-up and
substitute
options
Joiner
Award
Executive Directors
Mirek Stachowicz2
Paul Bal4
Lesley Jackson
NEDs
David Maloney3
John Nicolson
Mike Butterworth
Diego Bevilacqua
Tomasz Blawat
Randy Pankevicz
82
121,380
416,667
–
–
824,351 538,330
60,000
–
18,750
27,018
–
15,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40,184
758,501
–
–
–
–
–
–
–
–
–
–
–
–
–
£‘000
% salary
326
–
2,215
79%
–
697%
–
–
–
–
–
–
–
–
–
–
–
–
1. Only the shares beneficially owned count towards the thresholds set out in the share ownership guidelines. Achievement against the guideline is
calculated using the year-end share price of £2.6875 and expressed as a percentage of current salary
2. All of which are held jointly with Katarzyna Lewicka-Stachowicz, his wife
3. All of which are held in the name of Agneta Maloney, his wife
4. Paul Bal owned no shares in the Company at 31 December 2017, but acquired 10,000 shares on 9 January 2018, with a value of £26,875 based
on the year end share price, equating to c.9% of his salary
Total shareholder return performance
The chart below shows the Company’s total shareholder return performance relative to the FTSE 250 Index (excluding
investment trusts). The FTSE 250 Index (excluding investment trusts) has been chosen as a comparator as it represents a
broad UK equity market index.
Stock Spirits Group
FTSE 250 (excluding investment trusts)
)
£
(
e
u
a
v
l
160
140
120
100
80
60
40
22 Oct
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
This graph shows the value, by 31 December 2017, of £100 invested in Stock Spirits Group on 22 October 2013 (the date of
the IPO) compared with that of £100 invested in the FTSE 250 Index (excluding investment trusts).
Stock Spirits Group PLC Annual Report & Accounts 2017
Total remuneration of Chief Executive Officer (CEO)
The table below shows a summary of the total remuneration received by the CEO since 2013.
Single-figure total remuneration (€‘000)
Total annual bonus pay-out
(as % of maximum opportunity)
Long-term incentive vesting
(as % of maximum opportunity)
2013
2,8462
2014
717
2015
795
N/A2
N/A
N/A
20161
Chris Heath
Mirek
Stachowicz
222
N/A
382
N/A
N/A3
N/A3
N/A3
N/A3
N/A3
2017
1,480
23%
N/A
1. Chris Heath was CEO in 2016 from the start of the year until his retirement on 18 April 2016. Mirek Stachowicz became CEO from 18 April 2016
2. Under the pre-IPO bonus scheme, the bonus opportunity was uncapped
3. There have been no long-term incentives vesting to date
Percentage change in the remuneration of the CEO
The table below shows the movement in salary, benefits and bonus for the CEO between 2017 and 2016, compared to the
average remuneration for all employees.
% change in:
Base salary
Benefits1
Total annual bonus
Chief Executive
All employees
0%2
27.0%
N/A3
-6.6%
-5.7%
-1.1%
83
1.
Benefits include car allowance, health, dental cover and pension. Note; the value for 2016 for the CEO was from 18 April 2016 to 31 December 2016
2. Mirek Stachowicz’s salary was not increased between 2016 and 2017
3. Mirek Stachowicz earned no bonus in respect of 2016 and a bonus of £136,230 (€154,807) in respect of 2017. It is not possible to express the
increase as a percentage
Relative importance of the spend on pay
The following table shows the relative importance of the spend on pay, which compares the total remuneration paid to all
employees to the amount distributed to shareholders by way of dividend.
Remuneration paid to all employees (€m)1
Distributions to shareholders (€m)2
1. Excluding share-based compensation
2016
36.0
37.4
2017
37.6
15.7
% change
4.3%
-58.0%
2. Distributions to shareholders represent dividends paid in each year. In 2016 a special dividend was paid of 11.9€cents per share
How the Directors’ remuneration policy will be applied for 2018
Base salaries
An increase of 3% is proposed for Mirek Stachowicz for 2018 to a level of £437,750 (€497,433), this is in line with the range
of increases awarded to the wider workforce. No changes are proposed to the base salary for Paul Bal for 2018, which will
remain at the level of £300,000 (€340,909).
Strategic Review GovernanceFinancial Statements
Directors’ remuneration report continued
Annual bonus
For the financial year ending 30 September 2018, the Executive Directors’ bonus opportunity will be pro-rated to reflect the
shortened financial period, so that the bonus opportunity will be up to 140% of the salary earned (i.e. up to 105% of the annualised
salary). 25% of any bonus earned for 2018 will be paid in the form of deferred shares. The bonus will be based on achievement
against a range of financial targets and individual KPIs. The KPIs 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 will be based 50% on achievement of the EBITDA target, 30% on the cash target and 20% on the
KPIs. These performance targets are the key drivers to sustain the growth of the Group, and the individual KPIs ensure that the
Executive Directors are committed to the Group’s strategy. The forward-looking targets are deemed to be commercially sensitive.
The maximum bonus opportunity will be payable only for achieving stretch levels of performance. Details of the targets and
performance against them will be published in our 2018 Directors’ Remuneration Report.
Performance Share Plan (PSP)
As described in the statement by the Committee Chairman on page 67, PSP awards for 2018 will be granted at the level of
125% of salary to be earned in the nine month financial period, which equates to 93.75% of annualised salary. The vesting of
the awards will be subject to the satisfaction of performance conditions measured over 2018, 2019 and 2020 based on EPS
growth (as regards 50% of each award) and cash conversion (as regards 50% of each award), as set out below:
84
Vesting
0%
25%
Compound annual growth in EPS1
over the performance period
Three year average cash conversion2
over the performance period
Less than 6%
6%
Less than 75%
75%
Pro-rata between 25% and 100%
Between 6% and 12%
Between 75% and 90%
100%
12% or more
90% or more
1. For these purposes, EPS will be defined as fully diluted earnings per share as disclosed in the note 7 subject to such adjustments as the Committee
shall determine from time to time
2. For these purposes, cash conversion will be calculated as Adjusted free cashflow / Adjusted EBITDA (see note 7)
There will also 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. In addition, the cash
conversion performance measure shall be subject to a further requirement that an award will not vest by reference to that
performance measure unless a further underpin based on EBITDA performance over the performance period is achieved.
Fees for the Chairman and NEDs
In 2018 no change is proposed to the level of fees paid to the Chairman and NEDs.
Shareholding vote at the AGM
The Company’s current Directors’ Remuneration Policy was approved at the 2017 AGM. The voting outcome in relation to the
Directors’ Remuneration Policy, 2016 Annual Report on Remuneration and PSP amendments at the 2017 AGM were as follows:
Directors’ Remuneration Policy at the 2017 AGM
128,658,271 (79.66%)
32,841,810 (20.34%)
2016 Annual Report on Remuneration at the 2017 AGM
120,948,261 (74.91%)
40,509,520 (25.09%)
Amendment to the rules of the PSP at the 2017 AGM
161,416,398 (99.95%)
83,183 (0.05%)
0
42,300
500
Votes for
Votes against
Votes withheld
Approved and signed on behalf of the Board.
John Nicolson
Chairman of the Remuneration Committee
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017 Directors’ report
The Corporate Governance report on pages 52 to 84 forms part of the Directors’ report.
The Directors’ report, prepared in accordance with the requirements of the Companies Act 2006 and the UK Listing
Authority’s Rules, and the Disclosure and Transparency Rules, comprises pages 85 to 88.
Directors
The Directors in office at the date of this report are shown on pages 52 to 53. All served throughout the year under review,
with the exception of Lesley Jackson who was a Director until she stepped down on 7 November 2017; and Paul Bal who
was appointed as a Director on 7 November 2017.
Directors’ interests in the Company’s shares
The interests of the Directors of the Company at 31 December 2017, and their connected persons, in the issued shares of the
Company disclosed in accordance with the FCA’s Listing Rules, are given in the Remuneration Report on pages 67 to 84. The
Remuneration Report also sets out details of any changes in those interests between the year-end and 7 March 2018.
Powers of Directors
Our Directors’ powers are determined by UK legislation and the Company’s Articles of Association (the Articles), which are
available on our website www.stockspirits.com. The Articles may be amended by a special resolution of the members. The
Directors may exercise all of the Company’s powers, provided that the Articles or applicable legislation, do not stipulate that
any such powers must be exercised by the members.
85
Further details of Directors’ contracts, remuneration and their interests in the shares of the Company at 31 December 2017
are given in the Directors’ Remuneration Report on pages 67 to 84.
Indemnification of Directors and insurance
The indemnification for Directors provided by the Company has been arranged in accordance with the Company’s Articles
and the Companies Act 2006. As far as is permitted by legislation, all officers of the Company are indemnified out of the
Company’s own funds against any liability incurred while conducting their role in the Company, unless such liability is to the
Company or an associated company. The Company has appropriate Directors’ and Officers’ liability insurance cover in place
in respect of any legal action against, amongst others, its Executive and NEDs.
Appointment and replacement of Directors
The rules about the appointment and replacement of Directors are contained in the Company’s Articles. They provide that
Directors may be appointed by ordinary resolution of the members, or by a resolution of the Directors. In addition to powers
to remove a Director conferred by legislation, the Company may also remove a Director by special resolution.
Compensation for loss of office
We do not have arrangements with any Director that would provide compensation for loss of office or employment resulting
from a takeover, except that provisions of the Company’s share plans may cause options and awards granted under such
plans to vest on a takeover. Further information is provided on page 74.
Political donations
There were no political donations during the period (2016: nil).
Strategic Review GovernanceFinancial Statements Directors’ report continued
Share capital and control
Details of our issued share capital as at 31 December 2017 can be found in note 28 to the financial statements on page 145.
The Company’s share capital comprises 200,000,000 ordinary shares, which are listed on the London Stock Exchange. There
were no changes to the share capital during the year.
Holders of ordinary shares are entitled to receive dividends (when declared), copies of the Company’s Annual Report, attend
and speak at general meetings of the Company, appoint proxies and exercise voting rights.
Other than the compliance with the Company Dealing Rules for persons discharging managerial responsibilities and Permanent
Insiders, there are no restrictions on the transfer, or limitations on the holding, of ordinary shares and no requirements to obtain
approval prior to any transfers. No ordinary shares carry any special rights with regard to control of the Company, and there are
no restrictions on voting rights. Major shareholders have the same voting rights per share as all other shareholders.
There are no known arrangements under which financial rights are held by a person other than the holder of the shares, and
no known agreements on restrictions on share transfers or on voting rights.
Shares acquired through our share schemes and plans rank equally with the other shares in issue and have no special rights.
Particulars of acquisitions of own shares
At the Company’s 2017 AGM, shareholders granted the Company authority to make market purchases of up to 20,000,000
86
ordinary shares of £0.10 each, representing 10% of the issued-share capital. At the Company’s forthcoming AGM, Directors
will be seeking approval from shareholders to authorise the Company to purchase up to 10% of its existing ordinary share
capital. This authority, if approved, will expire on 31 May 2019 or at the Company’s 2019 AGM, whichever is earlier;
however, it is intended that this authority be renewed each year. For more information on this resolution, refer to the
notice of AGM and explanatory notes, which are being sent separately to shareholders entitled to vote at the AGM.
Substantial share interests
In accordance with FCA Disclosure and Transparency Rule 5.1.2, the Directors are aware of the following substantial
interests in the shares of Stock Spirits Group PLC:
Substantial interests (above 3%)
BlackRock Inc
Western Gate Private Investments
M&G Investment Management Ltd
Franklin Resources Inc
Columbia Threadneedle Investments
J O Hambro Capital Management
Heronbridge Investment Management
Aberdeen Asset Managers Limited
Capital Group Companies Inc
Majedie Asset Management
Princeton Holdings Ltd
As at 7 March 2018
As at 31 December 2017
Shares
20,639,298
20,000,148
19,387,600
11,961,859
11,017,681
8,427,000
7,838,805
7,179,482
6,909,631
6,679,348
6,168,798
%
10.32%
10.00%
9.69%
5.98%
5.51%
4.21%
3.92%
3.59%
3.45%
3.34%
3.08%
Shares
17,889,672
20,000,148
19,895,100
13,045,679
11,086,807
7,699,497
8,156,554
8,532,426
7,340,434
6,392,377
6,168,768
%
8.94%
10.00%
9.95%
6.52%
5.54%
3.85%
4.08%
4.27%
3.67%
3.20%
3.08%
Western Gate Private Investments Limited, of which the ultimate beneficial owner is Mr Luis Manauel Conceicao Do Amaral,
holds 10.00% of the shares of the Company. Mr Luis Manauel Conceicao Do Amaral also holds 43.75% of the shares of
Eurocash SA. Eurocash is one of the Group's major customers in Poland.
There have been no other changes notified between 31 December 2017 and the date of this report.
Stock Spirits Group PLC Annual Report & Accounts 2017 Financial risk management
The Group’s financial risk management objectives and policies, including its use of financial instruments, are set out in note
30 to the Group’s consolidated financial statements on pages 147 to 152.
Post-balance sheet events
There were no events after the balance sheet date that require adjustment to or disclosure in these financial statements.
Future business developments
Further details on these are set out in the Strategic Report on pages 16 to 17.
Research and development
The Company does not undertake any material research and development activities.
The existence of branches outside the UK
The Group’s activities in overseas jurisdictions are carried out through subsidiary companies. The Company does not have
any branches outside the UK.
Significant agreements
The Group is a party to the following significant agreements that would take effect, alter or terminate on a change of control
of the Company following a takeover bid:
87
• Amended and restated Facilities agreement dated 21 July 2017 for a €200,000,000 revolving facility agreement with a
banking club consisting of five banks including HSBC who also act as the Agent. The loans bear variable rates of interest
which are linked to the inter-bank offer rates of the drawers, WIBOR, PRIBOR or EURIBOR as appropriate. Each of the
loans have a variable margin element to the interest charge. The margin is linked to a ratchet mechanism where the
margin decreases as the Group’s leverage covenant decreases.
• Agreement with Quintessential Brands Group in relation to the acquisition in July 2017 of a 25% equity interest in
Quintessential Brands Ireland Whiskey Limited (QBIWL). The shareholder not subject to the change of control, shall be
entitled to purchase the other shareholder’s shares in the QBIWL.
Dividend
A dividend of 2.38 €cents per share was paid at the half year stage (see note 29 to the financial statements), and the
Directors recommend a final dividend of 5.72€cents to be paid on 25 May 2018 to shareholders on the share register at
the close of business on 4 May 2018. The shares will be quoted ex-dividend on 3 May 2018. The FX fixing date will be
4 May 2018.
Total dividends paid and proposed for the year amount to 8.10 €cents per share.
Going concern
The Directors have considered the Group’s debt maturity and cash-flow projections, and an analysis of projected-debt
covenant compliance. The Board is satisfied that the Group’s forecasts and projections, taking into account reasonable
changes in trading performance, shows that the Group will continue in operation for a period of at least 12 months from the
date of this report, and has neither the intention nor the need to liquidate or materially curtail the scale of its operations.
For this reason the Group continues to adopt the going-concern basis in preparing its financial statements. More information
can be seen in note 2 to the financial statements.
Strategic Review GovernanceFinancial Statements Directors’ report continued
Statement on disclosure to auditors
So far as each Director is aware, there is no relevant audit information, that would be needed by the Company’s auditors in
connection with preparing their audit report (which appears on pages 90 to 97), of which the auditors are not aware; each
Director, in accordance with Section 418(2) of the Companies Act 2006, has taken all reasonable steps that he or she ought
to have taken as a Director to make him or her aware of any such information, and to ensure that the auditors are aware of
such information.
Auditors
KPMG LLP is the statutory auditor of the Company, and resolutions for its reappointment and to authorise the Directors to
agree the auditor’s remuneration will be submitted at the 2018 AGM.
Requirements of the Listing Rules
The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed:
Listing Rule requirement
A statement of the amount of interest capitalised during the period under review,
and details of any related tax relief
Publication of unaudited financial information, profit forecast and profit estimates
Details of any long-term incentive scheme established in the past year specifically
to recruit or retain an individual Director
88
Details of any arrangements under which a Director has waived emoluments, or
agreed to waive any future emoluments, from the Company
Details of any non pre-emptive issues of equity for cash
Details of any non pre-emptive issues of equity for cash by any unlisted major
subsidiary undertaking
Details of parent participation in a placing by a listed subsidiary
Details of any contract of significance in which a Director is or was materially interested
Details of any contract of significance between the Company (or one of its subsidiaries)
and a controlling shareholder
Location
Not applicable
Not applicable
No such scheme
No such waivers
No such share allotments
No such share allotments
No such participations
No such contracts
No such contracts
Details of waiver of dividends by a shareholder
Not applicable
Board statement in respect of relationship agreement with the controlling shareholder
No such agreements
Approval of Directors’ report
This Directors’ report was approved for and signed on behalf of the Board.
Mirek Stachowicz
Paul Bal
Chief Executive Officer
Chief Financial Officer
7 March 2018
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent company financial statements for each financial year.
Under that law, they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU
and applicable law, and have elected to prepare the parent company financial statements on the same basis.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and parent company, and of their profit or loss for that period. In preparing
each of the Group and parent company financial statements, the Directors are required to:
• Select suitable accounting policies, and then apply them consistently;
• Make judgements and estimates that are reasonable, relevant and reliable;
• State whether they have been prepared in accordance with IFRSs as adopted by the EU;
• Assess the Group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to
going concern; and
• Use the going concern basis of accounting unless they either intend to liquidate the Group or the parent company or to
cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
company’s transactions, and disclose with reasonable accuracy at any time the financial position of the parent company,
and enable them to ensure its financial statements comply with the Companies Act 2006. They are responsible for
such internal control as they determine is necessary to enable the preparation of the financial statements that are free
from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group, and to prevent and detect fraud and other irregularities.
89
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Report that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Report & Accounts (ARA)
We confirm that, to the best of our knowledge:
• The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the Company, and the undertakings included in the
consolidation taken as a whole; and
• The Strategic Report and Directors’ Report include a fair review of the development and performance of the business and
the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
We consider the ARA, taken as a whole, is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model and strategy.
By order of the Board.
Mirek Stachowicz
Paul Bal
Chief Executive Officer
Chief Financial Officer
7 March 2018
7 March 2018
Strategic Review GovernanceFinancial Statements
Independent
auditor’s report
to the members of Stock Spirits Group PLC
90
1.
Our opinion is unmodified
We have audited the financial statements of
Stock Spirits Group PLC (the Company) for the
year ended 31 December 2017 which comprise
the consolidated income statement, consolidated
statement of comprehensive income, consolidated
and ompany statement of financial position,
consolidated and company statement of changes
in equity, consolidated and company statement
of cashflows, and the related notes, including the
accounting policies in note 3 to the consolidated
financial statements, and note 2 to the parent
company financial statements.
In our opinion:
–
the financial statements give a true and fair view
of the state of the Group’s and of the parent
company’s affairs as at 31 December 2017 and
of the Group’s profit for the year then ended;
–
–
–
the Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards
as adopted by the European Union (IFRSs as
adopted by the EU);
the parent company financial statements have
been properly prepared in accordance with
IFRSs as adopted by the EU and as applied
in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities are described below. We believe
that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the Audit Committee.
We were appointed as auditor by the shareholders
on 19th May 2015. The period of total uninterrupted
engagement is for the 3 financial years ended
31 December 2017. We have fulfilled our ethical
responsibilities under, and we remain independent of
the Group in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed
public interest entities. No non-audit services prohibited
by that standard were provided.
Overview
Materiality:
group financial
statements as a
whole
Coverage
€1.6m (2016: €1.5m)
3.8% (2016: 3.8%) of
Normalised profit before tax
98% (2016: 99%) of
Group profit before tax
Risks of material misstatement
vs 2016
Recurring
risks
Goodwill and intangible asset
impairment
Revenue recognition
Tax provisioning
Recoverability of parent
company’s investment in
subsidiaries
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the
financial statements and include the most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit
matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit
procedures to address those matters and, as required for public interest entities, our results from those procedures.
