Investing
in our brands
Stock Spirits Group PLC
Annual Report & Accounts 2018
Stock Spirits is a major force in
Central and Eastern European spirits
With 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.
2018 Financial highlights
9 month financial highlights:
Stock Spirits has changed its reporting date to 30 September. In this Annual Report & Accounts, the Group is reporting
on a 9 month period to 30 September 2018, with the year to 31 December 2017 reported as a comparative.
Volume in 9 litre cases
9 mth Sept
9.1m
(12 mth Dec 2017: 13.1m)
Profit for the period
9 mth Sept
€19.3m
(12 mth Dec 2017: €11.3m)
Revenue
9 mth Sept
€193.8m
(12 mth Dec 2017: €269.8m)1
Basic earnings per share
9 mth Sept
9.71€cents
(12 mth Dec 2017: 5.72 €cents)
Adjusted EBITDA3
9 mth Sept
€35.8m
(12 mth Dec 2017: 56.3m)
Dividends per share
9 mth Sept2
8.51€cents
(12 mth Dec 2017: 8.10 €cents)
Source(s):
1. The Group has adopted IFRS 15 using the retrospective method and, as such, 2017 reported revenue has been restated.
S
See note 3 in the financial statements on page 108
2. Interim dividend of 2.50 €cents paid on 21 September 2018 and proposed final dividend for the 9 month period to
30 September 2018 of 6.01 €cents
Statutory period
Due to our year-end change, figures calculated
based on our statutory periods are denoted by
this symbol throughout the report
Contents
Overview
02 Group at a glance
Strategic Review
06 Chairman’s statement
08 Why invest in Stock Spirits?
10 Our markets
12 Our business model
14 Our strategy
16 Our strategy in action
18 Key performance indicators (KPIs)
20 Principal risks and uncertainties
Governance
26 Chief Executive’s statement
30 Regional reviews
56 Board of Directors
58 Chairman’s letter
30
32
34
Poland
Czech Republic
Italy
36 Other
59 Corporate governance framework
64 Audit Committee report
69 Nomination Committee report
71 Directors’ remuneration report
38 Responsible business report
87 Directors’ report
44
Financial review
48 Proforma financial information
91
92
Statement of Directors’ responsibilities
Independent auditor’s report
Stock Spirits Group PLC · Annual Report & Accounts 2018
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Premiumisation in action
Božkov Republica
see page 04
Black Fox
see page 54
Stock Presti ge
see page 100
Syramusa
see page 178
Proforma financial highlights:
Stock Spirits has changed its reporti ng date to 30 September. In order to show meaningful and comparable measures of performance,
proforma data for the 12 months to 30 September 2017 and 2018 has been presented. See page 48 for the proforma consolidated
income statement and associated notes. In summary they are:
Volume in 9 litre cases
Revenue
13.3m
(2017: 12.9m)
€282.4m
(2017: €259.8m)
Adjusted EBITDA3
€59.4m
(2017: €53.2m)
Basic earnings per share
16.72€cents
(2017: 14.74 €cents)
Leverage4
0.53
(2017: 0.94)
3. Stock Spirits Group uses alternati ve performance measures as key fi nancial indicators to assess underlying performance
of the Group. These include adjusted EBITDA, free cashfl ow and basic EPS. For the proforma numbers see page 48.
The narrati ve in the Annual Report & Accounts includes these alternati ve measures and an explanati on is set out in
note 7 of the fi nancial statements on page 126.
Pf
Proforma fi gures
Due to our year-end change, proforma fi gures are
denoted by this symbol throughout the report
4. Leverage for 2018 is the net debt as per page 153 of the fi nancial statements as at 30 September 2018 divided by proforma
12 months Adjusted EBITDA for the 12 months to 30 September 2018 as per page 51. Leverage for 2017
is as reported in the Annual Report & Accounts for 2017 as at 31 December 2017.
Financial Statements
162 Company statement of financial position
Additional Information
102 Consolidated income statement
163 Company statement of cashflows
180 Shareholders’ information
103
Consolidated statement of
comprehensive income
104
Consolidated statement of
financial position
106
Consolidated statement of changes
in equity
107 Consolidated statement of cashflows
108
Notes to the consolidated
financial statements
164 Company statement of changes in equity
181 Useful links
165
Notes to the Parent Company
financial statements
For more informati on visit
www.stockspirits.com
· 01 ·
Group at a glance
Our core markets
Italy
Regional Review see page 34
% REVENUE
9%
HEADCOUNT
52
TOTAL SPIRITS MARKET BY CATEGORY 20171
39% others
33% bitters
15% brandy
7% vodka
6% lemon liqueurs
TOTAL RETAIL VALUE OF SPIRITS MARKET2
€1.5bn
Czech Republic
Regional Review see page 32
% REVENUE
25%
HEADCOUNT
209
TOTAL SPIRITS MARKET BY CATEGORY 20173
27% rum
23% vodka
17% herbal bitters
16% others
9% liqueurs
8% whisky
TOTAL RETAIL VALUE OF OFF-TRADE SPIRITS MARKET4
€0.5bn
· 02 ·
€21.3m
12 mth Dec
2017: €28.4m
€17.6m
12 mth Dec 2017: €26.2m
€49.2m
12 mth Dec 2017: €67.7m
Revenue
9 mth Sept 2018
S
€193.8m
12 mth Dec 2017: €269.8m
Source(s):
1. IWSR total Italy, total off-trade and on-trade,
total spirits MAT Volume 2017
2. IRI total Italy, total modern trade, discounters and cash &
carries, total spirits MAT Value September 2018
3. IWSR total Czech Republic, total off and total
on-trade, total spirits MAT Volume 2017
4. Nielsen total Czech Republic, total off-trade,
total spirits MAT Value September 2018
5. IWSR total Poland spirits MAT Volume December 2017
Stock Spirits Group PLC · Annual Report & Accounts 2018 GROUP REVENUE
BREAKDOWN
POLAND
CZECH REPUBLIC
ITALY
OTHER
€105.6m
12 mth Dec 2017: €147.5m
6. Nielsen total Poland, total off-trade, total vodka,
flavoured vodka and vodka-based liqueurs MAT Volume
September 2018 (note: A “coverage factor” of 1.18x has
been applied by management to the Nielsen traditional
trade data. The coverage factor is derived from the
historical difference between IWSR data and Nielsen
data. Management considers that IWSR data more
accurately represents the traditional trade in Poland)
7. Nielsen total Poland, total off-trade, total spirits
and spirit-based RTD’s MAT Value September 2018
Other
% REVENUE
11%
Poland
% REVENUE
55%
Regional Review see page 36
HEADCOUNT
140
Regional Review see page 30
HEADCOUNT
602
TOTAL SPIRITS MARKET BY CATEGORY 20175
67% vodka
17% flavoured vodka and
vodka-based liqueurs
10% whisky
6% others
VOLUME SHARE OF TOTAL MARKET: VODKA, FLAVOURED
VODKA AND VODKA-BASED LIQUEURS BY TRADE6
69% traditional trade
17% discounters
9% supermarkets
5% hypermarkets
TOTAL RETAIL VALUE OF OFF-TRADE SPIRITS MARKET7
€3.3bn
TOTAL HEADCOUNT
1,003
602 Poland
52 Italy
209 Czech Republic
140 Others
Statutory figures
· 03 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Božkov Republica
The First Republic was an era
of noble ideals and elegance,
a time when the Czechs
were renowned for exercising
honesty and pride in their
crafts. Božkov Republica is a
celebration of these values.
· 04 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Strategic Review
06 Chairman’s statement
08 Why invest in Stock Spirits?
10 Our markets
12 Our business model
14 Our strategy
16 Our strategy in action
18 Key performance indicators (KPIs)
20 Principal risks and uncertainties
26 Chief Executive’s statement
30 Regional reviews
30
32
34
36
Poland
Czech Republic
Italy
Other
38 Responsible business report
44 Financial review
48 Proforma financial information
· 05 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Chairman’s statement
David Maloney
Chairman
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 9 month period ended 30
September 2018. This refl ects our adopti on of
30 September as the Group’s new accounti ng
reference date.
Following on from the results of 2017, I am pleased
to announce another period of growth, refl ecti ng
the conti nued turnaround of the business,
parti cularly in Poland. The results refl ect the early
positi ve impact of the reformulated strategy of
focusing on premiumising our range and increasing
the use of digital channels in order to engage with
consumers, especially the millennial cohort.
While it was very encouraging to see real progress
in our two largest markets of Poland and the Czech
Republic, Italy, however remained diffi cult.
With regards to mergers and acquisiti ons (M&A),
we conti nue to assess a range of acquisiti on
opportuniti es that would deliver enhanced growth
and shareholder value for the future.
Dividend
I am pleased to announce an ‘enhanced’ fi nal
dividend for the 9 month period. We are proposing
a fi nal dividend that is in excess of what would
have been declared based on the 9 months of
profi t generated in the period. Eff ecti vely, it is a
full fi nal dividend as though we were reporti ng for
a full 12 month period. Hence, the fi nal dividend
proposed of 6.01 €cents per share (12 month to
Dec 2017: 5.72 €cents), represents growth of 5.1%
from the prior year fi nal dividend. Shareholders
are therefore not only receiving the full ‘enhanced’
fi nal dividend, but are also receiving this three
months earlier than in previous years.
This dividend represents the conti nued approach,
as outlined previously, of a progressive dividend
policy which can be supported by the ongoing
strength of the Group’s free cashfl ow conversion.
It also does not preclude pursuit of M&A
opportuniti es and allows us to retain a solid
balance sheet which is important in the current
economic climate.
Dividends per share for 2018
8.51€cents
(2017: 8.10 €cents)
· 06 ·
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Kate Allum joined the Group as an Independent Non-Executi ve
Director, being appointed with eff ect from 1 November 2018. Her
experience will be hugely benefi cial as the Group conti nues to develop.
See our Responsible business report secti on
on page 38
See our Governance secti on
on page 56
Board and people
As announced in September 2018, Kate Allum
joined the Group as an Independent Non-
Executi ve Director, being appointed with eff ect
from 1 November 2018. Kate brings a wide variety
of experience in both human resources and supply
chain management, and from within Central and
Eastern Europe, which will be hugely benefi cial
as the Group conti nues to develop. Kate has
been appointed to the Audit and Remunerati on
Committ ees and we are delighted to welcome her
to the Board.
The success of any company is down to the
quality of its leadership and is reliant on the skills
and talent of the team working throughout the
organisati on. On behalf of the Board, I would
like to thank all of the employees of Stock Spirits
for their conti nued hard work, commitment
and dedicati on.
Corporate governance
The Company complies with all applicable laws
and regulati ons, and the Board adopts the UK
Corporate Governance Code as part of its culture.
A statement relati ng to compliance with the Code
is included within the Governance secti on on page
59. Our Annual Report also sets out the processes
which have been put in place to deliver long-
term success.
The Board and its various Committ ees have met
regularly throughout the year, and an internal
Board evaluati on exercise took place during
the period which showed conti nued progress
in overseeing and guiding the business. Further
informati on can be found on page 62.
Looking ahead
The possible implicati ons of Brexit on the Group
will conti nue to be closely monitored, but, as
previously reported, the likely eff ect is not
considered to be material as we do not produce
in or export from the UK.
We now have an enhanced Board, a stable
management team that is working to a clear
strategy and a portf olio of brands that are growing
in strength. Notwithstanding the conti nued
competi ti ve environment in our main market of
Poland, we remain confi dent of being able to
achieve further growth in the future.
David Maloney
Chairman
5 December 2018
· 07 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Why invest in Stock Spirits?
WE
PREMIUMISE
WE
SELL
WE
MARKET
Our range commands
higher margins
Consumers’ increasing disposable
income prompts growing demand
for perceived higher quality,
diff erenti ated spirits. We develop
our brands and range conti nuously
in selected categories to provide
consumers with compelling reasons
to pay more and to build equity that
can withstand price competi ti on.
Our distributi on
platf orms
Our markets combine off -trade
distributi on platf orms with criti cal mass
and quality of commercial executi on
in the on-trade. We pride ourselves in
our management of customer and key
account relati onships.
Management of third
party brands
Our distributi on, sales and marketi ng
capabiliti es, combined with excellent
legal and ethical compliance, provide
a strong platf orm for third party
brand distributi on. We have recently
renewed our contract with Diageo
in the Czech market and conti nue to
strengthen the Beam Suntory portf olio
in Poland and other markets.
· 08 ·
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
WE
MANUFACTURE
WE
REINVEST
WE
GROW
Our manufacturing
capabiliti es
We have world-class manufacturing
capabiliti es in Poland, the Czech
Republic and Germany, able to
produce high volumes to a high
quality standard with high levels
of customer service. Having a
centralised procurement team results
in signifi cant purchasing power.
Low fi nancial
leverage
Our fi nancial leverage allows the
Company to have an effi cient capital
structure with headroom to support
organic and M&A projects. Our
cashfl ow conversion is also robust,
for the 2018 fi nancial period we
converted 133.6% of profi ts into cash.
Competence in spirits
We are conti nually growing our core
competencies by investi ng in and
developing our people. In this way, we
have a highly capable team – we know
our spirits, we conti nue to develop
our portf olio of brands and products
and we are passionate about growing
our business.
· 09 ·
Our markets
Total spirits volume shipments in Stock Spirits Group’s wholly owned
distribution markets are estimated at c.542 million litres1
After falling back temporarily in 2013 to 2014
(driven primarily by excise duty changes in Poland),
total spirits volume shipments returned to growth
over the last two years.
Vodka remains by far the largest category in our
markets, accounting for c.42% of total volume,
almost four times the size of the second biggest
category, herbal bitters, and almost five times that
of whisky, the third largest category.
Whilst total vodka volumes have contracted over
the last five years, the premiumisation observed in
spirits globally is evident in vodka. The double digit
Compound Annual Growth Rate (CAGR) achieved
by premium and ultra-premium vodka over the last
five years in Stock’s markets is significantly higher
than that of any other spirits category.
Herbal bitters and rum, where Stock enjoys brand
leadership in several markets, are in volume
growth, as is whisky, where Stock has built share
via distribution partnerships with Diageo and
Beam Suntory and is now also building presence
with its own whisky brands and, most recently,
the Quintessential Brands Ireland Whiskey
Limited investment.
The gin category is also in growth, but this is far
less material in Stock’s markets, where gin is a
niche category compared to Western European
markets. Given different consumer spirits usage
and tastes in Stock’s markets, gin is unlikely to
impact total spirits to the degree it has elsewhere
in the short to medium term.
Spirits performance in Stock’s markets, as
in any other geography, is linked to shifts in
demographics, fluctuations in the performance of
local economies with their associated impact on
consumer confidence and disposable income, plus
the regulatory environment.
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.
A number of positive underlying macro consumer
trends, outlined in more detail below, are anticipated
to contribute to spirits value growth in our markets.
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.
Desire for affordable luxury
As disposable income grows, greater numbers
of consumers in our markets are able to choose
higher quality products for which they are
prepared to pay more. They seek spirits from
trustworthy brands of better and more consistent
quality than they were able to purchase historically.
This can be through a desire to display their own
success, expertise, values or lifestyle through their
choice of brands, but the behaviour can also be
driven by the desire to enjoy accessible everyday
luxuries when economic times are challenging.
Affordable, high perceived quality brands remain
the preferred choice and spirits are an increasingly
affordable luxury.
Evolving needs of the next generation of
spirits consumers
The next generation of spirits consumers in Stock’s
core markets are ‘millennials’ (broadly defined as
21 to 34 year old drinkers). These consumers are
entering their peak spending years and can still be
recruited by spirits brands. Their brand choices are
not yet fixed but are heavily influenced by their
peer group’s ‘word of mouth’ recommendations.
For this generation, big brands are not ‘over’, but
they need to have credible heritage, values and
authenticity. These consumers are ‘digital natives’,
who grew up with new technology and are already
purchasing other categories heavily online. Whilst
this is still a relatively low penetration trade
channel for spirits in Stock’s core markets, it is
forecast to grow significantly.
Millennials expect a greater degree of personalised
communication from brands than their predecessors
did. Unisex drinking occasions and mixed gender
friendship groups are of growing importance, as are
the spirits brands which cater for them.
· 10 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Technological change and the digital revoluti on
Rapidly changing technology and the advent of
the digital era is impacti ng consumer behaviour
and atti tudes in Stock’s core markets, just as it
is globally. The impact of technology is more
than a marketi ng device. It should be leveraged
throughout the whole business to speed up
decision-making and facilitate joined up acti on.
At the Business to Consumer level, it provides an
easily accessible route to our target consumers with
all the benefi ts of real ti me consumer tracking and
bett er targeted spend. At Business to Business level,
it can complement distributor and retailer coverage,
enabling brand owners to communicate and serve
customers they could not do so profi tably historically
using traditi onal means. Whilst e-commerce is sti ll a
niche channel in Stock’s core markets, esti mated at
less than 1.0% of alcohol beverages sales currently2,
it is the fastest growing channel and forecast to rise
signifi cantly over the next decade.
Rising need for convenience and range are
anti cipated to supersede current extra costs for
home deliveries. In spirits, e-commerce is already
working in the premium segment, appealing to ti me
poor, money rich consumers with greater ability
and readiness to pay higher prices. Spirits players
which develop their capabiliti es in the digital arena
most eff ecti vely will gain competi ti ve advantage.
Growing confi dence in local provenance
Historically in Stock’s Central European markets,
there were a limited number of high quality brands
of local provenance available. There was also a sense
that internati onal brands were superior, coupled
with a historical suspicion of inconsistent quality and
counterfeiti ng. Now that the economies in Central
Europe are more mature, there is a resurgence of
pride in local achievements, provenance and culture
and a dawning recogniti on that local brands can be as
good as, or superior to, imported brands. Local spirits
remain the vast majority of spirits volume in Central
and Eastern Europe and there is a noti ceable trend to
drink bett er quality exponents of those local spirits
from trusted brands. The fact that many of these
markets are ‘dark’ i.e. marketi ng communicati ons
are strictly regulated and limited, makes it harder
for imported brands to build share rapidly through
the deployment of heavyweight adverti sing
investment in the fashion oft en witnessed in other
markets. In this context, aff ordable, high quality local
brands with authenti city and provenance are well-
placed to act as a bridge to the fulfi lment of rising
consumer aspirati ons.
Increasing internati onal mobility
A combinati on of greater numbers of consumers
in our core markets travelling widely abroad for
economic reasons as migrant workers or for
educati on or pleasure, plus hugely increased
numbers of visitors from abroad visiti ng our
markets for the same reasons, is infl uencing local
drinking cultures. New usage, categories and
drinks retail formats are developing in response
to increased internati onal mobility.
Raised awareness of health and social
responsibility
A combinati on of government regulati on and
increased consumer awareness of the health and
social responsibility issues associated with alcohol
consumpti on is prompti ng demand for lower
alcohol by volume spirits ranges and increased
consumpti on of spirits in longer mixed drinks
rather than purely as shots, the traditi onal mode
of consumpti on in much of Central and Eastern
Europe. There is also a growth in consumer
interest in the use of perceived ‘natural’ rather than
‘arti fi cial’ ingredients, sourced, where possible,
from identi fi able, trustworthy local producers.
Spirits brands whose ranges include lower
alcohol by volume and versati le mixers and which
use ‘natural’ ingredients are well-placed to take
advantage of this trend.
Stock Spirits well-placed to grow
value sustainably
The combinati on of our aspirati onal brands, wide
range of innovati ve taste profi les, breadth of
alcohol by volume opti ons and fl exible packaging
formats means Stock Spirits Group is well-placed
to grow sustainably in our markets by conti nuing
to meet these evolving consumer needs.
Source(s):
1. IWSR 2017, aggregated spirits data from Poland, Czech Republic,
Italy, Slovakia, Croati a and Bosnia & Herzegovina
2. IWSR e-commerce studies 2018, Italy, Poland, Czech Republic
and Croati a
· 11 ·
Our business model
What we do
We develop
We develop profitable new products
swiftly, to capitalise on consumer trends
and enhance our core range.
We reinvest
We see ample opportunities for acquisitions
to complement our organic growth strategy.
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 research
We undertake extensive market research
to understand emerging consumer trends
globally as well as in our local markets.
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.
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 IT, consumer and
customer insights and marketing
support, we allocate resources to drive
the sustainable, profitable growth of
the Group.
Continuous improvement
We aim to ensure that our product
quality and operational processes
are of the highest standard and
constantly seek to improve.
· 12 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 We source
We operate a central buying function with
the aim of sourcing raw materials on the
most competitive terms.
We deliver
Financial performance
Financial strength
Market position
We manufacture
We have significant bottling capacity at our
two main production sites in Poland and the
Czech Republic, and an ethanol alcohol
distillery in Germany.
We also operate a small distillery in the
Czech Republic.
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.
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.
Accountability
We have cascaded accountability for
shareholder value and profitability
throughout the Group.
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.
Governance on page 56
Responsible business report on page 38
· 13 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Our strategy
Looking out to 2020
Four priorities
for growth built
upon a strong
foundation.
Early in 2018 we reiterated the strategy which would enable
Stock Spirits to deliver sustainable and valuable growth across
its existing operations and beyond.
The strategy can be summarised as driven by four pillars based
upon a solid foundation of values, people and resources.
· 14 ·
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
Aim: 30% of Group
revenue to come from
premium brands
How:
Whisky strategy
New Product Development
(NPD) process
World-class brand partners
A solid foundation
forged from:
Strong governance
Compliance
Ethics
Transparency
See Our strategy in action page 16
Stock Spirits Group PLC · Annual Report & Accounts 2018 Millennials
Digital
M&A
Increased awareness of
and focus on this valuable
segment of consumers
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
Aim: Attract internationally-
minded consumers to our
local brands
Aim: Regularly
communicating with 75% of
targeted consumers through
digital channels
Aim: Consider larger, more
transformational M&A
opportunities
How:
How:
How:
Marketing insight investment
Combined IT/digital strategy
Cost and growth synergies
Provenance of local brands
High Potential (HIPO)
management pipeline
Common digital marketing
architecture
Digitalised processes
Brand portfolio enhancement
Geographic expansion
Strategic move
A solid foundation
forged from:
A solid foundation
forged from:
A solid foundation
forged from:
Engaged people
Empowerment
Talent management
Line of sight
Focused resources
Small company agility
Sales and operational planning
(S&OP) process
Insight-driven
Strategic planning
Flat structures
Devolved responsibility
Speed
See Our strategy in action page 16
See Our strategy in action page 17
· 15 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Stock Spirits Group PLC · Annual Report & Accounts 2018
Our strategy in action
VALUE GROWTH
VALUE SHARE
+13%
28.9%
Premiumisati on
Millennials
Digital
Božkov Republica
Czech Republic
Consumer Insight: Consumers are
prepared to pay a premium for higher
perceived quality from trusted brands.
Aim: Increase core brand equity and
margins.
How: Republica, a new premium range
extension of the Czech Republic’s
best-selling spirits brand, Božkov1, was
launched in February 2018. Republica
combines imported rum with premium
packaging from the best-selling Božkov
brand. Republica retails at double
the price of Božkov Original. It off ers
consumers an opti on to trade up to
a more premium but sti ll aff ordable
variant of a trusted brand, delivering
improved margin per litre for Stock
Spirits Group. Supported by a 360˚
trial building campaign across the on
and off -trade, including integrated
digital, TV, outdoor and press and
sampling communicati on. Božkov
Republica is a celebrati on of the Czech
First Republic, the period between the
fi rst and second world wars, regarded
by many Czechs as a ‘golden age’
associated with authenti city, honesty
and self-esteem. A ti me when Czech
craft smanship and inventi on fl ourished.
Result: Achieved 25.9% value share of
premium rum eight months post launch
in Czech Republic2. Contributed to
year-on-year value growth of +12.5%
on total Božkov rum3.
Saska
Consumer Insight: Amid the constant
rush of modern life, everyone seeks
moments to enjoy unhurried pleasures.
Aim: Recruit young-adults in the high
margin fl avoured category.
How: Saska encouraged its target
millennial consumers to slow down the
pace of their hecti c lives and take the
ti me to enjoy experiences to the full in
a meaningful way. A compelling new
communicati ons campaign showed
stylish young-adults enjoying good
company, good food and good drink
together in a variety of occasions.
Pairing Saska fl avours with selected
foods and occasions drove usage.
Three innovati ve new contemporary
fl avours – coff ee with a hint of brandy,
· 16 ·
Poland
orange with a hint of bourbon and
hazelnut with a hint of caramel – with
specifi c appeal to millennials, were
launched during 2018, supported by
point of purchase merchandising and
a heavyweight social media campaign
which achieved reach of over two
million views via Facebook, blogs
and Instagram by working with food,
drink and fashion infl uencers and
linking Saska to 40 top restaurants.
A new, improved packaging design
to strengthen premium cues and aid
navigati on around Saska’s range of
fl avours was also introduced.
Result: Saska fl avours achieved 153.0%
Moving Annual Total (MAT) value
growth versus last year in the Polish
off -trade4.
MAT VALUE GROWTH
153%
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
CAMPAIGN DIGITAL
COVERAGE
2.7m
EVENTS
ATTENDANCE
22,000
SOCIAL MEDIA
ENGAGEMENT
82%
Italy
Keglevich
Consumer Insight: Our target consumers
are ‘digital nati ves’, who grew up with new
technology and are already purchasing
other categories heavily online.
Aim: Compelling communicati on of the
Keglevich relaunch.
How: A multi -channel relaunch
communicati ons plan, focused on the
‘pure vodka, pure fruit’ propositi on,
was executed from June to September
2018 with the aim of raising awareness,
considerati on and purchase intent. The
campaign reached over 82% of the brand’s
target 18–34 year old Italian consumers
using impactf ul online video executi ons,
via content on demand advertorials,
Facebook and Instagram.
A simultaneous public relati ons campaign
generated 37 arti cles with an esti mated
coverage of 2.7 million. Physical sampling
and trial of the relaunched range of liquids
and packaging was achieved through a
‘Play On’ music tour in partnership with
one of Italy’s biggest radio stati ons, RDS.
It toured six high visitor traffi c seaside
locati ons during the peak summer season.
Each tour locati on executed two days of
pre-event sampling, followed by two days
of day and night party events att ended by
over 22,000 of our target consumers. The
‘Play On’ sampling tour was itself designed
to generate additi onal coverage via
social media as the radio stati on and the
party-goers shared images with their own
networks of contacts. An innovati ve ‘click
through butt on’ was embedded in the
Keglevich digital communicati ons which
enabled consumers to visit the e-retailers
which sell Keglevich and to make an online
purchase should they choose.
Result: Improved top of mind,
spontaneous and prompted awareness
scores post- than pre-campaign. Higher
considerati on and purchase intent scores
post than pre-campaign. Record breaking
content on demand interacti on rates
versus benchmarks. Engagement rates
in Facebook and Instagram signifi cantly
higher than benchmarks5. Increased use of
digital communicati on enabled real ti me
tracking of consumer responses to our
communicati ons, allowing faster campaign
adjustments and bett er targeted spend.
Source(s):
1. IWSR 2017
2. Nielsen, Czech Republic, total off -trade, total premium rum,
MAT September 2018
3. Nielsen, Czech Republic, total off -trade, total rum, MAT September 2018
4. Nielsen, Poland, total off -trade, MAT value, September 2018
5. Zenith Media pre- and post-campaign tracking and evaluati on, September 2018
· 17 ·
Key performance indicators (KPIs)
Financial performance
Volumes of product sold
(millions 9 litre cases)
Revenue
Earnings per share
(basic)
Proforma KPIs
Total volume
Pf
Pf
Pf
13.3m
Total clear
vodka volume
5.9
6.1
Total other
volume
7.0
7.2
€282.4m
16.72
(€cents per share)
259.8
282.4
16.72
14.74
12 mths
Sept 2017
12 mths
Sept 2018
12 mths
Sept 2017
12 mths
Sept 2018
12 mths
Sept 2017
12 mths
Sept 2018
12 mths
Sept 2017
12 mths
Sept 2018
Statutory KPIs
Total volume
9.1m
Total clear
vodka volume
Total other
volume
6.0
4.2
7.1
4.9
S
S
S
€193.8m
269.81
193.8
9.71
(€cents per share)
9.71
5.72
12 mths
Dec 2017
9 mths
Sept 2018
12 mths
Dec 2017
9 mths
Sept 2018
12 mths
Dec 2017
9 mths
Sept 2018
12 mths
Dec 2017
9 mths
Sept 2018
Why we measure it:
To ensure that we are growing the
business in a balanced manner.
Why we measure it:
To ensure that we are growing the
revenue of the business.
Why we measure it:
To provide a measure of underlying
shareholder value.
Measuring our success
The Board has chosen a number of key
performance indicators to measure the
Group’s progress. These indicators are
set out here, along with how they relate
to strategic priorities and how we
performed against them.
The Group retains very strong liquidity,
significant headroom in our borrowings
and a robust balance sheet, providing us
with the financial strength to take the
business forward and deal with shocks.
· 18 ·
Financial strength
Leverage4
0.53
(Dec 2017: 0.94)
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.
Source(s):
1. The Group has adopted IFRS 15 using the retrospective method and,
as such, 2017 reported revenue has been restated. See note 3 in the
financial statements on page 108
2. Stock Spirits Group uses alternative performance measures as key
financial indicators to assess the underlying performance of the Group.
These include adjusted EBITDA and free cashflow (note 7). The narrative
in the Annual Report and Accounts includes these alternative measures
and an explanation is set out in note 7 to the consolidated financial
statements (for statutory figures) and the proforma notes (page 48 for
proforma figures) included in the Annual Report and Accounts
3. The proforma cashflow conversion reconciliation is within the notes to
the proforma consolidated income statement on page 50
4. Leverage for 2018 is the net debt as per page 153 of the financial
statements as at 30 September 2018 divided by proforma 12 months
Adjusted EBITDA for the 12 months to 30 September 2018 as per page
51. Leverage for 2017 is as reported in the Annual Report and Accounts
for 2017 as at 31 December 2017
5. Data for this section:
Poland: Nielsen, total Poland, total off-trade, total vodka, flavoured vodka
& vodka-based liqueurs MAT value and volume September 2018
Czech: Nielsen, total Czech Republic, total off-trade, total spirits, MAT
volume and value September 2018
Italy: IRI retail sales data, total Italy, total modern trade and discounters
and cash & carry, total spirits, MAT value and volume September 2018
Stock Spirits Group PLC · Annual Report & Accounts 2018 Proforma figures
Pf
For clarity following our year-end change,
proforma figures are denoted by this symbol
S
Statutory period
For clarity following our year-end change, statutory
reported figures are denoted by this symbol
Adjusted EBITDA &
adjusted EBITDA margin2
Adjusted free
cashflow conversion3
% revenue from
premium brands
Adjusted EBITDA
Pf
€59.4m
Adjusted EBITDA
€m
Adjusted EBITDA
margin %
91.5%
53.2
59.4
20.5
21.0
99.1
91.5
Pf
Pf
25.9%
25.9
21.2
12 mths
Sept 2017
12 mths
Sept 2018
12 mths
Sept 2017
12 mths
Sept 2018
12 mths
Sept 2017
12 mths
Sept 2018
12 mths
Sept 2017
12 mths
Sept 2018
Adjusted EBITDA
S
€35.8m
Adjusted EBITDA
€m
Adjusted EBITDA
margin %
56.3
35.8
20.9
18.5
S
S
133.6%
26.1%
133.6
86.3
26.1
21.9
12 mths
Dec 2017
9 mths
Sept 2018
12 mths
Dec 2017
9 mths
Sept 2018
12 mths
Dec 2017
9 mths
Sept 2018
12 mths
Dec 2017
9 mths
Sept 2018
Why we measure it:
Why we measure it:
Why we measure it:
To track the underlying performance of the
business and ensure that sales growth is
translated into profit.