These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely
for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon,
and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
The risk
Our response
Goodwill & brand
intangible asset
impairment
(€302 million; 2016:
€311 million)
Refer to page 63
(Audit Committee
Report), page 115
(accounting policy)
and page 135
(financial
disclosures).
Forecast-based valuation
The risk is focused on the Czech and
Italy Cash Generating Units (CGUs)
for which the level of headroom is
the most sensitive. An impairment
was recorded against the carrying
value of Italy goodwill in the current
period.
The appropriateness of the carrying
value of goodwill and brand
intangible assets is dependent on
achieving sufficient levels of future
cashflows. The assets are spread
across a range of markets and
consequently forecasting cashflows
used in impairment testing is more
complex, requiring assumptions to
be made relating to differing
economic environments. Estimating
the recoverable amount is subjective
due to the inherent uncertainty
involved in forecasting and
discounting future cashflows.
91
Our procedures included:
– Assessing forecasts: based on our
knowledge of the business and industry,
we assessed the forecast revenue growth
and profit margins with reference to past
performance, future plans (for example, brand
positioning, pricing actions and promotional
expenditure), and external market data for
each CGU.
– Benchmarking assumptions: we involved
our own valuation specialists to assess the
long term growth rates, and discount rates
used by the Group for each CGU, including
comparing the key inputs, such as risk free
rates, size premium, country premium and
inflation, to externally derived data.
– Sensitivity analysis: we performed
breakeven analysis on key assumptions,
including discount rate and projected
cashflows.
– Assessing transparency: we considered
whether the Group’s disclosures about the
sensitivity of the outcome of the impairment
assessment to changes in key assumptions
reflected the risks inherent in the valuation of
goodwill and brand intangible assets.
Our results
– We found the resulting estimate of the
recoverable amount of goodwill and brand
intangible assets to be acceptable. (2016
result: Acceptable).
Strategic Review GovernanceFinancial Statements Independent Auditor’s Report continued
2. Key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Revenue
Recognition
(€275 million; 2016:
€261 million)
Refer to page 63
(Audit Committee
Report), page
111 (accounting
policy) and page
123 (financial
disclosures).
92
Calculation error
The Group negotiates a variety of
sales incentive arrangements,
particularly retrospective volume
rebates and other contractual
discounts, with most of
its customers.
The reductions resulting from these
arrangements are significant in the
income statement, in particular from
the Polish operations. There are a
large number of individual customer
arrangements for the Group to
monitor that are in place across
multiple locations and include
differing terms. As such there is a
risk of incorrect calculation of the
sales incentives due to key terms
having been input inappropriately.
Not all sales incentives are confirmed
by customers at 31 December, albeit
rebate measurement periods are
retrospective and in most cases
coterminous with the 31 December
year end.
Omitted arrangements
Due to the large number of
customers and the geographic spread
there is a risk that not all sales
incentive arrangements have been
captured and reflected in the financial
statements, either through fraud or
error.
2017/2018 sales
The business is seasonal in nature
with peak revenues towards the end
of the financial year which increases
the risk of inclusion of revenue in the
wrong period. Trading conditions in
2017 continued to be challenging
across the Group and there is
pressure to achieve financial targets.
These considerations give rise to
an increased risk of management
bias or fraud over the timing of
revenue recognition.
Our procedures included:
– Expectation vs outcome: we performed a
comparison of amounts deducted from sales as
a proportion of gross sales throughout the year
and across regions and customers to identify
any unusual trends. We assessed whether
these indicated further risk of revenue being
inappropriately recognised in the current year.
– Enquiry of customers: we have sought
customer confirmations of amounts owed with
a sample of customers and investigated any
significant differences between confirmations
received and the Group’s records. Where
responses were not received, alternative
procedures were performed, including agreeing
the records to post year end cash receipts.
– Reperformance: in addition to quantitatively
significant contracts, we selected a random
additional sample of other customer contracts,
understood the key terms and recalculated
rebates based on those terms.
– Historical comparison: we assessed the
completeness of prior period accruals for sales
incentives by performing an analysis of
payments made, invoices received and credit
notes issued in 2016 against accrued amounts.
– Test of details: we have assessed the
completeness of accruals for sales incentives
by agreeing a sample of post year end cash
disbursements, invoices received and credit
notes issued to amounts recorded by the
Group at the year end to obtain evidence that
sales incentives were recorded in the income
statement in the correct period.
– Extended scope: we tested a sample of
invoices issued close to the year end to assess
whether revenue was recorded in the
appropriate period by agreeing the sale
recorded to delivery note information. We also
inspected a sample of journal entries relating
to revenue, including transactions close to the
year end, and assessed whether they were
booked into the correct period by agreeing to
supporting documentation, including delivery
notes where applicable.
Our results
– We found the Group’s assessment of
revenue recognition to be acceptable
(2016 result: Acceptable).
2. Key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Tax provisioning
Dispute outcome
Our procedures included:
(€7.5 million; 2016:
€7.3 million)
Refer to page 63
(Audit Committee
Report), page
121 (accounting
policy) and page
128 (financial
disclosures).
The directors are required to
make judgements and estimates
in determining the liabilities to
be recognised with regard to the
various taxation exposures.
The Group has a number of
outstanding tax assessments.
The tax risks for the group include
transfer pricing amounts charged not
being considered deductible by local
authorities for corporation tax.
– Own tax expertise: we used our own local
tax specialists to assess the Group’s tax
positions, through inquiry of management
and their external tax advisors with regard to
latest status with the relevant tax authorities.
We obtained management’s written
correspondence with the Group’s tax advisors
containing their explanations of material tax
exposures and any related litigation. We
analysed and challenged the assumptions
used to determine tax provisions based on our
knowledge and experiences of the application
of the international and local legislation by the
relevant authorities and courts.
– Our sector experience: we assessed the
Group’s transfer pricing documentation and
policy with reference to the latest market
practices in this area.
– Assessing transparency: we assessed the
appropriateness of the disclosures in the
financial statements in respect of tax and
uncertain tax positions.
Our results
– We found the level of tax provisioning to be
acceptable (2016 result: Acceptable).
93
Recoverability of
parent company’s
investment in
subsidiaries
(£256 million;
2016: £254 million)
Refer to page 63
(Audit Committee
Report), page
164 (accounting
policy) and page
166 (financial
disclosures).
Low risk, high value
Our procedures included:
The carrying amount of the parent
company’s investment in its
subsidiary represents 94% (2016:
89%) of the company’s total assets.
The recoverability is not at a high
risk of significant misstatement or
subject to significant judgement.
However, due to their materiality in
the context of the parent company
financial statements, this is
considered to be the area that had
the greatest effect on our overall
parent company audit.
– Tests of detail: comparing the carrying
amount of 100% of investments with the
relevant subsidiaries’ financial statements to
identify whether their net assets, being an
approximation of their minimum recoverable
amount, were in excess of their carrying amount
and assessing whether those subsidiaries have
historically been profit-making.
– Assessing subsidiary audits: assessing
the work performed by the subsidiary
audit team on all of those subsidiaries and
considering the results of that work, on those
subsidiaries’ profits and net assets.
– Our sector experience: where the carrying
amount exceeded the net asset value,
comparing the carrying amount of the
investment with the expected value of the
business based on relevant market data.
Our results
– We found the Group’s assessment of the
recoverability of the investment in subsidiaries
to be acceptable. (2016 result: Acceptable).
Strategic Review GovernanceFinancial Statements Independent Auditor’s Report continued
3.
Our application of materiality and an overview
of the scope of our audit
Materiality for the Group financial statements as a
whole was set at €1.6 million (2016: €1.5 million),
determined with reference to a benchmark of group
profit before tax, normalised to exclude this year’s
impairment loss as disclosed in note 17, of which it
represents 3.8% (2016: 3.8%).
Materiality for the parent company financial
statements as a whole was set at £0.3 million (2016:
£0.3 million) by reference to component materiality.
This is lower than the materiality we would
otherwise have determined by reference to assets,
and represents 0.1% of the Company's total assets
(2016: 0.1%).
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding €80,000, in addition to other identified
misstatements that warranted reporting on
qualitative grounds.
The Group audit team visited 4 (2016: 4) component
locations in Poland (1), Czech Republic (2) and Italy
(1), to assess the audit risk and strategy and review
work performed. Telephone and video conference
meetings were also held with these component
auditors and others that were not physically visited.
At these visits and meetings, the findings reported to
the Group audit team were discussed in more detail,
and any further work required by the Group team was
then performed by the component auditor.
Normalised Profit
Before Tax
€42.2m (2016: €39m)
Group Materiality
€1.6m (2016: €1.5m)
€1.6m
Whole financial statements
materiality (2016: €1.5m)
€1.1m
Range of materiality at
7 components (€0.3m–€1.1m)
(2016: €0.3m–€1.0m)
€80,000
Misstatements reported to
the Audit Committee (2016:
€75,000)
94
Of the Group’s 16 (2016: 16) reporting components,
we subjected 7 (2016: 7) to full scope audits for
group purposes.
Profit before tax
Group materiality
The components within the scope of our work
accounted for the percentages illustrated opposite.
The remaining 3% (2016: 3%) of total Group
revenue, 2% (2016: 1%) of group profit before
tax and 2% (2016: 2%) of total Group assets is
represented by 9 (2016: 9) reporting components,
none of which individually represented more than
1% (2016: 1%) of any of total Group revenue,
Group profit before tax or total Group assets. For
these residual components, we performed analysis
at an aggregated Group level to re-examine our
assessment that there were no significant risks of
material misstatement within these.
The Group team instructed component auditors as
to the significant areas to be covered, including the
relevant risks detailed above and the information
to be reported back. The Group team approved the
component materialities, which ranged from €0.3
million to €1.1 million, having regard to the mix of size
and risk profile of the Group across the components.
The work on 5 of the 7 components (2016: 5 of the 7
components) was performed by component auditors
and the rest, including the audit of the parent
company, were performed by the Group team.
Group revenue
Group profit before tax
97%
(2016: 97%)
98%
(2016: 99%)
Group total assets
Represents percentage of the
total profits and losses that made
up group profit before tax.
98%
(2016: 98%)
Full scope for group audit purposes 2017
Full scope for group audit purposes 2016
Residual components
4. We have nothing to report on going concern
We are required to report to you if:
– we have anything material to add or draw
attention to in relation to the Directors’ statement
in note 2 to the financial statements on the use
of the going concern basis of accounting with no
material uncertainties that may cast significant
doubt over the Group and Company’s use of that
basis for a period of at least twelve months from
the date of approval of the financial statements; or
– the related statement under the Listing Rules set
out on page 88 is materially inconsistent with our
audit knowledge.
We have nothing to report in these respects.
5. We have nothing to report on the other
information in the Annual Report
The directors are responsible for the other
information presented in the Annual Report together
with the financial statements. Our opinion on the
financial statements does not cover the other
information and, accordingly, we do not express an
audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information
and, in doing so, consider whether, based on our
financial statements audit work, the information
therein is materially misstated or inconsistent with
the financial statements or our audit knowledge.
Based solely on that work we have not identified
material misstatements in the other information.
Strategic report and Directors’ report
Based solely on our work on the other information:
– we have not identified material misstatements in
the Strategic Report and the Directors’ Report;
– in our opinion the information given in those
reports for the financial year is consistent with
the financial statements; and
– in our opinion those reports have been prepared
in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’
Remuneration Report to be audited has been
properly prepared in accordance with the
Companies Act 2006.
95
Disclosures of principal risks and
longer-term viability
Based on the knowledge we acquired during our
financial statements audit, we have nothing material
to add or draw attention to in relation to:
– the Directors’ confirmation within the viability
statement on page 20 that they have carried out
a robust assessment of the principal risks facing
the Group, including those that would threaten its
business model, future performance, solvency
and liquidity;
– the Principal Risks and Uncertainties disclosures
describing these risks and explaining how they are
being managed and mitigated; and
– the Directors’ explanation in the viability statement
of how they have assessed the prospects of the
Group, over what period they have done so and
why they considered that period to be appropriate,
and their statement as to whether they have a
reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as
they fall due over the period of their assessment,
including any related disclosures drawing attention
to any necessary qualifications or assumptions.
Under the Listing Rules we are required to review
the viability statement. We have nothing to report in
this respect.
Corporate governance disclosures
We are required to report to you if:
– we have identified material inconsistencies
between the knowledge we acquired during
our financial statements audit and the Directors’
statement that they consider that the annual
report and financial statements taken as a whole
is fair, balanced and understandable and provides
the information necessary for shareholders to
assess the Group’s position and performance,
business model and strategy; or
– the section of the annual report describing
the work of the Audit Committee does not
appropriately address matters communicated by
us to the Audit Committee.
We are required to report to you if the Corporate
Governance Statement does not properly disclose
a departure from the eleven provisions of the UK
Corporate Governance Code specified by the Listing
Rules for our review.
We have nothing to report in these respects.
Strategic Review GovernanceFinancial Statements
Independent Auditor’s Report continued
6. We have nothing to report on the other
matters on which we are required to report
by exception
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; or
– 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; or
– certain disclosures of Directors’ remuneration
specified by law are not made; or
– we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
96
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out
on page 89, the Directors are responsible for: the
preparation of the financial statements including
being satisfied that they give a true and fair view;
such internal control as they determine is necessary
to enable the preparation of financial statements that
are free from material misstatement, whether due
to fraud or error; assessing the Group and parent
Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern; and using the going concern basis of
accounting unless they either intend to liquidate the
Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether
due to fraud or other irregularities (see below),
or error, and to issue our opinion in an auditor’s
report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will
always detect a material misstatement when it
exists. Misstatements can arise from fraud, other
irregularities or error and are considered material if,
individually or in aggregate, they could reasonably
be expected to influence the economic decisions of
users taken on the basis of the financial statements.
A fuller description of our responsibilities is
provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that
could reasonably be expected to have a material
effect on the financial statements from our sector
experience, through discussion with the Directors
and other management (as required by auditing
standards), and from inspection of certain of the
Group’s regulatory and legal correspondence.
We had regard to laws and regulations in areas that
directly affect the financial statements including
financial reporting (including related company
legislation) and taxation legislation. We considered
the extent of compliance with those laws and
regulations as part of our procedures on the related
financial statements items.
In addition we considered the impact of laws
and regulations in the specific areas of corporate
taxation and excise duty recognising the financial
nature of the Group’s activities and its legal form.
With the exception of any known or possible
non-compliance, and as required by auditing
standards, our work in respect of these was
limited to enquiry of the Directors and other
management and inspection of regulatory and legal
correspondence. We considered the effect of any
known or possible non-compliance in these areas
as part of our procedures on the related financial
statements items. Further detail in respect of
corporate taxation is set out in the key audit matter
disclosures in section 2 of this report.
We communicated identified laws and regulations
throughout our team and remained alert to any
indications of non-compliance throughout the
audit. This included requesting our component
audit teams to report on any indications of potential
existence of non-compliance with relevant laws
and regulations (irregularities) in areas directly
identified by the component team.
As with any audit, there remained a higher risk
of non-detection of irregularities, as these may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal
controls.
8. The purpose of our audit work and to whom
we owe our responsibilities
This report is made solely to the Company’s
members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state
to the Company’s members those matters we are
required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility
to anyone other than the Company and the
Company’s members, as a body, for our audit work,
for this report, or for the opinions we have formed.
Simon Haydn-Jones (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Reading
7 March 2018
97
Strategic Review GovernanceFinancial Statements
Stock Spirits Group PLC
Annual Report & Accounts 2017
Strategy in action
98
WE DEVELOP
New liquid
development
Herbal liqueurs are particularly popular
with Czech young adults, who are
discerning about the taste and packaging
of their preferred brands and seek drinks
that can be enjoyed together in mixed
male and female company.
Black Fox is a new and original premium herbal liqueur crafted from
selected forest herbs with a hint of orange, developed specifically
to meet millennials tastes.
The development lasted for over a year and a half and included
intensive research into young adults’ preferences for overall taste,
design and brand concepts.
Black Fox will gain share in the profitable and fast growing young
adult segment of the herbal liqueurs category.
1st
premium herbal bitter liqueur
launch by Stock Spirits Group
Strategy in action
Strategic Review
Governance
Financial Statements
Financial Statements
100 Consolidated income statement
101 Consolidated statement of comprehensive income
102 Consolidated statement of financial position
104 Consolidated statement of changes in equity
105 Consolidated statement of cashflows
106 Notes to the consolidated financial statements
99
160 Company statement of financial position
161 Company statement of cashflows
162 Company statement of changes in equity
163 Notes to the Parent Company financial statements
Shareholders’ information
176 Shareholders’ information
177 Useful links
Stock Spirits Group PLC
Annual Report & Accounts 2017
Consolidated income statement
for the year ended 31 December 2017
Revenue
Cost of goods sold
Gross profit
Selling expenses
Other operating expenses
Notes
2017
€000
2016
€000
5
274,601
260,974
(137,394)
(128,714)
137,207
132,260
(60,808)
(61,305)
(31,287)
(30,819)
Share of loss of equity-accounted investees, net of tax
22
(331)
–
Operating profit before exceptional expense
Exceptional expense
Operating profit
Finance income
Finance costs
Profit before tax
Income tax expense
100
Exceptional tax expense
Profit for the year
Attributable to:
Equity holders of the Parent
8
9
9
13
13
Earnings per share, (Euros), attributable to equity holders of the Parent
14
Basic
Diluted
44,781
(14,900)
40,136
–
29,881
40,136
681
(3,253)
1,703
(2,668)
27,309
39,171
(11,280)
(10,734)
(4,700)
11,329
–
28,437
11,329
28,437
0.06
0.06
0.14
0.14
Strategic Review
Governance
Financial Statements
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Profit for the year
Other comprehensive income/(expense):
Other comprehensive income/(expense) to be reclassified to profit or loss in subsequent periods:
Exchange differences arising on translation of foreign operations
Other comprehensive expense not to be reclassified to profit or loss in subsequent period:
Re-measurement losses on employee severance indemnity
Total comprehensive income for the year, net of tax
Attributable to:
Equity holders of the Parent
2017
€000
2016
€000
11,329
28,437
8,310
(7,768)
19,639
20,669
(5)
(3)
19,634
20,666
19,634
20,666
101
Consolidated statement of financial position
as at 31 December 2017
Non-current assets
Intangible assets – goodwill
Intangible assets – other
Property, plant and equipment
Investment in equity accounted investee
Deferred tax assets
Other assets
Current assets
Inventories
Trade and other receivables
Other assets
Current tax assets
Cash and cash equivalents
102
Total assets
Non-current liabilities
Financial liabilities
Other financial liabilities
Deferred tax liabilities
Provisions
Trade and other payables
Current liabilities
Trade and other payables
Financial liabilities
Other financial liabilities
Income tax payable
Indirect tax payable
Provisions
Total liabilities
Net assets
31 December
2017
€000
31 December
2016
€000
Notes
15
16
18
22
13
21
19
20
21
13
32
23
24
13
25
27
27
23
24
13
26
25
45,940
60,840
311,614
302,753
50,871
17,160
4,151
4,770
55,705
–
13,255
4,533
434,506
437,086
23,101
21,658
163,162
131,396
–
715
1,500
411
61,341
74,956
248,319
229,921
682,825
667,007
114,048
134,168
2,600
47,501
1,051
416
113
45,933
946
49
165,616
181,209
73,915
53,352
48
83
8,395
79,256
1,203
33
174
8,926
74,200
534
162,900
137,219
328,516
318,428
354,309
348,579
Stock Spirits Group PLC Annual Report & Accounts 2017
Capital and reserves
Issued capital
Share premium
Merger reserve
Consolidation reserve
Own share reserve
Other reserve
Foreign currency translation reserve
Retained earnings
Total equity
Total equity and liabilities
31 December
2017
€000
31 December
2016
€000
Notes
28
28
28
28
28
28, 34
28
23,625
23,625
183,541
183,541
99,033
99,033
5,130
(306)
11,277
15,829
16,180
5,130
(356)
9,335
7,519
20,752
354,309
348,579
682,825
667,007
Notes 1 to 37 are an integral part of the consolidated financial statements.