To ensure that we are converting
profit into cash.
To ensure brand equity is increased, which
enables us to command higher price positions.
Market position5
Value market share
Czech Republic
33.1%
(Sept 2017: 33.7%)
Volume market share
Czech Republic
35.2%
(Sept 2017: 36.3%)
Poland
27.4%
(Sept 2017: 26.2%)
Poland
27.0%
(Sept 2017: 25.2%)
Italy
4.2%
(Sept 2017: 4.4%)
Italy
4.1%
(Sept 2017: 4.3%)
Why we measure it:
Value market share: to maintain focus
on growing value, not just volume at
any expense.
Why we measure it:
Volume market share: to ensure that we
measure our underlying market position
relative to our competitors.
· 19 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Stock Spirits Group PLC · Annual Report & Accounts 2018
Principal risks and uncertainties
Our internal controls framework miti gates risk
Risk level change key
Higher
Lower
Level
Risk rati ng key
High
Medium
Low
Viability statement
The Directors have assessed the viability
of the Group over a three-year period
and confi rm that they have a reasonable
expectati on that the Group will conti nue
to operate and meet its liabiliti es, as they
fall due. The Directors have determined
that the three-year period to September
2021 is an appropriate period over
which to provide its viability statement,
aft er taking into considerati on 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 non-cyclical.
The Directors’ assessment has been made
with reference to the Group’s current
positi on, the Group’s strategy, the Board’s
risk appeti te and the principal risks facing
the Group in severe but plausible scenarios,
taking account of the velocity of the
risk impact and the eff ecti veness of any
miti gati ng acti ons, including insurance, as
detailed above. The strategy and associated
principal risks underpin the Group’s three-
year plans and scenario testi ng, which the
Directors review annually.
This assessment has considered the
potenti al impacts of these risks on the
business model, future performance,
solvency and liquidity over the period.
Whilst this review does not consider all
of the risks that the Group may face,
the Directors consider that this stress-
testi ng based assessment of the
Group’s prospects is reasonable in
the circumstances.
Approval of Strategic Review
The Strategic Review comprising pages
1 to 53 was approved and signed on
behalf of the Board.
Mirek Stachowicz
Chief Executi ve Offi cer
5 December 2018
Principal risks
Principal risks
Stock Spirits Group believes the following to be the principal risks facing its business and the steps we take to manage and miti gate
these risks. Risks are identi fi ed and assessed through a combined bott om-up and top-down approach. If any of these risks occur,
Stock Spirits’ business, fi nancial conditi on and performance might suff er 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 exhausti ve, as other risks and uncertainti es may
emerge in a changing business environment. References to changes in 2018 mean changes during the 9 month period ended
30 September 2018.
Risk descripti on and impact
Risk descripti on and impact
Change in 2018
Change in 2018
How we manage and miti gate
How we manage and miti gate
Rati ng
Rati ng
We have not been
signifi cantly impacted by
major economic or politi cal
changes in our key markets
during 2018, although we
conti nue to monitor the
budget dispute between the
new Italian government and
the EU.
We monitor and analyse economic
indicators and consumer consumpti on
trends which, in turn, infl uence our product
portf olio 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 regulati on.
We monitor the economic conditi ons
within each market and review our product
portf olio, route to market and adjust our
positi on accordingly.
Risk 1
Risk 1
Economic and politi cal change
Economic and politi cal change
The Group’s results are aff ected by overall economic
conditi ons in its key geographic markets and the
level of consumer confi dence and spending in those
markets. The Group’s operati ons 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 regulati ons
in the region where it operates are not always fully
transparent, can be diffi cult to interpret and may be
applied and enforced inconsistently. In additi on, the
Group’s strategy involves expanding its business
in some emerging markets, including in certain
Central and Eastern European countries that are not
members of the European Union. Politi cal, economic
and legal systems and conditi ons in emerging market
economies are generally less predictable.
· 20 ·
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Risk descripti on and impact
Change in 2018
How we manage and miti gate
Rati ng
Risk 2
Taxes
Increases in taxes, parti cularly increases to excise
duty rates and VAT, could adversely aff ect demand
for the Group’s products. Demand for the Group’s
products is parti cularly sensiti ve to fl uctuati ons in
excise taxes, since excise taxes generally consti tute
the largest component of the sales price of spirits.
The Group may be exposed to tax liabiliti es resulti ng
from tax audits. The Group has previously faced,
currently faces and may in the future face, audits
and other challenges brought by local tax authoriti es.
Changes in tax laws and related interpretati ons and
increased enforcement acti ons and penalti es may
alter the environment in which the Group does
business. In additi on, certain tax positi ons taken
by the Group are based on industry practi ce and
external tax advice and/or are based on assumpti ons
and involve a signifi cant degree of judgement.
Risk 3
Strategic transacti ons
Key objecti ves of the Group are: (i) the development
of new products and variants; (ii) expansion, in the
Central and Eastern European region and certain
other European countries, through the acquisiti on of
additi onal businesses; and (iii) distributi on agreements
with world-class brand partners. Unsuccessful
launches, or failure by the Group to fulfi l its
expansion plans or integrate completed acquisiti ons,
or to maintain and develop its third-party brand
relati onships could have a material adverse eff ect
on the Group’s growth potenti al and performance.
Through our membership of local market
spirits associati ons, we seek to engage
with local tax and customs authoriti es as
well as government representati ves and,
where appropriate, provide informed input
to the unintended consequences of excise
increases e.g. growth of illicit alcohol and
potenti al harm to consumers. The Group
engages the services of a professional
global fi rm of tax advisers and undertakes
regular audits of our own tax processes,
documentati on and compliance. We aim to
operate the business in a tax-effi cient and
compliant manner at all ti mes. We make
appropriate provisions where tax liabiliti es
appear likely.
We conti nue to seek value-accreti ve
acquisiti on targets and have an experienced
management team capable of exploring,
pursuing and executi ng transacti on
opportuniti es swift ly and diligently;
however, the owners of target businesses
may have price expectati ons that are
beyond the valuati on that we can place
on their business. If we are unable to
complete meaningful acquisiti ons, we
will consider distributi ng surplus cash to
shareholders. We also conti nue to invest
signifi cant resources in our NPD process as
well as exploring opportuniti es to extend
and enhance our third-party distributi on
arrangements.
See note 13 Income Taxes
in the consolidated fi nancial
statements for details of the
ongoing tax inspecti ons in
Poland and Italy and other
tax matt ers.
Our new product development
(NPD) process has been improved
and conti nues to deliver
successful innovati ons such as
Božkov Republica rum and Black
Fox herbal bitt er liqueur in the
Czech Republic. We conti nuously
seek to strengthen our portf olio.
During 2018, we commenced
launches across our markets of
The Dubliner and The Dublin
Liberti es Irish whiskey brands,
building on our 25% investment
in Quintessenti al Brands Ireland
Whiskey Limited. In the period,
we extended our partnership
with Beam Suntory to include
the Czech Republic and Slovakian
markets, alongside existi ng
markets in Poland, Croati a and
Bosnia and Herzegovina.
The recent impositi on of EU
tariff s on US bourbon imports
did not impact us immediately,
however, we expect the increased
costs will fl ow through with eff ect
from the start of 2019.
· 21 ·
Principal risks and uncertainties continued
Risk level change key
Higher
Lower
Level
Risk rating key
High
Medium
Low
Risk description and impact
Change in 2018
How we manage and mitigate
Rating
Risk 4
Consumer preferences
Shifts in consumer preferences may adversely
affect the demand for the Group’s products
and weaken the Group’s competitive position.
A decline in the social acceptability of the
Group’s products may also lead to a decrease
in the Group’s revenue. In some countries in
Europe, the consumption of beverages with
higher alcohol content has declined due to
changing social attitudes towards drinking.
See the Our Markets section on pages 10
and 11 for further details.
Our Keglevich brand in Italy
continues to suffer from
ongoing changes in its target
consumers’ habits, resulting
from continuing poor macro-
economic conditions in Italy, and
we continue to see a general
decline in consumption of higher
alcohol drinks, particularly by
young-adult drinkers.
During the period we invested
significant resources in digital
marketing, with the formation
of our new Digital Marketing
Group to drive more effective
use of digital media and analytics
and share best practice across
the Group.
The Group undertakes extensive consumer
research and has a track record of successful
NPD to constantly meet changing consumer
needs. We have developed a range of
lower alcohol products and feel confident
that we have the expertise to continue to
develop products that meet and satisfy
consumer needs.
Risk 5
Talent
The Group’s success depends substantially
upon the efforts and abilities of key personnel
and its ability to retain such personnel. The
executive management team has significant
experience and has made an important
contribution to the Group’s growth and
success. The loss of the services of any member
of the executive management team of the
Group, could have an adverse effect on the
Group’s operations. The Group may also not
be successful in attracting and retaining such
individuals in the future.
During the year we continued to
strengthen our management team
with new appointments in key
marketing and commercial roles
in our largest businesses in Poland
and Czech respectively.
The results of our first annual
Employee Engagement Survey
were received during the year
and the action plans arising from
those results continue to be
implemented.
The Group operates a competitive remuneration
policy that aims to retain, motivate and, where
necessary, attract key individuals. We have
developed a leadership framework to guide our
talent management and a formal succession
planning process to mitigate the risk of losing key
personnel. Our annual Employee Engagement
Survey enables us to assess employee
engagement levels across the Group and act
upon the feedback in a systematic way.
· 22 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Risk descripti on and impact
Change in 2018
How we manage and miti gate
Rati ng
Risk 6
Marketplace and competi ti on
The Group operates in a highly competi ti ve
environment and faces competi ti ve pressures
from both local and internati onal spirits producers,
which may result in pressure on prices and loss of
market share. This has been parti cularly evident
in Poland historically. Changes in the Group’s
distributi on channels may also have an adverse
eff ect on the Group’s profi tability and business.
A signifi cant porti on of the Group’s revenue
is derived from a small number of customers.
The Group may not be able to maintain its
relati onships with these customers or renegoti ate
agreements on favourable terms, or may be
unable to collect payments from some customers,
which will lead to an impact in its fi nancial
conditi on. The Group is also dependent on a few
key products in a limited number of markets which
contribute a signifi cant porti on of its revenue.
Risk 7
Exchange rates
The Group’s business operati ons and results
reported in Euros are subject to risks associated
with fl uctuati ons in currency exchange rates.
The Group generates revenue primarily in Polish
Złoty and secondarily in Czech Koruna and a
large porti on of the Group’s assets and liabiliti es
are denominated in Złoty and Koruna. The
Group’s non-trading acti viti es are conducted
through its corporate offi ce in the UK and are
mainly transacted in GB Pounds. Additi onally, the
Group’s fi nancial covenants are tested in Euros.
Consequently, movement in the other currencies
in which the earnings, assets and liabiliti es of
the Group’s subsidiaries are denominated could
adversely impact the Group’s ability to comply
with these fi nancial covenants.
Risk 8
Disrupti on to operati ons or systems
The Group’s operati ng results may be adversely
aff ected by disrupti on to its producti on and
storage faciliti es, in parti cular its main producti on
faciliti es in Poland and the Czech Republic, or by
a breakdown of its informati on or management
control systems.
In Poland, we conti nued to
respond to price reducti ons by
competi tors and demonstrated
our resilience by growing our
market share in key categories
without a signifi cant impact on
our profi t margins.
We saw a signifi cant growth in
sales of private label spirits and
liqueurs in the Czech Republic
which our Czech business
conti nues to miti gate through
strengthening its management
of promoti ons, brand support
and acti vati ons.
The Group has mechanisms and strategies in place
to miti gate the damage of profi t erosion but there is
no assurance they will work in the economies and
competi ti ve environments in which we operate.
We constantly review our distributi on channels
and our customer relati onships. We understand
the changing nature of the trade channels and
customer positi ons within those channels. We
trade across all channels and acti vely manage
our profi t 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 eff ecti ve to do so.
Recent world trade volati lity,
including tariff s imposed by
the US, EU and China together
with the strength of the US
dollar and Brexit, have led to
increased currency fl uctuati ons.
During 2018, we commenced
an IT project to upgrade to a
single version of SAP S4/Hana,
to improve access to consistent
informati on across the Group,
deliver analyti cal reports and
insights and further automate
controls and standardise
processes across the Group.
The Group aims to hedge transacti on risk by
matching cashfl ows, assets and liabiliti es through
normal commercial business arrangements
where possible. For example, all debt is currently
drawn in local currency by market. For locati ons
where we have non-trading acti viti es, there is a
limitati on on the natural hedging that is available
to cover currency exchange risk. We monitor
currency exposure as an integral part of our
monthly review process and, where appropriate,
implement hedging instruments. We provide a
sensiti vity table showing the impact on profi t
before tax, based on changes in the spot exchange
rates of our primary earnings currencies, in the
foreign currency risk secti on of note 30 to the
consolidated fi nancial statements.
In additi on to holding appropriate insurance cover
to protect the business in the event of a producti on
disrupti on or other business interrupti on, our two
primary bott ling sites off er suffi cient fl exibility
that each site is capable of bott ling all of our core
SKUs. We also have well-established and tested
Business Conti nuity and Disaster Recovery
policies. Our informati on 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
penetrati on testi ng, and we retained our Cyber
Essenti als certi fi cati on.
· 23 ·
Principal risks and uncertainties continued
Risk level change key
Higher
Lower
Level
Risk rating key
High
Medium
Low
Risk description and impact
Change in 2018
How we manage and mitigate
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 and
independent internal audits to assess the adequacy
and effectiveness of our policies and processes.
We closely monitor the key markets in order
to optimise our purchasing. Where possible
and appropriate, the Group will negotiate term
contracts for the supply of core raw materials and
services on competitive terms to manage pricing
fluctuations.
We implemented new
policies and procedures to
ensure compliance with the
EU General Data Protection
Regulation which took effect
in May 2018.
The EU passed a law to
restrict the use of a particular
rum aroma used in our
Božkov Tuzemský product
in the Czech Republic.
Through the Czech spirits
industry association and the
relevant Czech government
departments, we closely
monitored and participated
in the process and thereby
avoided significant impact
upon our business.
In Slovakia, a law was passed
in September 2018 to permit
home distillation of spirits,
subject to certain restrictions
and requirements.
Grain prices were adversely
affected by poor harvests,
however, our cost
optimisation initiatives in
procurement, including more
centralised purchasing, have
ensured that cost of goods
sold to remains broadly
consistent with the prior year.
Risk 9
Laws and regulations
The Group is subject to extensive laws and
regulations limiting advertising, promotions
and access to its products, as well as laws and
regulations relating to its operations, such
as health, safety and environmental laws.
These regulations and any changes to these
regulations could limit its business activities
or increase costs. In some cases, such as the
recent introduction in Poland of restrictions
on retailers trading on Sundays, the changes
in law impact the Group indirectly. The Group
may be affected by litigation directed at the
alcoholic beverages industry and other litigation
such as intellectual property disputes, product
liability claims, product labelling disputes and
administrative claims. The Group may be
exposed to civil or criminal liabilities under anti-
bribery or anti-trust laws and any violation of
such laws could have a material adverse effect
on its reputation and business.
Risk 10
Supply of raw materials
Changes in the prices or availability of supplies
and raw materials could have a material adverse
effect on the Group’s business. Commodity
price changes may result in increases in the cost
of raw materials and packaging materials for the
Group’s products due to a variety of factors
outside the Group’s control. The Group may
not be able to pass on increases in the costs of
raw materials to its customers and, even if it is
able to pass on cost increases, the adjustments
may not be immediate and may not fully off-set
the extra costs or may cause a decline in sales
volumes. Extreme weather conditions and
climate change may damage supplies of key
raw materials such as grain, resulting in more
extreme price spikes and supply shortages.
Energy price fluctuations can impact us both
directly and indirectly through our supply chain.
Labour costs may also rise ahead of our ability
to pass through such costs.
· 24 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Risk descripti on and impact
Change in 2018
How we manage and miti gate
Rati ng
Risk 11
Funding and liquidity
Market conditi ons could subject the Group
to unexpected needs for liquidity, which may
require the Group to increase its levels of
indebtedness. Access to fi nancing in the longer-
term depends on a variety of factors outside
the Group’s control, including capital and credit
market conditi ons. Higher interest rates and
more stringent borrowing requirements could
increase the Group’s fi nancing charges and
reduce profi tability.
Signifi cantly lower fi nance
costs conti nued during 2018
as a result of the refi nancing
of bank faciliti es in 2015
and we conti nue to enjoy
those fi nancing faciliti es unti l
November 2022.
The Group maintains a strong focus on cash, our
future requirements for funding and the overall
external market for fi nancing. We undertake regular
and detailed reviews of both short-term and longer-
term liquidity requirements by market, including our
growth ambiti ons. We are confi dent that we have
the appropriate processes and relati onships in place
to respond to any unexpected liquidity needs and
have not only secured lower cost and more fl exible
re-fi nancing, but have also placed ourselves in the
best positi on to access funding in the longer-term.
As far as Brexit is concerned, we do not consider it to be a principal risk. For completeness, we include a summary of our risk
assessment below. For risk management purposes, it is prudent to assume the most disrupti ve outcome of a no-deal exit in March 2019.
As stated in our previous reports, given that we do not produce or export from the UK and have minimal sales in the UK, we conti nue
to believe the impact of Brexit is unlikely to be signifi cant for us. We have analysed the potenti al impacts under six main categories:
Trade
Taxes
Our supply chain is predominantly non-UK
based. We have very few UK suppliers,
therefore the risk of additi onal duti es,
tariff s or import/export procedures is
unlikely to aff ect us in a material way. One
of our few UK-sourced supplies for our
EU businesses is Scotch whisky, which
could be subjected to EU tariff s or other
restricti ons. However, it represents an
insignifi cant part of the Group’s revenues
and profi ts. Some of our suppliers may
supply other customers in the UK and
therefore could be fi nancially weakened
by duti es, tariff s or other increased costs
arising from Brexit, possibly causing a
knock-on impact on their ability, or cost,
to supply us; but we are not aware of any
suppliers on whom we are dependent
who would fall into this category. We
do not have any selling acti vity from our
UK companies to EU customers. Whilst
there may be additi onal Customs and/or
VAT rules for supply of our products from
our EU subsidiaries to our UK distributor,
which could increase prices and
delivery lead ti mes, the UK market is an
insignifi cant part of the Group’s revenue
and profi ts.
The loss of EU directi ves such as the
parent-subsidiary directi ve may cause
payment of dividends, interest and/or
royalti es from an EU subsidiary to a UK
parent to be subject to withholding tax,
but double taxati on agreements or specifi c
exempti ons may fully or partly miti gate
this and we will seek to apply them
accordingly. We expect transfer pricing
involving UK and EU group companies to
come under even greater scruti ny post-
Brexit and we are confi dent that the intra-
group services arrangements we have in
place are robust, well documented and
compliant with current legislati on.
People
Aft er Brexit, it is expected that employees’
ability to transfer between the UK and
EU countries will be restricted. We have
relati vely litt le internati onal mobility
among our employees therefore we
would not expect any material impact.
In additi on, the removal of the UK from
European legislati on and the rulings of
the European Court of Justi ce may, over
ti me, create diff erences in employment
laws in relati on to social security, working
ti me, minimum wage and equality.
Again, we do not expect this to have any
signifi cant impact given our very small
populati on of UK employees.
Economic
The loss of the UK’s net contributi on to the
EU budget is likely to impact the remaining
EU countries, parti cularly net recipients
such as Poland and Czech Republic. The
impact may be both direct, through a
reduced EU funding pot, but also indirect
by causing the GDP per capita in such
countries to increase compared to the
EU average and therefore reduce such
countries’ eligibility for EU funds.
Financial
The Group’s credit facility runs unti l
November 2022, therefore we have no
need to access credit markets in the near
future when they may be aff ected by Brexit.
Other
It is currently intended that the ‘Great
Repeal Bill’ will implement the vast
majority of EU law that currently applies in
the UK directly into UK law. As a result we
do not anti cipate signifi cant disrupti on in
our compliance processes.
· 25 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Chief Executive’s statement
Mirek Stachowicz
Chief Executi ve Offi cer
We believe in the strength of our
brands and that our strategy is
delivering results.
Group fi nancial performance
Given the change in our accounti ng year to 30 September,
we have presented summarised proforma results for the 12
months to 30 September 2018 along with proforma 12 month
comparati ves. On this basis, we have delivered growth in
volume, revenues and profi tability and the balance sheet has
strengthened further as net debt was reduced.
Conti nued growth in Poland
Our Polish business conti nued to grow from the foundati ons
that have been re-laid in recent years. Given it contributes
some half of Group revenues, success in Poland is criti cal.
The economic environment remained favourable, and the
total vodka category was stable, with welcome growth in
premium segments. Total vodka category growth is sti ll
driven by the fl avoured sub-category, with clear vodka seeing
a small decline. Trade channel dynamics were also stable
notwithstanding some regulatory changes in retailing. Against
this backdrop, we were able to capitalise on rising consumer
affl uence by conti nuing to strengthen our portf olio with
att racti ve premium brands.
Stock out-performed the total vodka market, conti nuing to
grow volume and value share. Our total vodka volume share
grew from 25.2% last year to 27.0% this year, and value
share grew from 26.2% to 27.4%1. In recent months, both our
volume and value growth rates outpaced our key competi tors.
A signifi cant contributor was the conti nued strong growth of
our leading premium brand, Stock Presti ge, which is the number
one brand in premium vodka in Poland. In the top premium
· 26 ·
segment, our Amundsen Expediti on grew volume well ahead of
that segment’s volume growth. Our leading mainstream brand,
Żołądkowa de Luxe, was re-launched and also achieved volume
growth, outperforming its segment. In the economy segment
our Żubr and 1906 brands grew their combined volume
strongly, benefi ti ng from pack size innovati on. We also grew
total fl avoured vodka volume and value versus last year, led by
Stock Presti ge Flavours and Saska Flavours.
We are building on our progress in fl avoured vodka to achieve
our longer term aim of growth ahead of that sub-category. Our
revised fl avoured strategy will entail an increasing focus on our
top fl avoured brands: Żołądkowa Gorzka, Lubelska and Saska.
We conti nued to grow whisky category share via the Beam
Suntory portf olio. Our co-operati on with Synergy Brands,
which has been in place since July 2016, also generated
positi ve results as Beluga grew value in the fast growing
ultra-premium vodka segment.
The strengthening of our sales capabiliti es conti nued with a
signifi cant programme of store re-layouts in traditi onal trade
channel which improved results at point-of-purchase.
Overcame headwinds in the Czech Republic
The Czech Republic is the Group’s second largest market. We
have held spirits market leadership for over 20 years2, leading
in the three key spirits categories of rum3, vodka and herbal
bitt er liqueurs4. The Czech economy is also performing well,
and with higher consumer incomes we see an increasing desire
for premium products, which in turn drives value growth5. The
total spirits market grew value and volume despite reduced
levels of retailer promoti onal acti vity4.
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Our brands are responding well to increased investment. Our
strengthened core brands have delivered steady growth and
improved mix; they position us well for ongoing success.
Given our scale in these categories, Stock was heavily
impacted by the shift in retailers’ promoti onal strategy,
resulti ng in only marginal total volume growth. Despite
this, the combinati on of our premium innovati ons, benefi ts
from previously-acquired brands and the additi on of new
distributi on brands delivered value growth, maintaining our
market leadership and achieving value share of 33.1%4.
Stock grew value share in the biggest spirits category, rum,
through the outstanding success from the Q1 launch of
Božkov Republica. This has achieved 24.5%4 value share of
imported rum. Captain Morgan, which we distribute on behalf
of Diageo, remains the number one internati onal rum and also
achieved solid value growth.
In the highly competi ti ve vodka category, the Bohemia Sekt
spirits brands that we acquired in 2016, helped maintain
our category leadership despite massive growth of retailer
private labels.
Our established partnership with Diageo, coupled with the
new distributi on agreement with Beam Suntory, have created
the strongest whisky portf olio in the market. We grew whisky
value share to over 10% despite signifi cant price reducti ons by
some leading competi tors.
Success in rum, vodka and whisky outweighed a decline in
herbal bitt ers value share, driven primarily by the changed
retailer promoti onal strategy, coupled with aggressive price-
discounti ng by Jägermeister. Our new premium herbal bitt er,
Black Fox, which was launched late last year, increased its
value share of the premium segment counteracti ng, in part,
the decline of Fernet Stock in the mainstream segment.
EU Commission deliberati ons on the use of rum ether
concluded that the aroma will not be banned in domesti c
rum (Tuzemak) for fi ve years. Our team managed this
challenge without signifi cant business implicati ons.
A new debate that has opened between the EU Commission
and the Czech Ministry of Agriculture and Food Inspecti on
regarding inclusion of milk in egg liqueurs carries no material
risk to Stock.
We conti nued to develop our sales and trade marketi ng
capabiliti es, achieving step-change in category-management.
We also stay focused on price management and promoti onal
effi ciency, as price competi ti on remains strong, especially
with the growth of private label. Our Czech business has a
demonstrable ability to deliver value growth through focus on
premiumisati on, both of our own core brands and by working
with our distributi on partner brands.
Tough trading conditi ons in Italy
Italy is our third largest market in terms of revenue and
EBITDA. The market is highly fragmented with several mature
spirits categories including, bitt ers, vodka, brandy, whisky and
liqueurs. Whilst Stock has a relati vely small overall share of
total spirits, with 6.0% volume share in our main focus area
of the modern off -trade channel, we hold leading positi ons
in several key categories including number one brands in the
clear vodka, vodka-based liqueurs and limoncello categories,
and the number two brand in brandy.
Trading conditi ons remain very tough as a result of high
levels of unemployment and consumer consumpti on is being
impacted by rising infl ati on. As a result of these trends, the
total market declined slightly in value in the period.
Against this backdrop, Stock’s total volume share was slightly
down to 6.0% with value share slightly down to 5.7% in the
modern trade channel6. Stock held overall volume and value
share in its four key categories, with slight gains in brandy,
but as a result of the soft ening market and strong growth of
private label, there were slight losses in fl avoured vodka-based
liqueurs, limoncello and clear vodka.
Source(s):
1. Nielsen, total Poland, total off -trade, total vodka MAT September 2018. For the purposes of this esti mate, total vodka = total clear vodka plus total fl avoured vodka plus total
fl avoured vodka-based liqueurs
2. IWSR
3. In the Czech Republic the “rum” category of the spirits market includes traditi onal rum, which is a spirit drink made from sugar cane, and what is widely referred to as “local rum”,
known as “Tuzemák” or Tuzemský”, which is made from sugar beet. As used in this Report, “rum” refers to both traditi onal and local rum, while “Czech rum” refers to local rum.
4. Nielsen MAT to end September 2018, total Czech off -trade
5. OECD 2018
6. IRI total Italy, total modern trade, total spirits, MAT September 2018
· 27 ·
Chief Executive’s statement continued
Looking ahead, continuing economic challenges and political
uncertainty are expected to constrain consumer confidence
and disposable income with a continuing negative impact
on overall spirits sales. There is also a possible VAT increase
from 22% to 24.2% on 1 January 2019, with further smaller
increases possible in 2020 and 2021.
Despite this, in the early summer we relaunched the Keglevich
fruit flavoured range, supported by new packaging and a
programme of investment in a new ‘Pure Vodka, Pure Fruit’
campaign using both digital and traditional media. Early
indications point to a positive consumer response.
Our iconic brandy, Stock 84, which was refreshed last year,
achieved value and volume share growth, to which our
premium XO variant contributed significantly.
We continue to carry out focused brand-building in selected
premium on-trade outlets for Syramusa, the premium sub-
brand of Limoncè limoncello, which was launched in late 2017.
The brand is also now listed in travel retail.
Finally, our distribution brand range expanded further with
new distribution agreements with Nuove Distillerie Vicenzi,
Dictador rum and The Dubliner Irish whiskey.
Continued strong results in Slovakia
Our Slovakian team delivered another strong performance
growing both volume (+4.9%) and value (+3.9%) ahead of
the market7. Stock maintained its leadership in herbal bitters,
with growth supported by the Fernet Stock grapefruit flavour
extension, coupled with revised price-positioning of Fernet
Stock Grand8. The continued roll-out of Black Fox added a
premium dimension to our bitters portfolio, whilst in vodka,
Amundsen achieved double digit volume and value growth9.
As in other markets, NPD also drove premiumisation. Božkov
Republica was rolled out, and we entered the borovička
(Juniper) category using the premium Golden Ice brand.
Stock’s second highest value growth in Slovakia came from
whisky. Having begun distribution of Beam Suntory’s range in
May 2017, Jim Beam’s value share was increased to 7.5% from
3.6%, with strong growth in sales10. The distribution brands
portfolio was expanded to other growth categories through
adding the Quintessential Brands gin range, The Dubliner and
The Dublin Liberties whiskeys, and Barcelo premium rum.
These initiatives contributed to overall volume and value
growth for Stock in Slovakia, and reinforced our position as
the second biggest spirits company in the off-trade7.
Other markets
In Croatia we grew volume and value11, primarily through an
increased focus on the on-trade, supported by the relaunch of
Stock 84, and an increased range of distribution brands from
Beam Suntory plus Beluga, Botran Rum and Lucas Bols.
In our export markets, reorganisation of our route to market
in Germany was completed successfully, and contributed
to a strong volume uplift. New distribution in Taiwan for
Hammerhead Single Malt Czech Whisky also generated high
margin incremental sales.
Innovations
We continued to build our core brands via a focused
programme of NPD. In addition a new online NPD process
flow was implemented to streamline and speed up this
critical process.
In Poland in clear vodka, we relaunched our leading brand by
volume, Żołądkowa de Luxe, with a new, smoother taste and
impactful new packaging. The relaunch was supported by
awareness and trial building activity, including an innovative
digital campaign and a Guinness Book of World Records entry
winning the largest ever linked-arms toast.
We also introduced an evolutionary update of Stock Prestige’s
packaging to retain consumer appeal in the fast evolving
premium vodka segment.
In the flavoured category, a strong package of consumer-
activation on Lubelska and Saska, coupled with the launch
of two new Lubelska flavours and three new Saska flavours
contributed to volume growth. We continued to have a strong
NPD pipeline in flavoured vodka.
Building on our history of successful flavour innovation on
Božkov, and with the ambition of premiumising the brand, we
launched new Božkov Republica imported rum in February
2018 in the Czech Republic. It has achieved outstanding
growth, growing the overall rum category. Božkov Republica
is fast becoming one of the most successful NPD launches in
Czech spirits history.
Source(s):
9. Nielsen, total Slovakia, total off-trade, total vodka MAT to end September 2018
7. Nielsen, total Slovakia, total off-trade, total spirits MAT to end September 2018
10. Nielsen, total Slovakia, total off-trade, total whisky MAT to end September 2018
8. Nielsen, Slovakia, total off-trade, total herbal bitters MAT to end September 2018
11. Internal Stock Spirits Group audited sales data
· 28 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
A full review of the Keglevich fl avoured range in Italy resulted
in the launch of a new improved liquid. The new recipe
uses six ti mes disti lled grain vodka coupled with 100% fruit
juice. The range was also relaunched with new packaging.
Keglevich clear vodka has also been relaunched, again with an
improved quality six ti mes disti lled liquid and more impactf ul
packaging. It has outperformed the category in both volume
and value growth.
In Slovakia, Fernet Stock Grapefruit won the Consumer
Choice Award 2018, which is awarded to the most successful
innovati on in the spirits category by Slovak consumers.
Božkov Republica was also rolled out in Slovakia, and we
entered the borovička (Juniper) category using the premium
Golden Ice brand.
Operati ons and supply chain
Smarter purchasing strategies coupled with new systems tools
delivered encouraging results, and helped to miti gate adverse
market conditi ons in certain categories of input.
Digital and technology
We are enhancing our marketi ng and sales capabiliti es
with the latest technology to deliver enhanced brand
experiences. Digital communicati ons played a leading role in
our Keglevich relaunch in Italy, where we pilot tested a new
smart e-commerce tool which links our social media acti vati on
directly to opportuniti es to purchase.
In Poland, Stock established the fi rst ever virtual bartender
league, along with tools to encourage brand advocacy and
increased consumer engagement.
In the Czech Republic we began working with our customers
to develop our reach beyond the established ‘bricks and
mortar’ channels into the emerging e-retail arena.
In respect of our IT infrastructure, we have consolidated
and strengthened our network architecture which will also
facilitate us running more Group-wide soft ware soluti ons
in future.
Our people
We made senior Marketi ng and Sales appointments in Poland
and the Czech Republic. We also invested in our Italian
marketi ng team in order to support the Keglevich relaunch.
A number of updated health and safety initi ati ves were put in
place across the Group, the improvements from which have
been recognised by third party auditors.
The results from our very fi rst employee engagement survey
have been acted upon, providing a base-line from which to
create an engaged, agile culture.
Our partners
The integrati on of the distributi on brands with Stock’s leading
local brands has brought signifi cant benefi ts to the combined
portf olio, further strengthening our overall off ering to
customers and consumers.
We will soon complete our fourth year as exclusive distributor
of Diageo’s core brands in the Czech Republic, where we
are delighted with the conti nued value growth that has been
achieved on Captain Morgan, Johnnie Walker and Baileys. The
additi on of the Beam Suntory range to our Czech portf olio
made a material increase to our total whisky share and we also
began distributi on of The Dubliner and The Dublin Liberti es
whiskeys from Quintessenti al Brands.
In Italy, the Vicenzi range of liqueurs from Nuove Disti llerie
Vicenzi was introduced from 1 January 2018. The
distributi on brand range expanded further with the additi on
of two new distributi on agreements with Dictador rum and
The Dubliner Irish whiskey.
In Slovakia, we began the distributi on of Beam Suntory’s range
in May 2017. The distributi on brands portf olio was further
expanded to other growth categories, adding the Quintessenti al
Brands gin range, as well as its whiskeys The Dubliner and The
Dublin Liberti es, and Barcelo premium rum.
Outlook
We are pleased with the ever increasing strength and
resilience of our core Polish business, and also with the way in
which we have combatt ed the headwinds experienced earlier
in the year in the Czech Republic. While challenges remain
in certain parts of our operati ons, most notably in Italy, we
believe that the strength of our brands and the fact that our
four pillar strategy is starti ng to deliver tangible results means
that we are well positi oned for further success.
Mirek Stachowicz
Chief Executi ve Offi cer
5 December 2018
· 29 ·
Regional reviews – Poland
Poland is our largest market in terms
of net sales and profit
Value market share
27.4%
26.2%
2017
2018
Source(s):
1. IWSR to end of calendar year 2017
2. Nielsen, total Poland, total off-trade,
total spirits MAT September 2018. For
the purposes of this estimate, total
vodka = total clear vodka plus total
flavoured vodka plus total flavoured
vodka-based liqueurs
3. OECD
4. Nielsen, total Poland, total off-trade,
total vodka MAT September 2018. For
the purposes of this estimate, total
vodka = total clear vodka plus total
flavoured vodka plus total flavoured
vodka-based liqueurs
5. Nielsen, total Poland, total off-trade,
total brandy, MAT September 2018
6. Nielsen, total Poland, total off-trade,
total whisky, MAT September 2018
· 30 ·
The success of Stock Polska remains the
Group’s highest priority.
Poland is the world’s third largest vodka
market by value and fourth largest by
volume1. Vodka is still by far the largest
spirits category in Poland (c.80% of total
spirits value2). Poland is the Group’s largest
market in terms of revenue and profit.
During 2018, the Polish economy
grew steadily, disposable income rose
and unemployment fell, increasing
Polish consumers’ confidence and
purchasing power3.
These positive macro trends were
reflected in a stable performance from the
total vodka category, with encouraging
growth from the premium segments. Total
vodka value grew +1.0% during 2018,
slightly ahead of volume growth at +0.6%.
Total premium vodka grew significantly
faster +6.7% value and +6.5% volume4.
At a total category level, overall growth
was driven by the flavoured sub-category,
+7.0% value, whilst clear vodka’s value
declined -1.2%4.
The largest trade channel, the traditional
trade, continues to outperform the market,
achieving +1.9% value growth in contrast
to the combined modern trade and
discounters, where value declined -0.7%4.
The trend to premiumisation in spirits
globally is visible in Poland. The ultra-
premium (+29.1%), top international
premium (+5.2%) and premium vodka
segments (+6.9%) are in strong volume
growth, ahead of the total category,
reflecting Polish consumers’ readiness to
pay more for premium quality vodka as
affluence increases4.
The mainstream vodka segment continues
to outperform economy, with a stable
value performance of -0.2% versus last
year, whilst economy remains in decline
at -1.4% value (although a significantly
reduced rate versus recent years)4.
Competitive prices on the leading
mainstream brands have switched
consumers from economy to higher
perceived value mainstream, in what is
now effectively a single price segment.
Core brands4
Stock is out-performing the total vodka
market in Poland, driving continued share
gains. Stock grew total vodka volume +7.5%
and value +5.7% ahead of the total vodka
market volume +0.6% and value +1.0%.
Stock’s total vodka volume share grew
from 25.2% last year to 27.0% this year and
value share grew from 26.2% to 27.4%.
Our MAT volume growth rate +7.5%
remains ahead of Roust +5.4% and in
September, our YTD value growth rate
+5.9% overtook Roust at +5.0%. for a
second successive month. Marie Brizard,
our other largest local competitor declined
heavily –20.4% volume and -20.5% value.
A significant contributor to our share
growth was the continued double digit
growth of our leading premium brand, Stock
Prestige, total volume +20.7%, supported
by consistent consumer-activation at the
point of purchase, including a unique Stock
Prestige World Cup limited edition. Stock
Prestige is now number one brand in the
premium vodka segment.
In the top premium vodka segment,
Amundsen grew volume by +62.2%, well
ahead of top premium segment volume
growth of +6.0%.
Stock Spirits Group PLC · Annual Report & Accounts 2018 Stock is out-performing the total vodka market in Poland, driving
continued share gains, with total vodka volume up 7.5%.
Our leading mainstream brand, Żołądkowa
de Luxe achieved volume growth of
+2.6%, outperforming the mainstream
category, whilst in the economy segment
our Żubr and 1906 brands grew their
combined volume +22.9%, supported by
9cl bottle pack size innovation on Żubr
(instead of market standard 10cl) and
closely monitored price execution.
Stock also grew total flavoured category
volume and value versus last year,
achieving growth on premium-priced
Stock Prestige Flavours (volume +10.7%)
and Saska Flavours (+158.8%). Our
ambition is to lead flavoured category
growth, which will require stronger
performance from our core flavoured
critical mass brands, which are performing
behind the total category, Lubelska +2.3%,
and Żołądkowa Gorzka -2.6%.
New Product Development (NPD)
We continued to build our core brands
via a focused programme of NPD
introductions of strategic importance.
In clear vodka, we relaunched our leading
brand by volume, Żołądkowa de Luxe, with
a new, smoother taste and impactful new
packaging. The relaunch was supported
by awareness and trial building activity
including an innovative digital campaign
and a Guinness Book of World Records
record breaking ‘linked arms toast’ in
Kraków by the largest number of people
in one place at one time ever achieved!
We introduced an evolutionary update of
Stock Prestige’s packaging to ensure its
design retains consumer appeal in the fast
evolving premium vodka segment.
In the flavoured category, a strong
package of consumer-activation on
Lubelska and Saska, coupled with the
launch of two new Lubelska flavours (pear
and blackberry) and three new Saska
flavours (orange with bourbon, coffee
with brandy and hazelnut with caramel)
contributed to volume growth. A strong
pipeline of additional core brand flavour
extensions planned for launch in 2019 will
strengthen our flavoured range further.
Leveraging the Group-wide Stock 84
brandy relaunch with its new, more
premium packaging, achieved volume
growth of +3.6%, ahead of total brandy
and cognac category volume -2.5%5.
Distribution brands
We continued to grow our whisky
category share via the Beam Suntory
portfolio. Jim Beam grew +13.0% in value,
ahead of the +12.6% whisky category
value growth6.
Our cooperation with distribution partner
Synergy Brands, in place since July 2016,
generated positive results. Beluga grew
value +24.4% in the fast growing ultra-
premium vodka segment4.
Organisation
A stable management, sales and marketing
team were in place throughout 2018.
Progressive strengthening of our sales
team has resulted in closer co-operation
with key customers. We have step-changed
the intensity and quality of promotional
support and have engaged in a significant
programme of fixture re-layouts in the
traditional trade which is yielding improved
results at the point of purchase.
We are using the latest technology to
deliver enhanced brand experiences. Stock
Polska was first to start a virtual bartender
league and educational activity aimed
to create brand advocacy and increase
consumer engagement in the HORECA
(Hotel, Restaurant & Café) channel.
Future outlook
2018 saw continued portfolio growth
in Poland through strengthening our
core brands. Our clear vodka business
is in growth with share gains for Stock
Prestige, Amundsen, Żołądkowa de
Luxe and Żubr. Stock also grew volume
and value in the flavoured category.
We will build further on our progress in
flavoured to achieve our longer-term aim
of growth ahead of the category. Our
revised flavoured strategy will address
this challenge by increasing focus on our
top flavoured brands, Żołądkowa Gorzka,
Lubelska, and Saska.
For the 9 month period to
30 September 2018, revenue for
Poland was €105.6m, (12 months to
31 December 2017: €147.5m), with
adjusted EBITDA of €27.5m (12 months
to 31 December 2017: €37.7m).
For the proforma years of 2018 and
its 2017 comparative, revenue was
€152.6m, an increase of 8% from
€141.2m in 2017. Adjusted EBITDA
also increased 16% from €34.9m in
2017 to €40.4m. In 2018, this division
represented 54% of Group revenue
(2017: 54%).
· 31 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Regional reviews – Czech Republic
We retain spirits market leadership in
the Czech Republic
Value market share
33.7%
33.1%
2017
2018
Source(s):
1. IWSR
2. 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 “Tuzemák” or Tuzemský”, which is
made from sugar beet. As used in this
Report, “rum” refers to both traditional
and local rum, while “Czech rum” refers
to local rum
3. Nielsen MAT to end September 2018,
total Czech off-trade
4. OECD 2018
· 32 ·
The Czech Republic is the Group’s second
largest market. Stock has held spirits
market leadership in the Czech Republic
for over 20 years1 and has brand leaders
in the key spirits categories of rum2, vodka
and herbal bitter liqueurs3.
Original, which Stock distributes in the
Czech Republic on behalf of Diageo,
remains the number one imported rum
and a key growth driver, achieving value
growth of +9.9%, slightly ahead of the
total rum category at +9.6%.
The Czech economy is performing well,
which has increased consumer disposable
income4 and with it the desire for premium
products, driving value growth in spirits.
The total Czech spirits market grew
both value +7.3% and volume +3.7%4.
The four core categories on which Stock
focuses: rum, vodka, herbal bitters and
whisky (together accounting for c.75%
of total spirits value) all grew total value
and volume, despite reduced levels
of promotional activity in economy
and mainstream in a number of major
retailers3.
Core Brands3
Given our scale in these categories, Stock
was heavily impacted by the shift in the
retailers’ promotional strategy, leading
to relatively flat total volume growth at
+0.4%. Despite this, the combination
of our premium innovation, benefits
from previously acquired brands and
the addition of new distribution brands
delivered value growth of +5.3%,
maintaining market leadership and
achieving value share of 33.1%.
Stock grew value share of the biggest
Czech spirits category, rum, from 60.2%
to 61.6%. The outstanding success in rum
was the launch in Q1 of Božkov Republica,
which has already achieved a 24.5% value
share of imported rum. Captain Morgan
In the highly competitive vodka category,
the continued benefits from the Bohemia
Sekt spirits brands acquisition made
in 2016, helped maintain our market
leadership in the vodka category with
28.7% value share, despite the massive
growth of retailer own label during 2018,
led by Penny and Tesco. Private label
vodka grew +48.4% in volume, adding
over 700,000 litres to its MAT volume and
gaining 6.6 share points.
Our well-established partnership with
Diageo, coupled with the new distribution
agreement with Beam Suntory which
commenced in Q1 2018, gives us – we
believe – the strongest whisky portfolio
in the Czech Republic. We achieved
whisky value share growth from 9.0%
to 10.3%, despite significant average
price reductions by leading competitors
Tullamore Dew and William Grants.
These successes outweighed decline
in total herbal bitters -8.6% value,
driven primarily by the changed
retailer promotional strategy coupled
with aggressive price discounting by
Jägermeister. Our new premium herbal
bitter, Black Fox – launched in Q4 last
year – increased its value share of the
premium segment by 3.5 share points,
counteracting in part, the decline on
Fernet Stock in mainstream.
Stock Spirits Group PLC · Annual Report & Accounts 2018 Stock grew value share of the biggest Czech spirits category, rum,
from 60.2% to 61.6%.
NPD
Regulatory issues
Future Outlook
The debate in the EU Commission on
the continued use of rum ether has
now concluded that the aroma should
not be banned from use in domestic
rum (tuzemák). Our team managed the
challenge highly professionally without
significant business or PR implications.
A new debate has opened between the
EU Commission and the Czech Ministry
of Agriculture and Food Inspection
regarding the inclusion of milk in egg
liqueurs. There is no material risk to
Stock from that debate and plans are
in place to address it should that
prove necessary.
Organisation
A new Sales Director, Jan Riha, joined
us from Coca-Cola HBC.
We continued to develop our sales and
trade marketing capabilities, achieving
a step-change in category-management
with two of our major customers,
Ahold and Billa, plus continued focus
throughout our sales team on enhanced
price management and promotional
efficiency. We began to build
relationships and to dedicate specific
resources to the development of our
e-retail customer base.
A number of updated health and
safety initiatives were put in place;
the improvements from which have
been recognised by third party auditors.
We continued to invest in the development
of Black Fox, our premium herbal bitter
launched in October 2017. Its accessible
taste and differentiated packaging,
supported by a heavyweight programme of
consumer awareness and sampling activity
focused in selected on-trade outlets, is
building Stock’s share in the fast growing
premium herbal bitters segment.
Building on our history of successful
flavour innovation on Božkov, with the
ambition of premiumising the brand,
our Czech team launched new Božkov
Republica imported rum in February 2018.
It has achieved outstanding growth in its
first eight months, achieving 6.1% value
share of total rum and growing the overall
rum category3. Božkov Republica is fast
becoming one of the most successful NPD
launches in Czech spirits market history.
Distribution Brands
We are close to completing our fourth
year as the exclusive distributor of the
core Diageo brands in the Czech Republic,
and are delighted with the continued value
growth that has been achieved on Captain
Morgan, Johnnie Walker and Baileys3.
The addition of the Beam Suntory range
to our portfolio made a material increase
to our total whisky share, and we began
the distribution of The Dubliner and The
Dublin Liberties Irish Whiskey Brands
from Quintessential Brands.
The integration of the distribution
brands with Stock’s leading local brands
has brought significant benefits to the
combined portfolio and has further
strengthened our overall offering to
customers and consumers.
Price competition remains strong, with
specific competitors in each of our key
categories driving volume share growth
using aggressive pricing.
A number of major retailers are expanding
their private label ranges in key spirits
categories.
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 and
maximise the opportunities.
Our Czech business has a demonstrable
ability to deliver significant value growth
through its focus on premiumisation, both
of our own core brands and in collaboration
with our distribution brand partners.
The team in the Czech Republic moves
forward from a position of strength with
ambitious plans for the future.
For the 9 month period to
30 September 2018, revenue for Czech
Republic was €49.2m, (12 months to
31 December 2017: €67.7m), with
adjusted EBITDA of €13.6m (12 months
to 31 December 2017: €21.8m).
For the proforma years of 2018 and
its 2017 comparative, revenue was
€73.2m, an increase of 13% from
€64.6m in 2017. Adjusted EBITDA
also increased 5% from €20.6m in
2017 to €21.6m. In 2018, this division
represented 26% of Group revenue
(2017: 25%).
· 33 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Regional reviews – Italy
Italy is our third largest market in
revenue and EBITDA terms
The market in Italy remains highly
fragmented from a supply perspective
where the spirits market consists of a
number of mature categories including
bitters, vodka, brandy, whisky and
liqueurs. Whilst Stock has a relatively
small overall share of total spirits in Italy,
at c.5.7% value share in our key focus
modern trade channel1, we hold leading
positions in a number of key categories in
the off-trade, with number one brands in
the clear vodka, vodka-based liqueurs and
limoncello categories and the number two
brand in brandy2.
Trading conditions remain extremely
tough in Italy. Whilst there are some
improvements in consumer confidence
versus last year, unemployment remains
high and private consumption growth
is slowing with waning job growth and
weaker household purchasing power
due to rising inflation3.
Reflecting these macro trends, the
outlook for the Italian spirits market
has not improved. The total market has
declined slightly -0.7% value in 2018.
Core Brands
In a difficult market, Stock Italia has held
total volume and value share in our key
focus channel: the modern off-trade.
Stock’s total volume share is 6.0% (versus
6.3% LY) and value is 5.7% (versus 5.9%
LY)4. Stock held MAT volume and value
share in its four key categories, with slight
gains in brandy but, with the softening of
the market and strong growth of private
label, slight losses in flavoured vodka-
based liqueurs, limoncello and clear vodka
(less than 1% in each). At a total company
level, Stock’s MAT value performance
was stronger than several of its local
competitors of similar scale, including
Molinari, Casoni and Fratelli Branca.
Trade relationships were strengthened
through the successful negotiation of
annual deals with all buying groups and
planned price increases achieved. Listings
were also achieved with Aldi for the first
time, a new entrant to the Italian market
this year.
During Q2 2018 we commenced the
relaunch of the Keglevich fruit flavoured
range, supported by new packaging
and heavyweight investment in a new
‘Pure Vodka, Pure Fruit’ communications
campaign via a combination of digital and
traditional media. This has already reached
over 89% of our millennial target audience,
supported by a nationwide series of ‘Pure
Party’ trial building events in collaboration
with one of Italy’s biggest radio stations,
RDS, which has over six million listeners.
Our objective is to turnaround not just the
brand but the flavoured category it leads.
NPD
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 100% fruit juice. The range was
relaunched with improved liquids and
packaging, with a planned gradual phase
out of old with new product during H1
2018 before we commenced our relaunch
communications campaign.
Source(s):
1. IRI total Italy, total modern trade, total spirits, MAT September 2018
2. IRI total Italy, total modern trade, total limoncello, total brandy, total flavoured
vodka-based liqueurs and total vodka, MAT September 2018
3. OECD 2018
4. IRI total Italy, total modern trade, total spirits, MAT September 2018
5. IRI total Italy, total modern trade, total brandy, MAT September 2018
6. Stock Italia internal volume sales data
· 34 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 During Q2 2018 we commenced the relaunch of the Keglevich fruit
flavoured range, supported by new packaging and a communications
campaign, with digital and traditional media.
Keglevich clear vodka has also been
relaunched with an improved quality, six
times distilled liquid and more impactful
packaging. It has outperformed the
category in both volume and value growth.
Our iconic brand, Stock 84’s refreshed
packaging across the range, and improved
premium Stock XO range extension, have
driven value and volume growth ahead
of the brandy category. The new XO has
achieved value growth of +28.4% in a
category declining by -3.7%5.
Distribution Brands
The Vicenzi range of liqueurs (including
the renowned ‘gianduiotto’ liqueur) from
Nuove Distillerie Vicenzi was introduced
from 1 January 2018.
The distribution brand range expanded
further during 2018 with the addition of
two new distribution agreements with
Dictador rum and The Dubliner Irish
whiskey.
Organisation
We continue to invest in focused brand-
building in selected premium on-trade
outlets for Syramusa, a new premium sub-
brand of Limoncè limoncello, launched in
Q4 2017. Produced 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 Limoncè
into a more premium future. The brand
has also been listed in travel retail with
distribution through Heinemann.
The pilot test of a new smart e-commerce
tool commenced in October. It links our
online social media activation directly to
an opportunity to purchase the brand
from a list of e-retailers with a click
through mechanism.
The marketing team was reorganised
to increase resources to support the
Keglevich relaunch, with recruitment of a
new senior brand manager for Keglevich,
and two new (millennial age group)
assistant brand managers.
Further development of our direct on-
trade organisation in Northern Italy is
delivering positive results. On-trade sales
grew +9% in Northern Italy, versus total
on-trade sales growth nationally of +1%6.
Future Outlook
Continuing economic challenges and
political uncertainty are forecast to
constrain consumer confidence and
disposable income with a continuing
negative impact on overall spirits
performance.
Duty and VAT Increases
Possible increase in VAT from 22% to
24.2% on 1 January 2019 with further
increases possible in 2020 (24.9%) and
2021 (25%).
For the 9 month period to
30 September 2018, revenue for
Italy was €17.6m, (12 months to
31 December 2017: €26.2m), with
adjusted EBITDA of €1.7m (12 months
to 31 December 2017: €6.3m).
For the proforma years of 2018
and its 2017 comparative, revenue
was €25.8m, a decrease of 1% from
€26.0m in 2017. Adjusted EBITDA
also decreased 27% from €6.0m in
2017 to €4.4m. In 2018, this division
represented 9% of Group revenue
(2017: 10%).
· 35 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Stock Spirits Group PLC · Annual Report & Accounts 2018
Regional reviews – Other
In Slovakia, Stock outperformed total
spirits, growing volume +4.9%
Our other markets include Slovakia,
Croati a and Bosnia & Herzegovina
together with our export operati ons
and Balti c disti llery.
NPD drove premiumisati on. Božkov
Republica was rolled out and we entered
the borovička (Juniper) category using the
premium Golden Ice brand.
Slovakia
Stock outperformed total spirits, growing
volume +4.9% and value +3.9% (compared
to total spirits volume +2.3% and
value +3.8%)1. Stock maintained brand
leadership in herbal bitt ers, increasing
Fernet Stock’s volume and value2. Growth
was contributed to by our Fernet Stock
Grapefruit fl avour extension, coupled with
revised price positi oning on Fernet Stock
Grand. Fernet Stock Grapefruit won the
Consumer Choice Award 2018, awarded
to the most successful innovati on in
the Slovakian spirits category by Slovak
consumers. The roll out of Black Fox
added a premium dimension to our bitt ers
portf olio, whilst in vodka, Amundsen
achieved double digit volume and value
growth, well ahead of the category3.
Aft er herbal bitt ers, Stock’s second
highest value growth was from the whisky
category. Having begun distributi on of
Beam Suntory’s range in May 2017, Jim
Beam’s MAT value share was increased to
7.5% from 3.6% and +128.5% growth in
value sales4.
The distributi on brands portf olio was
expanded to include other growth
categories through the additi on of the
Quintessenti al Brands gin range, The
Dubliner and The Dublin Liberti es Irish
whiskeys and Barcelo premium rum.
These initi ati ves contributed to Stock
Slovensko’s volume and value growth in
2018 and reinforced our positi on as the
second biggest spirits company in the
Slovakian off -trade1.
Other Internati onal Markets
In Croati a, despite challenging Agrikor
issues, SSG grew volume and revenue per
litre5. This was achieved primarily through
up-weighted on-trade focus, supported
by the relaunch of Stock 84 and a
broader range of distributi on brands from
Beam Suntory, Beluga, Botran Rum and
Lucas Bols.
In our export markets, the reorganisati on
of our route to market in Germany was
completed successfully and contributed
to a +17% volume uplift 5 and new
distributi on in Taiwan for Hammerhead
Single Malt Czech Whisky generated high
margin incremental sales.
Our Balti c disti llery is fully operati onal and
the causes of the incident last year, which
caused the facility to cease producti on
of alcohol for a short period, have been
addressed fully.
Source(s):
1. Nielsen, total Slovakia, total off -trade, total
spirits MAT to end September 2018
2. Nielsen, Slovakia, total off -trade, total
herbal bitt ers MAT to end September 2018
3. Nielsen, total Slovakia, total off -trade, total
vodka MAT to end September 2018
4. Nielsen, total Slovakia, total off -trade, total
whisky MAT to end September 2018
5. Internal Stock Spirits Group audited sales
data
· 36 ·
For the 9 month period to
30 September 2018 revenue, for Other
markets was €21.3m, (12 months to
31 December 2017: €28.4m), with
adjusted EBITDA of €2.8m (12 months
to 31 December 2017: €4.9m).
For the proforma years of 2018 and
its 2017 comparati ve, revenue was
€30.9m, an increase of 10% from
€28.1m in 2017. Adjusted EBITDA
also increased 24% from €4.6m in
2017 to €5.7m. In 2018, this division
represented 11% of Group revenue
(2017: 11%).
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
NPD drove premiumisation. Božkov Republica was rolled out and
we entered the borovička (Juniper) category using the premium
Golden Ice brand.
· 37 ·
Responsible business report
We are aware of our wider
responsibilities
Our approach to Responsible Business
Alcohol and society
Stock Spirits considers that having good corporate
responsibility is an essential element of achieving
our overall objectives and acting as a responsible
organisation. This includes developing strong
relationships with our suppliers and customers,
ensuring best-in-class people are joining the
organisation and our commitment to the
environment. We are committed to doing business
responsibly and ensuring a culture of integrity.
Business and ethics
Our Group Code of Conduct and Ethics (our Code)
together with our Anti-Corruption and Bribery
Policy and other related policies, set out the ethics,
principles and standards that are required to be
consistently upheld in each business and corporate
function within the Group. It also applies to our
business partners: suppliers, agents and customers.
The Group has a Speak-Up hotline available in all
countries where the Group has operations. The
Speak-Up line can be used by any employee in
the Group or by third parties and allows them to
report any incidents or inappropriate behaviours
in their own language. The confidentiality of the
information reported is correctly protected. The
Group ensures all employees are aware of the
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.
We are conscious that our products should be
enjoyed responsibly by those who choose to drink
them, and we do not want irresponsible drinking to
harm the health of our consumers. We believe that
efforts to reduce the misuse of alcohol are most
effective if all parties involved (including authorities,
individuals and producers) work together.
Poland
Stock Polska belongs to the Association of
Employers Polish Spirits Industry (ZP Polski Przemysł
Spirytusowy), the trade organisation which, as part
of its work, promotes responsible drinking through
educational programmes and public campaigns.
These include, ‘Don’t drink and drive’; ‘Better start
for your child’ aimed at pregnant women; ‘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
from younger customers and the most recent
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. As the campaign is scheduled for three
years, it will come to an end in mid-2019.
A significant part of the activity is carried out
across social media and through campaigns held at
universities, industry meetings and events. There are
also workshops for retailers during which guidelines
on ‘Responsible selling and serving alcohol beverages’
are communicated and ZP PPS actively supports both
local and national responsible alcohol campaigns,
such as the ‘European Night without Accident’.
· 38 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Lost Time
Incident trend
14
15
6
2016
2017
2018
Czech Republic and Slovakia
Our companies in these markets are founding
members of ‘Fórum PSR’, which brings together the
countries’ major spirits producers and distributors
to work against alcohol abuse. The forum focuses
primarily on preventi ve and educati onal projects
targeti ng the serving of alcohol to minors, drink-
driving and excessive drinking.
Additi onally, we acti vely introduced the ‘PSR, (drink
responsibly)’ platf orm within our media, in-store
and other brand communicati on. Forum members
have also pledged to observe a code of conduct
that strictly regulates their adverti sing acti viti es.
Stock Plzeň Božkov is a member of the Spirits Trade
Associati on in the Czech Republic. This Associati on
was acti ve during 2018 in supporti ng the local
government in its ongoing eff orts to implement a
strong regulatory environment in the spirits industry.
Italy
In Italy we are a member of Federvini, the nati onal
trade associati on founded in 1917 which, as part
of its role, promotes responsible drinking using
educati onal and informati ve programmes.
Health and Safety
The health and safety of our employees,
contractors and visitors to our sites is taken very
seriously and is a high priority for the Group.
With regard to performance during the period
to 30 September 2018, there were no major
accidents or incidents noti fi able to the authoriti es.
There was a signifi cant reducti on in accidents at
work and lost ti me incidents (LTIs) have decreased
by 60% compared to the prior year. As the graph
above demonstrates, the reducti on in LTIs over the
three-year period between 2016–2018 emphasises
the eff ect of our proacti ve focus on health and
safety across the Group. There were six minor
LTIs recorded in 2018 and Poland recorded a year
without any LTIs in the supply chain.
With regard to our focus on governance and
conti nuous improvement, cross Group health and
safety forums are held quarterly, which support the
local monitoring and review of practi ces, systems,
processes and initi ati ves. The annual externally
facilitated property and safety management
audits, carried out across the Group, resulted in
an improvement in scores across all locati ons.
Comprehensive and holisti c safety improvement
plans are in place across all locati ons and cover
culture and behaviour; educati on, training,
awareness and ownership; asset safety; and
systems, processes and ways of working.
· 39 ·
· 39 ·
Responsible business report continued
Audit action plans are managed locally and at Group
level, and are supported by the compliance team.
Formal local and Group health and safety
reporting is presented on a monthly basis to the
local management team, Group leadership team
and to the Board and includes updates on: safety
performance for the period; safety initiatives;
investment updates; action plan performance;
and reviews and audit updates.
Safety engagement and accident prevention
includes the following:
• Quarterly safety days are held in Poland and
the Czech Republic and focus on key safety
improvements areas. Education, training,
awareness and ownership for safety is a
key component of our approach to health
and safety and ensures our employees are
aware, enabled, participating, empowered
and engaged in safety at work.