The consolidated financial statements of Stock Spirits Group PLC, registered number 08687223, on pages 100 to 159,
were approved by the Board of Directors and authorised for issue on 7 March 2018 and were signed on its behalf by:
103
Mirek Stachowicz
Paul Bal
Chief Executive Officer
Chief Financial Officer
7 March 2018
7 March 2018
Strategic Review GovernanceFinancial Statements
Consolidated statement of changes in equity
as at 31 December 2017
Issued
capital
€000
Share
premium
€000
Merger
reserve
€000
Consolidation
reserve
€000
Own
share
reserve
€000
Other
reserve
€000
Foreign
currency
translation
reserve
€000
Retained
earnings
€000
Total
equity
€000
Balance at 1 January 2016
23,625 183,541 99,033
5,130
(635)
9,254
15,284
29,630 364,862
Profit for the year
Other comprehensive expense
Total comprehensive income
Share-based compensation
charge (note 34)
Dividends (note 29)
Own shares utilised for
incentive schemes (note 28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
81
–
279
–
–
28,437
28,437
(7,765)
(3)
(7,768)
(7,765)
28,434
20,669
–
–
–
–
81
(37,356)
(37,356)
44
323
Balance at 31 December 2016
23,625
183,541 99,033
5,130
(356)
9,335
7,519
20,752 348,579
Profit for the year
Other comprehensive income/
(expense)
104
Total comprehensive income
Share-based compensation
charge (note 34)
Dividends (note 29)
Own shares acquired for
incentive schemes (note 28)
Own shares utilised for
incentive schemes (note 28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(116)
166
–
–
–
1,942
–
–
–
–
11,329
11,329
8,310
(5)
8,305
8,310
11,324
19,634
–
–
–
–
–
1,942
(15,730)
(15,730)
–
(116)
(166)
–
Balance at 31 December 2017
23,625
183,541 99,033
5,130
(306)
11,277
15,829
16,180 354,309
Stock Spirits Group PLC Annual Report & Accounts 2017
Consolidated statement of cashflows
for the year 31 December 2017
Operating activities
Profit for the year
Adjustments to reconcile profit for the year to net cashflows:
Income tax expense recognised in income statement
Interest expense and bank commissions
Loss on disposal of tangible assets
Other financial income
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of goodwill
Net foreign exchange loss/(gain)
Share-based compensation
Share of loss of equity-accounted investees, net of tax
Increase/(decrease) in provisions
Working capital adjustments
Increase in trade receivables and other assets
(Increase)/decrease in inventories
Increase in trade payables and other liabilities
Cash generated by operations
Income tax paid
Net cashflow from operating activities
Investing activities
Interest received
Payments to acquire intangible assets
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of equity-accounted investees
Net cashflow from investing activities
Financing activities
Repayment of borrowings
New borrowings raised
Interest paid
Purchase of own shares
Dividends paid to equity holders of the parent
Net cashflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at the end of the year
Notes
2017
€000
2016
€000
11,329
28,437
15,980
3,169
538
(681)
9,894
1,318
14,900
84
1,942
331
775
10,734
2,668
185
(220)
9,739
1,485
–
(1,483)
81
–
(323)
59,579
51,303
13
9
9
18
16
8
9
34
22
13
16
18
22
(30,505)
(1,443)
25,988
(5,960)
53,619
(6,959)
46,660
681
(1,376)
98
(3,710)
(15,000)
(19,307)
23
(20,128)
–
(3,147)
(116)
(15,730)
(39,121)
(11,768)
74,956
(1,847)
61,341
29
32
105
(1,596)
6,058
5,140
9,602
60,905
(6,831)
54,074
220
(5,838)
–
(6,727)
–
(12,345)
–
2,712
(2,571)
–
(37,427)
(37,286)
4,443
75,806
(5,293)
74,956
Strategic Review GovernanceFinancial Statements
Notes to the consolidated financial statements
at 31 December 2017
1. Corporate information
These consolidated financial statements were approved and authorised for issue by the Board of Directors of Stock Spirits
Group PLC (the Company) on 7 March 2018.
Stock Spirits Group PLC is domiciled in England. The Company’s registered office is at Solar House, Mercury Park, Wooburn
Green, Buckinghamshire, HP10 0HH, United Kingdom.
The Company, together with its subsidiaries (the Group), is involved in the production and distribution of branded spirits
in Central and Eastern Europe.
2. Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and
the Group have adequate resources to continue in operational existence for a period of at least 12 months from the date
of approval of the financial statements. Thus they continue to adopt a going concern basis of accounting in preparing the
financial statements.
The financial position of the Group, its cashflows, liquidity position and borrowings facilities are described in the paragraphs
below. In addition note 30 to the financial statements includes the Group’s objectives, policies and processes for managing
its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposure
to credit risk and liquidity.
106
Details of the terms of each external loan facility are set out in note 23. The Group met its covenant requirements
throughout the year ended 31 December 2017.
The Group has positive free cashflow. The Group has a €200,000,000 revolving credit facility available to it. As at 31
December 2017 €114,191,000 (2016: €134,319,000) was drawn, and a further €14,250,000 (2016: €14,751,000) was
utilised for customs guarantees in Italy and Germany, thereby leaving access to funds of €71,599,000 (2016: €50,930,000)
which could be drawn at short notice. See note 23 for further details.
The Group’s forecasts and projections, taking account of possible changes in trading performance, show that the Group
will be able to operate within the level of its current available facilities and maintain comfortable covenant headroom.
The revolving credit facility is available as part of wider borrowing arrangements with the syndicate of banks and is not
subject to annual renewal. Stock Polska Sp. z.o.o. also has a debt factoring facility of €33,573,000 (PLN 140,000,000)
which can be utilised to meet short term working capital requirements if necessary. Pursuant to the HSBC Credit Facility,
the total amount of receivables subject to a factoring facility may not in aggregate exceed €50,000,000. See note 20 for
further details.
After making enquiries, the Directors have reasonable expectation that the Company and the Group will have adequate
resources to continue their operational existence for the foreseeable future and remain compliant with the covenant
requirements under the Group’s revolving credit facility for a period of at least 12 months from the date of approval of the
financial statements. Accordingly, they continue to adopt the going concern basis for preparing the financial statements.
Stock Spirits Group PLC Annual Report & Accounts 2017 3. Accounting policies
Basis of preparation
These consolidated financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards (IFRS), as adopted by the European Union. International Financial Reporting Standards are issued by
the International Accounting Standard Board (IASB).
These consolidated financial statements have been prepared on a going concern basis as the Directors believe there are no
material uncertainties that lead to significant doubt that the entity can continue as a going concern for a period of at least
12 months from the date of approval of the financial statements.
The consolidated financial statements have been prepared under the historical cost convention, except as disclosed in the
accounting policies below.
Changes in accounting policies
In the preparation of these consolidated financial statements, the Group followed the same accounting policies and
methods of computation as compared with those applied in the previous year, except for the adoption of new standards
and interpretations and revision of the existing standards as of 1 January 2017.
New/Revised standards and interpretations adopted in 2017
The following amendments to existing standards and interpretations were effective for the year and were applicable
to the Group:
Amendments to IAS 7: Disclosure initiative
107
This amendment aims to assist users of financial statements to evaluate changes in an entity’s liabilities arising from financing
activities. This includes changes from cashflows and non-cash items, such as the impact of fluctuations in foreign exchange
rates, changes in fair value, gain or loss of control of subsidiaries and other businesses. Furthermore, the new disclosure
requirements apply to changes in financial assets, such as assets used to hedge liabilities arising from financial activities,
if the corresponding cashflows would be classified as cashflows from financing activities.
The disclosure requirements are met by a reconciliation between the opening and closing balances (per the statement of
financial statement) of the financing liabilities in note 23.
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 Group:
• Amendments to IAS 12: IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
• Annual Improvements to IFRS Standards 2014–2016 Cycle – Minor amendments to IFRS 12
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
New/Revised standards and interpretations not applied
The following standards and interpretations in issue are not yet effective for the Group and have not been adopted
by the Group.
Annual Improvements to IFRS Standards 2014–2016 Cycle – minor amendments to IFRS 1 and IAS 28
1 January 2018
IFRS 9: Financial Instruments
Amendments to IFRS 4: Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts
IFRS 15: Revenue from Contracts with Customers
Clarification to IFRS 15: Revenue from Contracts with Customers
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
Amendments to IAS 40: Transfers of Investment Property
IFRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration
IFRS 16: Leases
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
Effective dates1
1. The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares
its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and
interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority
of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for
endorsement restricts the Group’s discretion to early adopt standards.
108
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.
A detailed review of the impact of IFRS 15 and IFRS 9 has been undertaken. The impacts are as follows:
IFRS 15 Revenue from customers
IFRS 15 “Revenue from customers” provides a single, principle-based, five-step model to be applied to all sales contracts,
based on the transfer of control of goods and services to customers.
The Group has carried out analysis of how IFRS 15 should be implemented within our markets and we expect that the impact will
be primarily on the recording of the payments we make to customers to support promotions and marketing activities. With the
exception of slotting and listing fees, these are currently recorded as sales expenses. From 1 January 2018, with the adoption of
IFRS 15, these costs will be a reduction to revenue.
The impact on revenue, if applied in 2017 is very minor for the Group at about 2%. There is no impact on Adjusted EBITDA
and the change in Adjusted EBITDA margin is a very minor improvement of approximately 0.36%, as can be shown in the
analysis for 2017 as per the following table:
Current reporting
Under IFRS 15
% change
Revenue
€000s
Adjusted EBITDA
€000s
Adjusted EBITDA
as % of revenue
274,601
269,837
(1.7%)
56,324
56,324
–
20.51%
20.87%
0.36%
This quantum is based upon the specific composition and nature of the Group’s portfolio of contracts and economic
conditions at the date of transition.
In the transition period, when IFRS 15 is adopted, it is the intention that the changes will be adopted from start of the reporting
period on a modified retrospective basis. This does not modify the prior period’s reporting but restates the opening retained
earnings for the cumulative effect of initially applying this standard if the changes impact the profits of the Group. For the Group
there is no expected impact on the opening retained earnings for 2018.
Stock Spirits Group PLC Annual Report & Accounts 2017 IFRS 9 Financial Instruments
IFRS 9 “Financial Instruments” will simplify the classification of financial assets for measurement purposes, but is not
anticipated to have a significant impact on the financial statement, including in respect of the non-substantial modification
of the Group’s financing arrangements in 2017.
IFRS 16 Leases
A project to implement IFRS 16 “Leases” will be undertaken in early 2018. The Directors do expect that the adoption of this
standard will have a material impact to the Group’s financial statements in the period of initial application. The Group does
not intend to apply the new standard before 1 January 2019.
IFRS 16 will remove the distinction between operating leases and finance leases and will require lessees to report operating
leases on the balance sheet, similar to the treatment of finance leases under IAS 17. Lessees will recognise an asset for the
right to use the leased asset and a liability for the future lease payments for each lease. They will also have to recognise an
element of each lease payment as an interest charge.
The effect of this on the Group’s financial statements will be that gross assets and gross liabilities will each increase following
the recognition of right-of-use assets and lease liabilities relating to future lease payments. In the income statement
depreciation or amortisation and interest expenses will be recognised, instead of lease rental expenses. This change will
result in an improvement in the financial measure of Adjusted EBITDA. In the Statement of cashflows, the change in
presentation of the lease expenses will result in an improvement in the cashflows from operating activities and a decrease in
the cashflows from financing activities.
Basis of consolidation
109
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries controlled by
the Company for the years to 31 December 2017 and 31 December 2016. Control is achieved when the Group is exposed,
or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when
the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
• The contractual arrangement with the other vote holders of the investee
• Rights arising from other contractual arrangements
• The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the subsidiary.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the date on which control ceases.
The subsidiary financial statements are prepared for the same reporting year as the parent company and are based on consistent
accounting policies. All intragroup balances and transactions including unrealised profit arising from them are eliminated in full.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction.
If the Group loses control of a subsidiary it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary;
(ii) derecognises the carrying amount of any non-controlling interest; (iii) derecognises the cumulative translation differences
recorded in equity; (iv) recognises the fair value of the consideration received; (v) recognises the fair value of any investment
retained; (vi) recognises any surplus or deficit in profit or loss; (vii) recognises the parent’s share of any components
previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of any acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling
110
interest in the acquiree. For each business combination the acquirer measures the non-controlling interest in the acquiree
either at fair value or at the proportionate share of the acquirer’s identifiable net assets. Acquisition costs incurred are
expensed and included within exceptional items.
When the Group acquires a business it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition
date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Goodwill is initially recognised at cost being the excess of the aggregate of the consideration transferred and the amount
recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration
is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit and loss.
After initial recognition goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing goodwill acquired in a business combination is from the acquisition date allocated to each of the Group’s cash
generating units that are expected to benefit from the combination irrespective of whether assets or liabilities of the
acquisition are assigned to those units.
Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or
loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash generating unit retained.
Associates
Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity,
it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost.
Subsequently associates are accounted for using the equity method, where the Group’s share of post-acquisition profits and losses
and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income
(except for losses in excess of the Group’s investment in the associate unless there is an obligation to make good those losses).
Stock Spirits Group PLC Annual Report & Accounts 2017 Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of
unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these
transactions is eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective
evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for
impairment in the same way as other non-financial assets.
We have allocated the investor’s share of the comprehensive income of equity-accounted investees to the appropriate
components of equity.
Contingent consideration
Deferred consideration that is contingent on future performance conditions is recognised at its fair value at acquisition date
within the cost of investment, with a corresponding entry to other financial liabilities. Changes to fair value of the resulting
financial liability at each subsequent reporting date are recognised in the income statement.
Revenue recognition
Sale of goods
The Group has concluded that it is the principal in its revenue arrangements, including distribution agreements, as it is
the primary obligor in these revenue arrangements, has pricing latitude and is also exposed to inventory and credit risks.
111
As such, revenue from the sale of goods is recognised when all the following conditions are satisfied:
• The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; in general this is
deemed to occur when customers take delivery of the goods
• The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold
• The amount of revenue can be measured reliably
•
It is probable that the economic benefits associated with the transaction will flow to the entity; and
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined
terms of payment and excluding taxes or duty which are generally recognised at the point of sale.
Revenue is reduced for estimated customer returns, discounts, rebates and other similar allowances, the measurement of
which is determined by contractual arrangements with customers. Sales incentives are recognised in the same period as the
related revenue is recorded, and comprise:
• Discounts and rebates – which are sales incentives to customers to encourage them to purchase increased volumes and
are related to total volumes, purchases and sales growth Other incentives, such as slotting and listing fees.
The Group has concluded that it is the principal in its revenue arrangements as it is the primary obligor in these revenue
arrangements, has pricing latitude and is also exposed to inventory and credit risks.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
Finance income
Finance income is recognised as interest accrues using the effective interest method. The effective rate is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial instrument to its net
carrying amount.
Finance income also includes foreign currency exchange gains on the retranslation of loans and gains arising from changes
in the fair value of interest rate swap instruments.
Segmental analysis
The accounting policy for identifying segments is based on internal management reporting information that is regularly
reviewed by the chief operating decision-maker.
For management purposes, the Group is organised into business units based on geographical area, and has five
reportable segments:
• Poland
• Czech Republic
•
Italy
• Other operational, including the Slovakian, International and Baltic Distillery entities
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• Corporate, including the expenses and central costs incurred by non-trading Group entities.
Management monitors the results of all operating segments separately as each of the geographic areas require different
marketing approaches. Segment performance is evaluated based on EBITDA, adjusted for exceptional items and non-
recurring expenses.
Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the Group financial statements,
the results and financial position of each entity are reported in euros (€), which is the presentational currency for the Group
financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each end
of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of
the reporting period.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as
at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined. All resulting differences are taken to the income statement.
For the purpose of presenting Group financial statements, the assets and liabilities of the Group’s foreign operations
are expressed in euros using exchange rates prevailing at the end of the reporting period. Income and expense items
are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as other
comprehensive income and transferred to the Group’s translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities
of the foreign operation and translated at the closing rate.
Stock Spirits Group PLC Annual Report & Accounts 2017 The closing foreign exchange rates used in the consolidation are as follows:
PLN
CZK
GBP
CHF
2017
4.17
25.55
0.89
1.17
2016
4.39
26.97
0.85
1.07
Employee benefits – severance indemnity
The provision for employee severance indemnity, mandatory for Italian companies pursuant to Law No. 297/1982, represents
an unfunded defined benefit plan, according to IAS 19 (Revised), and is based on the working life of employees and on the
remuneration earned by an employee over the course of a pre-determined term of service.
For details of the actuarial assumptions used, see note 25. For the severance indemnity, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each reporting period.
Past service costs are expensed in full in the year in which the past service credit is granted.
The severance indemnity obligation recognised in the statement of financial position represents the present value of the
obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the
fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service
cost, plus the present value of available refunds and reductions in future contributions to the plan.
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Contributions for severance indemnity are recognised as an expense in the income statement when employees have
rendered service entitling them to the contributions.
Income taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the 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.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements with the following exceptions:
• Where the temporary differences arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss
•
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
Income taxes continued
Deferred income tax assets are recognised only to the extent that the directors consider that it is probable that there will
be taxable profits from which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rate that is expected to apply
when the related asset is realised or liability is settled, based on tax rates enacted or substantively enacted by the balance
sheet date.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date. Deferred income tax assets
and liabilities are offset, only if a legally enforcement right exists to set off current tax assets against current tax liabilities,
the deferred income taxes relate to the same taxation authority and that authority permits the Group to make a single
net payment.
Income tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other
comprehensive income. Similarly, income tax is charged or credited directly to equity if it relates to items that are credited or
charged directly to equity. Otherwise income tax is recognised in the income statement.
Property, plant and equipment
Buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the
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statement of financial position at their cost less depreciation. Land is not depreciated.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet
determined, are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other
property assets, commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less
accumulated depreciation and any accumulated impairment losses.
Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction,
over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation
method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or,
where shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.
The following useful lives are used in the calculation of depreciation:
Land
Buildings
No depreciation
20–50 years
Technical equipment
7–20 years
Other equipment
3–10 years
Stock Spirits Group PLC Annual Report & Accounts 2017 Intangible assets
Intangible assets acquired separately
Intangible assets including brands, customer lists and trademarks acquired separately are reported at cost less accumulated
amortisation and accumulated impairment losses. Intangible assets with a definite life are amortised on a straight-line
basis over their estimated useful lives of between 2 and 15 years. A useful life of 15 years has been applied to trademarks,
with consideration to the age, history and profile of such trademarks. The estimated useful life and amortisation method
are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a
prospective basis. Amortisation expense related to software is included within other operating expenses in the consolidated
income statement. Amortisation expense related to customer relationships and trademarks is included in selling expenses.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they
satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets
is their fair value at the acquisition date. Fair value of identifiable brands acquired and recognised as part of a business
combination are determined using the royalty or multi-period excess methods. All of the Group’s brands have indefinite
useful lives, are not amortised but are subject to an annual impairment test or whenever there is an indication that the asset
may be impaired.
In arriving at the conclusion that a brand has an indefinite life, management considers their future usage, commercial position,
stability of industry and all other aspects that might have an impact on this accounting policy. Management considers the
business to be a brand business and expects to acquire, hold and support brands for an indefinite period. Subsidiary company
115
history goes back to 1884 in Italy, 1920 in the Czech Republic and for over 100 years in Poland. Brands have a long tradition
and companies have built customer loyalty over their history.