• Proactive safety reporting and actioning
includes documenting unsafe acts, unsafe
conditions and near miss reporting, which was
introduced in 2015 and is embedded in our
supply chain operations.
• During the period to 30 September 2018 a
target of one unsafe act/unsafe condition/near
miss reported per employee per month was set
and was achieved at a 98% completion rate for
notifications.
• The MILA driver safety initiative was
introduced during the year for all company
car users in Poland and Slovakia and monitors
key safety and economy areas of driver
performance such as speed, seat belt wearing,
acceleration, braking and fuel economy.
• Each month there is a hot topic to focus on and
communicate. Some examples of those actions
during the year were HALO pedestrian safety,
slips trips and falls, hazardous areas training,
contractor management, fire and explosion
prevention and action, equipment and asset
safety, car driver safety training, ergonomics
and physiotherapy.
Continuous investment is made in the area
of health and safety including property and
asset protection.
Environment
Poland
In the 9 months to 30 September 2018, we
continued our environmental awareness campaign,
using the ‘Sztokus’ mascot. The campaigns’
purpose was to raise eco-awareness of both Stock
Polska personnel and employees of the Company’s
contractors, and to reduce our environmental
impact as a business.
The campaign covered several areas including eco-
awareness and behaviour; reducing the amount of
generated waste and its segregation; water, gas and
electricity saving initiatives; and communication
campaigns focused on environmental protection,
including posters, banners and stickers displayed
throughout the premises.
In 2018 the following projects were set up and
completed:
• On 23 April, to celebrate Earth Day, potted
plants, reusable shopping bags and leaflets on
consumer responsibility were distributed among
the employees.
• To promote environmentally-friendly
commuting, we encouraged our employees to
participate in the carpooling programme and
erected a roofed bicycle rack on the grounds
of the employee car park.
• A waste segregation quiz was organised for
the employees and winners received ecology-
related prizes.
• As part of the Health and Safety and
Environmental Protection Day, employees
visited a stand devoted to the idea of Zero
Waste at Home and Work and were given
practical advice on ways of reducing their
impact on the environment.
•
In October the campaign ‘Tree for waste’
encouraged employees to bring recyclable
waste such as paper, plastic or glass, in
exchange for seedlings.
· 40 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 The main mottos of all environmental projects
were “Zero waste” and “I’m a responsible consumer
– I use no single-use packaging”.
In 2018 we reduced the amount of generated
waste by 19.43% and recycled 96.75% (2017:
89%) of the waste produced on site. In 2018 we
reduced our utilities consumption in comparison
to the corresponding period (January–September
2017) electricity by 10.2%; gas by 36.11% and
water by 20.7%.
Czech Republic
In the 9 months to 30 September 2018, we
improved efficiency of energy and water
consumption. Gas consumption decreased by
10% due to increase of the efficiency of heating
by exchange of ventilation exchangers in the
administrative building and replacement of electric
controllers on the central heating distribution.
Water consumption decreased by 3% and was
achieved by better planning.
In our production facility in Prádlo, electricity
consumption decreased by 6% due to several
projects including new electrical installation,
newly installed efficient lights in blending
premises and outdoors.
We were able to recycle 96% of the waste
produced through employee training and
improved processes of waste sorting.
Greenhouse gas emissions
In the financial period 2018 (1 January 2018–
30 September 2018), the Group’s total Scope 1
(direct) and Scope 2 (indirect) Greenhouse Gas
(GHG) emissions were 26,230 tonnes and 6,924
tonnes of CO2e respectively, a total of 33,154
tonnes. This is a 13.5% increase compared to
28,938 tonnes during the same 9 months period in
2017 (22,398 tonnes of Scope 1 and 6,540 tonnes
of Scope 2 CO2e).
The emissions intensity for the financial period rose
by 9.9% to 403 grams CO2e per litre of packaged
product compared to 365 grams during the same
period in 2017.
This increase is due to the higher level of activity
at the Baltic distillery site in the financial period
relative to the same period in 2017 when the
facility was not operational due to the breakdown
of the grain dryer for a period. Baltic’s core
activity is energy-intensive rectification, which
is why it accounted for 77.6% of total Group
emissions in the financial period. In addition, the
site’s energy mix results in higher emissions per
unit of energy used compared to other sites. An
increase in activity at Baltic consequently leads to
a disproportionate increase in emissions intensity
at Group level.
As in prior years, we have applied the latest
available DEFRA UK location based conversion
factors (2018) to calculate the current year
emissions. All data capture procedures, conversion
and reporting have undergone independent limited
assurance by ERM Certification and Verification
Services (CVS).
· 41 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Responsible
business report
continued
Female
managers
Admin 83%
Customer Service 83%
Finance 57%
Health and Safety 100%
Human Resources 86%
IT 25%
Legal 75%
Marketing 44%
New Process Development 33%
Production 32%
Purchasing 40%
Sales and Operational Planning 33%
Supply Chain 30%
Trade Marketing 53%
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.
We have reported on all of the emissions sources
required under the Companies Act 2006 (Strategic
Report and Directors’ Reports) Regulations 2013.
These sources fall within our consolidated financial
statements. We do not have responsibility for
any emission sources that are not included in
our consolidated financial statements.
Diversity
The success of a business depends on its people
and we are committed to providing equality of
opportunity to every employee and potential
employee in all areas of employment.
The Group benefits from having a workforce
reflecting the composition of the local communities
in which it operates. The Group takes its
responsibilities with regard to equality and
diversity seriously and expects employees at all
levels to not only respect and observe this, but also
to take personal responsibility for driving equality
and diversity.
We have an Equality and Diversity policy,
that applies to all employees, which lies at the
foundation of our recruitment process, in order
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 people provides us with,
particularly in terms of consumer insights, but also
in terms of driving business performance. Diversity
is key to the success of the Group, with emphasis
not only on gender but also on culture, nationality
and experience.
As at 30 September 2018, at Board level, 100%
of the Directors were male, however, Kate Allum
was appointed as an Independent Non-Executive
Director on 1 November 2018 reducing the
percentage of male Directors to 87.5%. As detailed
in the Nomination Committee Report on page
69, the Board will work towards 33% female
representation on the Board when the next
vacancy arises.
At the Group senior management level, 91% and
across the Group 60% of all employees were
male. From a cultural perspective, our Board
continues to demonstrate broader diversity in
the wider sense, with Directors from Poland, Italy
and the UK, bringing a range of both domestic
and international experience to the organisation.
The Board’s diverse range of experience and
expertise covers not only a wealth of experience
of operating in FMCG but also extensive financial,
marketing and commercial expertise.
The senior management teams in our markets
comprise predominantly of local nationals who
understand the cultures in which we operate.
In the local senior management teams the
proportion of females is 40% and the percentage
of female managers is 38%. The graph above
shows the percentage of females by department
across the Group.
As a Group we harness the experience, knowledge
and points of view of our employees representing
the various generations. The graph on page
43 shows the split for employee population
by generation as at 30 September 2018. The
proportion of employees under the age of 30
remained at 18% compared to the previous year,
whilst the employees aged over 50 increased from
12% to 14%. The average age of employee across
the Group was 39.
· 42 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 1%
48%
Population
generations
8%
43%
Baby Boom (1946–1964)
Generation X (1965–1980)
Generation Y/Millenial (1981–1996)
Generation Z/Post-Millennial (1997–2012)
Human rights
Charity
During the year the UK corporate office raised
over £4,000 for charity which included taking part
in the ‘World’s Biggest Coffee Morning’ supporting
Macmillan Cancer and continuing to support the
Project Artworks ‘Art on Loan’ programme.
Stock Polska donated 30,000 PLN to enable a
group of local children to attend the ‘Odyssey of
The Mind World Finals’ in USA.
In Slovakia retired laptops were donated to local
charities and as part of their ‘Healthy Company’
initiative, a life balance lecture was organised
alongside First Aid training for office staff in April
as part of World Health & Safety Day.
The Group strives to comply fully with relevant
legislation in the countries in which it operates
and ensures that human rights are protected in all
the production plants and offices from which the
Group operates. As mentioned previously, we have
a Code of Conduct that we ask all our suppliers to
adhere to. This requires that they and the persons
acting on their behalf act without regard to gender,
age, race, religion, sexual orientation, national
origin or disability in accordance with our Equality
and Diversity Policy.
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 29. 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 them to undertake new roles.
· 43 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Stock Spirits Group PLC · Annual Report & Accounts 2018
Financial review
Paul Bal
Chief Financial Offi cer
Change of year-end and the
proforma results
As previously announced, we have now
adopted 30 September as our accounti ng
year-end. The transiti on to this has
been achieved without any major issues
or business disrupti on. Given there is
very limited comparability between the
results reported for the 9 months to 30
September 2018, and the results for the
12 months ended 31 December 2017
(‘2017’), we have presented certain
additi onal proforma fi nancial statements
and notes in this Annual Report and
Accounts. The proforma fi nancial
statements cover the 12 months ended
30 September 2018 (‘2018 proforma’)
and the 12 months ended 30 September
2017 (‘2017 proforma’). We have also set
out the basis on which these proforma
fi nancial statements have been compiled,
and provided reconciliati ons to the
reported fi nancial statements, see page
48. The proforma fi nancial statements
are not audited.
In the 9 months to 30 September 2018,
we sold 9.1m 9 litre cases (2017: 13.1m).
In 2018 proforma, volumes were up 2.8%
as we sold 13.3m 9 litre cases (2017
proforma: 12.9m 9 litre cases).
Total Group revenue was €193.8m for
the 9 month period (2017: €269.8m as
restated for IFRS 15). On a proforma
basis in 2018, revenues were up +8.7% to
€282.4m (2017 proforma: €259.8m) and
up +6.9% on a constant currency basis1.
Revenue per litre2 in the 9 month period
was €2.36 (2017: €2.33). On a proforma
basis it was €2.37 (2017 proforma €2.24),
refl ecti ng the progress in improved sales
mix as our focus on premiumisati on
gains tracti on.
Costs of goods per litre2 rose during the
9 months to 30 September 2018 to
€1.22 (2017: €1.16). This refl ects
the impact of infl ati on as well as the
premiumisati on focus, including the
increased proporti on of distributi on
brands volume in our sales mix. Reported
gross margin therefore slipped from
49.1% to 48.2%, although this was
distorted by the shorter reporti ng period
and the seasonality of Group sales. On a
proforma basis, gross margin improved to
48.9% (2017 proforma: 47.3%); and cost
of goods per litre were held to general
infl ati onary levels.
As previously communicated, we invested
more on the development and marketi ng
of our brands and products than in recent
years. This included several New Product
Developments (NPDs) during the period.
Whilst this increased investment is not
apparent in the reported results selling
expenses (9 months 2018: €42.5m, 2017:
€56.0m), it can be seen in the proforma
results (2018 proforma: €57.7m, 2017
proforma: €54.9m).
Other operati ng expenses, whilst lower
in the reported results (9 months 2018:
€22.0m, 2017: €29.6m), were higher on a
proforma basis (2018 proforma: €30.1m,
2017 proforma: €25.1m). This largely
refl ects higher people costs parti cularly in
Central Europe, and also includes higher
variable reward costs as a result of the
stronger performance across the business
as a whole during the period. Underlying
corporate costs refl ect infl ati onary
increases only.
Adjusted EBITDA for the 9 month period
was €35.8m (2017: €56.3m). Proforma
adjusted EBITDA was 2018: €59.4m,
(2017 proforma: €53.2m) up +11.5%; or
+8.1% on a constant currency basis1.
Source(s):
1. Constant currency is calculated by converti ng 2017 results at 2018 FX rates
2. Revenue and cost of goods per litre is calculated by dividing total Group revenue or cost of goods sold by litres sold
· 44 ·
We have invested more on the development and marketing of our
brands and products than in recent years; revenue and adjusted
EBITDA have increased year-on-year as a result.
The change in year-end has implications
for our Financial Calendar, notably in
respect of results announcements and
dividends. Further details are set out on
page 180.
As reported previously, the Group does
not expect a material impact from the
UK’s proposed exit from the European
Union. This position will continue to be
monitored as will all the principal risks
that the Group faces (see page 20).
Finance income and expense
The decline in net finance expense in
the 9 months to 30 September 2018
of €1.7m (2017: €2.6m) as reported,
is lower principally due to the shorter
reporting period. On a proforma basis,
the increase in net finance expense (2018
proforma: €3.1m, 2017 proforma: €1.7m)
was primarily due to interest payable
on settling historic tax issues and higher
interest rates in the Czech Republic.
Taxation
The income tax expense, as detailed in
note 13 of the consolidated financial
statements, reflects a number of factors,
primarily being: the tax expense for the
current period, changes in provisions
for taxation relating to prior years
and movements in deferred tax. The
higher reported effective tax rate of the
Group, at 27.3% (2017: 26.7% excluding
exceptionals), primarily reflects the
settlement of prior year open tax issues.
A small increase in the effective rate is
also seen on the proforma basis (2018
proforma: 27.1%, 2017 proforma: 27.0%).
Group tax provisions totalled €8.0m at
30 September 2018, an increase of €0.5m
from 31 December 2017. As set out in
the principal risks and uncertainties (see
page 20) and in note 4 of the consolidated
financial statements, the Group is exposed
to a number of tax risks in the countries
in which it operates. There have been a
number of developments in the period
with respect to the Group’s unsettled tax
years in several countries. This includes
in Poland where, in recent years, the
Group has noted the Polish authorities
increasingly adopting a more aggressive
approach towards the interpretation of
tax laws and regulations. Taken as a whole,
and in common with other companies
operating in Poland, this increases the
uncertainties relating to the treatment
of historical tax positions. Further details
are set out in note 13 of the consolidated
financial statements. The Group takes
professional advice, and has undertaken
a review of potential tax risks and current
tax assessments, and whilst it is not
possible to predict the outcome of any
pending enquiries, adequate provisions
are considered to have been included
in the Group accounts to cover any
likely or expected future settlements.
Nevertheless, in some circumstances
the Group may have to pay over sums
assessed as due by the authorities and
then seek their recovery as appeals
processes run their course.
Exceptional items
There are no exceptional items arising
in the 9 months to 30 September 2018
(2017: €14.9m Italian impairment charge
and €4.7m deferred tax charge).
During the year-ended 31 December
2017, there were two non-cash
exceptional items. First, there was an
impairment charge against the carrying
value of the Italian business, of €14.9m.
Second, there was a one-off deferred
tax charge of €4.7m in respect of Poland
resulting from changes in tax legislation
whereby tax deductibility of intangible
asset amortisation is no longer allowed.
For the purposes of comparability, these
exceptional items have been completely
excluded from the proforma results.
Earnings per share
The basic earnings per share (EPS) for the
9 months to 30 September 2018 was 9.71
€cents per share (2017: 5.72 €cents per
share). On a proforma basis, the basic EPS
for the 12 months to 30 September 2018
was 16.72 €cents (2017: 14.74 €cents).
Cashflow and working capital
The Group continues to generate strong
cashflow from operating activities. Using a
measure by which we judge our underlying
operational cashflow, the Group generated
free cashflow (see note 7 on page 126) of
€47.9m in the 9 months to 30 September
2018 (2017: €48.6m). This represents a
conversion rate from Adjusted EBITDA
of 133.6% (2017: 86.3%), and reflects
the reversal of the high-level of trade
receivables at 31 December 2017.
· 45 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Financial review continued
On a proforma basis, the Group generated
free cashflow of €54.3m in the year to
30 September 2018 (2017 proforma:
€52.8m). This represents a strong
conversion rate from Adjusted EBITDA
of 91.5% (2017: 99.1%).
shareholders: the final dividend is to be
paid some three months ahead of last year
as a result of the year-end change; and
the 8.51 €cents total dividend becomes
the base for future dividends under our
progressive dividend policy.
Dividend and reserves
The Board has proposed a final dividend
to shareholders which, when combined
with the interim dividend, represents
a significant enhancement over the
progressive underlying dividend that
would have otherwise been paid for the
9 month period to 30 September 2018.
The Board proposes a final dividend of
6.01 €cents per share for the 9 months
to 30 September 2018 (2017: €5.72
€cents per share). In effect, the Board
has proposed what would be a 12 month
dividend that was progressive versus the
5.72 €cents final dividend paid for the
year ended 31 December 2017.
When combined with the interim
dividend of 2.50 €cents per share paid
in September 2018 (2.38 €cents interim
dividend paid in September 2017),
this totals 8.51 €cents per share for
the 9 months to 30 September 2018
(2017: 8.10 €cents per share), and
represents an increase of 5.1%. Besides
the enhancement of some 3.41 €cents,
there are two further benefits for our
If, through the combination of continued
strong cash generation and limited M&A
activity, the Group finds itself with an
inefficient capital structure, the Board
will consider making additional
shareholder distributions.
During the period, the Company
undertook a Reduction of Capital.
This involved the cancellation of
£155,428,080 standing to the credit of
the Company’s share premium account.
This correspondingly increased the
Company’s distributable reserves by the
same amount. The Reduction of Capital
itself did not involve any return of capital
to shareholders, or any reduction in the
Company’s net assets. The rationale for
the Reduction of Capital was to increase
the Company’s distributable reserves,
providing the Company with greater
headroom and flexibility in the future for
the paying of dividends.
Net debt and maturity profile
The Group’s Revolving Credit Facility
(RCF), which was taken out in 2015, was
amended and extended in 2017, and now
expires in 2022. Debt can be drawn and
repaid at the Group’s discretion without
penalty or charge. Further details can be
found on page 144 of the consolidated
financial statements. At 30 September
2018, €10.6m of the RCF is used to
back excise duty guarantees in Italy and
Germany. We also retain a factoring
facility capability of €50.0m.
The continued strong cashflow during the
9 month period to 30 September 2018
resulted in Net Debt of €31.6m at 30
September 2018, a decrease of €21.6m
from 31 December 2017. Leverage fell
to 0.53x (calculated using the proforma
Adjusted EBITDA for 2018 not the
9 month reported Adjusted EBITDA) from
0.94x at 31 December 2017.
Our relatively low leverage combined
with the significant headroom in our bank
facilities leaves us well-placed to finance
our strategic aspirations.
Foreign exchange
The Group remains exposed to the impact
of foreign currency exchange movements,
with the major trading currencies
continuing to be the Polish Złoty and the
Czech Koruna. Details of how the Group
manages this risk is outlined on page 23.
At 30 September 2018, there were no
formal hedging instruments in place.
30 Sept 2018
Closing Rate
2018
Average Rate
2017
Average Rate
4.28
25.70
0.89
4.25
25.57
0.88
4.25
26.32
0.88
Polish Złoty
Czech Koruna
GB Pound
· 46 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 A net positive foreign currency exchange
gain of €0.8m was reported within the
Adjusted EBITDA over the 9 month period
to 30 September 2018. This has arisen
on the appreciation of the Polish Złoty
and the Czech Koruna versus the Euro.
The table on the previous page shows the
stated currency versus the Euro.
Changes in accounting policies
The Group adopted IFRS 15 (Revenue
from contracts with customers) from
1 January 2018. The impact of this
adoption on the 9 month period to 30
September 2018, and the year ended 31
December 2017 is set out on page 110
of the consolidated financial statements.
The Group adopted IFRS 9 (Financial
Instruments) from 1 January 2018. As
previously communicated, there was no
material impact from this adoption.
The Group will adopt IFRS 16 (Accounting
for leases) from 1 October 2019.
Equity structure
There has been no change to the equity
structure of the business in the 9 month
period to 30 September 2018. This
remains at 200 million issued shares with
a nominal value of £0.10 each.
The Company purchased 1.2 million
of its shares in the period, at a cost of
€3.5m, to settle future obligations under
its share-based reward schemes. These
shares provide a natural hedge to the
P&L charge arising from the various
share schemes in place under IFRS 2
(Classification and Measurement of
Share-based Payment Transactions).
Paul Bal
Chief Financial Officer
5 December 2018
Net debt bridge: 31 December 2017 to 30 September 2018 (€m)
53.1
(47.0)
3.5
3.5
16.4
1.7
(4.1)
31.6
0.53x
0.94x
4.5
Net debt
Dec 17
Net cash inflow
from op.
activities
Income tax paid
Dividends paid
Purchase of own
shares
Capital
expenditure net
of disposals
Net interest
paid
FX
Net debt
Sept 18
Y-YYX
Net debt to EBITDA ratio
· 47 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Black Fox
A fascinating, new and
original herbal elixir crafted
from selected forest herbs
with a hint of orange.
Black Fox presents a truly
unforgettable blend which
tastes best chilled.
· 54 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Governance
56 Board of Directors
58 Chairman’s letter
59 Corporate governance framework
64 Audit Committee report
69 Nomination Committee report
71 Directors’ remuneration report
87 Directors’ report
91
92
Statement of Directors’
responsibilities
Independent auditor’s report
· 55 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Board of Directors
An 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.
David Maloney
Non-Executive Chairman
Mirek Stachowicz
Chief Executive Officer
Paul Bal
Chief Financial Officer
Appointed David was appointed to the
Board as Senior Independent
Non-Executi ve Director in
October 2013 and in May
2015 was appointed Non-
Executi ve Chairman.
Mirek was appointed to the
Board as an Independent
Non-Executi ve Director in
November 2015 and as
Chief Executi ve Offi cer in
August 2016.
Paul was appointed to the
Board as Chief Financial
Offi cer in November 2017.
Experience During a long career in
fi nance, David was Chief
Financial Offi cer of Le
Méridien Hotels and Resorts,
Thomson Travel Group and
Preussag Airlines, and Group
Finance Director of Avis
Europe. Since embarking on
a plural career, David has
served on several Boards
including Virgin Mobile plc,
Micro Focus Internati onal
plc, Cineworld plc and Ei
Group plc.
During a highly internati onal
career of more than 20
years, Mirek’s previous roles
include General Manager
of Bestf oods (Romania),
Managing Director of ICI
Paints (Poland, Eastern
Europe and Russia) and more
recently Managing Director
of AkzoNobel Deco (Central
Europe).
A Fellow of the Insti tute of
Chartered Accountants, Paul
has 20 years of experience
in the tobacco industry. In
a very internati onal career,
he has held various senior
fi nance and management
positi ons in the Briti sh
American Tobacco plc Group.
Several of these also included
responsibility for IT. Most
recently, he held a senior
fi nance, IT and strategy
role in the EEMEA business
of Tupperware Brands
Corporati on Inc.
Other appointments None
None
None
Committee membership N
· 56 ·
John Nicolson
Senior Independent
Non-Executive Director
John was appointed to the
Board as an Independent
Non-Executi ve Director
in October 2013 and in
October 2016 was appointed
Senior Independent Non-
Executi ve Director.
His previous roles include
President of Heineken
Americas, Executi ve Director
of Scotti sh & Newcastle plc,
Deputy Chairman of CCU
SA (Chile), Chairman of both
Balti ka Breweries (Russia)
and Balti c Beverages Holding
(Sweden) and Executi ve
Director for Fosters Europe.
He is currently the Chairman
of A.G. Barr and Senior
Independent Director at
P Z Cussons plc.
A N R
Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Board structure
Non-Executi ve Chairman
Four other Independent,
Non-Executi ve Directors
BOARD
Two Executi ve Directors
Senior Independent Non-
Executi ve Director
Committ ee status
A Audit Committ ee
N Nominati on Committ ee
R Remunerati on Committ ee
Relevant Committ ee
Chairman
For full bio’s visit
www.stockspirits.com
Kate Allum
Independent
Non-Executive Director
Mike Butt erworth
Independent
Non-Executive Director
Diego Bevilacqua
Independent
Non-Executive Director
Tomasz Blawat
Independent
Non-Executive Director
Sally Kenward
Company Secretary
Kate was appointed to the
Board as an Independent
Non-Executi ve Director in
November 2018.
Mike was appointed to the
Board as an Independent
Non-Executi ve Director in
October 2016.
Diego was appointed to the
Board as an Independent
Non-Executi ve Director in
October 2016.
Tomasz was appointed to
the Board as an Independent
Non-Executi ve Director in
October 2016.
Sally joined the Group in
2015 as Deputy Company
Secretary and was appointed
Company Secretary in
April 2017.
Previous roles have included
Chief Executi ve of First
Milk Ltd, and various senior
management positi ons
at McDonalds and OSI
Internati onal Foods.
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.
Previous roles have included
Chief Executi ve Offi cer of
ING in Poland and a number
of roles for SAB Miller and
Procter and Gamble (Poland,
Czech Republic, Slovakia, UK
and Balti c States). Tomasz
is a Polish nati onal and also
speaks fl uent Czech.
An Associate of the
Governance Insti tute (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.
With over 40 years
experience in the food and
beverage sector, he has
recently been an adviser to
Bain & Company. His most
recent executi ve positi ons
were as Chief Customer and
Marketi ng Offi cer of Metro
AG, having previously been
President of Africa, Middle
East and Turkey for Unilever.
He has served as a Non-
Executi ve Director of both
Danisco AS and Pepsi Lipton
Internati onal.
She is currently the Chief
Executi ve of CeDo Ltd, a
Non-Executi ve Director and
Chair of the Remunerati on
Committ ee for Origin
Enterprises plc, and serves as
a Non-Executi ve Director for
Cranswick plc.
He commenced a Non-
Executi ve career in 2012
and is currently Senior
Independent Director and
the Chairman of the Audit
Committ ee for Johnston
Press plc and Kin and Carta
Group plc.
He is Chairman of Solevo
Holding B.V. and serves
on the Advisory Board of
POSpulse GmbH.
He is currently the Managing
Director of Carlsberg Poland.
None
A R
A N R
N R
A R
A N R
· 57 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Chairman’s letter
Dear Shareholders
On behalf of the Board, I am pleased to present our Corporate
Governance report for the period ended 30 September 2018.
The Board is fi rmly committ ed to ensuring that our corporate
governance arrangements conti nue to evolve and are eff ecti ve
and complied with in all jurisdicti ons in which the Group
operates. We are convinced that strong corporate governance is
good for our business and underpins the delivery of shareholder
value. During 2018 we conti nued to comply with the 2016 UK
Corporate Governance Code.
At the Company’s last Annual General Meeti ng (AGM) held
in May 2018, a signifi cant number of votes were cast against
the resoluti on proposing the re-electi on of a number of the
Directors. Having discussed with shareholders, it is apparent that
this was due in part to the lack of gender diversity on the Board,
so I am pleased to explain the recent Board recruitment process
which is outlined on page 70 of the Nominati on Committ ee
Report. A statement was also issued on 9 October 2018 and
can be found on our website: htt p://www.stockspirits.com/
investors/agm.aspx. I am always available to meet or speak with
shareholders at any ti me during the year. As Chairman, I want to
ensure I am fully aware of any concerns or issues they may have.
Ahead of the upcoming AGM in February, I have specifi cally
contacted the top 20 shareholders, representi ng 77% of our
register, seeking a meeti ng or call. Of these, I was able to speak
to 9, representi ng 49% of the register.
As previously indicated, the Board and Nominati on Committ ee
supports diversity for both internal and external appointments
and the most important area when recruiti ng will conti nue
to be appointi ng the best person for the role. In May 2018,
a process was put in place to search for an additi onal Non-
Executi ve Director (NED) which led to the appointment of
Kate Allum who joined the Board on 1 November 2018. More
details can be found on page 69. This appointment will enhance
the diversity and independence on the Board.
Any future appointments will be made in line with the Board
Diversity Policy and will conti nue 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,
internati onal and industry experience. As stated on page 42 the
Board will work towards the voluntary 33% target for female
representati on on the Board.
· 58 ·
David Maloney
Chairman
As Chairman of the Board, I work with the Company Secretary
to set the agenda for Board meeti ngs. These are structured to
ensure that suffi cient ti me is spent on important matt ers and all
Directors have the opportunity to contribute. During the year, the
Board discussed the Group’s refreshed strategy focussing on the
four pillars: increased focus on premiumisati on of our products,
att racti ng more millennials to our brands, increasing the use of
digital communicati ons with our consumers and reviewing M&A
opportuniti es. The Board also regularly reviews, among other
things, the performance of each of the markets and in parti cular
Poland, our largest market; considers the principal risks and
associated procedures and processes to miti gate them; an ongoing
focus on people including analysing the results of the annual
employee survey; and health and safety across the markets.
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 acti ons to strengthen the pipeline through the
development of the leadership framework. Management
conti nued 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 evaluati on of the
Board was carried out to review the performance of the
Board, its Committ ees and the individual Directors, including
the Chairman. The exercise was facilitated by the Company
Secretary under my directi on and details of the process and
outcomes are shown on page 62. In 2019 we will carry out an
external evaluati on.
Your Board regularly meets with Group Management,
both at Board and Board Committ ee meeti ngs and in other
routi ne meeti ngs, which enables the NEDs to gain a good
understanding of the business and what is happening on the
ground. We believe that this is an essenti al 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
5 December 2018
Corporate governance framework
Board
Expertise
FMCG/Drinks
Finance
Marketing
CEE
Technology/IT
Management
Strategy
6
4
3
8
2
8
8
4
2
2
e
r
u
n
e
t
d
r
a
o
B
0
0–1 yrs
2–3 yrs
4–6 yrs
7–9 yrs
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 (the Code),
published in 2016 by the Financial Reporting Council, 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 including ensuring that
appropriate processes are in place to manage risk and monitor
the Company’s financial and operational performance. 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 composition and qualification
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 56 and 57. The biographies
illustrate that the NEDs have a range of skills and experience
including expertise in the food and drinks industry within Europe
and beyond, that is relevant to the management of the Company.
The Board believes that there is an appropriate balance between
the Executives and NEDs and that this balance is enhanced by
the varying lengths of service, diversity and expertise of the
Non-Executive Directors.
The Board composition, 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 appointment of Kate Allum in November 2018, the Board
comprises eight Directors: a Chairman (who, for the purposes
of the Code, was independent on appointment); a Senior
Independent Director (SID); four Independent NEDs; and two
Executive Directors.
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, operational
performance 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
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.
· 59 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Corporate governance framework continued
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.
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. 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.
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 make recommendations to
the Board as they see fit, as contemplated by their Terms
of Reference.
Meetings and attendance
In the 9 months to 30 September 2018, there were six scheduled Board meetings, plus two additional ad hoc meetings held by
telephone. In the months when there is not a Board meeting, a Board call will be held to review the latest performance and cover
any other matters requiring our attention. Attendance at the formal pre-scheduled Board and Committee meetings was as follows:
Director
David Maloney
Mirek Stachowicz
Paul Bal
John Nicolson1
Mike Butterworth
Diego Bevilacqua
Tomasz Blawat
Randy Pankevicz2
Board
Maximum 6
Audit Committee
Maximum 4
Remuneration
Committee
Maximum 5
Nomination
Committee
Maximum 5
6
6
6
6
6
6
6
2
–
–
–
4
4
–
4
–
–
–
–
5
5
5
5
–
5
–
–
4
5
5
–
–
1. Mr Nicolson was unable to attend one Nomination Committee meeting due to ill health
2. Resigned as a Director on 6 March 2018
During 2018, 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.
· 60 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Board meetings are structured in an open atmosphere,
conducive to challenge and debate and all Directors are
expected to attend. In the event that a Director is unable to
attend a meeting, they will receive the papers scheduled for
discussion at the relevant meeting, and are encouraged to
provide comments to the Chairman or CEO on key items in
advance of the meeting, so their views and opinions can be
shared and taken into account at the meeting.
Generally on the evening before the Board meeting, a dinner
is held for Directors to discuss strategic matters and matters to
be covered the next day in a more informal environment. Senior
management who are presenting to the Board may be invited to
attend the dinner if appropriate.
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.
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.
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 and Slovakia which included a deep dive
presentation on the market, meetings with the local senior
management team and a town hall meeting with the whole team
followed by lunch. In this way, Directors keep their skills and
knowledge relevant so as to enable them to continue to fulfil
their duties effectively and employees are able to meet the
Directors and ask questions in an informal environment.
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 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.
· 61 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Corporate governance framework continued
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 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 were discussed
individually between the Chairman and each Director. The
outcome of these meetings and the overall Board discussion
on the results, 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 from the previous year’s internal evaluation had been
progressed. These actions included succession planning;
more focus on engagement with the management teams;
and improving management information. For the year ahead,
the Board will continue to focus on improving management
information, focus on supporting the Executives as they embed
culture, values and behaviours across the Group, and focus more
on strategic options and plans at Board meetings.
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 2019, an external evaluation of the performance of the
Board, its Committees and the Chairman will take place.
Relations with Shareholders
The Company has a comprehensive investor relations
programme including meetings with institutional shareholders,
buy and sell-side analysts and potential 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. David Maloney offers calls and
meetings to institutional shareholders regularly throughout the
year. Regular presentations take place at the time of the interim
and final results, as well as during the rest of the year. An active
programme of communication with potential shareholders is also
maintained. All of the Directors make themselves available for
meetings with shareholders as required and will be available at
the AGM.
The Board receives regular updates from the CFO including
feedback from meetings held and analyst reports are circulated
to the Directors when available. During the year, roadshows
were held in London, Poland and North America with
institutional investors as well as attending various conferences.
Following the interim results in August 2018, a strategy update
was presented to sell-side analysts followed by a tasting session
of our products. One-to-one investor meetings were held
throughout the year with the CEO and CFO.
Ahead of the AGM being held in February 2019, governance
meetings were offered to the top 20 shareholders with myself
and the Company Secretary. We met or had a call with nine
shareholders (representing 49% of the register) and discussed
topics such as diversity, the change in the year end, succession
planning, the Group’s strategy including M&A, the dividend
policy and our relationship with our largest shareholder.
The Company’s website www.stockspirits.com includes a
dedicated Investor section and provides an easily accessible
communication channel for existing and potential investors.
Private shareholders are encouraged to attend the Company’s
AGM or to submit questions via the website. The website also
provides the latest news, historical financial information, details
about forthcoming events and other information regarding
Stock Spirits.
· 62 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Annual General Meeting (AGM)
The Company’s AGM will take place at 10am on Thursday,
14 February 2019 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.
David Maloney
Chairman
5 December 2018
· 63 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Stock Spirits Group PLC · Annual Report & Accounts 2018
Audit Committee report
Audit Committee report
Mike Butt erworth
Chairman of the Audit Committ ee
I am pleased to report on the role and acti viti es of the Audit
Committ ee for the year.
The principal objecti ves of the Committ ee are to monitor the
Group’s internal controls and fi nancial risk management, to
review the integrity of the Group’s published fi nancial reports,
including the Annual Report and Accounts (ARA), and to oversee
the conduct of the external audit.
The Audit Committ ee is sati sfi ed that it is in compliance with the
provisions of the UK Corporate Governance Code in relati on to
Audit Committ ees and auditors.
The Committ ee has complied with the Competi ti on and
Markets Authority Order on Statutory Audit Services for
Large Companies for the period ended 30 September 2018,
having completed a formal competi ti ve tender process for the
appointment of the external auditor during the year ended 31
December 2015.
Compositi on of the Committ ee
During the period ended 30 September 2018, the Audit
Committ ee held four meeti ngs. The members of the Committ ee
during the year were Mike Butt erworth (Chair), John Nicolson
and Tomasz Blawat.
All the members of the Committ ee are independent and
collecti vely 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 Butt erworth is a
chartered accountant and the Board is sati sfi ed that he brings
recent and relevant fi nancial experience to the Committ ee, as
recommended by the Corporate Governance Code, having
served as CFO of a FTSE 250 company for eight years unti l
December 2012.
Committ ee meeti ngs are planned so as to enable review of
trading statements, the half-yearly report and the ARA, with
additi onal meeti ngs taking place as necessary.
Responsibiliti es and role of the Audit Committ ee
The Committ ee’s main responsibiliti es are to oversee, monitor
and make recommendati ons to the Board on:
• The eff ecti veness of the Group’s internal control and risk
management, including control over fi nancial reporti ng
• The eff ecti veness of internal audit, including co-ordinati on
with the acti viti es of external audit
• The Group’s policies and procedures relati ng to business
conduct, including whistle-blowing arrangements and fraud
preventi on and detecti on procedures
•
•
The Group’s overall approach to ensuring compliance with
laws, regulati ons and policies
The appointment of the external auditor, including a tender
selecti on process, where appropriate, as well as terms of
engagement and remunerati on
• The scope of the external audit, its fi ndings and the
eff ecti veness of the audit process
• The overall relati onship with the external audit fi rm,
including the provision of non-audit services to ensure that
independence and objecti vity are maintained
• The integrity of the fi nancial statements, including a review
of the signifi cant accounti ng policies and fi nancial reporti ng
judgements
• Whether, taken as a whole, the ARA is fair, balanced and
understandable and provides the informati on necessary
for shareholders to assess the Group’s positi on and
performance, business model and strategy.
The Company Secretary served as Secretary to the Committ ee.
The Chairman of the Company, NEDs not on the Audit
Committ ee, CEO, CFO, Head of Internal Audit, Group General
Counsel, and the audit engagement partner from our external
auditor generally att end our Audit Committ ee meeti ngs by
invitati on. We also ask other members of senior management to
present to the Committ ee as appropriate.
Risk management and internal control framework
We have a clear framework for identi fying, evaluati ng and
managing the risks faced by the Group on an ongoing basis, both
at an operati onal and strategic level, which has been in place for
the period 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 Reporti ng’ issued
· 64 ·
The Committee has reviewed the effectiveness of our risk
management and internal controls process, including financial
reporting, to ensure it remains robust.
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:
• 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 30 September 2018 and the
period to the approval of this ARA.
The full ‘Terms of Reference of the Committee’, which have been
subject to review during the course of the year are available on
our website at www.stockspirits.com.
The Committee’s role is primarily advisery: 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 period, we have reviewed reports
from the CEO and the Company Secretary, as well as from other
members of management and the internal audit team.
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 been completed and the ongoing internal
audits of compliance with the controls are now producing very
high pass rates in all markets.
· 65 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Audit Committee report continued
Internal controls and risk management continued
With this enhanced control framework now in place in all
our principal markets, the main focus in 2018 has been on
the ongoing auditing of the controls to ensure that they are
operating effectively and also to seek to simplify and harmonise
controls across the Group.
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. 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 2018. This plan contained audits 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 2018, the main focus of internal audit activity continued
to be on extensive post-implementation auditing 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. In addition, the Committee received internal audit
reports on the design and operating effectiveness of controls
around our excise duty settlement processes in Poland and
Czech, trade marketing activity and expenditure 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
2018, we received no Speak-Up hotline contacts.
The Committee also received regular updates from the Group
General Counsel on significant litigation and disputes, initiated
by or against the Company, and on legal compliance initiatives.
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, 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,
· 66 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 rebates, promotions and marketing support to customers
across a number of geographies and revenue is measured net
of such items. A number of these arrangements are calculated
retrospectively on a calendar year basis, rather than the
Group’s recently changed financial year ending 30 September.
Therefore not all sales incentives are confirmed by customers
at our financial period end. The estimation of these incentives
is an area of significant judgement, with varying complexity,
depending on the nature of the arrangements. We reviewed
the procedures performed by management and the auditors to
ensure the accuracy and completeness of such reserves at the
end of the period. The Group’s policy is set out in note 3 to the
consolidated financial statements.
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 period’s testing showed positive headroom in all
cash-generating units, with the exception of Italy, where the
continued low profitability resulted in only limited headroom.
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,
transfer pricing and cost recharges between Group companies.
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. Disclosure of significant tax risks has been
made as appropriate.
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.
Change of year end
As a result of the change in year-end to 30 September from
31 December, the statutory results of the Group reflect a
9 month trading period with 12 month comparatives. To
assist shareholders in better understanding the underlying
performance of the business, additional financial information
has been provided, on a proforma basis, for the two 12 month
periods ended 30 September, 2018 and 2017. The Committee
reviewed the basis of preparation for this pro-forma financial
information and its disclosure in the ARA alongside the statutory
financial information.
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.
· 67 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Audit Committee report continued
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.
External audit continued
Before concluding our recommendation on the ARA in
December 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 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.
We conducted a formal competitive tender for our external audit
services in the second half of 2014, following which KPMG LLP
was appointed as the Group’s auditor at the Annual General
Meeting in May 2015 and has continued as auditor to date. We
continue to review external audit effectiveness each year and,
depending upon the outcome, will consider the need to re-tender.
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 period
were €760,000 and audit-related assurance services fees
amounted to €61,000. 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.
· 68 ·
Mike Butterworth
Chairman of the Audit Committee
5 December 2018
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Nomination Committee report
Nomination Committee report
David Maloney
Chairman of the Nominati on Committ ee
I am pleased to present the Nominati on Committ ee Report for
the 9 months to 30 September 2018.
Compositi on of the Committ ee
The members of the Committ ee during the period consisted of
David Maloney (Chair), John Nicolson, Mike Butt erworth and
Diego Bevilacqua.
Meeti ngs
The Nominati on Committ ee met fi ve ti mes during the period.
David Maloney, John Nicolson, Mike Butt erworth and Diego
Bevilacqua met the independence criteria in the Code on
appointment. The Company Secretary served as Secretary to
the Committ ee. The Executi ve Directors att end Committ ee
meeti ngs by invitati on as required. We also ask other members
of the senior management team, such as the Interim Group HR
Director, to present to the Committ ee during the year.
Responsibiliti es and roles of the Committ ee
The Nominati on Committ ee is responsible for regularly reviewing
the structure, size and compositi on required of the Board
compared to its current positi on, and making recommendati ons
to the Board with regard to any changes; giving full considerati on
to succession planning for Directors, taking into account the
challenges and opportuniti es facing the Company, and the skills
and experti se that will therefore, be needed on the Board in the
future; and identi fying and nominati ng for the approval of the
Board, candidates to fi ll Board vacancies as and when they arise.
The Nominati on Committ ee 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 evaluati ons of the Board are carried out according to the
applicable regulati ons. The ‘Terms of Reference of the Committ ee’
(which are available on the website: www.stockspirits.com) were
reviewed during the year to ensure they refl ect the remit of the
Committ ee and it was concluded that they remain appropriate.
In accordance with the recommendati on for FTSE 350
companies set out in the Code, all of the Company’s Directors
will stand for electi on or re-electi on at the forthcoming AGM.
The biographical details of the current Directors can be
found on pages 56 and 57. The Committ ee considers that the
performance of each of the Directors standing for electi on
or re-electi on conti nues to be eff ecti ve and that they each
demonstrate commitment to their role, including commitment of
ti me for Board and Committ ee meeti ngs and any other duti es.
Acti vity
The Committ ee meets at least twice a year and aft er each
meeti ng, the Committ ee Chairman reports formally to the
Board. The Committ ee held fi ve meeti ngs during the 9 months
to 30 September 2018.
Board appointments
In May 2018, the Board commenced a search for an additi onal
Non-Executi ve Director (NED). The Committ ee, in consultati on
with other Board members, agreed the key experience and skills
and engaged the external search consultancy Odgers Berndtson
(an independent external adviser with no other connecti on to
the Group) to assist with the search. The Committ ee considered
a list of potenti al candidates prepared by Odgers Berndtson
and identi fi ed those whom it wished to take forward. A number
of candidates were interviewed by myself and my colleague
Diego Bevilacqua, and a short-list of two candidates then met
individually with the remaining Executi ve and Non-Executi ve
Directors. The proposed appointment of Kate Allum was
unanimously approved by the Board. Kate joined the Board on
1 November 2018 and also became a member of the Audit and
Remunerati on Committ ees.
Succession planning
Succession planning has conti nued to be a key area of focus
during the year, both in respect of the Board and for the senior
management team. In January 2018, the Committ ee met and
discussed 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 conti nues to be enhanced and developed. There was an
increased focus on the high performing individuals with potenti al
to develop into senior roles in the future and a training and
mentoring programme has been put in place.
· 69 ·
Nomination Committee report continued
Succession planning continued
At the meeting held in June 2018, I recommended continuing
the mentoring programme between the NEDs and the senior
management team and new partnerships were suggested and
agreed. This programme was established to help the NEDs gain
a greater understanding of a particular area of the business and
to also provide a sounding board for individuals as required.
As well as regular meetings between individual NEDs and their
mentees, the senior management team meets regularly in more
informal settings with the Board. The mentoring programme
remains beneficial and will continue in 2019. The Committee will
continue to focus on succession planning and development of
both middle and senior management.
Effectiveness
During 2018 an internal evaluation of the Board and its committees
was carried out using questionnaires for the Board to complete.
Details of the process and outcomes can be found on page 62.
Diversity
Following the AGM in May 2018 where there were high
votes against the resolutions re-electing the members of the
Nomination Committee, I contacted those shareholders who
had cast votes against, suggesting a meeting or call. Out of
the seven shareholders contacted, two responded. From
those conversations, the lack of diversity on the Board was
clearly a reason for voting against. As previously explained, the
Committee had commenced a search for a new NED in May and
Kate Allum joined the Board on 1 November 2018. Our Board
now consists of one female (12.5%) and seven males (87.5%).
The Company remains committed to ensuring a diverse and
representative Board and to ensuring that appointments are based
on merit. Boardroom diversity will continue to be an important
area of focus for the Committee with the aim of attracting and
maintaining a Board which has a broad range of skills, backgrounds
and experience, ensuring the best people are appointed. Whilst the
Board does not currently meet the voluntary target for gender set
by the Hampton-Alexander Review for FTSE350 Boards, this target
has now been included within the Board Diversity Policy. The
Committee will work towards the target when vacancies arise in the
future, however, given the size and tenure profile of the Board, it
may take slightly longer than 2020 to achieve.
· 70 ·
The Committee will continue to seek diversity when considering
new appointments to both the Board and the senior
management team and will work with the Executive search
firms, in a manner which enhances opportunities for diverse
candidates. The Board Diversity Policy will continue to be
reviewed on an annual basis to ensure it remains appropriate.
The Policy will be fully taken into account when the next Board
vacancy arises. As mentioned above this may not be in the very
near future given the tenure profile of the Board.
Director induction and training
New Directors undertake an induction programme when
joining the Board. Each induction is tailored to the needs of the
individual and will include meetings with internal and external
individuals who are key to the success of the Company and
include visiting our production sites.
The NEDs are encouraged to meet the Group’s employees
at all levels and ‘town hall’ meetings are held in our operating
territories throughout the year, to enable employees to ask the
Board questions and spend some informal time with them.
The individual training and development needs of the Directors
was discussed as part of the internal Board evaluation process.
Directors are encouraged to attend external seminars and
briefings as part of their continuous development and several are
members of the Deloitte Academy, which provides updates on
areas such as corporate governance matters and financial reports.
A training session was provided by KPMG in August covering
changes to Corporate Governance.
The terms and conditions of appointment of NEDs, including the
expected time commitment, are available for inspection at the
Company’s registered office.
I will be available at the 2019 AGM to answer questions relating
to the work of the Committee.
David Maloney
Chairman of the Nomination Committee
5 December 2018
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Directors’ Remuneration report
John Nicolson
Chairman of the Remunerati on Committ ee
On behalf of the Remunerati on Committ ee and the Board,
I am pleased to present the Remunerati on Report for the
9 month period to 30 September 2018.
earned in that period; further informati on is included on
page 81. 25% of the bonus earned by Mirek Stachowicz and
Paul Bal will be deferred into shares (and held for two years).
During the period under review, we conti nued to apply the
remunerati on policy (the Policy) that was adopted in 2017.
No changes to the Policy are proposed for 2019.
Neither Mirek Stachowicz nor Paul Bal had a PSP award which
was capable of vesti ng in respect of the period ended 30
September 2018.
The Annual Report on remunerati on (pages 80 to 86) sets out
how the Policy was applied in the 9 months to 30 September
2018 and details the rewards earned by Directors. It also sets
out how we intend to apply the Policy in the year to
30 September 2019.
As no changes are proposed to the Policy, it will not be subject
to a vote at the AGM. The Annual Report on remunerati on will
be subject to an advisery vote by shareholders at the AGM.
Remunerati on for 2019
Executi ve Director salaries for the 2019 calendar year will be
decided by the Remunerati on Committ ee, at the same ti me as
the salary review for the wider workforce. The increases will be
implemented in January 2019. Any increase for the Executi ve
Directors is expected to be modest and will not exceed the
range of increases awarded to the wider workforce. Informati on
regarding the increases will be provided in the 2019 ARA.
Remunerati on in 2018
The outt urn for 2018 can be summarised as follows:
• Base salary
Mirek Stachowicz’s salary for 2018 increased by 3% to
£437,750 (€497,443) as reported last year, in line with the
range of increases awarded to the wider workforce. Paul
Bal was appointed as CFO in October 2017 with a salary of
£300,000 (€340,909), which, as reported last year, was less
than the salary earned by the former CFO.
• Annual bonus
Mirek Stachowicz’s and Paul Bal’s bonus opportunity
for 2018 was up to 140% of salary earned in the period.
The bonus was based on three performance metrics:
(1) EBITDA (50% of the opportunity); (2) cashfl ow (30%
of the opportunity); and (3) individual KPIs linked to the
fi nancial, strategic and operati onal performance of the
business (20% of the opportunity). Performance against
the EBITDA measure was between on target and maximum
and performance against the cashfl ow conversion measure
exceeded maximum. The Committ ee used its discreti on to
reduce the bonus outt urn which refl ects the challenge of
setti ng targets across the shortened 9 month period and the
phasing eff ect on EBITDA over this period. Mirek Stachowicz
and Paul Bal have earned bonuses of 97.24% of the salary
No changes are proposed to the quantum or overall structure of
the Executi ve Directors’ annual bonus and LTIP opportuniti es for
the period to 30 September 2019.
The bonus opportunity will be up to 140% of salary earned
during the period. 25% of any bonus earned will be deferred
into shares for two years. As detailed on page 85, the
Remunerati on Committ ee have changed the bonus metrics for
the fi nancial year to 30 September 2019, removing individual
KPIs and replacing with revenue growth, so that the metrics and
weighti ngs will be:
• as regards 60% of the opportunity, EDITDA
• as regards 20% of the opportunity, cashfl ow and
• as regards 20% of the opportunity, revenue.
It is our intenti on to grant PSP awards at the level of 125% of
salary. Awards will be subject to EPS and cash conversion targets
as set out on page 86, and will be subject to a two-year holding
period aft er vesti ng.
Any proposed increase in fees for the Chairman and NEDs will
be discussed and agreed at the same ti me at the Executi ve
Directors and wider workforce review and will be implemented
from January 2019 in line with the salary review for the
Executi ve Directors and wider workforce, and will be reported
within the 2019 ARA.
· 71 ·
Directors’ Remuneration report continued
Key activities
The key activities of the Remuneration Committee during the
9 month period to 30 September 2018 included:
• Reviewing the base salaries of the Executive Directors
and senior management team for 2018
• Setting the objectives for the 2018 annual bonus
arrangements for Executive Directors and the senior
management team
• Reviewing targets for the Executive Directors’ bonus
arrangements in respect of the 9 month period to
30 September 2018
• Approving the LTIP awards granted in March 2018
• Reviewing the Remuneration Committee’s terms
of reference
• Reviewing the impact of the change in year-end on
remuneration arrangements.
In the year ending 30 September 2019, in addition to the
Remuneration Committee’s usual work, we will review the Policy,
both in advance of submitting it for shareholder approval at the
AGM to be held following the end of the period and to consider
the way in which we will reflect the provisions of the new
Corporate Governance Code.
Because the Policy is not subject to a shareholder vote at the
2019 AGM, we have not included it in full in this year’s Directors’
Remuneration Report. On pages 73 to 79, we have set out the
parts of the Policy that we consider shareholders will find most
useful, but with the ‘Reward Scenarios’ on page 76 updated
to reflect the application of policy in 2019. The full policy as
approved at the Company’s AGM 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.
On behalf of the Board, I would like to thank shareholders for
their continued support and would encourage shareholders
to get in touch should they have any questions regarding our
Remuneration strategy.
John Nicolson
Chairman of the Remuneration Committee
Shareholder engagement
5 December 2018
The Remuneration Committee, and the Board of Directors
more generally, recognise the importance of engaging with
shareholders in relation to executive remuneration, and the
members of the Remuneration Committee are available for
meetings with shareholders as required. The Board issued a
statement in October 2018 regarding the engagement which
took place in connection with the 2017 and 2018 AGMs. See
page 58 for further information. Ongoing engagement by the
CEO and CFO has ensured that key shareholders have been
regularly updated on progress and performance throughout the
period. The Chairman of the Company has offered meetings with
the top 20 shareholders ahead of the 2019 AGM as detailed on
page 58.
The Remuneration Committee is pleased to report that the
Remuneration Report at the 2018 AGM received 99.89% in
favour from those that voted; the full breakdown of the votes
is reported on page 86.
· 72 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Governance
Directors’ remuneration policy
This part of the report sets out those parts of the Directors’ remuneration policy approved at the 2017 AGM on 23 May 2017
that we consider shareholders will find most useful, but with the ‘Reward Scenarios’ on page 76 updated to reflect the application
of policy in 2019. The full policy, as approved, is set out on pages 77 to 84 of the Company’s 2016 ARA, 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.
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
Element
Salary
Salaries are paid in equal monthly instalments
and are normally reviewed on an annual basis.
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.
Benefits
To operate a
competitive
benefits structure
that aids in the
recruitment and
retention of our
Directors.
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.
Additional benefits may be provided as
appropriate to take into account the nature
and location of the role.
Not applicable, but the performance
of the individual is taken into account
when determining the amount of any
increase.
Not applicable.
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:
• 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.
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:
• 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.
· 73 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ Remuneration report continued
Element
Purpose and
link to strategy
Operation
Retirement benefits
Annual Bonus Plan
(ABP) and Deferred
Annual Bonus Plan
(DABP)
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.
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.
Claw-back and, in the case of deferred
share awards, malus provisions, will apply
as referred to below.
Maximum opportunity
Performance measures
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.
· 74 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Element
Purpose and
link to strategy
Operation
Maximum opportunity
Performance measures
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.
Claw-back and malus provisions will apply,
as referred to below.
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.
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.
Further details on the operation of the incentive schemes
200% of salary.
Not applicable.
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.
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.
· 75 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ Remuneration report continued
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
performance condition or misconduct on the part of the participant). Malus may be operated before the vesting of an award.
Differences in policy from the wider employee population
The Company’s approach to annual salary reviews is consistent across the Group. However, there are some differences between
the policy for Executive Directors 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
To attract and retain high-calibre
Non-Executive Directors by offering
competitive fees.
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.
Opportunity
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.
Reward scenarios
The chart below shows the potential reward available to the Executive Directors under the remuneration policy. The charts have
been updated to show how the policy will be applied in 2019. For illustration, target performance assumes a bonus of 50% of the
maximum and threshold vesting under the Performance Share Plan (25% of the maximum). The Directors are paid in Sterling but the
chart has been presented in Euros, which is the Group’s reporting currency using an exchange rate of €1:£0.88. No assumptions
have been made as to possible share price growth or dividends earned in relation to share awards.
Reward Scenarios (€000)
2,500
2,000
1,500
1,000
500
0
€1,915
32%
€1,063
36%
€597
100%
15%
29%
56%
31%
€1,311
32%
36%
31%
€727
15%
29%
56%
€408
100%
Fixed pay
Annual bonus1
Performance Share Plan (PSP)²
Minimum
Target
Maximum
Minimum
Target
Maximum
Mirek Stachowicz
Paul Bal
1. Annual bonus 140% of salary at maximum, assumes bonus of 63.2% of salary at target
2. Performance share plan (PSP) assumes grant of 125% of salary and threshold vesting (25% of max) at target
· 76 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 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, 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.
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.
· 77 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ Remuneration report continued
Outstanding incentive awards
Leavers
As a general rule, unvested incentive awards (e.g. outstanding PSP and DABP awards and entitlement to annual bonus) will lapse
on a participant ceasing to hold employment or to be a Director within the Company’s Group.
Good leavers
However, if the reason for the cessation of employment falls within certain good leaver categories (which include for example,
cessation due to a participant’s injury, disability, retirement, redundancy, the employing company or business being sold out of the
Company’s Group) or in other circumstances at the discretion of the Committee, then the unvested incentive award may vest and
be payable as set out below:
• PSP: Awards will usually vest on the normal vesting date subject to performance and time pro-rating and be released at the
end of the originally envisaged holding period. The Committee retains the discretion not to time pro-rate if it considers it
appropriate to do so. The Committee may allow the outstanding share award to vest and be released early to a good leaver
and if a participant dies, his or her award will ordinarily vest and be released early (unless the Committee decides otherwise).
• 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.
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.
· 78 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 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 policy table (on pages 74 and 75), 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.
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. Up to 28 June 2018, Mirek Stachowicz was a Non-
Independent Member of the Supervisory Board of Paged S.A., for which he received a fee of 174,714PLN (€41,109).
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.
· 79 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ Remuneration report continued
Annual Report on Remuneration
This part of the report provides details of remuneration earned by Executive Directors in respect of the 9 month period to
30 September 2018 and how the Policy will be implemented during the year to 30 September 2019. It will be put to an advisory
shareholder vote at the 2019 AGM. The information in this section has been audited where stated.
Role of the Remuneration Committee
The Remuneration Committee determines and agrees with the Board the framework or broad policy for the remuneration of the
Executive Directors and the senior management team. The remuneration of NEDs is a matter for the Chairman of the Board and
the Executive Directors, subject to the constraints contained in the Company’s Articles of Association. No Director or Manager
shall be involved in any decisions as to their own remuneration.
The Remuneration Committee will determine the policy for and scope of service agreements, termination payments and compensation
commitments for the Executive Directors and the senior management team. It also ensures that Directors’ contractual terms on
termination are observed, ‘that failure is not rewarded’ and that the duty to mitigate loss is fully recognised. The Remuneration
Committee will also agree the policy for authorising claims for expenses from the Directors.
The full Terms of Reference of the Remuneration Committee are available on our website at www.stockspirits.com.
Composition of the Remuneration Committee
The Committee consists entirely of Independent Non-Executive Directors. The Committee is chaired by John Nicolson and during
the period to 30 September 2018, its other members were Mike Butterworth, Diego Bevilacqua and Tomasz Blawat.
During the 9 month period ended 30 September 2018 the Committee held five meetings, see the table on page 60 for further details.
The Company Secretary served as Secretary to the Committee. Meetings were also attended by the Chairman, CEO, CFO and Interim
Group HR Director by invitation. Members of the Remuneration Committee and any person attending its meeting do not participate in
any discussion or decision on their own remuneration.
Advice provided to the Remuneration Committee
Deloitte LLP acted as adviser to the Committee during the period to 30 September 2018 and have been in place since their
appointment by the Committee in 2016. 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
2018 were £10,170 (€11,557) 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.
· 80 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Directors’ remuneration (audited)
The table below sets out the total remuneration for the Directors for the 9 month period 2018 and the 12 month year 2017.
The Directors are paid in Sterling, but figures in this report are disclosed in Euros (the Group’s reporting currency).
The exchange rate used is €1:£0.88 for both reporting periods.
Total amount
of salary
and fees
All taxable
benefits2
Annual incentive
arrangements
Long-term
incentive
arrangements
Pension⁵
Total
9 mth
period
2018
12 mth
period
2017
9 mth
period
2018
12 mth
period
2017
9 mth
period
2018⁴
12 mth
period
2017
9 mth
period
2018
12 mth
period
20171
9 mth
period
2018
12 mth
period
2017
9 mth
period
2018
12 mth
period
2017
373
256
483
85
19
12
26
3
363
249
155
–
145
193
61
48
56
48
81
64
75
64
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56
38
72
13
811
555
736
101
–
–
–
–
–
–
–
–
–
–
145
193
61
48
56
48
81
64
75
64
22
52
–
–
–
–
–
–
–
–
22
52
€000
Executive Directors
Mirek Stachowicz
Paul Bal
Independent NEDs
David Maloney
John Nicolson
Tomasz Blawat
Mike Butterworth
Diego Bevilacqua
Non-Independent NEDs
Randy Pankevicz3
1. Long-term incentive arrangements of €744,000 for Mirek Stachowicz and €100,000 for Paul Bal were included in last years ARA in error and hence have been removed this year in the
table above in relation to 2017. The value at vesting of those awards will be included in the Directors’ Remuneration Report for the year in which they vest, in line with the regulations
2. Taxable benefits include car allowance, medical and dental healthcare
3. Randy Pankewicz resigned on 6 March 2018 and his salary and fees for the period include three months payments in lieu of notice
4. 25% of the bonus earned by each of Mirek Stachowicz (€362,778) and Paul Bal (€248,620) will be deferred into an award of shares under the Deferred Annual Bonus Plan which will
vest after two years subject to continued employment
5. With regard to the Executive Director pensions, a monthly cash allowance of 15% of salary is paid in lieu of a pension scheme contribution
Annual bonus earned for 2018 (audited)
The key decision made by the Committee during the period was to determine how to manage reward in the shortened 9 month
financial year with the new September year end.
During the process of budgeting the Board reviewed a 12 month budget for the calendar year 2018, enabling detailed comparison
with the previous financial years that ended in December. Once satisfied with the basis of the plan and its components, a five
quarter analysis was completed including the Q4 period of 2017. Budget targets were then applied to the 9 month financial year.
The Committee also concluded that the bonus achievement would be ratified once a judgement was made as to the likely outcome
of the final quarter of the 2018 calendar year. This was reviewed in November and again in early December.
The Remuneration Committee regards the financial period as a good period of progress in both financial and strategic terms. Mirek
Stachowicz’s and Paul Bal’s bonuses for the 9 month period 2018 were based on a mix of financial (translated at the Group’s budget
exchange rates for the year) and personal performance measures (KRAs), as summarised below. The Committee used its discretion
to reduce the bonus outturn by around 13% which reflects the challenge of setting targets across the shortened 9 month period and
the phasing effect on EBITDA over this period.