A core element of the Group’s strategy is to invest in building its brands through an ongoing programme of spending on
consumer marketing and through significant investment in promotional support. This policy is appropriate due to the stable
long-term nature of the business and the enduring nature of the brands.
Subsequent to initial recognition, other intangible assets acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.
Impairment of tangible and intangible assets excluding goodwill
At each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to
estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are
also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating
units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually,
and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cashflows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cashflows
have not been adjusted.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
Intangible assets continued
Impairment of tangible and intangible assets excluding goodwill continued
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised
immediately in the income statement.
Goodwill
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill is allocated to the Group’s cash-generating units that are expected to benefit from the
synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units.
Goodwill is reviewed for impairment annually or more frequently if there is an indication of impairment. Impairment of
goodwill is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates.
Where the recoverable amount of the cash-generating unit is less than the carrying value of the cash-generating unit to
which goodwill has been allocated, an impairment loss is recognised. Impairment losses relating to goodwill cannot be
reversed in future periods.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and
variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of
116
inventory, with the majority being valued on a first-in-first-out basis. Net realisable value represents the estimated selling
price for inventories less all estimated costs of completion and costs necessary to make the sale.
Trade and other receivables
Trade and other receivables are recognised when it is probable that a future economic benefit will flow to the Group.
Trade and other receivables are carried at original invoice or contract amount less any provisions for discounts and doubtful
debts. Provisions are made where there is evidence of a risk of non-payment taking into account ageing, previous experience
and general economic conditions.
Sale of receivables under non-recourse factoring
The Group via Stock Polska Sp. z.o.o. has entered into a non-recourse receivables financing agreement with Coface,
supported by Natixis Bank. It may sell up to €31,891,000 (PLN 140,000,000) (at any one time) at face value less certain
reserves and fees. Trade receivables sold under this non-recourse factoring arrangement are included net of the value
of invoices which have been factored. Pursuant to the HSBC Credit Facility, the total amount of receivables subject to
a factoring facility may not in aggregate exceed €50,000,000.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand and short-term deposits
with an original maturity of three months or less.
Stock Spirits Group PLC Annual Report & Accounts 2017 Financial assets
Financial assets in the statement of financial position are loans and receivables. Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current
assets, except for those with maturities greater than 12 months after the end of the reporting period. These are classified
as non-current assets.
Loans and receivables are subsequently carried at amortised cost using the effective interest method if the time value of
money is significant. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired,
as well as through the amortisation process.
Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. Provision
is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off
when the probability of recovery is assessed as being remote.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits
to purchase or sell the asset.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount
117
of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation
at the statement of financial position, taking into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value
of those cashflows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
The timing of cash outflows are by their nature uncertain and are therefore best estimates. Provisions are not discounted
as the time value of money is not deemed to be material.
Financial liabilities
Borrowings and other financial liabilities
Borrowings and other financial liabilities, including loans, are initially measured at fair value, net of transaction costs.
Borrowings and other financial liabilities are subsequently measured at amortised cost using the effective interest method,
with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
Derivative financial instruments
The Group may enter into derivative financial instruments to manage its exposure to interest rate and foreign exchange rate
risk, including foreign exchange forward contracts, interest rate swaps and cross currency swaps.
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at the reporting period date. The resulting gain or loss is recognised in profit or
loss immediately.
The fair value of derivatives is classified as a non-current asset or a non-current liability if the remaining maturity of the
relationship is more than 12 months and as a current asset or a current liability if the remaining maturity of the relationship
is less than 12 months.
The Group does not apply hedge accounting.
Fair value measurement
The Group measures financial instruments, such as derivatives, at fair value at each balance sheet date. Fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:
118
•
In the principal market for the asset or liability
•
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest level of input that is significant to the fair value measurement
as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
•
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable.
Stock Spirits Group PLC Annual Report & Accounts 2017 For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end of each reporting period.
Leases and hire purchase commitments
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Finance leases are capitalised on commencement of the lease at the lower of the fair value of the asset and the present
value of the minimum lease payments. Each payment is allocated between the liability and finance charges so as to achieve
a constant rate of interest on the finance balance outstanding. The rental obligations, net of finance charges, are included in
interest bearing loans 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.
Payments under operating leases are charged to the income statement on a straight line basis over the term of the lease.
Share-based payments
Equity-settled transactions
The cost of equity-settled transactions is recognised together with a corresponding increase in other reserves in equity,
over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for
119
equity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has
expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit
for the period represents the movement in cumulative expense recognised as at the beginning and end of the period and is
recognised in general and administrative expenses.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as
if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any
modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the
control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is granted, the cost based on the original award terms continues
to be recognised over the original vesting period and an expense is recognised over the remainder of the new vesting
period for the incremental fair value of any modification.
The financial effect of awards by the parent company of options over its equity shares to employees of subsidiary
undertakings was recognised by the parent company in its individual financial statements as an increase in its investment
in subsidiaries with a credit to equity equivalent to the IFRS 2 cost in subsidiary undertakings. The subsidiary, in turn,
recognised the IFRS 2 cost in its income statement with a credit to equity to reflect the deemed capital contribution from
the parent company.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
3. Accounting policies continued
Share-based payments continued
Repurchase and reissue of ordinary shares (own shares)
When shares recognised in equity are repurchases, the amount of the consideration paid, which includes directly attributable
costs, are recognised as a deduction from equity. Repurchased shares are classified as own shares and are presented in the
own share reserve. When own shares are sold or re-issued subsequently, the amount received is recognised as an increase
in equity and the resulting surplus or deficit on the transaction is presented within retained earnings.
Cash dividends to equity holders of the parent
The Company recognises a liability to make cash distributions to equity holders of the parent when the distribution is authorised
and the distribution is no longer at the discretion of the Company. As per the corporate laws in the United Kingdom, a distribution
is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity.
Exceptional items and adjusted profitability measures
Management use a range of measures to monitor and assess the Group’s financial performance, including those calculated
in accordance with IFRS, and other, alternative performance measures (APMs). Such measures are also used in determining
performance incentives for management.
The Group uses the following APMs to provide management and investors with useful additional information about the
group’s performance, profitability, liquidity and indebtedness:
120
• Adjusted EBITDA, being operating profit before depreciation and amortisation and exceptional items and the share of
results of equity accounted investees (refer to note 7);
• Adjusted basic EPS, being basic earnings per share before the impact of exceptional items (refer to note 14);
• Free cashflow, being cash generated from operating activities (excluding income tax paid), plus the proceeds from the sale
of property, plant and equipment and proceeds from the disposal of intangible assets less cash used for the acquisition of
property, plant or equipment and for the acquisition of intangible assets (refer to note 7);
• Adjusted free cashflow conversion, being free cashflow as a percentage of adjusted EBITDA (refer to note 7);
• Net debt, being the net of balances reported as cash and cash equivalents, loans and borrowings, and finance leases
(refer to note 30); and
• Leverage, being net debt divided by adjusted EBITDA (refer to note 30).
The above measures represent the equivalent IFRS measures but are adjusted to exclude items that we consider would
prevent comparison of the group’s performance both from one reporting period to another and with other similar businesses.
Exceptional items are not defined under IFRS. Exceptional items are those significant items which are separately disclosed by
virtue of their size, nature or incidence to enable a full understanding of the Group’s financial performance. In determining
of an event or transaction is exceptional, management of the Group considers quantitative and qualitative factors such as
its expected size, precedent for similar items and the commercial context for the particular transactions, while ensuring
consistent treatment between favourable or unfavourable transactions impacting income and expense. Presentation of these
measures is not intended to be a substitute for or to promote them above statutory measures.
Exceptional items are detailed in note 8 to the financial statements.
Items that are considered to be exceptional and that are therefore separately identified in order to aid comparability may
include the following:
• Profits or losses resulting from the disposal of a business or investment;
Stock Spirits Group PLC Annual Report & Accounts 2017 • Costs incurred in association with business combinations, such legal and professional fees and stamp duty that are
excluded from the fair value of the consideration of the business combination;
• Significant restructuring and integration costs that are incurred following a material change in business operations, such
as a business combination;
•
Impairment charges in respect of tangible and intangible assets as a result of restructuring, business closure,
underperformance, or other matters; and
• Significant tax charges (current or deferred) in respect of prior years or changes in legislation.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, management is required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. Uncertainty about these assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected in future periods.
Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
• Financial risk management
note 30
• Sensitivity analyses disclosures
notes 17, 30.
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognised in the consolidated financial statements:
Taxation
Management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the
likely timing and level of future taxable profits together with an assessment of the effect of future tax planning strategies.
Where Group entities are loss making, and are expected to continue to be loss making into the future it is judged that
deferred tax assets should not be recognised in respect of these losses as it is not known when the losses will be able to be
utilised in these entities.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial
year are described below. The Group based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. However estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only
that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Measurement and impairment of indefinite life intangible assets
A key source of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of
assets and liabilities within the next financial year is the measurement and impairment of indefinite life intangible assets.
The measurement of intangible assets other than goodwill on a business combination involves estimation of future cashflows
and the selection of a suitable discount rate. The Group determines whether indefinite life intangible assets are impaired
on an annual basis and this requires an estimation of their value in use. This involves estimation of future cashflows and
choosing a suitable discount rate (note 17). 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.
121
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
4. Critical accounting judgements and key sources of estimation uncertainty continued
Estimates and assumptions continued
Impairment of goodwill
The Group’s impairment test for goodwill is based on a value in use calculation using a discounted cashflow model. The
cashflows are derived from the Group’s three year-plans. The recoverable amount is most sensitive to the discount rate used
for the discounted cashflow model as well as the expected future cash inflows and the growth rate used for extrapolation
purposes. The key assumptions used to determine the recoverable amount for the different cash generating units, including a
sensitivity analysis, as further explained in note 17. The Group tests annually whether goodwill has suffered any impairment.
Taxation and transfer pricing
The Group is an international drinks business and, as such, transfer pricing arrangements are in place to cover the recharging
of management costs, as well as the sale of finished goods between Group companies.
Transfer prices and the policies applied directly affect the allocation of group wide taxable income across a number of
tax jurisdictions.
While transfer prices between reportable segments are on an arm’s length basis, similar to transactions with third parties,
there is increasing scrutiny from tax authorities on transfer pricing arrangements. This could result in the creation of
uncertain tax positions.
122
The Group provides for anticipated risks, based on reasonable estimates, for tax risks in the respective countries in which
it operates. The amount of such provisions are based on various factors, such as experience with previous tax audits and
differing interpretations of tax regulations by the taxable entity and the responsible authority. See note 13.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and
timing of future taxable income.
Given the wide range of international business relationships and the long-term nature and complexity of existing contractual
agreements, differences arising between the actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and expense already recorded.
Uncertainties in relation to tax liabilities have been provided for within income tax payable to the extent that it is considered
probable that the Group will be required to settle a tax liability in the future. Settlement of tax provisions could potentially
result in future cash tax payments; however these are not expected to result in an increased tax charge as they have been
fully provided for in accordance with management’s best estimates of the most likely outcomes.
Significant uncertainty exists over the size of possible settlements of ongoing enquiries and new enquiries could be opened
into prior years. Hence the tax liabilities could be higher or lower than the amounts provided for.
Share-based payments
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation
model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most
appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and
making assumptions about them. The assumptions and models used for estimating fair value for share-based payment
transactions are disclosed in note 34.
Stock Spirits Group PLC Annual Report & Accounts 2017 5. Revenue
An analysis of the Group’s revenue is set out below:
Revenue from the sale of spirits, gross of excise taxes
Other sales
Excise taxes
Revenue
6. Segmental analysis
2017
€000
2016
€000
794,299
733,257
3,025
4,166
(522,723)
(476,449)
274,601
260,974
In identifying its operating segments, management follows the Group’s geographic split, representing the main products
traded by the Group. The Group is considered to have five reportable operating segments: Poland, Czech Republic, Italy,
Other Operational and Corporate. The Other Operational segment consists of the results of operations of the Slovakian,
International and Baltic Distillery entities. The Corporate segment consists of expenses and central costs incurred by
non-trading Group entities.
Each of these operating segments is managed separately as each of these geographic areas requires different marketing
approaches. All inter-segment transfers are carried out at arm’s length prices. The measure of revenue reported to the
chief operating decision-maker to assess performance is based on external revenue for each operating segment and
123
excludes intra-Group revenues. The measure of Adjusted EBITDA reported to the chief operating decision-maker to assess
performance is based on operating profit and excludes intra-Group profits, depreciation, amortisation, exceptional items and
the share of the results of equity-accounted investees.
The Group has presented a reconciliation from profit before tax per the consolidated income statement to Adjusted
EBITDA below:
Profit before tax
Share of loss of equity-accounted investees, net of tax
Net finance charges
Depreciation and amortisation (note 11)
EBITDA
Exceptional expense (note 8)
Adjusted EBITDA
2017
€000
27,309
331
2,572
30,212
11,212
41,424
14,900
56,324
2016
€000
39,171
–
965
40,136
11,224
51,360
–
51,360
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.
Strategic Review GovernanceFinancial Statements
Notes to the consolidated financial statements continued
at 31 December 2017
6. Segmental analysis continued
2017
External revenue
Poland
€000
Czech
Republic
€000
Italy
€000
Other
Operational
€000
Corporate
€000
Total
€000
147,654
68,817
28,115
30,015
–
274,601
EBITDA after exceptional expense
37,738
21,818
(8,583)
4,899
(14,448)
41,424
Exceptional expense (note 11)
–
–
14,900
–
–
14,900
Adjusted EBITDA
37,738
21,818
6,317
4,899
(14,448)
56,324
Memo note:
Group wide costs included within Corporate costs are:
Group insurance costs
Group audit fee
Restructuring and one-off costs
FX impact within Corporate costs
(665)
(269)
(1,698)
(11)
Included within the regional and Corporate segments are:
Performance share plan costs/share-based
compensation
124
636
166
215
305
962
2,284
2016
External revenue
Adjusted EBITDA
Memo note:
Poland
€000
Czech
Republic
€000
Italy
€000
Other
Operational
€000
Corporate
€000
Total
€000
136,890
63,175
29,401
31,508
–
260,974
35,873
19,655
6,883
5,088
(16,139)
51,360
Group wide costs included within Corporate costs are:
Group insurance costs
Group audit fee
Restructuring and one-off costs
FX impact within Corporate costs
Included within the regional and Corporate segments are:
Performance share plan costs/share-based
compensation
(685)
(273)
(3,099)
212
- excluding one-off adjustments
- one-off adjustments
(203)
17
18
14
(15)
31
(49)
66
(825)
(1,074)
1,490
1,618
Stock Spirits Group PLC Annual Report & Accounts 2017 7. Adjusted EBITDA and Free cashflow
The Group defines Adjusted EBITDA as operating profit before depreciation and amortisation, exceptional items and the
share of results of equity accounted investees. Adjusted EBITDA and Adjusted free cashflow conversion are supplemental
measures of the Group’s performance and liquidity that are not required to be presented in accordance with IFRS.
The directors use the Adjusted EBITDA and Adjusted free cashflow conversion as the performance measures of the business.
They remove significant items that would otherwise distort comparability.
The use of these alternative performance measures is consistent with how institutional investors consider the performance of the
Group. These measures are not defined in IFRS and thus may not be comparable to similarly titled measures by other companies.
Adjusted EBITDA
Operating profit
Exceptional expense
Share of results of equity-accounted investees, net of tax
Depreciation and amortisation (note 11)
Adjusted EBITDA
Adjusted EBITDA margin
2017
€000
29,881
14,900
331
45,112
11,212
56,324
20.5%
2016
€000
40,136
–
–
40,136
11,224
51,360
19.7%
125
The Group defines free cashflow as cash generated from operating activities (excluding income tax paid), plus the proceeds
from the sale of property, plant and equipment and proceeds from the disposal of intangible assets less cash used for the
acquisition of property, plant or equipment and for the acquisition of intangible assets. Adjusted free cashflow conversion is
free cashflow as a percentage of Adjusted EBITDA.
Free cashflow
Cash generated from operations
Payments to acquire property, plant and equipment
Payments to acquire intangible assets
Proceeds from sale of property, plant and equipment
Free cashflow
Adjusted free cashflow conversion
8. Exceptional items
2017
€000
53,619
(3,710)
(1,376)
98
2016
€000
60,905
(6,727)
(5,838)
–
48,631
48,340
86.3%
94.1%
In 2017, the Group has exceptional expenses and an exceptional tax charge (2016: €nil).
The impairment review for goodwill identified the need to impair the goodwill held for the Italian brands by €14,900,000. Due to
the nature of the size of the impairment and the nature of the transaction, it is disclosed as an exceptional expense. See note 17.
Due to a change in tax legislation in Poland, tax amortisation on our Polish brands is no longer available. This has resulted in
a significant one-off deferred tax charge of €4,700,000, which has been classified in accordance with our accounting policies
as an exceptional charge. See note 13 for further information.
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
9. Finance income and costs
Finance income:
Foreign currency exchange gain
Interest income
Total finance income
Finance costs:
Interest payable on bank overdrafts and loans
Foreign currency exchange loss
Bank commissions, guarantees and other payables
Other interest expense
Total finance costs
Net finance costs
2017
€000
–
681
681
2016
€000
1,483
220
1,703
1,384
1,777
84
788
997
3,253
2,572
–
557
334
2,668
965
In 2016, finance income included €1,483,000 foreign currency exchange gain on intercompany loans.
126
10. Staff costs
Wages and salaries
Social security costs
Other pension costs
Termination benefits
Long-term incentive plan (note 25)
Share-based compensation
2017
€000
2016
€000
29,096
27,917
5,273
1,552
1,632
28
2,284
39,865
5.407
1,229
1,469
7
(1,191)
34,838
Other pension costs relate primarily to the Group’s contributions to defined contribution pension plans. Also included is
€239,000 (2016: €29,000) of contributions relating to the employee severance indemnity in Italy, which represents an
unfunded defined benefit plan. Refer to note 25 for further details.
Average monthly number of employees in the year
Production and logistics
Sales
Other
2017
No.
436
353
191
980
2016
No.
428
260
188
876
Stock Spirits Group PLC Annual Report & Accounts 2017
11. Operating profit
Operating profit for the year has been arrived at after charging:
Costs of inventories recognised as an expense
Advertising, promotion and marketing costs
Indirect costs of production
Logistics costs
Operating lease payments
Legal and professional fees
Loss on disposal of intangible and tangible assets
Net foreign exchange translation (gain)/loss
Exceptional expense (note 8)
Depreciation and amortisation – production cost
Depreciation and amortisation – selling cost
Depreciation and amortisation – administration cost
Total depreciation and amortisation
12. Auditor’s remuneration
2017
€000
2016
€000
137,394
128,714
24,486
24,631
8,543
5,530
4,356
3,595
538
(123)
14,900
5,690
3,266
2,256
9,190
5,916
2,444
4,356
185
419
–
5,307
3,532
2,385
11,212
11,224
127
The Group paid the following amounts to its auditor KPMG LLP in respect of the audit of the financial statements and for
other services provided to the Group:
Fees payable for:
Audit of the Parent and Group financial statements
Local statutory audits for subsidiaries
Audit-related assurance services
Total
2017
€000
284
392
54
730
2016
€000
273
393
65
731
Strategic Review GovernanceFinancial Statements Notes to the consolidated financial statements continued
at 31 December 2017
13. Income taxes
(i) Income tax recognised in profit or loss:
Tax expense comprises:
Current tax expense
Tax expense/(credit) relating to prior year
Deferred tax charge
Other taxes
Total tax expense
Exceptional tax expense:
Deferred tax charge
There have been no tax charges to other comprehensive income.