The maximum bonus opportunity was 140% of salary earnt in the 9 month period. Based on the performance achieved, bonuses
were earned as follows:
Mirek Stachowicz:
Paul Bal:
97.24% of salary
97.24% of salary
Performance targets
Measure
Adjusted EBITDA (at budget rates)
Free cashflow conversion (at budget rates)
Individual KRA's
Weighting
measure
Minimum On Target Maximum
50% €31.279m €32.925m €36.218m
110%
30%
See summary on page 82
20%
100%
95%
Bonus
earned (%
of salary
earned in
the period)
41.24%
42.00%
14.00%
Actual
€33.963
131.8%
· 81 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ Remuneration report continued
Individual KRAs
The individual KRAs were linked to the financial, strategic and operational performance of the business. Performance against them
was assessed by the Remuneration Committee on the following basis:
Mirek Stachowicz
KRAs
M&A
Performance outcome
As indicated in the Chairman’s Statement on page 6, we will continue to assess a range
of acquisition opportunities that would deliver enhanced growth and shareholder value
for the future.
Premiumisation: Brown Spirits
Successful launch of Božkov Republica rum and growth of 3rd party brands in Czech.
Millennials: Italy and Poland
Keglevich re-launched in Italy and ZdL re-launched in Poland. Italy continues to be a
challenging environment.
Remuneration
Committee
assessment of
performance
Not Achieved
Achieved
Partly Achieved
On the basis of the above performance and having regard to overall performance, the Remuneration Committee determined that
Mirek Stachowicz receive a payment of 14% out of a maximum of 28% of the personal element.
Paul Bal
KRAs
M&A
Digital
Foundation
Performance outcome
As indicated in the Chairman’s Statement on page 6, we will continue to assess a range
of acquisition opportunities that would deliver enhanced growth and shareholder value
for the future.
Increasing use of digital in our engagement with consumers.
Implementation of the change to year-end from 31 December to 30 September in line
with the plan agreed.
Remuneration
Committee
assessment of
performance
Not Achieved
Partly Achieved
Achieved
On the basis of the above performance and having regard to overall performance, the Remuneration Committee determined that
Paul Bal receive a payment of 14% out of a maximum of 28% of the personal element.
Long-term incentives awarded in 2018
As discussed in the Remuneration Committee Chairman’s Statement last year, PSP awards in 2018 were granted at the level of 125%
of salary pro-rated to 93.75% for the 9 month period to 30 September 2018.
Director
PSP awards1
Mirek
Stachowicz
Paul Bal
Basis of award
Face value
of award (£)
No. of share
awards
% vesting
at threshold
End of performance period²
125% of salary (93.75%
for the 9 month period)
125% of salary (93.75%
for the 9 month period)
£410,392.551
157,058
£281,250.261
107,635
25%
25%
30 September 2021³
30 September 2021³
1. The face value of each PSP award is calculated by multiplying the number of shares by £2.613 (being the average share price over the five dealing days preceding the grant)
2. Neither Mirek Stachowicz nor Paul Bal may dispose of shares acquired pursuant to the exercise of the award before the expiration of a period of two years beginning with the date of
vesting of his award (other than to fund tax liabilities associated with the award), unless the Remuneration Committee determines otherwise
3. Each PSP award is subject to the following performance conditions assessed over the Company’s 2018, 2019 and 2020 financial years:
Performance condition
Annual compound growth in fully
diluted adjusted EPS
Average cash conversion for each
year in the performance period
Weighting
Threshold (25% vesting)
Maximum (100% vesting)
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 aggregate of the Adjusted EBITDA for the Financial Years in the Performance Period is at least €145.2m
· 82 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Outstanding share options (audited)
The following table summarises the Executive Directors’ share awards as at 30 September 2018.
Date
of grant
Performance
condition
Interest
as at 31
December
2017
No. shares
under award
No. shares
under any
lapsed
portion of the
award
Share options as
at 30 September
2018
Vesting date
or (for options)
exercise period
Type of interest
Mirek Stachowicz
DABP 2018
PSP 20181
PSP 2017
Paul Bal
PSP 20181
23.03.18
14.03.18
15.03.17
None
EPS and Cash
conversion
EPS and Cash
conversion
–
–
13,661
157,058
416,667
14.03.18
EPS and Cash
conversion
–
107,635
Nil
Nil
Nil
Nil
Nil
13,661
23.03.20
157,058
December 2020²
416,667
15.03.20
107,635
December 2020²
40,184
10.10.20
Joiner option
10.10.17
None³
40,184
1. The performance conditions for the 2018 PSP awards are set out on page 82
2. The awards will vest on assessment of the performance condition following the end of the Company’s financial year ending on 30 September 2020
3. This option was granted to Paul Bal to compensate him for incentive awards he forfeited in his previous role, as described in the 2017 Directors’ Remuneration Report
Payments to past Directors (audited)
There have been no payments to past Directors in the period, other than those noted in the 2017 ARA.
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 2018, this was 200% of salary, which reflects the current policy, see page 75 for further details. Their
achievement against these guideline limits is set out in the table below.
As at 30 September 2018
Executive Directors
Mirek Stachowicz2
Paul Bal
Non-Executive Directors
David Maloney3
John Nicolson
Tomasz Blawat
Mike Butterworth
Diego Bevilacqua
Outstanding Scheme Interests
Beneficially
owned
shares1
Deferred
Annual Bonus
Plan
PSP⁵
Joiner
award
121,380
573,725
13,661
–
20,000
107,635
60,000
–
–
18,750
27,018
–
–
–
–
–
–
–
–
–
–
–
40,184
–
–
–
–
–
Value of shares counting
towards the shareholding
guideline
£000
% salary4
239
39
55%
13%
–
–
–
–
–
–
–
–
–
–
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 £1.968 and expressed as a percentage of their annualised current salary
2. All of which are held jointly with Katarzyna Lewicka-Stachowicz, his wife
3. All of which are held in the name of Agneta Maloney, his wife
4. This percentage has been calculated using the annualised salary of Mirek Stachowicz of £437,750 and Paul Bal of £300,000
5. With regard to the vesting of the PSP, other than for the sale of shares to realise an amount equal to any tax, social security or dealing costs arising in connection with the exercise
of the award, the Director may not deal with any shares acquired pursuant to the Award until the second anniversary of the vesting date
· 83 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Directors’ Remuneration report continued
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)
)
£
(
l
e
u
a
V
160
140
120
100
80
60
40
22 Oct
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
30 Sep
2018
This graph shows the value by 30 September 2018, 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).
Total remuneration of Chief Executive Officer (CEO)
The table below shows a summary of the total remuneration received by the CEO since 2013.
2013
2014
2015
Chris Heath
Mirek
Stachowicz
12 month year
2017
9 month period
2018
20161
Single-figure total remuneration (€000)
2,8462
717
795
Total annual bonus pay-out
(as % of maximum opportunity)
Long-term incentive vesting
(as % of maximum opportunity)
N/A2
N/A
N/A
222
N/A
382
N/A
N/A3
N/A3
N/A3
N/A3
N/A3
736⁴
23%
N/A3
811
69%
N/A3
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
4. As per the table on page 81, the CEO’s single figure total remuneration for 2017 has been corrected to exclude the long-term incentive arrangements incorrectly disclosed
last year
· 84 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Percentage change in the remuneration of the CEO
The table below shows the movement in salary, benefits and bonus for the CEO between the 9 month period 2018 and the 2017
year, compared to the average remuneration for all employees. Recognising that the financial year ending 30 September 2018 is a
9 month period, we have also included annualised figures in order to provide a ‘like for like’ comparison.
% change in:
Base salary
Benefits1
Total annual bonus3
Chief Executive
All employees
As reported
Annualised
As reported
Annualised
-22.8%2
-24.0%
234.0%
3.0%
1.4%
212.1%
-24.2%
-14.1%
-7.9%
1.1%
14.5%
22.8%
1. Benefits include car allowance, health and dental cover and pension; the decrease shown in the table above is created by comparing 9 months of benefits versus 12 months received
in 2017
2. Mirek Stachowicz’s annual salary was increased from 1 January 2018 by 3% versus received in 2017 as disclosed in the Annual Report and Accounts 2017. The percentage decrease
shown above is created by comparing a 9 month salary received in 2018 to 12 months in 2017
3. Mirek Stachowicz earned a bonus of £136,230 (€154,807) in respect of 2017 and £319,245 (€362,778) for 2018
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. Recognising that the financial year ending 30 September 2018 is a 9
month period, we have also included annualised figures in order to provide a ‘like for like’ comparison.
Remuneration paid to all employees (€m)1
Dividends to shareholders (€m)
12 mth
9 mth
year 2017
period 2018
% change
Annualised
2018
37.6
15.7
28.3
16.4
-24.6%
4.5%
37.8
N/A
% change
0.5%
N/A
1. Excluding share-based payments. The drop in pay to employees is due to the 9 month reporting period in 2018 compared to 2017. See note 10 in the statutory financial statements
How the Directors’ remuneration policy will be applied for 2019
Base salaries
Executive Directors salaries will be decided by the Remuneration Committee at the same time as the salary review for the wider
workforce. The increases will be implemented in January 2019. Any increase for the Executive Directors is expected to be modest,
and will not exceed the range of increases awarded to the wider workforce. Information regarding the increases will be provided in
the 2019 ARA.
Annual bonus
The annual bonus plan for 2019 will be based on achievement against a range of financial targets as follows: 60% will be based
on the achievement of an EBITDA target, 20% on a cashflow target and 20% on a revenue target. The Remuneration Committee
has introduced a revenue target to reflect the key strategic priority of incentivising top line growth. The forward-looking targets
are deemed to be commercially sensitive. The maximum bonus opportunity will be payable only for achieving stretch levels of
performance. Payment of any bonus will be subject to an overall consideration of the underlying financial performance, including, in
the case of the revenue measure, the Remuneration Committee’s assessment of the quality of the revenue. Details of the targets and
performance against them will be published in our 2019 Directors’ Remuneration Report.
· 85 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ Remuneration report continued
Performance Share Plan (PSP)
As described in the statement by the Remuneration Committee Chairman on page 71, it is our intention to grant PSP awards
for 2019 at the level of 125% of salary. The vesting of the awards will be subject to the satisfaction of performance conditions
measured over financial years 2019, 2020 and 2021 based on EPS growth (as regards 50% of each award) and cash conversion (as
regards 50% of each award), as set out below. Each award will be subject to a two-year post-vesting holding period as for the 2018
awards (as described on page 75):
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 note 14 to the consolidated financial statements, subject to such adjustments as the Committee
shall determine from time to time
2. For these purposes, cash conversion will be calculated as Adjusted free cashflow / Adjusted EBITDA (see note 7)
Fees for the Chairman and NEDs
Any proposed increase in fees for the Chairman and NEDs will be discussed and agreed at the same time as the Executive Directors
and wider workforce reviews and will be implemented from January 2019 and will be reported within the 2019 ARA.
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 and 2017 Annual Report on Remuneration were as follows:
Directors’ Remuneration Policy at the 2017 AGM
128,658,271 (79.66%)
32,841,810 (20.34%)
2017 Annual Report on Remuneration at the 2018 AGM
144,894,332 (99.89%)
157,597 (0.11%)
–
40,671
Votes for
Votes against
Votes withheld
Approved and signed on behalf of the Board.
John Nicolson
Chairman of the Remuneration Committee
5 December 2018
· 86 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Directors’ report
The Corporate Governance report on pages 56 to 86 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 87 to 90.
Directors
The Directors in office at the date of this report are shown on pages 56 to 57. All served throughout the year under review, with
the exception of Kate Allum who was appointed as a Director on 1 November 2018.
Directors’ interests in the Company’s shares
The interests of the Directors of the Company at 30 September 2018, and their connected persons, in the issued shares of the
Company disclosed in accordance with the FCA’s Listing Rules, are given in the Remuneration Report on page 83. The Remuneration
Report also sets out details of any changes in those interests between the year-end and 5 December 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.
Further details of Directors’ contracts, remuneration and their interests in the shares of the Company at 30 September 2018 are
given in the Directors’ Remuneration Report on pages 71 to 86.
Indemnification of Directors and insurance
The indemnification for Directors provided by the Company has been arranged in accordance with the Company’s Articles and
the Companies Act 2006. As far as is permitted by legislation, all officers of the Company are indemnified out of the Company’s
own funds against any liability incurred while conducting their role in the Company, unless such liability is to the Company or an
associated company. The Company has appropriate Directors’ and Officers’ liability insurance cover in place in respect of any legal
action against, among others, its Executives and NEDs.
Appointment and replacement of Directors
The rules about the appointment and replacement of Directors are contained in the Company’s Articles. They provide that Directors
may be appointed by ordinary resolution of the members, or by a resolution of the Directors. In addition to the powers to remove a
Director conferred by legislation, the Company may also remove a Director by special resolution.
Compensation for loss of office
We do not have arrangements with any Director that would provide compensation for loss of office or employment resulting from a
takeover, except that provisions of the Company’s share plans may cause options and awards granted under such plans to vest on a
takeover. Further information is provided on page 78.
Political donations
There were no political donations during the period (2017: nil).
Share capital and control
Details of our issued share capital as at 30 September 2018 can be found in note 28 to the consolidated financial statements on
page 147. The Company’s share capital comprises 200,000,000 ordinary shares, which are listed on the London Stock Exchange.
There were no changes to the share capital during the year.
Holders of ordinary shares are entitled to receive dividends (when declared), copies of the Company’s ARA, attend and speak at
general meetings of the Company, appoint proxies and exercise voting rights.
· 87 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Directors’ report continued
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 2018 AGM, shareholders granted the Company authority to make market purchases of up to 20,000,000 ordinary
shares of £0.10 each, representing 10% of the issued-share capital. At the Company’s forthcoming AGM, Directors will be seeking
approval from shareholders to authorise the Company to purchase up to 10% of its existing ordinary share capital. This authority,
if approved, will expire on 29 February 2020 or at the Company’s 2020 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%)
Western Gate Private Investments
BlackRock Inc
M&G Investment Management Ltd
J O Hambro Capital Management
Heronbridge Investment Management
Columbia Threadneedle Investments
Majedie Asset Management
Franklin Resources Inc
Capital Group Companies Inc
Aberdeen Asset Managers Limited
Princeton Holdings Ltd
As at 5 December 2018
As at 30 September 2018
Shares
%
Shares
%
20,000,148
10.00%
20,000,148
10.00%
19,438,509
18,480,199
12,061,173
11,275,892
9,983,926
8,828,578
7,997,958
6,404,674
6,178,418
6,168,768
9.72%
9.24%
6.03%
5.64%
4.99%
4.41%
4.00%
3.20%
3.09%
3.08%
18,195,344
18,723,575
11,781,119
8,796,872
9,987,587
8,828,578
8,735,223
6,404,674
6,427,210
6,168,768
9.09%
9.36%
5.89%
4.40%
4.99%
4.41%
4.37%
3.20%
3.21%
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 44.04% of the shares of Eurocash SA.
Eurocash is one of the Group’s major customers in Poland.
There have been no other changes notified between 30 September 2018 and the date of this report.
· 88 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 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 149 to 154.
Post-balance sheet events
Further correspondence was received from the Polish tax authorities in relation to its inquiry covering the 2013 tax return of the
Group’s Polish subsidiary. Refer to note 13 to the Group’s consolidated financial statements for further details.
Future business developments
Further details on these are set out in the Strategic Review on pages 1 to 54.
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: Amended and restated Facilities agreement dated 21 July 2017 for a €200,000,000 revolving
facility agreement with a banking club consisting of five banks including HSBC, who also act as the Agent. The loans bear variable
rates of interest which are linked to the inter-bank offer rates of the drawers; WIBOR, PRIBOR or EURIBOR as appropriate. Each
of the loans have a variable margin element to the interest charge. The margin is linked to a ratchet mechanism where the margin
decreases as the Group’s leverage covenant decreases.
Agreement with Quintessential Brands Group in relation to the acquisition in July 2017 of a 25% equity interest in Quintessential
Brands Ireland Whiskey Limited (QBIWL). The shareholder not subject to the change of control, shall be entitled to purchase the
other shareholder’s shares in QBIWL.
Dividend
A dividend of 2.50 €cents per share was paid at the interims (see note 29 to the financial statements), and the Directors recommend
a final dividend of 6.01 €cents to be paid on 1 March 2019 to shareholders on the share register at the close of business on
8 February 2019. The shares will be quoted ex-dividend on 7 February 2019. The FX fixing date will be 8 February 2019.
Total dividends paid and proposed for the period amount to 8.51 €cents per share.
Going concern
The Directors have considered the Group’s debt-maturity and cashflow projections, and an analysis of projected debt covenant
compliance. The Board is satisfied that the Group’s forecasts and projections, taking into account reasonable changes in trading
performance, shows that the Group will continue in operation for a period of at least 12 months from the date of this report, and has
neither the intention nor the need to liquidate or materially curtail the scale of its operations. For this reason the Group continues
to adopt the going concern basis in preparing its financial statements. More information can be seen in note 2 to the consolidated
financial statements.
· 89 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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 92 to 99), 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 2019 AGM.
Requirements of the Listing Rules
The following table provides references to where the information required by Listing Rule 9.8.4R is disclosed:
Listing Rule requirement
Location
A statement of the amount of interest capitalised during the period under review, and details of any related tax relief
Not applicable
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
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
Not applicable
No such scheme
No such waivers
No such share allotments
Details of any non pre-emptive issues of equity for cash by any unlisted major subsidiary undertaking
No such share allotments
Details of parent participation in a placing by a listed subsidiary
Details of any contract of significance in which a Director is or was materially interested
No such participations
No such contracts
Details of any contract of significance between the Company (or one of its subsidiaries) and a controlling shareholder
No such contracts
Details of waiver of dividends by a shareholder
Board statement in respect of relationship agreement with the controlling shareholder
Not applicable
No such agreements
Approval of Directors’ report
This Directors’ report was approved for and signed on behalf of the Board.
Mirek Stachowicz
Chief Executive Officer
Paul Bal
Chief Financial Officer
5 December 2018
5 December 2018
· 90 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that
law, they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law,
and have elected to prepare the Parent Company financial statements on the same basis.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company, and of their profit or loss for that period. In preparing each of the
Group and Parent Company financial statements, the Directors are required to:
• Select suitable accounting policies, and then apply them consistently
• Make judgements and estimates that are reasonable, relevant and reliable
• State whether they have been prepared in accordance with IFRSs as adopted by the EU
• Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and
• Use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s
transactions, and disclose with reasonable accuracy at any time the financial position of the Parent Company, and enable them
to ensure its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due
to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Group, and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Report that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the 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
Chief Executive Officer
Paul Bal
Chief Financial Officer
5 December 2018
5 December 2018
· 91 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Independent
auditor’s report
to the members of Stock Spirits Group PLC
1. Our opinion is unmodified
We have audited the financial statements of Stock Spirits
Group Plc (“the Company”) for the period ended 30
September 2018 which comprise the consolidated income
statement, consolidated statement of comprehensive
income, consolidated and company 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 30 September 2018 and of the Group’s
profit for the period 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 first appointed as auditor by the shareholders
on 19 May 2015. The period of total uninterrupted
engagement is for the four financial periods ended
30 September 2018. 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
€1m (2017:€1.6m)
3.8% (2017: 3.8%) of
normalised profit before tax
98% (2017:98%) of
group profit before tax
Risks of material misstatement
vs 2017
Recurring
risks
Goodwill and intangible
asset impairment
Tax provisioning
Revenue recognition
Recoverability of Parent Company’s
investment in subsidiary
· 92 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
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.
Goodwill and brand
intangible
asset impairment
€302 million;
2017: €302 million.
Refer to page 67 (Audit
Committee report), page 118
(accounting policy) and page
137 (financial disclosures).
The risk
Our response
Forecast-based valuation
Our procedures included:
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.
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 in the
prior period against the carrying
value of Italy goodwill.
–
–
–
–
Assessing forecasts: based on our knowledge of the
business and industry, for each CGU we challenged the
forecast revenue growth and profit margin assumptions
with reference to past performance, future plans (for
example, brand positioning, pricing actions and
promotional expenditure), and external market data.
Benchmarking assumptions: for each CGU we
involved our own valuation specialists to assess the
discount rates used by the Group, including comparing
the key inputs, such as risk free rates, size premium,
country premium and inflation, to externally derived data.
For the Czech and Italian CGUs, our valuation specialists
also assessed the long-term growth rate and the
valuation methodology used.
Sensitivity analysis: we considered the level of
headroom and 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. (2017 result: acceptable).
· 93 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Independent Auditor’s Report continued
2. Key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Tax provisioning
Dispute outcome
Our procedures included:
€8.0 million;
2017: €7.5 million.
Refer to page 67 (Audit
Committee report), page 124
(accounting policy) and page
130 (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 international tax
specialists in foreign jurisdictions to assess the Group’s
tax positions, through inquiry of management and their
external tax advisers with regard to latest status with the
relevant tax authorities. We obtained management’s
written correspondence with the Group’s tax advisers
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
(2017 result: acceptable).
· 94 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 2. Key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Revenue Recognition1
Omitted arrangements
Our procedures included:
€194 million, of which €19
million is subject to
estimation;
2017: €270 million – restated
for IFRS 15, of which €15
million was subject to
estimation.
Refer to page 66 (Audit
Committee report), page 114
(accounting policy) and page
125 (financial disclosures).
Recoverability of parent
company’s investment
in subsidiary
£256 million;
2017: £256 million.
Refer to page 67 (Audit
Committee report), page
166 (accounting policy) and
page 167 (financial
disclosures).
Revenue is measured net of
discounts, incentives and rebates
earned by multiple customers on
the Group’s sales within this
customer group.
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.
Subjective estimate
Not all sales incentives are
confirmed by customers at 30
September. Within a number of the
Group’s markets, the estimation of
retrospective rebates and certain
other incentive arrangements
recognised is material.
There is a risk of revenue being
misstated as a result of erroneous
or fraudulent estimations over such
arrangements. This is an area of
judgement with varying
complexity, depending on nature of
arrangement.
–
–
–
–
–
–
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.
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 reasonableness
of the Group’s accruals, including estimates, by
considering the historical accuracy of prior period accruals
for sales incentives. This included assessing the prior
period accruals against payments made, invoices received
and credit notes issued in 2018.
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.
Our sector experience: we assessed whether the Group’s
assumptions used to estimate rebate accruals reflect our
knowledge of the business and industry, including known
or probable trends in the business environment.
Extended scope: we critically assessed manual journals
posted to revenue to identify unusual or irregular items,
and where relevant agreed these to supporting
documentation.
Our results
–
We found the Group’s assessment of revenue
recognition to be acceptable (2017 result: acceptable).
Low risk, high value
Our procedures included:
The carrying amount of the parent
company’s investment in its
subsidiary represents 94% (2017:
94%) 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 its 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.
–
–
Comparing valuations: we have compared the carrying
amount of the investment to the Group’s market
capitalisation to assess whether there are any indicators of
the investment’s impairment.
Test of detail: we have compared the carrying amount of
the investment to the value-in-use of the Group’s assets,
being an indication of its recoverable amount to assess
whether there are any indicators of the investment’s
impairment. Value-in-use of the Group’s assets was
audited as part of the Group’s audit as disclosed in the
goodwill impairment key audit matter above.
Our results
–
We found the Group’s assessment of the recoverability of
the investment in subsidiary to be acceptable (2017 result:
acceptable).
1.
We continue to perform procedures over the risk that revenue recognised around the period end is included in the wrong accounting period.
However, following the change in year-end to September 2018, we have not assessed this as one of the most significant risks in our current year
· 95 ·
audit and, therefore, it is not separately identified in our report this year.
Overview · Strategic Review · Governance · Financial Statements · Additional Information Normalised Profit
Before Tax
€26.5m (2017: €42.2m)
Group Materiality
€1m (2017: €1.6m)
€1m
Whole financial statements
materiality (2017: €1.6m)
€0.7m
Range of materiality at
7 components (€0.2m–€0.7m)
(2017: €0.3m–€1.1m)
Profit before tax
Group materiality
€50,000
Misstatements reported
to the audit committee
(2017: €80,000)
Group revenue
Group profit before tax
97%
(2017: 97%)
98%
(2017: 98%)
Group total assets
98%
(2017: 98%)
Full scope for Group audit
purposes 2018
Full scope for Group audit
purposes 2017
Residual components
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 million (2017: €1.6 million), determined
with reference to a benchmark of group profit before tax,
normalised to exclude exceptional expenses as disclosed in
note 8, of which it represents 3.8% (2017: 3.8%).
Materiality for the parent Company financial statements
as a whole was set at £0.2 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 (2017: 0.1%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding
€50,000, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 15 (2017: 16) reporting components, we
subjected 7 (2017: 7) to full scope audits for Group purposes.
The components within the scope of our work accounted
for the percentages illustrated opposite.
The remaining 3% (2017: 3%) of total Group revenue, 2%
(2017: 2%) of group profit before tax and 2% (2017: 2%) of
total Group assets is represented by 8 (2017: 9) reporting
components, none of which individually represented more
than 1% (2017: 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 €0.2 million to €0.7
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 (2017: 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.
The Group audit team visited 4 (2017: 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.
· 96 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 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
12 months from the date of approval of the financial
statements; or
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:
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:
–
the related statement under the Listing Rules set
out on page 90 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.
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.
· 97 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
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
and through discussion with the Directors and other
management (as required by auditing standards).
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 statement items.
In addition we considered the impact of laws and
regulations in the specific area of excise duty, recognising
the nature of the Group’s activities. 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 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 non-compliance with relevant laws and
regulations (irregularities), as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls.
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.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
91, 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.
· 98 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
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
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Reading
5 December 2018
· 99 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Proforma consolidated income statement (unaudited)
for the year ended 30 September 2018
The proforma consolidated income statement has been provided as additional information to the 9 month statutory reported
requirements to illustrate the performance of the business on an annualised basis given the importance of the fourth calendar
quarter. This information is unaudited and does not form part of the audited annual financial statements.
Selected income statement information has been extracted from the Group’s management accounts for the two comparative years.
Further notes to show the segmental analysis and certain assumptions used to calculate the proforma income statement are outlined
on pages 50 to 53.
Statutory
reported
9 mth
Sept 2018
Notes
Add:
Oct-Dec
2017
Proforma
12 mth
Sept 2018
193,766
88,631
282,397
(100,374)
(43,860)
(144,234)
93,392
(42,541)
(21,968)
(501)
(166)
44,771
138,163
(15,190)
(8,101)
(810)
(220)
(57,731)
(30,069)
(1,311)
(386)
28,216
20,450
48,666
–
–
–
28,216
20,450
48,666
249
(1,938)
42
(1,458)
26,527
19,034
(7,244)
19,283
(5,087)
13,947
291
(3,396)
45,561
(12,331)
33,230
19,283
13,947
33,230
9.71
9.66
16.72
16.65
3
2
4
7
2018
€000s
Revenue
Cost of goods sold
Gross profit
Selling expenses
Other operating expenses
Impairment loss on trade and other receivables
Share of loss of equity-accounted investees, net of tax
Operating profit
Exceptional expenses
Operating profit after exceptional expenses
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the period
Attributable to:
Equity holders of parent
Earnings per share (€cents) attributable to equity holders of the Parent
Basic
Diluted
· 48 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
2017
€000s
Revenue
Cost of goods sold
Gross profit
Selling expenses
Other operating expenses
Impairment loss on trade and other receivables
Share of loss of equity-accounted investees, net of tax
Operating profit
Exceptional expenses
Operating profit after exceptional expenses
Finance income
Finance costs
Profit before tax
Income tax expense
Exceptional tax expense
Profit for the period
Attributable to:
Equity holders of parent
Earnings per share (€cents) attributable to equity
holders of the Parent
Basic
Diluted
3
2
4
2
7
Pf
Statutory
reported
12 mth
Dec 2017
12 mth
Dec 2017
(excluding
exceptionals)
Notes
Less:
Oct-Dec
2017
Add:
Oct-Dec
2016
Proforma
12 mth
Sept 2017
269,837
269,837
(88,631)
78,583
259,789
(137,394)
(137,394)
43,860
(43,407)
(136,941)
132,443
132,443
(44,771)
35,176
122,848
(56,044)
(56,044)
(29,629)
(29,629)
(1,658)
(331)
15,190
8,101
810
220
(14,048)
(3,589)
(207)
–
(54,902)
(25,117)
(1,055)
(111)
(1,658)
(331)
44,781
(14,900)
29,881
681
(3,253)
27,309
(11,280)
(4,700)
11,329
44,781
(20,450)
17,332
41,663
–
–
–
–
44,781
(20,450)
17,332
41,663
681
(3,253)
42,209
(11,280)
–
(42)
1,458
112
(614)
751
(2,409)
(19,034)
16,830
40,005
5,087
–
(4,612)
(10,805)
–
–
30,929
(13,947)
12,218
29,200
11,329
30,929
(13,947)
12,218
29,200
5.72
5.68
15.61
15.51
14.74
14.64
· 49 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Notes to the proforma consolidated income statement (unaudited)
for the year ended 30 September 2018
The following notes provide detail on further assumptions applied in deriving the financial information presented in the proforma
consolidated income statement:
1. Accounting policies and critical areas of judgement: The accounting policies of the Group, as outlined on pages 108 to 123, are
applied to the statutory period as presented within the financial statements and accompanying notes. The financial information
provided for the proforma 12 month period has been derived from this information by extracting selected information from the
Group’s quarterly consolidated management accounts for the quarters ended December 2016 and December 2017.
Revenue: proforma revenue has been extracted from source accounting records without adjustment. A certain degree of estimation
is applied in determining volume rebate deductions from revenue. These estimates are revised each month such that no further
adjustment to revenue is necessary for the purposes of the proforma revenue. Revenue rebate adjustments were reviewed, to the
extent significant, at both the December 2017 and December 2016 year-ends and no further adjustment to revenue was necessary
for the purposes of proforma revenue figures.
In the context of the Group’s critical accounting judgments and key sources of estimation uncertainty, described in note 4 to the
financial statements, the following considerations were made:
a. Taxation: a thorough review of tax risks and exposures has been carried out in June and December of each reporting period, and
again as at September 2018. A review of significant judgments and estimates made in the quarterly periods ended December
2016 and December 2017 was undertaken to identify any that would have had a significant impact on September balances. No
adjustments were determined to be necessary to the methodology applied as per note 4 below.
b. Impairment of goodwill and indefinite-lived intangible assets: annual impairment reviews were performed as at 31 December of
each reporting period prior to current statutory period, and then as at 30 September 2018. The impairment charge recorded
against goodwill in the year to 31 December 2017 has been excluded from the proforma financial information as it was
classified as an exceptional expense. Given that the annual impairment review required under IAS 36 was performed in each of
the proforma periods, and no indicators of impairment were identified in either of the last three reporting periods, no further
assumptions were made regarding impairment for the derivation of the proforma financial information.
There are a number of other estimates and judgements made on a routine basis that are not considered significant for the financial
statements taken as a whole. No adjustments have been made to September 2016 and September 2017 balances to reflect these.
2. Exceptional expenses: in the year to 31 December 2017, two exceptional non-recurring items (see page 127) were expensed.
As they are non-recurring in nature, they have been excluded in the proforma income statement to illustrate underlying
comparative performance.
3. Share of loss of equity-accounted investee: on 17 July 2017, as per the note on page 142, Stock invested in a 25% shareholding
of Quintessential Brands Ireland Whiskey Limited (QBIWL). Information has been gathered from the management accounts of
QBIWL for the year to date September 2017 since acquisition to provide information for the proforma year September 2017. No
indicators of impairment were identified during the period since acquisition, and therefore the balances recognised in the proforma
periods represented only the share of loss for the relevant period. No adjustments were recorded to the fair value of contingent
consideration during the period since investment.
4. Taxation: as the effective tax rates for the Group do not materially change year-on-year, for the period of October to December
2017, the effective tax rate (excluding exceptional tax expenses) has been assumed to be the same as for the reported rate for the
year to December 2017, 26.7%. For the period of October to December 2016, the effective tax rate for the year to December 2016
has been assumed, 27.4%.
· 50 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 5. Adjusted EBITDA and Free cashflow: The Group defines adjusted EBITDA as operating profit before depreciation and
amortisation, exceptional items and the share of results of equity-accounted investees. A reconciliation from profit before tax
per the proforma consolidated income statement to adjusted EBITDA is as follows:
2018 €000s
Operating profit
Share of loss of equity-accounted investees, net of tax
Depreciation and amortisation
Adjusted EBITDA
Adjusted EBITDA margin
2017 €000s
Operating profit
Share of loss of equity-accounted investees, net of tax
Depreciation, amortisation and exceptionals
Adjusted EBITDA
Adjusted EBITDA margin
Statutory
reported
12 mth
Dec 2017
12 mth
Dec 2017
(excluding
exceptionals)
29,881
331
26,112
56,324
20.5%
44,781
331
11,212
56,324
20.9%
Statutory
reported
9 mth
Sept 2018
28,216
166
7,466
35,848
18.5%
Less:
Oct-Dec
2017
(20,450)
(220)
(2,845)
(23,515)
26.5%
Add:
Oct–Dec
2017
Proforma
12 mth
Sept 2018
20,450
220
2,845
23,515
26.5%
Add:
Oct-Dec
2016
17,332
–
3,103
20,435
26.0%
48,666
386
10,311
59,363
21.0%
Proforma
12 mth
Sept 2017
41,663
111
11,470
53,244
20.5%
The Group defines free cashflow as cash generated from operating activities (excluding income tax paid), plus the proceeds from
the sale of property, plant and equipment and proceeds from the disposal of intangible assets less cash used for the acquisition of
property, plant or equipment and for the acquisition of intangible assets. Adjusted free cashflow conversion is free cashflow as a
percentage of Adjusted EBITDA.
2018 €000s
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
Free cashflow conversion
2017 €000s
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
Free cashflow conversion
Statutory
reported
12 mth
Dec 2017
12 mth
Dec 2017
(excluding
exceptionals)
53,619
(3,710)
(1,376)
98
48,631
86.3%
53,619
(3,710)
(1,376)
98
48,631
86.3%
Statutory
reported
9 mth
Sept 2018
51,394
(2,449)
(1,075)
33
47,903
133.6%
Less:
Oct-Dec
2017
(10,552)
3,385
756
–
(6,411)
27.3%
Add:
Oct-Dec
2017
Proforma
12 mth
Sept 2018
10,552
(3,385)
(756)
–
6,411
27.3%
61,946
(5,834)
(1,831)
33
54,314
91.5%
Add:
Oct-Dec
2016
Proforma
12 mth
Sept 2017
18,944
(2,783)
(5,595)
(28)
10,538
51.6%
62,011
(3,108)
(6,215)
70
52,758
99.1%
· 51 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Notes to the proforma consolidated income statement (unaudited) continued
for the year ended 30 September 2018
6. Segmental analysis
2018
External revenue – 9 months reported
Add: Oct-Dec 2017
Poland
€000
105,648
46,936
External revenue – proforma 12 months
152,584
Adjusted EBITDA – 9 months reported
Add: Oct-Dec 2017
Adjusted EBITDA – proforma 12 months
2017
External revenue – restated reported
Less: Oct-Dec 2017
Add: Oct-Dec 2016
External revenue – proforma 12 months
Adjusted EBITDA – restated reported
Less: Oct-Dec 2017
Add: Oct-Dec 2016
Adjusted EBITDA – proforma 12 months
27,477
12,894
40,371
Poland
€000
147,496
(46,936)
40,600
141,160
37,738
(12,894)
10,045
34,889
Czech
Republic
€000
49,220
23,961
73,181
13,601
8,007
21,608
Czech
Republic
€000
67,712
(23,961)
20,818
64,569
21,818
(8,007)
6,824
20,635
Italy
€000
17,592
8,165
25,757
1,739
2,662
4,401
Italy
€000
26,224
(8,165)
7,901
25,960
6,317
(2,662)
2,351
6,006
Other
Operational
€000
Corporate
€000
21,306
9,569
30,875
2,846
2,856
5,702
–
–
–
(9,815)
(2,904)
(12,719)
Other
Operational
€000
Corporate
€000
28,405
(9,569)
9,264
28,100
4,899
(2,856)
2,553
4,596
–
–
–
–
(14,448)
2,904
(1,338)
(12,882)
Total
€000
193,766
88,631
282,397
35,848
23,515
59,363
Total
€000
269,837
(88,631)
78,583
259,789
56,324
(23,515)
20,435
53,244
· 52 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 7. Earnings per share: The proforma earnings per share has been calculated for the basic and diluted measures using the weighted
average number of ordinary shares in issue as follows:
a. Proforma year to September 2018: as per the 9 month period ending on the same date and as per note 14 of the financial
statements, as there were no material share schemes vesting or purchased into the employee benefit trust in the last quarter of
2017, nor did options outstanding materially differ over that period;
b. Proforma year to September 2017: the weighted average number of shares as per December 2017 as there were no material
share schemes vesting or purchased into the employee benefit trust in the last quarter of 2017 or 2016, nor did options
outstanding materially differ over that period.
2018
Basic earnings per share
Profit attributable to the equity shareholders of the Company (€000)
Weighted average number of ordinary shares in issue for basic earnings per share (000)
Basic earnings per share (€cents)
Diluted earnings per share
Profit attributable to the equity shareholders of the Company (€000)
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000)
Diluted earnings per share (€cents)
Statutory reported
9 mth Sept 2018
Proforma
12 mth Sept 2018
19,283
198,690
9.71
19,283
199,606
9.66
33,230
198,690
16.72
33,230
199,606
16.65
2017
Basic earnings per share
Statutory reported
12 mth Dec 2017
12 mth Dec
2017 (excluding
exceptionals)
Proforma
12 mth Sept 2017
Profit attributable to the equity shareholders of the Company (€000)
11,329
30,929
29,200
Weighted average number of ordinary shares in issue for basic
earnings per share (000)
Basic earnings per share (€cents)
Diluted earnings per share
198,104
5.72
198,104
15.61
198,104
14.74
Profit attributable to the equity shareholders of the Company (€000)
11,329
30,929
29,200
Weighted average number of diluted ordinary shares adjusted for the
effect of dilution (000)
Diluted earnings per share (€cents)
199,467
5.68
199,467
15.51
199,467
14.64
8. Net debt and leverage: Net debt is defined as the net of balances reported as cash and cash equivalents, loans and borrowings
and finance leases. Refer to note 30 in the financial statements for a calculation of net debt as at 30 September 2018.
Leverage, being net debt divided by 12 months adjusted EBITDA, is an important measure for the efficient capital structure of
the Group at a point in time, to support organic and inorganic growth. This is also an important measure for both our banks and
shareholders. Leverage at 30 September 2018 has therefore been calculated using the net debt value (€31,583,000) divided by
proforma adjusted EBITDA 2018 (€59,363,000) = 0.53.
As leverage has been reported as at 31 December 2017 (0.94, see note 30 in the financial statements), there is felt to be no need for
a comparative calculation as at 30 September 2017.
· 53 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Stock Prestige
A premium luxury vodka
launched in Poland in 2009 –
the result of combining
130 years of experience in
production of top quality
spirits with the most recent
technological advancements.
· 100 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Financial
Statements
102
103
104
106
107
108
162
163
164
165
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of changes
in equity
Consolidated statement of cashflows
Notes to the consolidated
financial statements
Company statement of financial position
Company statement of cashflows
Company statement of changes
in equity
Notes to the Parent Company
financial statements
· 101 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Consolidated income statement
for the period ended 30 September 2018
Revenue
Cost of goods sold
Gross profit
Selling expenses
Other operating expenses
Impairment loss on trade and other receivables
Share of loss of equity-accounted investees, net of tax
Operating profit before exceptional expense
Exceptional expense
Operating profit
Finance income
Finance costs
Profit before tax
Income tax expense
Exceptional tax expense
Profit for the period
Attributable to:
Equity holders of the Parent
Earnings per share, (€cents) attributable to equity holders of the Parent
Basic
Diluted
Notes
5
22
8
9
9
13
8, 13
9 months to
30 September 2018
€000
193,766
(100,374)
93,392
(42,541)
(21,968)
(501)
(166)
28,216
–
28,216
249
(1,938)
26,527
(7,244)
–
19,283
Year to
31 December 2017
Restated¹
€000
269,837
(137,394)
132,443
(56,044)
(29,629)
(1,658)
(331)
44,781
(14,900)
29,881
681
(3,253)
27,309
(11,280)
(4,700)
11,329
19,283
11,329
14
14
9.71
9.66
5.72
5.68
1. The Group has adopted IFRS 15 using the full retrospective method, and therefore the requirements of IFRS 15 have been applied to each period
presented in the consolidated financial statements. Accordingly, revenue and selling expenses presented for 2017 have been restated. Refer to note 3 for
further details
· 102 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Consolidated statement of comprehensive income
for the period ended 30 September 2018
Profit for the period
Other comprehensive (expense)/income:
Other comprehensive (expense)/income to be reclassified to profit or loss in
subsequent periods:
Exchange differences arising on translation of foreign operations
Other comprehensive income/(expense) not to be reclassified to profit or loss in
subsequent period:
Re-measurement gains/(losses) on employee severance indemnity
Total comprehensive income for the period, net of tax
Attributable to:
Equity holders of the Parent
9 months to
30 September 2018
€000
Year to
31 December 2017
€000
19,283
11,329
(1,914)
17,369
4
17,373
8,310
19,639
(5)
19,634
17,373
19,634
· 103 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Consolidated statement of financial position
as at 30 September 2018
Notes
30 September 2018
€000
31 December 2017
€000
15
16
18
22
13
21
19
20
21
13
32
23
24
13
25
27
27
23
24
13
26
25
45,940
311,129
47,265
16,994
589
4,742
426,659
30,711
119,238
135
863
50,143
201,090
627,749
81,300
2,692
47,421
1,082
287
132,782
45,940
311,614
50,871
17,160
4,151
4,770
434,506
23,101
163,162
–
715
61,341
248,319
682,825
114,048
2,600
47,501
1,051
416
165,616
72,080
73,915
16
66
8,149
62,058
717
143,086
275,868
351,881
48
83
8,395
79,256
1,203
162,900
328,516
354,309
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
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
· 104 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Overview · Strategic Review · Governance · Financial Statements · Additi onal Informati on
Capital and reserves
Issued capital
Share premium
Merger reserve
Consolidati on reserve
Own share reserve
Other reserve
Foreign currency translati on reserve
Retained earnings
Total equity
Total equity and liabiliti es
Notes
30 September 2018
€000
31 December 2017
€000
28
28
28
28
28
28, 34
28
23,625
–
99,033
5,130
(3,370)
11,406
13,915
202,142
351,881
627,749
23,625
183,541
99,033
5,130
(306)
11,277
15,829
16,180
354,309
682,825
Notes 1 to 37 are an integral part of the consolidated fi nancial statements.
The consolidated fi nancial statements of Stock Spirits Group PLC, registered number 08687223, on pages 102 to 161, were
approved by the Board of Directors and authorised for issue on 5 December 2018 and were signed on its behalf by:
Mirek Stachowicz
Paul Bal
Chief Executi ve Offi cer
Chief Financial Offi cer
5 December 2018
5 December 2018
· 105 ·
Consolidated statement of changes in equity
for the period ended 30 September 2018
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 2017
23,625 183,541
99,033
5,130
(356)
9,335
7,519
20,752 348,579
Profit for the period
Other comprehensive
income/(expense)
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
Profit for the period
Other comprehensive
(expense)/income
Total comprehensive
(expense)/income
Share-based compensation
credit (note 34)
Dividends (note 29)
Own shares acquired for
incentive schemes (note 28)
Own shares utilised for
incentive schemes (note 28)
Cancellation of share premium
(note 28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,532)
–
468
–
–
–
129
–
–
–
–
19,283
19,283
(1,914)
4
(1,910)
(1,914)
19,287
17,373
–
–
–
–
–
129
(16,398)
(16,398)
–
(3,532)
(468)
–
–
– (183,541)
–
–
–
–
– 183,541
Balance at 30 September 2018
23,625
–
99,033
5,130
(3,370) 11,406
13,915
202,142 351,881
· 106 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Consolidated statement of cashflows
for the period ended 30 September 2018
Operating activities
Profit for the period
Adjustments to reconcile profit for the period to net cashflows:
Income tax expense recognised in income statement
Interest expense and bank commissions
(Gain)/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 (gain)/loss
Share-based compensation
Share of loss of equity-accounted investees, net of tax
(Decrease)/increase in provisions
Working capital adjustments
Decrease/(increase) in trade receivables and other assets
Increase in inventories
(Decrease)/increase in trade payables and other liabilities
Cash generated by operations
Income tax paid
Net cashflows 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 investee
Net cashflow from investing activities
Financing activities
Repayment of borrowings
Interest paid
Purchase of own shares
Dividends paid to equity holders of the parent
Net cashflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the start of the period
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at the end of the period
9 months to
30 September 2018
€000
Year to
31 December 2017
€000
Notes
19,283
11,329
13
9
9
18
16
8
9
34
22
13
9
16
18
22
23
28
29
32
7,244
1,938
(19)
(93)
6,424
1,042
–
(156)
129
166
(455)
35,503
43,817
(7,610)
(20,316)
15,891
51,394
(4,458)
46,936
93
(1,075)
33
(2,449)
–
(3,398)
(32,015)
(1,773)
(3,532)
(16,398)
(53,718)
(10,180)
61,341
(1,018)
50,143
15,980
3,169
538
(681)
9,894
1,318
14,900
84
1,942
331
775
59,579
(30,505)
(1,443)
25,988
(5,960)
53,619
(6,959)
46,660
681
(1,376)
98
(3,710)
(15,000)
(19,307)
(20,128)
(3,147)
(116)
(15,730)
(39,121)
(11,768)
74,956
(1,847)
61,341
· 107 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Notes to the consolidated financial statements
at 30 September 2018
1. Corporate information
These consolidated financial statements were approved and authorised for issue by the Board of Directors of Stock Spirits Group
PLC (the Company) on 5 December 2018.
Stock Spirits Group PLC is domiciled in England. The Company’s registered office is at Solar House, Mercury Park, Wooburn Green,
Buckinghamshire, HP10 0HH, United Kingdom.
The Company, together with its subsidiaries (the Group), is involved in the production and distribution of branded spirits in Central
and Eastern Europe.
2. 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.
Details of the terms of each external loan facility are set out in note 23. The Group met its covenant requirements throughout the
period ended 30 September 2018.
The Group has positive adjusted free cashflow. The Group has a €200,000,000 revolving credit facility available to it. As at 30
September 2018 €81,443,000 (2017: €114,191,000) was drawn, and a further €10,551,000 (2017: €14,250,000) was utilised for
customs guarantees in Italy and Germany, thereby leaving access to funds of €108,006,000 (2017: €71,559,000) 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 €32,710,000 (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 a reasonable expectation that the Company and the Group will have adequate resources
to continue their operational existence for the foreseeable future and remain compliant with the covenant 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.
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).
· 108 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 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 2018 noted below.
New/Revised standards and interpretations adopted in 2018
The following amendments to existing standards and interpretations were effective for the period and were applicable to the Group:
IFRS 9 Financial Instruments
This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 sets out requirements for recognising
and measuring financial assets and financial liabilities.
The adoption of IFRS 9 has not impacted the Group’s accounting policies related to financial liabilities, however financial assets
classified as loans and receivables under IAS 39 are now measured at amortised cost. These include cash and cash equivalents, trade
and other receivables and customs deposits.
Financial assets are measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment
losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on
derecognition is recognised in profit or loss.
The effect of adopting IFRS 9 on the carrying amounts of financial assets relates solely to the new impairment requirements,
as described further below. The requirements of IFRS 9 have been adopted without restating comparative information, but are
recognised in the opening balance sheet at 1 January 2018.
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model.
ECLs are based on the difference between the contractual cashflows due in accordance with the contract, and all the cashflows that
the Group expects to receive over the life of the asset. The shortfall is then discounted at an approximation to the asset’s original
effective interest rate.
For Trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime
expected credit losses. The Group has established a provision matrix that is based on the Group’s historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and the economic environment.
There has not been a material impact to the Group’s interim condensed consolidated financial statements as a consequence of
adopting IFRS 9.
The provision for bad debts is not considered to be a critical accounting judgement or key source of estimation uncertainty. While
the actual level of debt collected may differ from the estimated levels of recovery this is not expected to be by a material amount. In
addition to applying the ECL model, each subsidiary evaluates the collectability of trade receivables at each balance sheet date and
makes any specific provisions where there is objective evidence of impairment.
· 109 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 3. Accounting policies continued
New/Revised standards and interpretations adopted in 2018 continued
IFRS 15 Revenue from Contracts with Customers
IFRS 15 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. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
Contracts entered into by the Group generally include a single performance obligation, being supply of goods to the customer.
The impact of IFRS 15 to the Group is in respect of the presentation of payments made to customers to support promotions and
marketing activities, which do not represent a distinct service under IFRS 15. These were previously recorded as selling expenses.
Under IAS 18, there was limited guidance regarding the classification of such items. IFRS 15 clarified that if the consideration payable
to a customer did not represent a payment for a distinct good or service, these should be treated as a reduction of the transaction
price. Other advertising and promotional spend undertaken by the Group remain included in selling expenses in the Consolidated
Income Statement.
Under the new standard, revenue from the sale of goods is recognised at the point in time at which control is transferred
to the customer. This is consistent with the application of our existing accounting policies and, therefore, there is no related
transition adjustment.
There is no further impact to the nature, timing or satisfaction of performance obligations.
The Group has adopted IFRS 15 using the full retrospective method, and therefore the requirements of IFRS 15 have been
applied to each period presented in the consolidated financial statements. Accordingly, the information presented for 2017 has
been restated.
There has been no restatement of the consolidated statement of financial position or consolidated statement of changes in equity
as the impact of IFRS 15 is limited to a reclassification of such payments for promotions and marketing activities from selling
expenses to revenue. There is also no impact to the comparatives included in the consolidated statement of cashflows.
In relation to the disaggregated revenue disclosure requirements of IFRS 15, the Group considers the segmental disclosures in note 6
to the Financial Statements to be sufficient to depict how revenues across the Group may be affected by economic factors.
Impact on the income statement and consolidated statement of comprehensive income – 2017 comparatives
For the year ended 31 December 2017
€000
As reported in
2017
Adjustments
Revenue
Gross profit
Selling expenses
Operating profit
Profit before tax
Profit for the period
Total comprehensive income for the year
274,601
137,207
(60,808)
29,881
27,309
11,329
19,634
(4,764)
(4,764)
4,764
–
–
–
–
Restated
269,837
132,443
(56,044)
29,881
27,309
11,329
19,634
· 110 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 Impact on external revenue reported in segmental analysis – 2017 comparatives
For the year ended 31 December 2017
€000
As reported in
2017
Adjustments
Poland
Czech Republic
Italy
Other Operational
Corporate
Total
147,654
68,817
28,115
30,015
–
(158)
(1,105)
(1,891)
(1,610)
–
Restated
147,496
67,712
26,224
28,405
–
274,601
(4,764)
269,837
As above there is no impact on operating profit.
The following table summarises the impact of adopting IFRS 15 on the income statement and consolidated statement of
comprehensive income for the 9 months ending 30 September 2018 for each of the lines affected. There was no material impact
on the Group’s statement of financial position or statement of cashflows for the 9 month period ended 30 September 2018.
Impact on the income statement and consolidated statement of comprehensive income
For the 9 months ended 30 September 2018
€000
Revenue
Gross profit
Selling expenses
Operating profit
Profit before tax
Profit for the period
Total comprehensive income for the period
Presentation of impairment
As reported
Adjustments
Amounts before
adoption of
IFRS 15
193,766
93,392
(42,541)
28,216
26,527
19,283
17,373
3,631
3,631
(3,631)
–
–
–
–
197,397
97,023
46,172
28,216
26,527
19,283
17,373
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
Impairment losses related to trade and other receivables are presented separately in the statement of profit and loss and other
comprehensive income. The comparative period has been restated accordingly, with impairment losses being reallocated from Other
operating expenses.
The following amendments to existing standards and interpretations were effective for the year, but either they were not applicable
or did not have a material impact on the Group:
•
IFRIC Interpretation 22: Foreign Currency Transactions and Advance Considerations
• Amendments to IFRS 2: IFRS 2 Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4: Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts
• Amendments to IAS 40: Transfers of Investment Property
• Annual Improvements to IFRS Standards 2014–2016 Cycle: minor amendments to IFRS 1 and IAS 28
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses
• Amendments to IAS 7: Disclosure Initiative.
· 111 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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:
IFRS 16: Leases
IFRS 17: Insurance Contracts
Amendments to IFRS 9: Financial Instruments
Amendments to IAS 19: Employee Benefits
Amendments to IAS 28: Investments in Associates and Joint Ventures
Effective dates1
1 January 2019
1 January 2021
1 January 2019
1 January 2019
1 January 2019
Annual Improvements to IFRS Standards 2015–2017 Cycle: minor amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 1 January 2019
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
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, with the possible exception of IFRS 16, as explained below.
IFRS 16 Leases
A project in relation to IFRS 16 Leases has been initiated in 2018 to determine the full financial impact of the new standard.
The standard will have an impact on the Group’s financial statements and this will be reported in next year’s Annual Report and
Accounts. The Group does not intend to apply the new standard before 1 January 2019 and hence will adopt this new standard in
the financial year 1 October 2019 to 30 September 2020.
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
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries controlled by the
Company for the periods to 30 September 2018 and 31 December 2017. Control is achieved when the Group is exposed to, or has
rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over
the investee. Specifically, the Group controls an investee if, and only if, the Group has all of the following:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect its returns.
· 112 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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 period are included in the consolidated financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The
financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences
until the date on which control ceases.
The subsidiary financial statements are prepared for the same reporting period as the Parent Company and are based on consistent
accounting policies. All intra-Group balances and transactions, including unrealised profit arising from them, are 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 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.
· 113 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 3. Accounting policies continued
Business combinations continued
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).
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
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.
Contracts entered into by the Group generally include a single performance obligation, being supply of goods to the customer.
As such, revenue from the sale of goods is recognised at the point in time at which control is transferred to the customer i.e. when
all the following conditions are satisfied:
•
the customer has taken delivery and legal title to the goods sold
•
the Group has transferred to the buyer the significant risks and rewards of ownership of the goods
•
the amount of revenue can be measured reliably and
•
it is probable that the economic benefits associated with the transaction will flow to the entity.
· 114 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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, rebates and other similar allowances to customers, the measurement of which is
determined by contractual arrangements with customers. Sales incentives are recognised in the same period as the related revenue
is recorded, and comprise:
• Discounts and rebates – which are sales incentives to customers to encourage them to purchase increased volumes and are
related to total volumes purchased and sales growth
• Marketing services – which include merchandising, slotting and listing fees
• Sales support for promotional activities – which include payments to customers, distributors and external agencies.
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
• 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.
· 115 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 3. Accounting policies continued
Foreign currencies continued
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.
The closing foreign exchange rates used in the consolidation are as follows:
PLN
CZK
GBP
CHF
2018
4.28
25.70
0.89
1.13
2017
4.17
25.55
0.89
1.17
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 period in which the past service credit is granted.
The severance indemnity obligation recognised in the statement of financial position represents the present value of the obligation
as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan
assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present
value of available refunds and reductions in future contributions to the plan.
Contributions for severance indemnity are recognised as an expense in the income statement when employees have rendered
service entitling them to the contributions.
Income taxes
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the 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.
· 116 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements with the following exceptions:
• Where the temporary difference arises from the initial recognition of goodwill or 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.
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
off-set only if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate
to the same taxation authority and that authority permits the Group to make a single net payment.
Income tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other
comprehensive income. Similarly, income tax is charged or credited directly to equity if it relates to items that are credited or charged
directly to equity. Otherwise income tax is recognised in the income statement.
Property, plant and equipment
Buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the statement of
financial position at their cost less depreciation. Land is not depreciated.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined,
are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property
assets, commences when the assets are ready for their intended use. Fixtures and equipment are stated at cost less accumulated
depreciation and any accumulated impairment losses.
Depreciation is charged so as to write-off the cost or valuation of assets, other than land and properties under construction, over
their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are
reviewed at each period end, with the effect of any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where
shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference
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
· 117 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 3. Accounting policies continued
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 so are not amortised, but are tested for
impairment annually and 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 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.
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.
· 118 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 Goodwill
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the Group’s cash-generating units that are expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the Group are assigned to those units. Goodwill is reviewed for impairment annually
or more frequently if there is an indication of impairment. Impairment of goodwill is determined by assessing the recoverable amount
of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the
carrying value of the cash-generating unit to which goodwill has been allocated, an impairment loss is recognised. Impairment losses
relating to goodwill cannot be reversed in future periods.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable
overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with the
majority being valued on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all
estimated costs of completion and costs necessary to make the sale.
Trade and other receivables
Trade and other receivables are 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 €32,710,000 (PLN 140,000,000) of invoices (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.
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.
· 119 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 3. Accounting policies continued
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the
Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
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.
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:
•
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.
· 120 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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 is available to measure
fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level of input that is significant to the fair value measurement as a whole:
• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers
have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to
the fair value measurement as a whole) at the end of each reporting period.
Leases and hire purchase commitments
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
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 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.
· 121 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 3. Accounting policies continued
Share-based payments continued
Equity-settled transactions continued
Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of
either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as
a replacement award on the date that it is granted, the cost based on the original award terms continues to be recognised over the
original vesting period and an expense is recognised over the remainder of the new vesting period for the incremental fair value of
any modification.
The financial effect of awards by the Parent Company of options over its equity shares to employees of subsidiary undertakings is
recognised by the Parent Company in its individual financial statements as an increase in its investment in subsidiaries with a credit
to equity equivalent to the IFRS 2 cost in subsidiary undertakings. The subsidiary, in turn, recognises the IFRS 2 cost in its income
statement with a credit to equity to reflect the deemed capital contribution from the Parent Company.
Repurchase and reissue of ordinary shares (own shares)
When shares recognised in equity are repurchases, the amount of the consideration paid, which includes directly attributable costs,
are recognised as a deduction from equity. Repurchased shares are classified as own shares and are presented in the own share
reserve. When own shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the
resulting surplus or deficit on the transaction is presented within retained earnings.
Cash dividends to equity holders of the Parent
The Company recognises a liability to make cash distributions to equity holders of the parent when the distribution is authorised and the
distribution is no longer at the discretion of the Company. As per the corporate laws in the United Kingdom, a distribution is authorised
when it is approved by the shareholders. A corresponding amount is recognised directly in equity.
Exceptional and adjusted profitability measures
Management 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:
• 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.
· 122 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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 if 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
• costs incurred in association with business combinations, such as legal and professional fees and stamp duty that are excluded
from the fair value of the consideration of the business combination
• significant restructuring and integration costs that are incurred following a material change in business operations, such as a
business combination
•
impairment charges in respect of tangible and intangible assets as a result of restructuring, business closure, underperformance
or other matters 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.
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Overview · Strategic Review · Governance · Financial Statements · Additional Information 4. Critical accounting judgements and key sources of estimation uncertainty continued
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year
are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial
statements were prepared. However, estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period,
or in the period of the revision and future periods if the revision affects both current and future periods.
Measurement and impairment of indefinite life intangible assets
A key source of estimation uncertainty that has a significant risk of causing material adjustment to the carrying amounts of assets
and liabilities within the next financial year is the measurement and impairment of indefinite life intangible assets in certain of the
Group’s cash-generating units, as further explained in note 17. The measurement of intangible assets other than goodwill on a
business combination involves estimation of future cashflows and the selection of a suitable discount rate. The Group determines
whether indefinite life intangible assets are impaired on an annual basis and this requires an estimation of their value-in-use.
This involves estimation of future cashflows and choosing a suitable discount rate (note 17). Brands are considered to have an
indefinite life. Management considers the business to be a brand business and expects to acquire, hold and support brands for an
indefinite period.
Impairment of goodwill
The Group’s impairment test for goodwill is based on a value-in-use calculation using a discounted cashflow model. The cashflows
are derived from the Group’s three-year 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, are 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.
The Group provides for anticipated risks, based on reasonable estimates, for tax risks in the respective countries in which it
operates. The amounts 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.
· 124 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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.
Revenue recognition
In line with common business practices, the Group negotiates a variety of sales incentive arrangements with customers across a
number of geographies, and revenue is measured net of such items.
For sales incentive arrangements where there is uncertainty in amounts due to customers, for example in respect of annual
retrospective volume rebates and accruals relating to regional chains in Poland, management makes estimates related to customer
performance, sales volume and agreed terms, to determine total amounts earned and to be recorded in deductions from revenue.
The estimation of these incentives is an area of judgment, with varying complexity, depending on the nature of the arrangements.
The carrying value of amounts held where outcomes are not yet finalised is €18.8m (2017: €14.7m), although the potential impact of
any changes over the next 12 months is not expected to be material.
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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
557,221
3,039
789,535
3,025
(366,494)
(522,723)
193,766
269,837
In identifying its operating segments, management follows the Group’s geographic split, representing the main products traded by
the Group. The Group is considered to have five reportable operating segments: Poland, Czech Republic, Italy, Other Operational and
Corporate. The Other Operational segment consists of the results of operations of the Slovakian, International and Baltic distillery entities.
The Corporate segment consists of expenses and central costs incurred by non-trading Group entities.
Each of these operating segments is managed separately as each of these geographic areas requires different marketing approaches.
All inter-segment transfers are carried out at arm’s length prices. The measure of revenue reported to the chief operating decision-
maker to assess performance is based on external revenue for each operating segment and excludes intra-Group revenues. The
measure of Adjusted EBITDA reported to the chief operating decision-maker to assess performance is based on operating profit
and excludes intra-Group profits, depreciation, amortisation and exceptional items.
· 125 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 6. Segmental analysis continued
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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
26,527
166
1,689
28,382
7,466
35,848
–
35,848
27,309
331
2,572
30,212
11,212
41,424
14,900
56,324
Total assets and liabilities are not disclosed as this information is not provided by segment to the chief operating decision-maker on a
regular basis.