128
Profit before tax
2017
€000
2016
€000
5,826
213
5,219
22
6,991
(393)
4,132
4
11,280
10,734
2017
€000
2016
€000
4,700
–
2017
€000
2016
€000
27,309
39,171
Accounting profit multiplied by United Kingdom combined rate of corporation tax 19.25%
(2016: 20.00%)
5,257
7,834
Expenses not deductible for tax purposes
– Goodwill impairment (note 17)
– Other
Tax losses for which no deferred tax is recognised
Effect of difference in tax rates
Impact of post-IPO corporate restructuring
Tax charge/(credit) relating to prior year
Taxable profit relieved against brought forward losses
Other taxes
Income tax expense reported in the income statement
Exceptional tax expense – impact of post-IPO corporate restructuring
Total tax charge
Effective tax rate
Post-IPO corporate restructuring
2,868
1,363
1,384
248
–
213
(75)
22
11,280
4,700
15,980
–
852
1,578
296
639
(393)
(76)
4
10,734
–
10,734
58.5%
27.4%
Post-IPO the Group completed corporate restructuring transactions which gave rise to a significant deferred tax assets which
were being amortised over a five-year period. Due to tax legislation changes in Poland, from 1 January 2018, amortisation
on these items is no longer deductible for tax purposes. This has resulted in an exceptional tax charge of €4,700,000. The
charge is considered exceptional because it is a significant transaction resulting from the change in tax legislation.
The 2016 current tax expense includes €820,000 relating to liquidation of Stock Wodka Polska S.A.
Stock Spirits Group PLC Annual Report & Accounts 2017
(ii) Income tax recognised in the balance sheet:
Current tax liability:
Tax prepayments as of 1 January
Tax liability as of 1 January
Tax credit/(charge) relating to prior year
Payments in year
Current tax expense
Other taxes
Foreign exchange adjustment
Net current tax liability
Analysed as:
Tax prepayment as of 31 December
Current tax liability as of 31 December
2017
€000
411
2016
€000
3,569
(8,926)
(12,277)
(213)
6,959
(5,826)
(22)
(63)
393
6,831
(6,991)
(4)
(36)
(7,680)
(8,515)
715
(8,395)
(7,680)
411
(8,926)
(8,515)
Transfer pricing
129
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 inspections
The Group has undertaken a review of potential tax risks and current tax assessments, and whilst it is not possible to predict
the outcome of any pending enquiries, adequate provisions are considered to have been included in the Group accounts to
cover any expected estimated future settlements.
Common with many groups operating across multiple jurisdictions, certain tax positions related to intercompany transactions
may be subject to challenge by the relevant tax authority. The Group has recognised provisions totalling €7,514,000 (2016:
€7,341,000) in relation to transfer pricing risks where it is not probable that tax positions taken will be accepted.
The most significant relates to tax risks in respect of our Italian business, Stock S.r.l. The Italian tax authorities have open
enquiries covering the years 2006-2010. During 2017, no cash prepayments were made in respect of the open enquiries
(2016: €1,045,000). Any prepayments are returnable to Stock S.r.l. should the rulings be found in favour of the Company.
The Group’s Czech subsidiary, Stock Plzen Bozkov s.r.o. received a tax assessment relating to 2011 from the Czech tax
authorities in February 2017. During the year, the tax judgement has not been found in the Company’s favour and hence
provisions have been made for income tax due of €636,000 and penalties and interest of €631,000 (see note 25 for the
penalties and interest provision).
Management continue to vigorously defend each of the companies’ positions through the appeals process in both cases.
In July 2016, the Group’s Polish subsidiary, Stock Polska Sp. z.o.o., received notification from the Polish tax authorities of the
commencement of a standard enquiry covering its 2013 corporate income tax return. To date no tax assessment has been
received in respect of this open enquiry, however the Group anticipates initial findings from this enquiry will be communicated
within the next 12 months.
Strategic Review GovernanceFinancial Statements
Notes to the consolidated financial statements continued
at 31 December 2017
13. Income taxes continued
Tax inspections continued
In October 2017, the Group’s German subsidiary, Baltic Distillery GmbH, received notification from the German tax
authorities of the commencement of a standard enquiry covering its 2015 corporate income tax return. To date no final
tax assessment has been received in respect of this open enquiry, however the Group anticipates initial findings from this
enquiry will be communicated within the next 12 months.
Although our transfer pricing is performed on an arms’ length basis, it is management’s view that there is significant risk of further
disputes with tax authorities regarding intercompany transactions and thus a provision has been made for this eventuality.
Additional provisions, including in respect of the matters noted above, of €2,118,000 were recorded during 2017 (2016: nil).
Whilst it is the case that there could be a risk of a material exposure arising from ongoing enquiries in respect of positions
taken other than those related to transfer pricing discussed above, the Group considers this to be unlikely and accordingly
have made no provision in relation to these risks.
In respect of tax years no longer subject to enquiries or audit, where the relevant statute of limitations has expired, and in
cases where management’s estimation of the most likely future settlement has changed, tax provisions of €1,945,000 (2016:
nil) were released to profit and loss.
Impact of Brexit
130
On 29 March 2017, the UK government invoked Article 50 of the Treaty of Lisbon, notifying the European Council of its
intention to withdraw from the EU. There is an initial two-year timeframe for the UK and EU to reach an agreement on the
withdrawal and the future UK and EU relationship, although this timeframe can be extended. At this stage, there is significant
uncertainty about the withdrawal process, its timeframe and the outcome of the negotiations about the future arrangements
between the UK and the EU. As a result, there is significant uncertainty over the period for which the existing EU laws for
member states will continue to apply to the UK and which laws will apply to the UK after an exit. Following the negotiations
between the UK and the EU, the UK’s tax status may change and this may impact the Group, for example as it relates to
distributions from subsidiaries over which no tax is currently payable due to the EU Parent Subsidiary Directive. However, at
this stage the level of uncertainty is such that it is impossible to determine if, how and when that tax status will change.
(iii) Unrecognised tax losses
The Group has tax losses which arose in the UK of €32,298,000 as at 31 December 2017 (2016: €31,167,000) 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 sufficiently probable that the losses will be utilised in the
relevant entities.
Stock Spirits Group PLC Annual Report & Accounts 2017 (iv) Deferred tax balances
The exceptional tax expense is included in the amount charged in 2017 on the Brands.
Deferred tax assets and liabilities arise from the following:
2017
Temporary differences:
Brands
Accrued liabilities
Other assets and liabilities
Deferred tax asset
Deferred tax liability
2016
Temporary differences:
Brands
Accrued liabilities
Other assets and liabilities
Deferred tax asset
Deferred tax liability
Brands
1 January
2017
€000
(Charged)/
credited to
income
€000
Translation
difference
€000
31 December
2017
€000
(42,687)
(11,145)
(1,253)
(55,085)
4,475
5,534
(32,678)
13,255
(45,933)
(32,678)
3,685
(2,459)
(9,919)
(9,670)
(249)
(9,919)
(204)
704
(753)
7,956
3,779
(43,350)
566
4,151
(1,319)
(47,501)
(753)
(43,350)
1 January
2016
€000
(Charged)/
credited to
income
€000
Translation
difference
€000
31 December
2016
€000
131
(36,766)
2,914
5,847
(28,005)
17,770
(45,775)
(5,544)
1,647
(235)
(4,132)
(4,133)
1
(28,005)
(4,132)
(377)
(42,687)
(86)
(78)
4,475
5,534
(541)
(32,678)
(382)
(159)
(541)
13,255
(45,933)
(32,678)
Deferred tax liability arising on the difference is based on the difference between the accounting and tax book values of
brands, and calculated using the appropriate substantively enacted tax rate.
(v) Change in tax rates
A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) was substantively enacted on 15 September
2016. A further reduction to 17% (effective from 1 April 2020) was also substantively enacted on this date. The deferred tax
asset or liability at 31 December 2017 has been calculated based on the appropriate tax rates. There are no UK deferred tax
assets or liabilities to which this new rate will be applied.
Strategic Review GovernanceFinancial Statements
Notes to the consolidated financial statements continued
at 31 December 2017
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 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. Adjusted earnings per share amounts
exclude the impact of the significant items that would otherwise distort comparability and distort understanding of the
underlying performance of the Group.
Details of the earnings per share are set out below:
Basic earnings per share
Profit attributable to the equity shareholders of the Company (€000)
11,329
28,437
Weighted average number of ordinary shares in issue for basic earnings per share (000)
198,104
199,851
2017
2016
Basic earnings per share (€)
Diluted earnings per share
0.06
0.14
Profit attributable to the equity shareholders of the Company (€000)
11,329
28,444
132
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000)
200,787
200,399
Diluted earnings per share (€)
Adjusted basic earnings per share
Profit attributable to the equity shareholders of the Company (€000)
Exceptional expense (€000)
Exceptional tax charge (€000)
Profit attributable to the equity shareholders of the Company
before exceptional expenses and exceptional tax charges (€’000)
0.06
0.14
11,329
14,900
4,700
28,437
–
–
30,929
28,437
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000)
198,104
199,851
Adjusted basic earnings per share (€)
0.16
0.14
Adjusted diluted earnings per share
Profit attributable to the equity shareholders of the Company (€000)
Exceptional expense (€000)
Exceptional tax charge (€000)
Profit attributable to the equity shareholders of the Company before
exceptional expenses and exceptional tax charges (€000)
11,329
14,900
4,700
28,437
–
–
30,929
28,437
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000)
200,787
200,399
Adjusted diluted earnings per share (€)
0.15
0.14
Stock Spirits Group PLC Annual Report & Accounts 2017
Reconciliation of basic to diluted ordinary shares
Issued ordinary shares (000)
Effect of own shares held (000)
Basic weighted average number of ordinary shares (000)
Effect of options (000)
Diluted weighted average number of ordinary shares (000)
2017
2016
200,000
200,000
(1,896)
(149)
198,104
199,851
2,683
548
200,787
200,399
There have been no transactions involving the Group’s ordinary shares between the reporting date and the date of
authorisation of these financial statements.
15. Intangible assets – goodwill
Cost:
As at 1 January
Goodwill arising on the acquisition of brands
As at 31 December
Accumulated impairment:
As at 1 January
Impairment charge
As at 31 December
Carrying amount at 31 December
See note 17 for details of the impairment of goodwill.
2017
€000
2016
€000
77,340
76,866
–
474
77,340
77,340
16,500
14,900
31,400
45,940
16,500
–
16,500
60,840
133
Strategic Review GovernanceFinancial Statements
16. Intangible assets – other
2017
Cost:
As at 1 January 2017
Additions
Disposals
Transfers
Net foreign currency exchange differences
As at 31 December 2017
Amortisation:
As at 1 January 2017
Amortisation expense
Net foreign currency exchange differences
As at 31 December 2017
Customer
relationships and
trademark
€000
Brands
€000
Software
€000
20,264
1,059
(60)
513
109
1,514
110
–
–
–
1,624
21,885
472
115
2
589
17,213
1,203
12
18,428
Total
€000
320,438
1,376
(60)
513
8,364
330,631
17,685
1,318
14
19,017
298,660
207
–
–
8,255
307,122
–
–
–
–
Carrying amount: As at 31 December 2017
307,122
1,035
3,457
311,614
134
Costs for brand additions in 2017 relate to the final payment for the Saska brand acquired in Poland in 2016.
2016
Cost:
As at 1 January 2016
Additions
Disposals
Transfers
Net foreign currency exchange differences
Customer
relationships and
trademark
€000
Brands
€000
294,261
4,522
–
224
(347)
1,514
–
–
–
–
Software
€000
19,304
1,115
(18)
(83)
(54)
Total
€000
315,079
5,637
(18)
141
(401)
As at 31 December 2016
298,660
1,514
20,264
320,438
Amortisation:
As at 1 January 2016
Amortisation expense
Disposals
Net foreign currency exchange differences
As at 31 December 2016
–
–
–
–
–
354
118
–
–
472
15,829
1,367
(15)
32
16,183
1,485
(15)
32
17,213
17,685
Carrying amount: As at 31 December 2016
298,660
1,042
3,051
302,753
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017
Included in transfers in 2017, was €513,000 for assets which were previously classified as assets under construction, which
were subsequently reclassified as software. In 2016, the amounts in transfers from assets in the course of constriction to
software was €141,000.
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. Other intangible assets are amortised as follows:
• Customer Relationships are amortised over 12 years
• Trademarks are amortised over 15 years
• Software is amortised over 2–5 years.
The gross carrying value of fully amortised intangible assets that are still in use is €6,627,000 (2016: €6,033,000).
Amortisation relating to software is included within other operating expenses in the consolidated income statement.
Amortisation relating to customer relationships and trademark is included in selling expenses.
17. Impairment of goodwill and intangibles with indefinite lives
Goodwill acquired through business combinations and brands have been allocated for impairment testing purposes
to cash-generating units 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.
Cash generating units
For the purposes of impairment testing, goodwill has been allocated to the Group’s CGUs as follows:
135
31 December 2017
Carrying amount of brands
Carrying amount of goodwill
Value in use headroom
31 December 2016
Carrying amount of brands
Carrying amount of goodwill
Value in use headroom
Czech Republic
€000
Italy
€000
Poland
€000
Other
€000
Total
€000
206,787
34,516
26,936
52,584
7,732
45,300
2,212
2,451
1,480
307,122
45,940
–
287,541
Czech Republic
€000
Italy
€000
Poland
€000
Other
€000
Total
€000
196,173
34,516
40,865
57,225
22,632
42,811
2,212
9,014
350,600
2,451
1,480
298,660
60,840
Strategic Review GovernanceFinancial Statements
17. Impairment of goodwill and intangibles with indefinite lives continued
Cash generating units continued
Key assumptions used in the value-in-use calculations
The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the key
assumptions represent management’s assessment of future trends in the industry and have been based on historical data
from both external and internal sources.
The calculation of value-in-use for all regions is most sensitive to the following assumptions:
• Spirits price inflation – small annual percentage increases assumed in all markets based on historic data
• Growth in spirits market – assumed to be static or marginally increasing in all markets based on recent historical trends.
• Market share – through company specific actions outlined in detailed internal plans, market share to be grown overall.
• Discount rates – rates reflect the current market assessment of the risks specific to each operation. The discount rate
was estimated based on an average of guideline companies adjusted for the operational size of the Group and specific
regional factors
• Raw material cost – assumed to be at average industry cost
• Excise duty – no future duty changes have been used in projections
• Growth rate used to extrapolate cashflows beyond the forecast period. The assumed growth rate reflects management
136
expectation and takes into consideration growth achieved to date, current strategy and expected spirits market growth.
The headroom for each cash generating unit where these sensitivities would be applicable has been detailed below.
Impairment review
(i) Czech Region
The recoverable amount of the Czech Region unit has been based on its value-in-use using discounted cashflows based on
cashflow projections from the three-year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections is 10.7% (2016: 10.3%) and cashflows beyond the three-year
period are extrapolated using a 2.5% (2016: 1.9%) growth rate.
A reasonably possible change in two key assumptions could cause the carrying amount to exceed the recoverable amount.
The following sensitivity analysis shows the impact on the headroom of different pre-tax discount rates and EBITDA delivery
in the cashflow projections used in the impairment review models.
Pre-tax discount rate
EBITDA delivery
-10%
-5%
0%
5%
10%
9.5%
10.0%
10.5%
10.7%
11.0%
€000
34.6
37.7
68.7
83.5
102.9
€000
17.6
20.5
49.6
65.5
81.5
€000
2.8
5.5
32.8
47.8
62.8
€000
(2.4)
0.2
26.9
41.6
56.2
€000
(10.3)
(7.8)
18.0
32.1
46.3
The impact of a 1 percentage point decrease in the long term growth rate applied in the terminal value calculation would be a
lower headroom of €3m.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 (ii) Italy Region
The recoverable amount of the Italy Region unit was determined based on its value-in-use using discounted cashflows based
on cashflow projections from the three-year planning process approved by senior management.
In the prior year, the headroom between the estimated recoverable amount of the Italy Region CGU and its carrying value was
limited, and certain sensitised scenarios indicated a potential impairment. As performance in 2017 was below budget, an indicator
of impairment was identified. The assessment of recoverable amount was performed at the level of the CGU level as it is the
lowest level of separately identifiable cashflows, and as such is not possible to estimate the recoverable amount at the brand level.
Due to a continued decline in the market, particularly in relation to vodka-based flavoured liqueur, the projections in the
Group’s three-year plan were not sufficient to support the carrying value of the assets. As a result of the annual impairment
tests required by IAS 38, the carrying amount of the assets of the CGU was determined to be higher than its recoverable
amount of €67.9 million, and an impairment loss of €14.9 million was recognised during 2017 (2016: nil).
The impairment loss was fully allocated to goodwill and included in ‘exceptional expense’ (note 8).
The pre-tax discount rate applied to cashflow projections is 13.5% (2016: 12.7%) and cashflows beyond the three-year
period are extrapolated using a 1.7% (2016: 1.6%) growth rate.
Following the impairment loss recognised, recoverable amount was equal to the carrying amount. Therefore, any adverse
movement in a key assumption would lead to further impairment. The following sensitivity analysis shows the impact on headroom
of different pre-tax discount rates and EBITDA delivery in the cashflow projections used in the impairment review models.
137
Pre-tax discount rate
EBITDA delivery
-10%
-5%
0%
5%
10%
12.5%
13.0%
13.5%
14.0%
14.5%
€000
(1.5)
2.4
6.2
10.1
14.0
€000
(4.5)
(0.8)
2.9
6.6
10.3
€000
(7.1)
(3.6)
–
3.6
7.1
€000
(9.8)
(6.4)
(3.0)
0.4
3.8
€000
(12.1)
(8.9)
(5.6)
(2.3)
1.0
The impact of a 1 percentage point decrease in the long term growth rate applied in the terminal value calculation would be
an impairment of €4.2m.
(iii) Poland Region
The recoverable amount of the Poland Region unit has been determined based on its value-in-use using discounted
cashflows based on cashflow projections from the three-year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections 10.3% (2016: 9.6%) and cashflows beyond the three-year period
are extrapolated using a 1.7% (2016: 2.4%) growth rate.
The recoverable amount calculated indicates significant headroom over the carrying value exists. As such, there are no
assumptions for which a reasonably possible change will result in an impairment.
Strategic Review GovernanceFinancial Statements 18. Property, plant and equipment
2017
Cost:
As at 1 January 2017
Additions
Disposals
Transfers
Foreign currency adjustment
As at 31 December 2017
Depreciation:
As at 1 January 2017
Depreciation expense
Disposals
Foreign currency adjustment
As at 31 December 2017
Carrying amount: As at 31 December 2017
138
2016
Cost:
Land and
buildings
€000
Technical
equipment
€000
Other
equipment
€000
Assets under
construction
€000
34,089
501
–
33
945
52,575
1,132
(942)
1,948
764
15,820
514
(710)
434
134
35,568
55,477
16,192
10,449
1,055
–
(264)
11,240
24,328
27,378
5,638
(384)
(280)
32,352
23,125
10,789
3,201
(632)
(33)
13,325
2,867
1,837
1,563
–
(2,928)
79
551
–
–
–
–
–
551
Land and
buildings
€000
Technical
equipment
€000
Other
equipment
€000
Assets under
construction
€000
As at 1 January 2016
33,037
48,697
15,056
Additions
Disposals
Transfers
Foreign currency adjustment
414
(8)
800
(154)
320
(1,496)
5,402
(348)
895
(521)
535
(145)
3,297
5,544
–
(6,878)
(126)
Total
€000
104,321
3,710
(1,652)
(513)
1,922
107,788
48,616
9,894
(1,016)
(577)
56,917
50,871
Total
€000
100,087
7,173
(2,025)
(141)
(773)
As at 31 December 2016
34,089
52,575
15,820
1,837
104,321
Depreciation:
As at 1 January 2016
Depreciation expense
Disposals
Foreign currency adjustment
As at 31 December 2016
Carrying amount: As at 31 December 2016
9,408
1,021
(19)
39
10,449
23,640
23,338
5,307
(1,410)
143
27,378
25,197
7,738
3,411
(419)
59
10,789
5,031
–
–
–
–
–
1,837
40,484
9,739
(1,848)
241
48,616
55,705
€513,000 of amounts included in transfers in 2017 represented assets which were previously classified as assets under
construction. They have subsequently been reclassified as software. In 2016, the amounts in transfers from assets in the
course of constriction to software was €141,000.
The net book value of assets held under finance leases amounts to €164,000 (2016: €231,000).
The gross carrying value of fully depreciated property, plant and equipment that are still in use is €26,542,000 (2016:
€21,359,000).
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017
19. Inventories
Raw materials
Work in progress
Finished goods and merchandise
Provision for obsolescence
2017
€000
5,004
3,324
16,992
(2,219)
23,101
2016
€000
5,068
2,971
17,021
(3,402)
21,658
During the year ended 31 December 2017, inventories with a total value of €1,347,000 (2016: €2,770,000) were written off.
This amount does not include the impact to the income statement for provisions made during the year. All write-offs were
incurred as part of normal activities.
20. Trade and other receivables
Trade receivables
Allowance for doubtful debts
Other debtors and prepayments
The movement on the allowance for doubtful debts is set out below.
As at start of year
Charge for the year
Amounts utilised
Foreign currency adjustment
As at end of year
2017
€000
2016
€000
159,249
127,710
(5,379)
(4,737)
153,870
122,973
9,292
8,423
163,162
131,396
139
2017
€000
2016
€000
(4,737)
(5,298)
(963)
494
(173)
(232)
697
96
(5,379)
(4,737)
Sale of receivables under non-recourse factoring
The Group via Stock Polska Sp. z.o.o. has entered into a non-recourse receivables financing agreement with Coface,
supported by Natixis Bank. It may sell up to €33,573,000 (PLN 140,000,000) (at any one time) at face value less certain
reserves and fees. As at 31 December 2017 Coface charge interest on the drawn amounts of WIBOR (Warsaw Interbank
Offered Rate) 1M + 1.05% and a fee per invoice of 0.19%. The proceeds from the sale can be applied for the general
corporate and working capital purposes of the Group. Pursuant to the HSBC Credit Facility, the total amount of receivables
subject to a factoring facility may not in aggregate exceed €50,000,000.
In both 2017 and 2016, the factoring facility was not utilised.
Strategic Review GovernanceFinancial Statements
20. Trade and other receivables continued
Sale of receivables under non-recourse factoring continued
Trade receivables are denominated in the following currencies:
Polish Złoty
Euro
Czech Koruna
Other currencies
2017
€000
119,090
19,819
12,129
2,832
2016
€000
91,272
18,628
9,901
3,172
153,870
122,973
As at 31 December, the analysis of trade receivables that were past due but not impaired is as follows:
Overdue 0–30 days
Overdue more than 30 days
2017
€000
13,055
6,895
19,950
2016
€000
11,777
1,570
13,347
140
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 2017 revenue
from this customer amounted to €48,108,000 (2016: €35,916,000).
21. Other assets
Customs deposits
Current
2017
€000
Non-current
2017
€000
–
4,770
Current
2016
€000
1,500
Non-current
2016
€000
4,533
Customs guarantees are lodged with local Customs and Excise authorities and represent assets belonging to the Group. The
deposits are to provide comfort to local Customs and Excise authorities that liabilities will be settled. These are cash deposits
and are recognised as a receivable that does not meet the definition of cash and cash equivalents.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 22. Investment in equity-accounted investees
On 17 July 2017, Stock Spirits entered into an agreement with Quintessential Brands Group for the acquisition of a
25% equity interest in Quintessential Brands Ireland Whiskey Limited for a cash consideration of up to €18,333,000.
Consideration comprised of an initial cash payment of €15,000,000 for 25% of the equity interest, and a contingent
consideration of up to €3,333,000 which is payable over a five year period, subject to performance conditions.
The fair value of the contingent cash consideration at the acquisition date has been calculated as €2,491,000. See note 24
(other financial liabilities) and note 30 (risk management).
Based on the fair value of assets and liabilities of the investee at the acquisition date, goodwill of €425,000 was recognised.
The Group’s share of the loss of Quintessential Brands Ireland Whiskey Limited for the period is €331,000.
The principal place of business of Quintessential Brands Ireland Whiskey Limited is Dublin, Ireland.
The following table summarises the financial information of Quintessential Brands Ireland Whiskey Limited as included in its
own financial statements, adjusted for fair value adjustments at acquisition and differences in accounting policies, as at
31 December 2017. The table also reconciles the summarised financial information to the carrying value of the Group’s
interest in Quintessential Brands Ireland Whiskey Limited, and the results for the period from acquisition of the investment
to 31 December 2017.
Net assets
Non-current assets
Current assets and liabilities
Non-current liabilities
Net assets (100%)
Group’s share of net assets (25%)
Goodwill
Carrying value of investment in associate at 31 December 2017
Revenue (100%)
Loss from continuing operations (100%)
Total comprehensive income (100%)
Group’s share of loss from continuing operations (25%)
Group’s share of total comprehensive income (25%)
Carrying amounts of investment at acquisition date
Share of loss from continuing operations (25%)
Carrying amounts of interest in associate at 31 December 2017
141
2017
€000
58,356
9,166
(583)
66,939
16,735
425
17,160
1,321
(1,324)
(1,324)
(331)
(331)
17,491
(331)
17,160
Strategic Review GovernanceFinancial Statements 23. Financial liabilities
Unsecured – at amortised cost
HSBC loan1
Cost of arranging bank loan2
Interest payable
Total
Current
2017
€000
Non-current
2017
€000
Current
2016
€000
Non-current
2016
€000
–
(53)
101
48
114,191
(143)
–
114,048
–
(52)
85
33
134,319
(151)
–
134,168
1. The Group has a facilities agreement for a €200,000,000 revolving credit facility (RCF) with a banking club consisting of five banks
including HSBC who also act as the Agent. The term of the RCF facility is five years. The facility is fully flexible and allows the Group
to benefit from being able to increase or reduce borrowings as required, and utilise balance sheet cash more effectively. Each of the
drawings under the RCF are drawn down in the local currencies. The loans bear variable rates of interest which are linked to the inter-
bank offer rates of the country of drawing, WIBOR, PRIBOR or EURIBOR as appropriate. Please refer to the table below for the balances
drawn down. Each of the loans have a variable margin element to the interest charge. The margin is linked to a ratchet mechanism,
subject to a minimum margin, as the Group’s leverage covenant decreases.
As well as RCF drawings of €114,191,000 as at 31 December 2017 (2016: €134,319,000), an additional €14,250,000 (2016:
€14,751,000) of the RCF was utilised for customs guarantees in Italy and Germany. These custom guarantees reduce the available RCF
but do not constitute a balance sheet liability.
142
On 21 July 2017, Stock Spirits Group extended its revolving credit facilities with its banking club by a further 2 years to November 2022.
The key facility terms remain unchanged.
2. Costs of arranging the Group banking facilities are deducted from the original measurement of the loan facilities and amortised into
finance costs throughout the period using the effective interest method. The arrangement fees under the facility totalled €300,000, and
these are being amortised into finance costs throughout the initial period of the new facility. Fees for the extension of the facility until
2022 are being amortised over the loan period. The balance of the fees remaining is €196,000.
The following table shows the distribution of loan principal balances as at 31 December 2017 and 31 December 2016 in Euros.
Stock Polska Sp. z.o.o.
Stock Plžen-Božkov s.r.o.
Stock S.r.l.
Stock Slovensko s.r.o.
Baltic Distillery GmbH
Stock Spirits Limited
Total RCF
2017
€000
Total RCF
2016
€000
34,293
50,998
9,000
900
4,000
15,000
32,346
67,223
28,500
2,500
3,750
–
114,191
134,319
No security is provided to the lenders under the RCF facility as at 31 December 2017 (2016: nil security provided).
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017
Reconciliation of movement of financial liabilities
As at 1 January 2017
Repayments of loans
Interest charge
Interest paid
Foreign exchange on restatement of opening balances
As at 31 December 2017
24. Other financial liabilities
Finance leases
Contingent consideration
€000
134,201
(20,128)
3,169
(3,147)
1
114.096
Current
2017
€000
Non-current
2017
€000
Current
2016
€000
Non-current
2016
€000
83
–
83
109
2,491
2,600
174
–
174
113
–
113
Contingent consideration: on the purchase of the 25% equity interest in Quintessential Brands Ireland Whiskey Limited
(see note 22), the fair value of contingent consideration has been estimated at €2,491,000; this value is determined to be
materially consistent at the reporting date, and therefore no adjustment have been recorded for the period from acquisition
143
to 31 December 2017.
25. Provisions
(i)
Employee
benefits
and
pensions
€000
(ii)
Employee
severance
indemnity
€000
535
68
(55)
28
23
219
239
(305)
–
–
(iii)
Interest
and
penalties
on open
tax
enquires
€000
–
631
–
–
–
(iv)
Legal and
contract
related
provisions
€000
(v)
Other
provisions
€000
306
111
–
–
–
420
38
(8)
–
4
Total
€000
1,480
1,087
(368)
28
27
As at 1 January 2017
Arising during the year
(Utilised)/released
Movement in provision following revaluation
Net foreign currency exchange differences
As at 31 December 2017
599
153
631
417
454
2,254
– Current
– Non-current
179
420
–
153
631
–
296
121
97
357
1,203
1,051
Strategic Review GovernanceFinancial Statements 25. Provisions continued
(i) Employee benefits and pensions:
The provision for employee benefits represents expenses recognised in relation to a long-term incentive plan (LTIP)
operated by the Group, and Czech and Polish pension commitments for retirement benefits.
The long-term incentive plan which existed prior to admission was amended so that 50%-70% of accrued awards
crystallised upon admission, being paid out in cash. All remaining awards became exercisable in October 2014. At the
company’s discretion these options can be satisfied in cash and consequently these have been accounted for as long-term
employee benefits under IFRS 2 Share Based Payments.
During 2017 no LTIP options were exercised (2016: 172,399 options exercised).
(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 2017 by an actuary.
The present value of the severance indemnity obligation, and the related current service cost and past service cost,
144
were measured using the projected unit credit method. The principal assumptions used for the purposes of the actuarial
valuations were as follows: discount rate 1.92% p.a. (2016: 2.33% p.a.), inflation 2.00% p.a. (2016: 2.00% p.a.), revaluation
rate 75% of inflation rate + 1.5 points = 3.00% p.a. (2016: 1.80% p.a.).
The amounts recognised in the consolidated statement of financial position are as follows:
Defined benefit obligation 1 January
Interest cost
Benefits paid
Defined benefit obligation
Other
Non-current provision
2017
€000
219
1
(86)
134
19
153
2016
€000
203
2
(10)
195
24
219
(iii) Interest and penalties on open tax enquiries: as stated in note 13, a provision has been made for the penalties and
late interest payment for the 2011 tax assessment in the Czech Republic. The Company will continue to defend the
assessment through the appeals process available
(iv) Legal and contract related provisions: relate to exposures for potential contractual penalties arising in the normal course
of business. Provisions are recognised where a legal or constructive obligation exists at the year end date and where a
reliable estimate can be made of the likely outcome. While these provisions are reviewed on a regular basis and adjusted
for management’s best current estimates, the judgemental nature of these items means that future amounts settled may
differ from those provided
(v) Other provisions: relate primarily to sales agent indemnity fees and other various miscellaneous provisions. Provisions are
recognised where a legal or constructive obligation exists at the year end date and where a reliable estimate can be made
of the likely outcome. While these provisions are reviewed on a regular basis and adjusted for management’s best current
estimates, the judgemental nature of these items means that future amounts settled may differ from those provided.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017
26. Indirect tax payable
Excise taxes
VAT
27. Trade and other payables
Trade payables
Accruals
Social security and staff welfare costs
Other payables
– Current
– Non-current
28. Authorised and issued share capital and reserves
Share capital of Stock Spirits Group PLC
Number of shares
Ordinary shares of £0.10 each, issued and fully paid
2017
€000
65,931
13,325
79,256
2017
€000
33,146
37,398
1,839
1,948
2016
€000
58,856
15,344
74,200
2016
€000
20,582
28,801
2,002
2,016
74,331
53,401
73,915
53,352
416
49
145
2017
2016
200,000,000 200,000,000
The movements in called up share capital and share premium accounts are set out below:
At 31 December 2016 and 31 December 2017
200,000,000
23,625
183,541
All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders’
Number of
ordinary shares
Ordinary
shares
€000
Share premium
€000
meetings.
Merger reserve
On 21 October 2013 129,064,871 shares were issued in exchange for shares in OCM Luxembourg Spirits Holdings
S.à.r.l. The net book value of OCM Luxembourg Spirits Holdings S.à.r.l. at the time of exchange was €114,279,000, which
resulted in €99,033,000 being credited to the merger reserve in line with merger relief provided by Section 612 of the
Company Act 2006.
Consolidation reserve
As the Group was formed through a reorganisation in which Stock Spirits Group PLC became a new parent entity of the
Group, the 2013 consolidated financial statements were prepared as a continuation of the existing Group using the pooling
of interests method (or merger accounting). Merger accounting principles for this combination gave rise to a consolidation
reserve of €5,130,000.
Strategic Review GovernanceFinancial Statements 28. Authorised and issued share capital and reserves continued
Other reserve
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 2017 was €1,942,000 (2016: €81,000). On the exercise of JOE Share
Subscription Agreements, and Top-Up options in the year €166,000 was credited to the reserve for share-based payments
with the charge to the own share reserve.
Own share reserve
The own share reserve comprises the cost of the Company’s shares held by the Group. The Employment Benefit Trust (EBT)
holds these shares on behalf of the employees until the options are exercised. At 31 December 2017 the Group 822,246 of
the Company’s shares (2016: 2,638,440).
The EBT holds the shares at cost.
The number of shares held by the EBT has reduced year on year following the exercise of a number of Joint Owned Equity
Share Subscription Agreements, Top-Up and LTIP options. Refer to note 34 for further details.
Jointly owned equity scheme
The business entered into a number of Jointly Owned Equity (JOE) Share Subscription Agreements with key members of
Group staff. Refer to note 34. The last of these agreements was exercised in 2017.
146
Foreign currency translation reserve
Foreign currency translation reserve
2017
€000
15,829
2016
€000
7,519
Exchange differences relating to the translation from the functional currencies of the Group’s foreign subsidiaries into Euros
are accounted for by entries made directly to the foreign currency translation reserve.
29. Distributions made and proposed
Cash dividends on ordinary shares declared and paid:
Interim dividend for 2017: 2.38 cents per share (2016: 2.27 cents per share)
Special dividend for 2017: nil (2016: 11.90 cents per share)
Proposed dividends on ordinary shares:
2017
€000
2016
€000
4,760
–
4,537
23,781
Final cash dividend for 2017: 5.72 cents per share (2016: 5.45 cents per share)
11,437
10,883
Dividend payment included in the consolidated cashflow statement of €15,730,000 (2016: €37,427,000) reflects the
movement in exchange rates from the date of declaration to the date of payment and include the payment of the final
dividend from the prior year.
The proposed dividends on ordinary shares are subject to approval at the annual general meeting and are not recognised as a
liability as at 31 December 2017.
Stock Spirits PLC will receive dividends from its subsidiaries before the payment is due, thus ensuring that there will be
sufficient distributable reserves capacity.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017
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.
Market risk
Market risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate because of changes in
market prices. The Group’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and
interest rates. Financial instruments affected by market risk include loans and borrowings.
All Group borrowings are subject to the variable rates based on WIBOR, PRIBOR and EURIBOR, as stated per the HSBC loan
facility agreement.
The Group has not entered into any derivatives to hedge foreign currency risk in relation to the HSBC facility. Each facility and
the resulting cash outflows are denominated in local currency. The cashflows are therefore economically hedged within each
market. Management have considered the foreign currency risk exposure and consider the risk to be adequately mitigated.
Sensitivity analysis
The Company recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might
affect the amounts recorded in its equity and its profit and loss for the period. Therefore the Company has assessed:
147
• What would be reasonably possible changes in the risk variables at the end of the reporting period
• The effects on profit or loss and equity if such changes in the risk variables were to occur.
Strategic Review GovernanceFinancial Statements 30. Risk management continued
Interest rate risk
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the Group’s floating rate
loans and borrowings at which at the end of 31 December 2017 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.
31 December 2017
Euro
Polish Złoty
Czech Koruna
31 December 2016
Euro
Polish Złoty
Czech Koruna
Increase in
basis points
Effect on
profit/(loss)
before tax
€000
-50/+50
-50/+50
145/(145)
171/(171)
-50/+50
255/(255)
-50/+50
-50/+50
174/(174)
162/(162)
-50/+50
336/(336)
148
The assigned movement in basis points for interest rate sensitivity analysis is based upon the currently observable
market environment.
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 on profit before tax arising from the conversion of non-domestic currency trade
debtor, trade creditor and cash balances in our Polish, Czech and UK Group entities should there be a change in the spot €/
CZK, €/PLN and €/GBP exchange rates of +/-5%. These currencies are considered as these are the most significant non-Euro
denominations of the Group.
EUR – PLN
EUR – CZK
EUR – GBP
Change in EUR
vs. PLN/CZK/
GBP rate
+ 5%
- 5%
+ 5%
- 5%
+ 5%
- 5%
2017
€000
34
(38)
115
(127)
(708)
783
2016
€000
24
(26)
75
(83)
(12)
13
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 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
149
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 2017 and
31 December 2016 is the carrying amounts as illustrated in notes 23 and 32. The Group’s maximum exposure for financial
guarantees are noted in either note 23 or in the liquidity table below, respectively.
Strategic Review GovernanceFinancial Statements 30. Risk management continued
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages
liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and actual
cashflows and matching the maturity profiles of financial assets and liabilities.
The table below summarises the maturity profile of the Group’s undiscounted financial liabilities at 31 December 2017
and 2016.
As at 31 December 2017
Financial liabilities
Interest bearing loans and borrowings (note 23)
Interest payable on interest bearing loans
Other financial liabilities (note 24)
Trade and other payables (note 27)
Contingent consideration (note 24)
Less than
one year
€000
Between two
and five years
€000
Total
€000
–
114,191
114,191
1,918
83
72,285
9,360
11,278
109
–
192
72,285
2,491
–
2,491
74,286
126,151
200,437
150
The RCF agreement which was signed in 2015 was for a term of five years. The facility is fully flexible, with the amount
borrowed being reset each month. On 21 July 2017, Stock Spirits Group extended its revolving credit facilities with its
banking club by a further two years to November 2022. Interest payable on interest bearing loans for the term of the facility
has been estimated using amounts drawn at 31 December 2017, and the interest rates and margins applicable at this time.
The Group has €71,599,000 of undrawn facilities available to it under the terms of the RCF. Refer to note 23.
The contingent consideration’s fair value measurement (Level 3) has been performed using a discounted cashflow based on
a series of unobservable inputs. Management have used all available information about likely future trading of Quintessential
Brands Ireland Whiskey Limited to determine to determine the fair value of the contingent consideration.
As at 31 December 2016
Financial liabilities
Interest bearing loans and borrowings (note 23)
Interest payable on interest bearing loans
Other financial liabilities (note 24)
Trade and other payables (note 27)
Less than
one year
€000
Between two
and five years
€000
Total
€000
–
134,319
134,319
1,887
174
51,259
53,320
5,433
113
–
7,320
287
51,259
139,865
193,185
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 Capital risk management
The primary objective of the Group’s capital management is to ensure that it has the capital required to operate and grow
the business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital
structure to ensure it meets changing business needs.
In addition, the Directors consider the management of debt to be an important element in controlling the capital structure
of the Group. The Group may carry significant levels of long term structural and subordinated debt to fund investments and
acquisitions and has arranged debt facilities to allow for fluctuations in working capital requirements. There have been no
changes to the capital requirements in the current period.
Management manage capital on an ongoing basis to ensure that covenants requirements on the third party debt are met.
The Group regards its total capital as follows:
Net debt
Equity attributable to the owners of the Company
Net debt is calculated as follows:
Cash and cash equivalents (note 32)
Floating rate loans and borrowings (note 23)
Finance leases (note 24)
Net debt
Adjusted EBITDA (note 7)
Net debt/Adjusted EBITDA (Leverage)
151
2017
€000
53,143
354,309
407,452
2016
€000
59,735
348,579
408,314
2017
€000
61,341
2016
€000
74,956
(114,292)
(134,404)
(192)
(287)
(53,143)
(59,735)
2017
€000
56,324
0.94
2016
€000
51,360
1.16
Strategic Review GovernanceFinancial Statements 30. Risk management continued
Fair value
Management assessed that cash and cash equivalents, trade receivables, trade payables and other current liabilities
approximate their carrying amounts largely due to the short-term maturities of these instruments.
As per the table below the carrying amounts of the Group’s financial instruments are considered to be a reasonable
approximation of their fair values.
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts which approximates fair values of all of the Group’s financial
instruments that are carried in the financial statements.
As at 31 December 2017
Financial assets:
Cash
Trade and other receivables
Customs deposits
Financial liabilities:
152
Interest-bearing loans and borrowings:
(i) Finance lease obligations
(ii) Floating rate borrowings – banks
Trade and other payables
Contingent consideration (note 24)
As at 31 December 2016
Financial assets:
Cash
Trade and other receivables
Customs deposits
Financial liabilities:
Interest-bearing loans and borrowings:
(i) Finance lease obligations
(ii) Floating rate borrowings – banks
Trade and other payables
Loans and
receivables
€000
Amortised
cost
€000
Total
book value
€000
Fair value
€000
61,341
160,224
4,770
–
–
–
61,341
61,341
160,224
160,224
4,770
4,770
–
–
–
–
(192)
(192)
(192)
(113,995)
(113,995)
(113,995)
(72,285)
(72,285)
(72,285)
(2,491)
(2,491)
(2,491)
Loans and
receivables
€000
Amortised
cost
€000
Total
book value
€000
74,956
128,393
6,033
–
–
–
74,956
128,393
6,033
Fair value
€000
74,956
128,393
6,033
–
–
–
(287)
(287)
(287)
(134,116)
(134,116)
(134,116)
(51,259)
(51,259)
(51,259)
At 31 December 2017 and 31 December 2016 there were no financial instruments and therefore no analysis using the fair
value hierarchy has been performed.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017
31. Related party transactions
Note 33 below provides details of the Group’s structure including information about the subsidiaries of Stock Spirits Group
PLC. In considering each possible related party relationship, attention is directed to the substance of the relationship, not
merely the legal form. There were no transactions with related parties in the year to 31 December 2016 or 31 December
2017, with the exception of intercompany transactions and compensation of key management personnel.
Compensation of key management personnel
The Group’s Directors as shown on page 52 and the Senior Management Team are deemed to be key management
personnel. It is the Board and Senior Management Team which have responsibility for planning, directing and controlling the
activities of the Group. Total compensation to key management personnel were included in general and administrative and
other operational expenses in the consolidated income statement.
Short-term employee benefits
Social security costs
Post-employment benefits
Share-based compensation (note 34)
Termination benefits
2017
€000
5,342
443
306
1,845
730
8,666
2016
€000
4,865
609
72
(1,144)
1,401
5,803
153
There were no material transactions or balances between the Group and its key management personnel or members of their
close family. At the end of the period, key management personnel did not owe the Group any amounts.
As at 31 December 2017, no Directors (2016: nil) had any retirement benefits accrued under either money purchase schemes
or under defined benefit schemes.
In 2017, one Director (2016: nil) made gains on the exercise of share options.
Other disclosures on Directors’ remuneration required by the Companies Act 2006 and those specified for audit by the
Directors’ Remuneration Report Regulations 2002 are included in the Directors’ Remuneration Report.
There were no transactions with Quintessential Brands Ireland Whiskey Limited and its parent subsequent to the purchase of
the equity-accounted investment as disclosed in note 22.
Strategic Review GovernanceFinancial Statements 32. Cash and cash equivalents
For the purposes of the cashflow statement, cash and cash equivalents include cash on hand and in banks, net of
outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cashflow
statement can be reconciled to the related items in statement of financial position as follows:
Cash and bank balances
Cash and cash equivalents are denominated in the following currencies:
Sterling
Euro
Czech Koruna
Polish Złoty
Other currencies
Total
154
2017
€000
2016
€000
61,341
74,956
2017
€000
1,445
7,883
21,958
24,610
5,445
61,341
2016
€000
21,649
8,960
21,918
16,578
5,851
74,956
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 33. Group structure and acquisition details
Details of Group undertakings as of 31 December 2017 and 31 December 2016 are as follows:
Country of incorporation
and registered office address
Proportion of voting rights shares held
Relation
31 December 2017
31 December 2016
Group company
Stock Spirits (UK) Limited
Stock Plžen-Božkov s.r.o.*
Stock S.r.l.*
England2
Subsidiary
Czech Republic4
Subsidiary
Italy6
Subsidiary
F.lli Galli, Camis & Stock A.G.*
Switzerland7
Subsidiary
Stock Polska Sp. z.o.o.*
Wodka Polska Sp. z.o.o.*1
Stock International s.r.o*
Poland3
Poland3
Subsidiary
Subsidiary
Czech Republic4
Subsidiary
Stock Spirits Group Services AG*
Switzerland7
Subsidiary
Stock BH d.o.o.*
Stock d.o.o.*
Baltic Distillery GmbH*
Stock Slovensko s.r.o.*
Stock Finance (Euro) Limited*
Stock Finance (Złoty) Limited*
Stock Finance (Koruna) Limited*
Bosnia5
Croatia9
Subsidiary
Subsidiary
Germany10
Subsidiary
Slovakia5
Subsidiary
England2
England2
England2
Subsidiary
Subsidiary
Subsidiary
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
155
All shareholdings in subsidiaries are represented by ordinary shares.
* Wholly owned held indirectly through subsidiary undertakings.
1. In connection with an internal corporate reorganisation Wodka Polska Sp. z.o.o was liquidated in April 2017
2. The registered office is Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH, United Kingdom
3. The registered office is ul Spoldzielcza n.6 Lublin 20-402, Poland
4. The registered office is Palirenska 641/2, PSC 32600, Czech Republic
5. The registered office is Galvaniho 7/A, 821 04 Bratislava, Slovakia
6. The registered office is Tucidide 56 bis, 20 134 Milan, Italy
7. The registered office is Domanda Verurraltungs GmbH, Baarerstrasse 43, 6302 Zug, Switzerland
8. The registered office is Džemala Bijedića 185, Ilidža, 71000 Sarajevo, Bosnia Herzegovina
9. The registered office is Josipa Lončara 3, 10000 Zagreb, Croatia
10. The registered office is Baltic Distillery GmbH, Gartenweg 1, 18334 Dettmannsdorf, Germany
Strategic Review GovernanceFinancial Statements 34. Share-based compensation
Elian Employee Benefit Trustee Limited acts in its capacity as trustee of the Stock Spirits Employee Benefit Trust (EBT).
Jointly owned equity scheme
The EBT holds the Jointly Owned Equity (JOE) scheme shares on behalf of the employees.
The movements in the awards outstanding during the year were as follows:
At 1 January 2017
Exercised
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Share options issued at IPO
No. of awards
715,449
(715,449)
–
–
The EBT held the shares for the vested options on behalf of the employees. Post IPO awards were valued by reference to
the share price at admission to the London Stock Exchange.
The movements in the awards outstanding during the year were as follows:
156
At 1 January 2017
Exercised
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Performance share plan (PSP)
No. of awards
1,881,499
(1,122,998)
758,501
758,501
Participation in the PSP is restricted to the Senior Management Team. Awards made under the PSP normally vest provided
the participant remains in the Group’s employment during the performance period and financial targets are met at the end of
the performance period.
In the 2017 plan, financial targets were based 50% on EBITDA targets and 50% on cashflow conversion for senior
management excluding the Executive Directors. For Executive Directors the performance conditions were 50% EPS targets
and 50% cashflow conversion targets.
In the 2015 plan, financial targets were based on total shareholder return (TSR), versus comparator companies, and earnings
per share (EPS). In the 2014 plan, financial targets were based on TSR only.
The performance period for all PSP schemes is three financial years beginning with the financial year in which the award is
granted. The vesting period for grants made under this scheme is three years with an exercise period of seven years. The
exercise price of PSP options is €nil.
Further information on the PSP is set out in the Directors’ Remuneration Report on pages 71 to 84.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 Awards were granted over 1,611,583 shares on 15 March 2017 (2016: nil shares). These new options were valued using
the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value of nil cost options subject to the TSR condition is determined using a Monte-Carlo option pricing model.
The fair value of all other options is calculated using the share price at the date of grant, adjusted for dividends not received
during the vesting period.
The principal assumptions made in measuring the fair value of PSP awards were as follows:
Principal assumptions
Fair value at grant date
Share price on grant date
Expected life of the awards
Risk free rate interest rate
Dividend yield on the Company’s shares
Volatility of the Company’s shares
TSR correlation (SSG PLC vs comparators)
2017
PSP
2015
PSP
2014
PSP
187 pence
41.0 pence
192.5 pence
187 pence
196.5 pence
292.3 pence
3 years
3 years
3 years
0%
n/a
n/a
n/a
0.74%
1.52%
23.9%
20.7%
1.12%
1.06%
21.6%
25.0%
157
Due to the limited historic data available for the Group, expected volatility was based on the historic volatilities of the
companies in the TSR comparator group.
The movements in the awards outstanding during the year were as follows:
At 1 January
Granted
Forfeited
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2017
No.
1,975,862
1,611,583
(634,592)
(337,990)
2,614,863
–
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Group
to settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Group on exercise
of the options.
Strategic Review GovernanceFinancial Statements 34. Share-based compensation continued
Restricted stock options (RSU)
On 15 March 2017, awards were granted over 534,419 shares (2016: nil shares).
Participation in the 2017 RSU is restricted to the Senior Management Team, who were previously included in the 2014
or 2015 PSP schemes and still employed by the Group in March 2017. There are no performance conditions. Vesting is
dependent upon continued employment as at the date of the announcement of the 2018 results. No dividends accrue to
the participants prior to exercise.
The exercise price of RSU options is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value of nil cost options is determined using a Black-Scholes model. The principal assumptions made in measuring
the fair value of RSU awards were as follows:
Principal assumptions
Fair value at grant date
Share price on grant date
158
Expected life of the awards
Risk free rate interest rate
Dividend yield on the Company’s shares
Volatility of the Company’s shares
The movements in the awards outstanding during the year were as follows:
At 1 January
Granted
Lapsed
Outstanding at 31 December
Exercisable at 31 December
Special option award
Managing Director of Polish business
2017
RSU awards
187 pence
187 pence
1.72 years
0%
n/a
n/a
2017
No.
–
534,419
(54,954)
479,465
–
In 2016, 1,000,000 awards were issued to the Managing Director of the Polish business. The awards will vest provided that
this participant remains in the Group’s employment during the performance period and various financial targets are met.
The performance period is the period of three financial years beginning with the financial year in which the award is granted.
All performance conditions over the three financial years must be met for any awards to vest.
The vesting period for grants made under this scheme is five years with an exercise period of seven years. The exercise price
of these awards is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value has been calculated using the share price of 156.0 pence at the date of grant, and has been assumed to be
the same as the share price at the date of grant.
Notes to the consolidated financial statements continuedat 31 December 2017Stock Spirits Group PLC Annual Report & Accounts 2017 The movement in awards granted to employees of Stock Spirits Group PLC under this scheme during the year are as follows:
At 1 January
Outstanding at 31 December
Exercisable at 31 December
Annual Bonus Plan
2017
No.
1,000,000
1,000,000
–
In respect of 2017 an annual bonus is being paid to Mirek Stachowicz of 32.1% of salary. 25% of the bonus earned will be
deferred into shares. See page 67 in the Directors’ Remuneration Report. No deferred shares were granted under the Group
Annual Bonus Plan for 2016.
Share-based compensation expense
The expense recognised in other operational expenses for employee services received during the year is shown in the
following table.
Total share-based compensation expense recognised in Statement of Changes in Equity
Total cash-settled share-based compensation awards recognised in liabilities
Share-based compensation (note 10)
2017
€000
1,942
342
2,284
2016
€000
81
(1,272)
(1,191)
159
The total value of cash-settled share based compensation awards recognised in liabilities at 31 December 2017 is €342,000
(2016: €nil). These represent employer’s social security on share options and accrued dividend equivalents. In previous
periods, the Group has accrued tax liabilities in respect of personal tax due on share-based payments. These amounts were
released in 2016 as the employees have settled, or will settle, all such liabilities on exercise.
35. 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:
Within one year
After one year but not more than five years
More than five years
2017
€000
4,977
12,778
4,076
21,831
2016
€000
2,810
10,270
5,514
18,594
The total charge under operating leases as of 31 December 2017 was €4,356,000 (2016: €2,444,000).
36. Commitments for capital expenditure
Commitments for the acquisition of property, plant and equipment as of 31 December 2017 are €511,000 (2016: €429,000).
37. Events after the balance sheet date
There were no events after the balance sheet date which require adjustment to or disclosure in these financial statements.
Strategic Review GovernanceFinancial Statements Company statement of financial position
at 31 December 2017
Non-current assets
Investments
Other receivables
Current assets
Other receivables and prepayments
Cash and cash equivalents
Total assets
Non-current liabilities
Trade and other payables
Current liabilities
Trade and other payables
160
Total liabilities
Net assets
Capital and reserves
Issued share capital
Share premium
Own share reserve
Merger reserve
Share-based compensation reserve
Retained earnings
31 December
2017
£000
31 December
2016
£000
Notes
3
4
5
6
8
7
9
9
9
9
12
256,301
254,428
66
335
256,367
254,763
15,414
656
16,070
13,330
16,456
29,786
272,437
284,549
130
7
2,006
2,136
2,402
2,409
270,301
282,140
20,000
20,000
155,428
155,428
(272)
(210)
83,837
83,837
9,021
2,287
7,292
15,793
270,301
282,140
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 160 to 175, were
approved by the Board of Directors and authorised for issue on 7 March 2018 and were signed on behalf by:
Mirek Stachowicz
Paul Bal
Chief Executive Officer
Chief Financial Officer
7 March 2018
7 March 2018
Stock Spirits Group PLC Annual Report & Accounts 2017
Company statement of cashflows
for the year ended 31 December 2017
Operating activities
Profit for the year
Adjustments to reconcile profit to net cashflows:
Other financial income
Interest expense
Share-based compensation
Working capital adjustments
Increase in trade receivables and other assets
Decrease in trade payables and other liabilities
Net cashflows from operating activities
Investing activities
Interest received
Net cashflow from investing activities
Financing activities
Interest paid
Dividends paid to equity holders
Purchase of own shares
Net cashflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
For the
year ended
31 December
2017
£000
For the
year ended
31 December
2016
£000
Notes
12
169
50,482
(334)
238
568
641
(211)
167
20
50,458
(2,137)
(10,408)
(352)
(2,489)
(1,848)
(377)
(10,785)
39,673
22
22
50
50
161
(238)
(167)
(13,634)
(30,992)
(102)
–
(13,974)
(31,159)
(15,800)
16,456
8,564
7,892
6
656
16,456
Strategic Review GovernanceFinancial Statements
Company statement of changes in equity
at 31 December 2017
Issued
capital
£000
Share
premium
£000
Merger
reserve
£000
Share-based
compensation
reserve
£000
Own
share
reserve
£000
Retained
earnings
£000
Total
£000
Balance at 1 January 2016
20,000 155,428
83,837
7,272
(451)
(3,737) 262,349
Profit for the year
Total comprehensive income
Share-based compensation charge (note 12)
Own shares utilised for incentive
schemes (note 9)
Dividends (note 10)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20
–
–
–
–
–
50,482
50,482
50,482
50,482
–
20
241
40
281
– (30,992)
(30,992)
Balance at 31 December 2016
20,000 155,428
83,837
7,292
(210)
15,793 282,140
Profit for the year
Total comprehensive income
Share-based compensation charge (note 12)
162
Own shares acquired for incentive
schemes (note 9)
Own shares utilised for incentive
schemes (note 9)
Dividends (note 10)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,729
–
–
–
–
169
169
169
169
–
1,729
(103)
–
(103)
41
–
(41)
–
(13,634) (13,634)
Balance at 31 December 2017
20,000 155,428
83,837
9,021
(272)
2,287 270,301
Stock Spirits Group PLC Annual Report & Accounts 2017
Notes to the Parent Company financial statements
at 31 December 2017
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 7 March 2018.
The Company’s registered office is at Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH,
United Kingdom.
2. Accounting policies
Basis of preparation
These separate financial statements of the Company are presented as required by the Companies Act 2006 (the Act).
As permitted by the Act, the separate financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS), as adopted by the European Union.
International Financial Reporting Standards are issued by the International Accounting Standard Board (IASB).
The financial statements have been prepared on a going concern basis as the Directors believe there are no material
uncertainties that lead to significant doubt that the entity can continue as a going concern for a period of at least 12 months
from the date of approval of the financial statements.
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.
163
These financial statements have been prepared for the year ended 31 December 2017.
Exemptions
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and not
presented an income statement or a statement of comprehensive income for the Company alone. The profit for the year has
been disclosed in the statement of changes in equity.
New/Revised standards and interpretations adopted in 2017
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:
• Amendments to IAS 7: IAS 7 Disclosure initiative
• Amendments to IAS 12: IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
• Annual Improvements to IFRS Standards 2014–2016 Cycle – Minor amendments to IFRS 12.
Strategic Review GovernanceFinancial Statements Notes to the Parent Company financial statements continued
at 31 December 2017
2. Accounting policies continued
New/Revised standards and interpretations not applied
The following standards and interpretations in issue are not yet effective for the Company and have not been adopted by
the Company:
Effective dates1
Annual Improvements to IFRS Standards 2014-2016 Cycle – minor amendments to IFRS 1 and IAS 28
1 January 2018
IFRS 9 Financial Instruments
1 January 2018
Amendments to IFRS 4: Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts
1 January 2018
IFRS 15: Revenue from Contracts with Customers
Clarification to IFRS 15: Revenue from Contracts with Customers
1 January 2018
1 January 2018
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
1 January 2018
Amendments to IAS 40: Transfers of Investment Property
IFRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration
IFRS 16: Leases
1 January 2018
1 January 2018
1 January 2019
The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Company
financial statements in the period of initial application.
164
The Directors have completed an assessment of the potential impact of IFRS 9, and don’t believe that it will have a material
impact on the results of the Company. Due to the nature of the Company’s operations it will not be impacted by IFRS 15 or
IFRS 16. The Company will continue to monitor any potential impact as the new standards become more imminent.
1. The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Company prepares
its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of new standards and
interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of
cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement
restricts the Company’s discretion to early adopt standards.
Investments
Investments in subsidiary undertakings are valued at cost, less accumulated impairment.
Share-based compensation
Equity-settled transactions
The cost of equity-settled transactions is recognised together with a corresponding increase in other reserves in equity, over
the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity
settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired
and the Company’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for
the period represents the movement in cumulative expense recognised as at the beginning and end of the period and is
recognised in general and administrative expenses.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as
if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any
modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification.
Stock Spirits Group PLC Annual Report & Accounts 2017 Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the
control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and
designated as a replacement award on the date that it is granted, the cost based on the original award terms continues to be
recognised over the original vesting period and an expense is recognised over the remainder of the new vesting period for
the incremental fair value of any modification.
The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings
is recognised by the parent company, in its individual financial statements, as an increase in the costs of investments in
its subsidiaries, with the corresponding credit being recognised directly in equity as a credit to the share-based payments
reserve equivalent to the IFRS 2 cost.
Repurchase and reissue of ordinary shares (own shares)
When shares recognised in equity are repurchased the amount of consideration paid, which includes directly attributable
costs, is recognised as a deduction from equity. Repurchased shares are classified as own shares and are presented in the
own share reserve. When own shares are sold or re-issued subsequently, the amount received is recognised as an increase in
equity and the resulting surplus or deficit on the transaction is presented within retained earnings.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. They are included in current assets, except for maturities greater than 12 months after the end of
165
the reporting period. These are classified as non-current assets. The Company’s loans and receivables comprise Other
receivables and Cash and cash equivalents in the balance sheet.
Other receivables
Other receivables are non-interest bearing and are recognised initially at fair value, and subsequently at amortised cost,
reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand and short-term deposits
with an original maturity of three months or less.
Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently at amortised cost, using the effective interest
rate method.
Cash dividends to equity holders
The Company recognises a liability to make cash distributions to equity holders of the parent when the distribution is authorised
and the distribution is no longer at the discretion of the Company. As per the corporate laws in the United Kingdom, an interim
distribution is authorised by the Board, whilst a final distribution is authorised when it is approved by the shareholders.
Strategic Review GovernanceFinancial Statements Notes to the Parent Company financial statements continued
at 31 December 2017
3. Investments
Carrying value at 1 January 2017
Increase in investments from share based payments
Carrying value at 31 December 2017
See note 33 to the consolidated financial statements.
4. Other receivables due in more than 1 year
Amounts owed by subsidiary undertakings
Cost of arranging bank loans > 1 year
5. Other receivables and prepayments
166
Amounts owed by subsidiary undertakings
Other debtors and prepayments
Cost of arranging bank loans < 1 year
No security has been granted over other receivables.
6. Cash and cash equivalents
Cash and bank balances
7. Trade and other payables
Trade payables
Accruals
VAT and social security
Amounts due to subsidiary undertakings
Other payables
2017
£000
254,428
1,873
256,301
2016
£000
292
43
335
2016
£000
12,551
764
15
2017
£000
–
66
66
2017
£000
15,295
104
15
15,414
13,330
2017
£000
656
2017
£000
143
1,285
346
7
225
2016
£000
16,456
2016
£000
114
1,359
507
10
412
2,006
2,402
Other payables includes £225,000 (2016: £322,000) which represents Employer’s social security costs in relation to share-
based compensation.
Stock Spirits Group PLC Annual Report & Accounts 2017 8. Trade and other payables: amounts falling due after more than one year
Other payables
2017
£000
130
2016
£000
7
Other payables falling due after more than one year represents social security costs of £130,000 (2016: £7,000) in relation
to the Share Plans.
9. Authorised and issued share capital and reserves
The movements in called up share capital and share premium accounts are set out below:
No. of ordinary
shares
Ordinary
shares
£
Share
premium
£
At 31 December 2017 and 31 December 2016
200,000,000
20,000,000 155,428,080
Merger reserve
On 21 October 2013 129,064,871 shares were issued in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l.
The net book value of OCM Luxembourg Spirits Holdings S.à.r.l. at the time of exchange was £96,743,000, which resulted
in £83,837,000 being credited to the merger reserve in line with merger relief provided by Section 612 of the Company
Act 2006. 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
167
been incurred directly in connection with the registration and distribution of shares.
Own share reserve
The own share reserve comprises the cost of the Company’s shares, which are held by the Employment Benefit Trust (EBT)
on behalf of the employees until the options are exercised. At 31 December 2017 the EBT held 822,246 of the Company’s
shares (2016: 2,638,440).
The EBT holds the shares at cost. The shares held prior to 2015 were acquired for the exercise of Jointly Owned Equity
(JOE) Share subscriptions agreements, as well as Top-Up option and Substitute option agreements. Ownership of the JOE
Share subscription agreements was shared between the EBT and the Executive Directors, and therefore the total cost to the
EBT was minimal. Top-Up and Substitute option agreements were allocated to the EBT on IPO for nil payment. Consequently
no own share reserve has been presented prior to 2015. In 2015 shares were acquired at market value for LTIP options,
which became exercisable in October 2014.
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 year ending 31 December 2017 was £1,729,000 (2016: £20,000).
Strategic Review GovernanceFinancial Statements Notes to the Parent Company financial statements continued
at 31 December 2017
10. Distributions made and proposed
Cash dividends on ordinary shares declared and paid:
Interim dividend for 2017: 2.38 €cents (2.19 pence) per share
(2016: 2.27 €cents (1.91 pence))
Special dividend for 2017: nil €cents per share
(2016: 11.90 €cents (10 pence))
Proposed dividends on ordinary shares:
Final cash dividend for 2017: 5.72 €cents (4.85 pence) per share
(2016: 5.45 €cents (4.63 pence))
11. Risk management
2017
£000
2016
£000
4,350
3,809
–
19,986
9,697
9,245
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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.
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 2017 is the carrying amounts as illustrated in note 6.
Other receivables and prepayments
Other receivables and prepayments consist largely of amounts receivable from subsidiaries. As there are deemed to be no
going concern issues with any of the individual group entities loss is considered to be remote, and consequently credit risk is
minimal and no further analysis has been performed.
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying values and fair values of all financial instruments that are carried in the
financial statements.
As at 31 December 2017
Cash and cash equivalents (note 6)
Other receivables (note 4,5)
Trade and other payables (note 7,8)
As at 31 December 2016
Cash and cash equivalents (note 6)
Other receivables (note 4,5)
Trade and other payables (note 7,8)
Loans and
receivables
£000
656
15,350
–
Loans and
receivables
£000
16,456
12,945
–
Payables
£000
–
–
(1,790)
Payables
£000
–
–
(1,902)
Total
book value
£000
656
15,350
(1,790)
Total
book value
£000
16,456
12,945
(1,902)
Fair
value
£000
656
15,350
(1,790)
Fair
value
£000
16,456
12,945
(1,902)
Stock Spirits Group PLC Annual Report & Accounts 2017
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company
manages liquidity risk by maintaining adequate cash reserves, by continuously monitoring forecast and actual cashflows and
matching the maturity profiles of financial assets and liabilities.
The table below summarises the maturity profile of the Company’s undiscounted financial liabilities.
As at 31 December 2017
Financial liabilities
On
demand
£000
Less than
one year
£000
Between two
and five years
£000
More than
five years
£000
Total
£000
Trade and other payables (note 7,8)
–
(1,660)
(130)
–
(1,790)
As at 31 December 2016
Financial liabilities
On
demand
£000
Less than
one year
£000
Between two
and five years
£000
More than
five years
£000
Total
£000
Trade and other payables (note 7,8)
–
(1,902)
–
–
(1,902)
Market risk
Market risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate because of changes in
market prices. The Company’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and
interest rates. Financial instruments affected by market risk are limited to cash and cash equivalents.
169
Currency risk
The Company engages in foreign currency transactions to a very limited extent. No financial assets or liabilities are held in
foreign currencies. Due to the Company’s lack of exposure to currency risk no sensitivity analysis has been performed.
Interest rate risk
The Company has no interest bearing financial liabilities, and its interest bearing financial assets consist of only cash and cash
equivalents. As such exposure to interest rate risk is limited and no sensitivity analysis has been performed.
Capital risk management
The Board’s objectives and policies for the Company are consistent with those of the Group. Full details are provided in note
30 of the consolidated financial statements.
RCF financing facility
On 18 November 2015 the Group signed a facilities agreement for a €200,000,000 revolving credit facility (RCF) with a
banking club consisting of five banks including HSBC who also act as the Agent. The term of the RCF facility was originally
five years. On 21 July 2017, the Group extended its RCF with its banking club by a further two years to November 2022.
The key facility terms remain unchanged. See note 23 of the consolidated financial statements for further details.
Strategic Review GovernanceFinancial Statements Notes to the Parent Company financial statements continued
at 31 December 2017
12. Share-based compensation
Jointly owned equity scheme
The Company and former shareholder (Oaktree) previously entered into a number of Jointly Owned Equity (JOE) Share
Subscription Agreements with key members of Group management employees.
Prior to IPO 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 Elian 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 on behalf of the employees.
At IPO the 200 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.
The movements in the awards outstanding during the year were as follows:
At 1 January 2017
Exercised
Outstanding at 31 December 2017
170
Exercisable at 31 December 2017
2017
No. of awards
715,449
(715,449)
–
–
Share options issued at IPO and other equity-settled share-based compensation
Post IPO awards were valued by reference to the share price at admission to the London Stock Exchange.
The EBT holds the shares for all vested share options. At IPO several members of key management were issued a total of
1,538,124 £0.10 ordinary share options in Stock Spirits Group PLC. The options vested immediately upon grant.
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Company
to settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Company on exercise
of the options.
Exercisable options:
Number outstanding
Weighted average exercise price
Expiration period
The movements in the awards outstanding during the year were as follows:
At 1 January 2017
Exercised
Outstanding at 31 December 2017
Exercisable at 31 December 2017
2017
2016
758,501
1,881,499
£nil
£nil
6 years
7 years
2017
No. of awards
1,881,499
(1,122,998)
758,501
758,501
Stock Spirits Group PLC Annual Report & Accounts 2017 Performance share plan (PSP)
Participation in the PSP is restricted to the Senior Management Team. Awards made under the PSP normally vest provided
the participant remains in the Group’s employment during the performance period and financial targets are met at the end of
the performance period.
In the 2017 plan, financial targets were based 50% on EBITDA targets and 50% on cashflow conversion for senior management
excluding the Executive Directors. For Executive Directors the performance conditions were 50% EPS targets and 50%
cashflow conversion targets,
In the 2015 plan, financial targets were based on total shareholder return (TSR), versus comparator companies, and earnings
per share (EPS). In the 2014 plan, financial targets were based on TSR only.
The performance period for all PSP schemes is three financial years beginning with the financial year in which the award is
granted. The vesting period for grants made under this scheme is three years with an exercise period of seven years. The
exercise price of PSP options is £nil.
Further information on the PSP is set out in the Directors’ Remuneration Report on pages 67 to 84.
Awards were granted over 1,611,583 shares on 15 March 2017 (2016: nil shares). These new options were valued using the
Black-Scholes model. Dividends accrue to the participants prior to option exercise.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
171
The fair value of nil cost options subject to the TSR condition is determined using a Monte-Carlo option pricing model.
The fair value of all other options is calculated using the share price at the date of grant, adjusted for dividends not
received during the vesting period.
The principal assumptions made in measuring the fair value of PSP awards were as follows:
Principal assumptions
Fair value at grant date
Share price on grant date
Expected life of the awards
Risk free rate interest rate
Dividend yield on the Company’s shares
Volatility of the Company’s shares
TSR correlation (SSG PLC vs comparators)
2017 PSP
2015 PSP
2014 PSP
187 pence
41.0 pence
192.5 pence
187 pence
196.5 pence
292.3 pence
3 years
3 years
3 years
0%
n/a
n/a
n/a
0.74%
1.52%
23.9%
20.7%
1.12%
1.06%
21.6%
25.0%
Due to the limited historic data available for Stock Spirits Group (SSG) PLC expected volatility was based on the historic
volatilities of the companies in the TSR comparator group.
Strategic Review GovernanceFinancial Statements Notes to the Parent Company financial statements continued
at 31 December 2017
12. Share-based compensation continued
Performance share plan continued
The movements in the awards outstanding during the year were as follows:
At 1 January
Granted
Forfeited
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2017
No. of awards
1,975,862
1,611,583
(634,592)
(337,990)
2,614,863
–
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Group to
settle any personal income taxes on behalf of the recipient. Consequently there is no liability to the Group on exercise of
the options.
Restricted stock options (RSU):
On 15 March 2017, awards were granted over 534,419 shares (2016: nil shares).
172
Participation in the 2017 RSU is restricted to the Senior Management Team, who were previously included in the 2014
or 2015 PSP schemes and still employed by the Group in March 2017. There are no performance conditions. Vesting is
dependent upon continued employment as at the date of the announcement of the 2018 results. No dividends accrue to
the participants prior to exercise.
The exercise price of RSU options is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value of nil cost options is determined using a Black-Scholes model.
The principal assumptions made in measuring the fair value of RSU awards were as follows:
Principal assumptions
Fair value at grant date
Share price on grant date
Expected life of the awards
Risk free rate interest rate
Dividend yield on the Company’s shares
Volatility of the Company’s shares
2017
RSU awards
187 pence
187 pence
1.72 years
0%
n/a
n/a
Stock Spirits Group PLC Annual Report & Accounts 2017 The movements in the awards outstanding during the year were as follows:
At 1 January
Granted
Lapsed
Outstanding at 31 December
Exercisable at 31 December
Special option award
Managing Director of Polish business
2017
No. of awards
–
534,419
(54,954)
479,465
–
In 2016, 1,000,000 awards were issued to the Managing Director of the Polish business. The awards will vest provided that
this participant remains in the Group’s employment during the performance period and various financial targets are met.
The performance period is the period of three financial years beginning with the financial year in which the award was
granted. The vesting period for grants made under this scheme is five years with an exercise period of seven years. The
exercise price of these awards is £nil.
All performance conditions over the period of two financial years must be met for any awards to vest.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
173
The fair value has been calculated using the share price of 156.0 pence at the date of grant, and has been assumed to be
the same as the share price at the date of grant.
The movement in awards granted to employees of Stock Spirits Group PLC under this scheme during the year are as follows:
At 1 January
Outstanding at 31 December
Exercisable at 31 December
Annual Bonus Plan
2017
No. of awards
1,000,000
1,000,000
–
In respect of 2017 an annual bonus is being paid to Mirek Stachowicz of 31.1% of salary. 25% of the bonus earned will be
deferred into shares. See page 67 in the Directors’ Remuneration Report. No deferred shares were granted under the Annual
Bonus Plan for 2016.
Strategic Review GovernanceFinancial Statements Notes to the Parent Company financial statements continued
at 31 December 2017
12. Share-based compensation continued
Share-based compensation expense
The amount recognised in the Statement of Changes in Equity for employee services received during the year is shown in the
following table:
Equity settled share-based compensation expense recognised in
Statement of Changes in Equity
2017
£000
2016
£000
1,729
(20)
The expense recognised in other operational expense in respect of the directors of Stock Spirits PLC during the year is
shown in the following table:
Equity settled share-based compensation expense
Cash settled share-based compensation expense
Share-based compensation (note 14)
13. Subsidiaries
2017
£000
496
72
568
2016
£000
20
(668)
(648)
174
The principal subsidiary undertakings of the Company and their details are set out in note 33 to 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.
2017
Subsidiaries:
Stock Plžen-Božkov s.r.o.
Stock Spirits (UK) Limited
Stock Polska Sp. z.o.o.
Stock Finance (Euro) Limited
Sales of
goods/services
£000
Purchases of
goods/services
£000
Amounts owed
by related
parties
£000
Amounts owed
to related
parties
£000
–
796
–
–
796
–
–
–
–
–
11
806
–
4
821
–
2
5
–
7
Stock Spirits Group PLC Annual Report & Accounts 2017 2016
Subsidiaries:
Stock Plžen-Božkov s.r.o.
Stock Spirits (UK) Limited
Stock Polska Sp. z.o.o.
Stock S.r.l.
Stock International s.r.o.
Stock Spirits Group Services AG
Stock Slovensko s.r.o.
Sales of
goods/services
£000
Purchases of
goods/services
£000
Amounts owed
by related
parties
£000
Amounts owed
to related
parties
£000
–
706
–
–
–
–
–
706
–
–
–
–
–
–
–
–
9
12,104
315
22
61
271
61
–
9
1
–
–
–
–
12,843
10
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 Company.
175
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 year, key management personnel did not owe the Company any amounts.
Executive and Non-Executive Directors received remuneration for their services to the Company.
Short term employee benefits
Social security costs
Post-employment benefits
Termination benefits
Share-based compensation
Year ended
31 December
2017
£000
2,030
114
10
379
568
3,101
Year ended
31 December
2016
£000
1,670
177
–
–
(648)
1,199
As at 31 December 2017, no Directors (2016: nil) had any retirement benefits accrued under either money purchase schemes
or under defined benefit schemes.
In 2017, one Director (2016: nil) made a gain on the exercise of share options. Please refer to page 81 of the Directors
Remuneration Report for further details.
Other disclosures on Directors’ remuneration required by the Companies Act 2006 and those specified for audit by the
Directors’ Remuneration Report Regulations 2002 are included in the Directors’ Remuneration Report.
Strategic Review GovernanceFinancial Statements Shareholders’ information
Financial calendar
Annual General Meeting: 22 May 2018
Results announcement
Interim Results – for the period ending
30 June 2018: 8 August 2018
Shareholder information online
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shareholders by email of the availability of an electronic
version of shareholder information.
Whenever new shareholder information becomes available,
such as Stock Spirits Group’s interim and full year results,
Link will notify you by email and you will be able to access,
read and print documents at your own convenience. To take
advantage of this service for future communications, please
go to www.mystockspiritsshares.com where full details of
the shareholder portfolio service are provided. Once you
176
have logged in you can check your account details, change
your address details or review FAQs, one of which will
explain how to request a new share certificate.
When registering for this service, you will need to have
your 11-character Investor Code (IVC) to hand, which is
shown on your dividend tax voucher, share certificate or
form of proxy.
You can then select “Send me all communications by
email (most environmentally friendly)”. Should you change
your mind at a later date, you may amend your request by
Corporate Brokers
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25 Bank Street
London, E14 5JP
Numis Securities Ltd
The London Stock Exchange Building
10 Paternoster Square
London, EC4M 7LT
Legal Advisors
Slaughter & May
1 Bunhill Row
London, EC1Y 8YY
Independent Auditors
KPMG LLP
Arlington Business Park
Theale
Reading, RG7 4SD
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent, BR3 4TU
entering your portfolio online and selecting your preferred
Tel: 0871 664 0300
method of communication to “Send me paper copies of
all communications”.
(Calls cost 12 pence a minute plus your phone company’s
If you wish to continue receiving shareholder information
access charge, lines are open 8.30am–5.30pm Monday to
in the current format, there is no need to take any action.
Friday excluding public holidays in England and Wales)
(From Overseas: +44 371 664 0300. Calls outside
the United Kingdom will be charged at the applicable
international rate)
Email: enquiries@linkgroup.co.uk
Stock Spirits Group PLC Annual Report & Accounts 2017 Useful Links
Link share portal
www.mystockspiritsshares.com
Information for investors
Information for investors is provided on the internet
as part of the Group’s website which can be found at:
www.stockspirits.com/investors
Investor enquiries
Enquiries can be directed via our website or by contacting:
Paul Bal
Chief Financial Officer
E-mail: investorqueries@stockspirits.com
Tel: +44 1628 648500
Fax: +44 1628 521366
Stock Spirits Group PLC
Registered office:
Solar House,
Mercury Park
Wooburn Green
Buckinghamshire, HP10 0HH
United Kingdom
Registered in England
Company number 08687223
Designed and produced
Emperor
Emperor.works
Printed
Empress Litho
Both the paper manufacturer and the printer are registered
to the Environmental Management System ISO14001
and are Forest Stewardship Council® (FSC) chain-of-
custody certified.
177
Strategic Review GovernanceFinancial Statements Stock Spirits Group PLC
Solar House
Mercury Park
Wooburn Green
Buckinghamshire
HP10 0HH
United Kingdom
www.stockspirits.com
Tel: +44 1628 648500
Fax: +44 1628 521366
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