2018
External revenue
Adjusted EBITDA
2017 – restated
External revenue
EBITDA after exceptional expense
Exceptional expense (note 8)
Poland
€000
105,648
27,477
Poland
€000
147,496
37,738
–
Czech
Republic
€000
49,220
13,601
Czech
Republic
€000
67,712
21,818
–
Adjusted EBITDA
37,738
21,818
Italy
€000
17,592
1,739
Italy
€000
26,224
(8,583)
14,900
6,317
Other
Operational
€000
21,306
2,846
Other
Operational
€000
28,405
4,899
–
Corporate
€000
Total
€000
–
193,766
(9,815)
35,848
Corporate
€000
Total
€000
–
269,837
(14,448)
–
41,424
14,900
56,324
4,899
(14,448)
External revenue by operating segment in 2017 has been restated for the impact of IFRS 15. Refer to note 3 for further details.
There is no impact to EBITDA by operating segment, however as a consequence of the restatement of revenue, EBITDA margin has
improved by 0.4% to 20.9%.
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 is not required to be presented in accordance with IFRS.
The Directors use the Adjusted EBITDA and Adjusted free cashflow conversion as the performance measures of the business. They
remove significant items that would otherwise distort comparability.
The use of these alternative performance measures is consistent with how institutional investors consider the performance of the Group.
These measures are not defined in IFRS and thus may not be comparable to similarly titled measures by other companies.
· 126 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
28,216
–
166
28,382
7,466
35,848
18.5%
29,881
14,900
331
45,112
11,212
56,324
20.9%
The Group defines free cashflow as cash generated from operating activities (excluding income tax paid), plus the proceeds from
the sale of property, plant and equipment and proceeds from the disposal of intangible assets less cash used for the acquisition of
property, plant or equipment and for the acquisition of intangible assets. Adjusted free cashflow conversion is free cashflow as a
percentage of Adjusted EBITDA.
Free cashflow
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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
51,394
(2,449)
(1,075)
33
47,903
53,619
(3,710)
(1,376)
98
48,631
Adjusted free cashflow conversion
133.6%
86.3%
8. Exceptional items
In 2018, the Group has no exceptional items (2017: exceptional expenses of €14,900,000 and exceptional tax charge of €4,700,000).
During 2017, the impairment review for goodwill identified the need to impair the goodwill held for the Italian brands by
€14,900,000. Due to the size of the impairment and the nature of the transaction, it was disclosed as an exceptional expense.
See note 17.
Due to a change in tax legislation in Poland during the year to 31 December 2017, tax amortisation on our Polish brands ceased to
be available. This resulted in a significant one-off deferred tax charge of €4,700,000, which was classified in accordance with our
accounting policies as an exceptional charge. See note 13 for further information.
· 127 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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
10. Staff costs
Wages and salaries
Social security costs
Other pension costs
Termination benefits
Long-term incentive plan (note 25)
Share-based compensation
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
156
93
249
–
681
681
1,200
1,384
–
514
224
1,938
1,689
84
788
997
3,253
2,572
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
22,576
4,329
1,375
74
(19)
149
28,484
29,096
5,273
1,552
1,632
28
2,284
39,865
Other pension costs relate primarily to the Group’s contributions to defined contribution pension plans. Also included is €170,000
(2017: €239,000) of contributions relating to the employee severance indemnity in Italy, which represents an unfunded defined
benefit plan. Refer to note 25 for further details.
Average monthly number of employees in the period
9 months to
30 September
2018
No.
Year to
31 December
2017
No.
442
354
207
1,003
436
353
191
980
Production and logistics
Sales
Other
· 128 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
11. Operating profit
Operating profit for the period has been arrived at after charging/(crediting):
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
(Gain)/loss on disposal of intangible and tangible assets
Net foreign exchange loss/(gain)
Exceptional expenses (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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
100,374
16,006
137,394
24,486
6,315
4,267
3,668
3,333
(19)
431
–
3,847
2,018
1,601
7,466
8,543
5,530
4,356
3,595
538
(123)
14,900
5,690
3,266
2,256
11,212
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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
368
392
61
821
284
392
54
730
· 129 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 13. Income taxes
(i) Income tax recognised in profit or loss:
Income tax expense:
Tax expense comprises:
Current tax expense
Tax expense 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.
Profit before tax
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
3,455
327
3,367
95
7,244
5,826
213
5,219
22
11,280
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
–
4,700
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
26,527
27,309
Accounting profit multiplied by United Kingdom combined rate of corporation
tax 19.00% (2017: 19.25%)
5,040
5,257
Expenses not deductible for tax purposes
– Goodwill impairment (note 17)
– Other
Tax losses for which no deferred tax is recognised
Deferred tax not previously recognised
Effect of difference in tax rates
Tax charge 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
· 130 ·
–
1,189
964
(351)
16
327
(36)
95
7,244
–
7,244
2,868
1,363
1,384
–
248
213
(75)
22
11,280
4,700
15,980
27.3%
58.5%
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
Post-IPO corporate restructuring
Post-IPO the Group completed corporate restructuring transactions which gave rise to significant deferred tax assets which were
being amortised over a five-year period. Due to tax legislation changes in Poland, from 1 January 2018, amortisation on these items
was no longer deductible for tax purposes. This resulted in an exceptional tax charge of €4,700,000 in the year to 31 December
2017. The charge is considered exceptional because it is a significant transaction resulting from the change in tax legislation.
(ii) Income tax recognised in the balance sheet:
Current tax liability:
Tax prepayments as of 1 January
Current tax liability as of 1 January
Tax charge relating to prior year
Payments in period
Current tax expense
Other taxes
Interest on open tax enquiries
Foreign exchange adjustment
Net current tax liability
Analysed as:
Tax prepayment as of end of period
Current tax liability as of end of period
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
715
(8,395)
(327)
4,458
(3,455)
(95)
(199)
12
411
(8,926)
(213)
6,959
(5,826)
(22)
–
(63)
(7,286)
(7,680)
863
(8,149)
(7,286)
715
(8,395)
(7,680)
The Group is an international drinks business and, as such, transfer pricing arrangements are in place to cover the recharging of
management and stewardship costs, as well as the sale of alcohol and finished goods between Group companies. The Group has
undertaken a review of potential tax risks and current tax assessments, and whilst it is not possible to predict the outcome of
any pending enquiries, adequate provisions are considered to have been included in the Group accounts to cover any expected
estimated future settlements.
In common with many groups operating across multiple jurisdictions, certain tax positions related to intercompany transactions may
be subject to challenge by the relevant tax authority. The Group has recognised provisions totalling €8,001,000 (2017: €7,514,000)
in relation to matters where it is probable that tax positions taken by the Group will not be accepted.
Tax risks include those in respect of our Italian business, Stock S.r.l. The Italian tax authorities have open inquiries covering the years
2006–2010. Rulings from the Second Court have resulted in a net increase in provisions in the period of €1,123,000 including
associated interest of €199,000. The Group will continue to challenge these rulings.
During 2017, a tax judgement was made against the Group’s Czech subsidiary, Stock Plzeň-Božkov s.r.o., and therefore provisions
were made as at 31 December 2017 for income tax due of €636,000 and associated interest and penalties of €631,000. These
amounts were paid during 2018 such that the provision as at 30 September 2018 is €nil. Notwithstanding these payments, Stock
Plzeň-Božkov is vigorously contesting the assessment.
· 131 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 13. Income taxes continued
(ii) Income tax recognised in the balance sheet: continued
Settlement has been reached during the period on the inquiry into the 2015 corporate tax return for the Group’s German subsidiary,
Baltic Distillery GmbH, with agreement to pay tax of €298,000 and interest of €33,000. These amounts were fully covered in
brought forward provisions.
In 2016, the Group’s Polish subsidiary, Stock Polska Sp. z.o.o., received notification from the Polish tax authorities of the
commencement of an inquiry covering its 2013 corporate income tax return. To date, there has been no formal assessment although
written enquiries were received in March 2018 and in October 2018, and most recently in late November 2018 after the balance
sheet date.
The enquiries cover a number of items, the most significant of which relates to corporate restructuring transactions carried out in
Poland around the time of the IPO in 2013 which gave rise to tax deductible costs in the form of the amortisation of intellectual
property (‘IP’) assets claimed in tax returns up to 2017. The Group obtained individual tax rulings relevant for the restructuring
process prior to implementation. Whilst it is the case that there could be a risk of material exposure arising from this inquiry, the
Group does not consider there to be any basis to the challenge on this matter by the Polish tax authority and has thus responded
to them accordingly. No provision has been recorded in relation to the IP inquiry since, at this stage, the Group considers it to be
highly unlikely that any liability will ultimately crystallise. The amount of tax in relation to the amortisation of the IP assets and other
related matters in 2013 is some €3,300,000. Although not subject to any enquiry at this stage, tax deductions claimed in respect
of these matters in each of the years 2014 to 2017 are in the range between €5,800,000 and €6,300,000. These sums exclude
penalty interest that would be applied and calculated from the year concerned up to the current day. The interest rate as published
by the Polish Ministry of Finance that could be applied is in the range of 8% and 13% on the years between 2013 and the current
day. Management considers that ultimately it is probable that the tax position taken will be sustained, and therefore no provision has
been recognised for this issue. Nevertheless, in some circumstances the Group may have to pay over sums assessed as due by the
authorities and then seek their recovery as appeals processes run their course.
The other element of these written enquiries in Poland is in relation to historical transfer pricing arrangements between Group
companies during the years 2013 to 2016. A provision of €3,684,000 in relation to this and other transfer pricing issues is held as at
31 December 2017 and 30 September 2018.
Although our transfer pricing is performed on an arms’ length basis, it is management’s view that there is risk of further assessments
regarding intercompany transactions in certain jurisdictions, and thus a provision is carried for this eventuality. Although provisions
are based on management’s assessment of the most likely or expected outcome, there is a reasonable possibility of material changes
to these estimates over the next 12 months.
Impact of Brexit
On 29 March 2017, the UK government invoked Article 50 of the Treaty of Lisbon, notifying the European Council of its intention to
withdraw from the EU. There is an initial two-year timeframe for the UK and the 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.
· 132 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 (iii) Unrecognised tax losses
The Group has tax losses which arose in the UK of €45,834,000 as at 30 September 2018 (31 December 2017: €32,298,000) that
are available indefinitely for off-set against future taxable profits of the companies in which the losses arose. A deferred tax asset has
not been recognised in respect of these losses as it is not sufficiently probable that the losses will be utilised in the relevant entities.
(iv) Deferred tax balances
The exceptional tax expense is included in the amount charged in 2017 on the Brands.
Deferred tax assets and liabilities arise from the following:
2018
Temporary differences:
Brands
Accrued liabilities
Other assets and liabilities
Deferred tax asset
Deferred tax liability
2017
Temporary differences:
Brands
Accrued liabilities
Other assets and liabilities
Deferred tax asset
Deferred tax liability
Brands
1 January
2018
€000
(55,085)
7,956
3,779
(43,350)
4,151
(47,501)
(43,350)
1 January
2017
€000
(Charged)/
credited
to income
€000
Translation
difference
€000
30 September
2018
€000
(54)
(1,812)
(1,501)
(3,367)
(3,469)
102
(3,367)
124
(204)
(35)
(115)
(93)
(22)
(115)
(55,015)
5,940
2,243
(46,832)
589
(47,421)
(46,832)
(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)
566
(1,319)
(753)
7,956
3,779
(43,350)
4,151
(47,501)
(43,350)
Deferred tax liability is based on the difference between the accounting and tax book values of brands, and calculated using the
appropriate substantively enacted tax rate.
(v) Change in tax rates
A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) was substantively enacted on 15 September 2016.
A further reduction to 17% (effective from 1 April 2020) was also substantively enacted on this date. The deferred tax asset or
liability at 30 September 2018 has been calculated based on the appropriate tax rates. There are no UK deferred tax assets or
liabilities to which this new rate will be applied.
· 133 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
14. Earnings per share
Basic earnings per share amounts are calculated by dividing the profit for the period attributable to ordinary equity holders of the
Parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are
calculated by dividing the profit attributable to ordinary equity holders of the Parent by the weighted average number of ordinary
shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all
the dilutive potential ordinary shares into ordinary shares. Adjusted earnings per share amounts exclude the impact of the significant
items that would otherwise distort comparability and distort understanding of the underlying performance of the Group.
Details of the earnings per share are set out below:
9 months to
30 September
2018
Year to
31 December
2017
Basic earnings per share
Profit attributable to the equity shareholders of the Company (€000)
19,283
11,329
Weighted average number of ordinary shares in issue for basic earnings per share (000)
198,690
198,104
Basic earnings per share (€cents)
Diluted earnings per share
9.71
5.72
Profit attributable to the equity shareholders of the Company (€000)
19,283
11,329
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000)
199,606
199,467
Diluted earnings per share (€cents)
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)
9.66
5.68
19,283
–
–
11,329
14,900
4,700
19,283
30,929
Weighted average number of ordinary shares in issue for adjusted basic earnings per share (000)
198,690
198,104
Adjusted basic earnings per share (€cents)
9.71
15.61
Adjusted diluted earnings per share
Profit attributable to the equity shareholders of the Company (€000)
Exceptional expense (€000)
Exceptional tax charge (€000)
Profit attributable to the equity shareholders of the Company before exceptional expenses and
exceptional tax charges (€000)
19,283
–
–
11,329
14,900
4,700
19,283
30,929
Weighted average number of diluted ordinary shares adjusted for the effect of dilution (000)
199,606
199,467
Adjusted diluted earnings per share (€cents)
9.66
15.51
· 134 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
Reconciliation of basic to diluted ordinary shares
Issued ordinary shares
Effect of own shares held
Basic weighted average number of ordinary shares
Effect of options
Diluted weighted average number of ordinary shares
9 months to
30 September
2018
000
Year to
31 December
2017
000
200,000
200,000
(1,310)
(1,896)
198,690
198,104
916
199,606
1,363
199,467
There have been no transactions involving the Group’s ordinary shares between the reporting date and the date of authorisation of
these financial statements.
15. Intangible assets – goodwill
Cost:
As at 1 January
As at period end
Accumulated impairment:
As at 1 January
Impairment charge
As at period end
Carrying amount at period end
See note 17 for details of the impairment of goodwill.
30 September
2018
€000
31 December
2017
€000
77,340
77,340
31,400
–
31,400
45,940
77,340
77,340
16,500
14,900
31,400
45,940
· 135 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
16. Intangible assets – other
2018
Cost:
Customer
Relationships and
Trademarks
€000
Brands
€000
As at 1 January 2018
307,122
1,624
Additions
Disposals
Net foreign currency exchange differences
–
–
(521)
–
–
–
Software
€000
Total
€000
21,885
1,111
(177)
(38)
330,631
1,111
(177)
(559)
As at 30 September 2018
306,601
1,624
22,781
331,006
Amortisation:
As at 1 January 2018
Amortisation expense
Disposals
Transfers
Net foreign currency exchange differences
As at 30 September 2018
–
–
–
–
–
–
Carrying amount – As at 30 September 2018
306,601
589
18,428
88
–
(51)
–
626
998
1,514
110
–
–
–
954
(177)
51
(5)
19,017
1,042
(177)
–
(5)
19,251
19,877
3,530
311,129
Software
€000
Total
€000
20,264
1,059
(60)
513
109
320,438
1,376
(60)
513
8,364
1,624
21,885
330,631
472
115
2
589
17,213
1,203
12
18,428
17,685
1,318
14
19,017
Customer
Relationships and
Trademarks
€000
Brands
€000
298,660
207
–
–
8,255
307,122
–
–
–
–
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
Carrying amount – As at 31 December 2017
307,122
1,035
3,457
311,614
Costs for brand additions in 2017 relate to the final payment for the Saska brand acquired in Poland in 2016.
· 136 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
Included in transfers in 2017 was €513,000 for assets which were previously classified as assets under construction, which were
subsequently reclassified as software.
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.
• 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 €6,418,000 (2017: €6,627,000).
Amortisation relating to software is included within other operating expenses in the consolidated income statement. Amortisation
relating to customer relationships and trademarks 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:
30 September 2018
Carrying amount of brands
Carrying amount of goodwill
Value-in-use headroom
31 December 2017
Carrying amount of brands
Carrying amount of goodwill
Value-in-use headroom
Czech
Republic
€000
Italy
€000
Poland
€000
205,580
54,445
7,732
8,403
44,125
2,212
442,881
34,516
78,030
Czech
Republic
€000
Other
€000
2,451
1,480
Total
€000
306,601
45,940
Italy
€000
Poland
€000
Other
€000
Total
€000
206,787
34,516
26,936
52,584
7,732
45,300
2,212
–
287,541
2,451
1,480
307,122
45,940
· 137 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
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
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 outcome
Czech Region
The recoverable amount of the Czech Region unit has been based on its value-in-use using discounted cashflows based on cashflow
projections from the three-year planning process approved by senior management.
The pre-tax discount rate applied to cashflow projections is 9.6% (2017: 10.7%) and cashflows beyond the three-year period are
extrapolated using a 2.0% (2017: 2.5%) 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%
8.5%
€000
93.0
111.2
129.4
147.6
165.8
9.0%
€000
70.8
87.7
104.7
121.6
138.5
9.6%
€000
47.0
62.5
78.1
93.6
109.1
10.0%
10.5%
€000
34.8
49.6
64.4
79.3
94.1
€000
19.9
33.9
47.9
61.9
75.8
The impact of a one percentage point decrease in the long-term growth rate applied in the terminal value calculation would be
reduction in headroom of €29.1m.
· 138 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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 2017 the carrying amount of the assets of the Italian CGU were determined to be higher than its recoverable amount, and an
impairment loss of €14.9m was recognised during 2017. The impairment loss was fully allocated to goodwill and included as an
exceptional expense (note 8).
Following the impairment loss recognised in 2017, recoverable amount was equal to the carrying amount.
The pre-tax discount rate applied to cashflow projections in 2018 is 13.3% (2017: 13.5%) and cashflows beyond the three-year
period are extrapolated using a 1.7% (2017: 1.7%) growth rate.
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.
Pre-tax discount rate
EBITDA delivery
–10%
–5%
0%
5%
10%
12.5%
13.0%
13.3%
14.0%
14.5%
€000
5.8
9.7
13.6
17.4
21.3
€000
2.9
6.6
10.3
14.0
17.7
€000
1.2
4.8
8.4
12.0
15.6
€000
(2.2)
1.2
4.6
8.0
11.3
€000
(4.5)
(1.2)
2.0
5.3
8.6
The impact of a one percentage point decrease in the long-term growth rate applied in the terminal value calculation would be an
impairment of €5.4m.
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 10.0% (2017: 10.3%) and cashflows beyond the three-year period are
extrapolated using a 2.4% (2017: 1.7%) 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.
· 139 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 18. Property, plant and equipment
2018
Cost:
As at 1 January 2018
Additions
Disposals
Transfers
Foreign currency adjustment
As at 30 September 2018
Depreciation:
As at 1 January 2018
Depreciation expense
Disposals
Foreign currency adjustment
As at 30 September 2018
Carrying amount: As at 30 September 2018
2017
Cost:
Land and
buildings
€000
Technical
equipment
€000
Other
equipment
€000
Assets under
construction
€000
35,568
274
(1)
57
(219)
55,477
1,252
(1,907)
85
(279)
16,192
471
(463)
5
(29)
551
1,579
(2)
(147)
(26)
Total
€000
107,788
3,576
(2,373)
–
(553)
35,679
54,628
16,176
1,955
108,438
11,240
719
–
65
12,024
23,655
32,352
3,847
(1,884)
135
34,450
20,178
13,325
1,858
(475)
(9)
14,699
1,477
–
–
–
–
–
1,955
Land and
buildings
€000
Technical
equipment
€000
Other
equipment
€000
Assets under
construction
€000
As at 1 January 2017
34,089
52,575
15,820
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
501
–
33
945
1,132
(942)
1,948
764
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
€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.
The net book value of assets held under finance leases amounts to €254,000 (2017: €164,000).
The gross carrying value of fully depreciated property, plant and equipment that are still in use is €32,584,000 (2017: €26,542,000).
· 140 ·
56,917
6,424
(2,359)
191
61,173
47,265
Total
€000
104,321
3,710
(1,652)
(513)
1,922
107,788
48,616
9,894
(1,016)
(577)
56,917
50,871
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 19. Inventories
Raw materials
Work in progress
Finished goods and merchandise
Provision for obsolescence
30 September
2018
€000
31 December
2017
€000
5,912
2,648
24,234
(2,083)
30,711
5,004
3,324
16,992
(2,219)
23,101
During the period ended 30 September 2018, inventories with a total value of €598,000 (2017: €1,347,000) were written off. This
amount does not include the impact to the income statement for provisions made during the period. All write-offs were incurred as
part of normal activities.
20. Trade and other receivables
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 period
Charge for the period
Amounts utilised
Foreign currency adjustment
As at end of period
30 September
2018
€000
31 December
2017
€000
112,728
159,249
(5,213)
(5,379)
107,515
11,723
119,238
153,870
9,292
163,162
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
(5,379)
(4,737)
(377)
443
100
(963)
494
(173)
(5,213)
(5,379)
Sale of receivables under non-recourse factoring
The Group via Stock Polska Sp. z.o.o. has entered into a non-recourse receivables financing agreement with Coface, supported by
Natixis Bank. It may sell up to €32,710,000 (PLN 140,000,000) of invoices (at any one time) at face value less certain reserves and
fees. As at 31 December 2017 Coface charge interest on the drawn amounts of WIBOR (Warsaw Inter-bank Offered Rate) 1M +
1.05% and a fee per invoice of 0.19%. The proceeds from the sale can be applied for the general corporate and working 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.
· 141 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
20. Trade and other receivables continued
In 2018 and 2017, the factoring facility was not utilised.
Trade receivables are denominated in the following currencies:
Polish Złoty
Euro
Czech Koruna
Other currencies
30 September
2018
€000
31 December
2017
€000
85,596
11,579
8,061
2,279
119,090
19,819
12,129
2,832
107,515
153,870
At the end of the period, the analysis of trade receivables that were past due but not impaired is as follows:
Overdue 0–30 days
Overdue more than 30 days
30 September
2018
€000
31 December
2017
€000
12,064
7,605
19,669
13,055
6,895
19,950
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 2018 revenue from
this customer amounted to €38,897,000 (2017: €48,108,000).
21. Other assets
Current
30 September
2018
€000
Non-current
30 September
2018
€000
Current
31 December
2017
€000
Non-current
31 December
2017
€000
Customs deposits
135
4,742
–
4,770
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.
22. Investment in equity-accounted investee
On 17 July 2017, Stock Spirits entered into an agreement with Quintessential Brands Group for the acquisition of a 25% equity
interest in Quintessential Brands Ireland Whiskey Limited for a cash consideration of up to €18,333,000. Consideration comprised 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.
· 142 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
The fair value of the contingent cash consideration at the acquisition date was calculated as €2,491,000, and goodwill of €425,000
was recognised. The fair value of the cash consideration at 30 September 2018 is not considered to have changed with the
contingent liability of €2,491,000 being included in non-current financial liabilities.
The Group’s share of the loss of Quintessential Brands Ireland Whiskey Limited for the period is €166,000 (31 December 2017:
loss of €331,000). There has been a corresponding reduction in the carrying value of the investment.
The principal place of business of Quintessential Brands Ireland Whiskey Limited is Dublin, Ireland.
The following table summarises the financial information of Quintessential Brands Ireland Whiskey Limited as included in its own
financial statements, adjusted for fair value adjustments at acquisition and differences in accounting policies, as at 30 September
2018. The table also reconciles the summarised financial information to the carrying value of the Group’s interest in Quintessential
Brands Ireland Whiskey Limited, and the results for the period from acquisition of the investment to 30 September 2018.
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 end of period
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 value of investment in associate brought forward
Share of loss from continuing operations (25%) during the period
Carrying value of investment in associate carried forward
30 September
2018
€000
31 December
2017
€000
60,701
12,530
(6,955)
66,276
16,569
425
16,994
58,356
9,166
(583)
66,939
16,735
425
17,160
9 months to
30 September
2018
€000
17 July to
31 December
2017
€000
2,252
(662)
(662)
(166)
(166)
17,160
(166)
16,994
1,321
(1,324)
(1,324)
(331)
(331)
17,491
(331)
17,160
· 143 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
23. Financial liabilities
Unsecured – at amortised cost
HSBC loan1
Cost of arranging bank loan2
Interest payable
Total
Current
30 September
2018
€000
Non-current
30 September
2018
€000
Current
31 December
2017
€000
Non-current
31 December
2017
€000
–
–
16
16
81,443
(143)
–
81,300
–
(53)
101
48
114,191
(143)
–
114,048
1. The Group has a facilities agreement for a €200,000,000 revolving credit facility (RCF) with a banking club consisting of five banks including HSBC who also act as the Agent. The
original term of the RCF facility was five years. The facility is fully flexible and allows the Group to benefit from being able to increase or reduce borrowings as required, and utilise
balance sheet cash more effectively. Each of the drawings under the RCF are drawn down in the local currencies. The loans bear variable rates of interest which are linked to the
inter-bank offer rates of the country of drawing: WIBOR, PRIBOR or EURIBOR as appropriate. Please refer to the table below for the balances drawn down. Each of the loans have a
variable margin element to the interest charge. The margin is linked to a ratchet mechanism, subject to a minimum margin, as the Group’s leverage covenant changes.
As well as RCF drawings of €81,443,000 as at 30 September 2018 (2017: €114,191,000), an additional €10,551,000 (2017: €14,250,000) of the RCF was utilised for customs
guarantees in Italy and Germany. These customs guarantees reduce the available RCF but do not constitute a balance sheet liability.
On 21 July 2017, Stock Spirits Group extended its revolving credit facilities with its banking club by a further two years to November 2022. The other 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 facility.
Fees for the extension of the facility until 2022 are being amortised over the loan period. The balance of the fees remaining is €143,000 (2017: €196,000).
The following table shows the distribution of loan principal balances in Euros.
Stock Polska Sp. z.o.o.
Stock Plzeň-Božkov s.r.o.
Stock S.r.l.
Stock Slovensko s.r.o.
Baltic Distillery GmbH
Stock Spirits Limited
30 September
2018
€000
31 December
2017
€000
15,187
41,556
20,000
700
4,000
–
81,443
34,293
50,998
9,000
900
4,000
15,000
114,191
No security is provided to the lenders under the RCF facility as at 30 September 2018 (2017: nil security provided).
· 144 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
Reconciliation of movement of financial liabilities
As at 1 January 2018
Repayment of loans
Interest charge
Interest paid
Amortisation of arrangement fees
Foreign exchange on loan repayments
As at 30 September 2018
24. Other financial liabilities
Finance leases
Contingent consideration
€000
114,096
(32,015)
1,135
(1,220)
53
(733)
81,316
Current
30 September
2018
€000
Non-current
30 September
2018
€000
Current
31 December
2017
€000
Non-current
31 December
2017
€000
66
-
66
201
2,491
2,692
83
–
83
109
2,491
2,600
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 (2017: €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 to
30 September 2018.
25. Provisions
Employee
benefits and
pensions
€000
Employee
severance
indemnity
€000
Interest and
penalties
on open tax
enquiry
€000
Legal and
contract
related
provisions
€000
Other
provisions
€000
As at 1 January 2018
Arising during the period
Utilised/released
Movement in provision following revaluation
Net foreign currency exchange differences
As at 30 September 2018
– Current
– Non-current
599
72
(44)
(19)
(12)
596
138
458
153
220
(214)
–
–
159
–
159
631
32
(627)
–
(4)
32
32
–
417
12
–
–
–
429
307
122
454
223
(90)
–
(4)
583
240
343
Total
€000
2,254
559
(975)
(19)
(20)
1,799
717
1,082
· 145 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
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 2018 12,324 LTIP options were exercised (2017: nil 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 valuations of the present value of the severance indemnity obligation were carried out at 30 September 2018 by
an actuary.
The present value of the severance indemnity obligation, and the related current service cost and past service cost, were measured
using the projected unit credit method. The principal assumptions used for the purposes of the actuarial valuations were as follows:
discount rate 2.83% p.a. (2017: 1.92% p.a.), inflation 2.00% p.a. (2017: 2.00% p.a.), revaluation rate 75% of inflation rate + 1.5 points
= 3.00% p.a. (2017: 3.00% 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
30 September
2018
€000
31 December
2017
€000
153
2
–
155
4
159
219
1
(86)
134
19
153
(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 2014/15/16 tax assessments
in Germany. During the year, the amount which was provided in 2017 for the 2011 tax assessment in the Czech Republic was paid
in full.
(iv) Legal and contract related provisions:
These relate to exposures for potential contractual penalties arising in the normal course of business. Provisions are recognised
where a legal or constructive obligation exists at the period end date and where a reliable estimate can be made of the likely
outcome. While these provisions are reviewed on a regular basis and adjusted for management’s best current estimates, the
judgemental nature of these items means that future amounts settled may differ from those provided.
· 146 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 (v) Other provisions:
These relate primarily to sales agent indemnity fees and other various miscellaneous provisions. Provisions are recognised where a legal
or constructive obligation exists at the period end date and where a reliable estimate can be made of the likely outcome. While these
provisions are reviewed on a regular basis and adjusted for management’s best current estimates, the judgemental nature of these items
means that future amounts settled may differ from those provided.
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
The movements in called up share capital and share premium accounts are set out below:
30 September
2018
€000
31 December
2017
€000
50,708
11,350
62,058
65,931
13,325
79,256
30 September
2018
€000
31 December
2017
€000
32,214
35,358
1,970
2,825
72,367
72,080
287
33,146
37,398
1,839
1,948
74,331
73,915
416
30 September
2018
31 December
2017
200,000,000
200,000,000
At 1 January 2017 and 1 January 2018
Cancellation of share premium
At 30 September 2018
Number of
Ordinary shares
Ordinary shares
€000
Share Premium
€000
200,000,000
23,625
–
–
200,000,000
23,625
183,541
(183,541)
–
All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at shareholders’ meetings.
· 147 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
28. Authorised and issued share capital and reserves continued
Share premium
It was confirmed on 12 June 2018 by the High Court of Justice of England and Wales that the Share Premium Account has been
cancelled, crediting the sum of €183,541,000 to retained earnings. This amount is now considered to be distributable. The Share
Premium Cancellation was approved by shareholders at the Annual General Meeting held on 22 May 2018.
Merger reserve
On 21 October 2013 129,064,871 shares were issued in exchange for shares in OCM Luxembourg Spirits Holdings S.à.r.l. The net book
value of OCM Luxembourg Spirits Holdings S.à.r.l. at the time of exchange was €114,279,000, which resulted in €99,033,000 being
credited to the merger reserve in line with merger relief provided by Section 612 of the Company Act 2006.
Consolidation reserve
As the Group was formed through a reorganisation in which Stock Spirits Group PLC became a new parent entity of the Group, the
2013 consolidated financial statements were prepared as a continuation of the existing Group using the pooling of interests method
(or merger accounting). Merger accounting principles for this combination gave rise to a consolidation reserve of €5,130,000.
Own share reserve
The own share reserve comprises the cost of the Company’s shares held by the Group. The Employment Benefit Trust (EBT) holds
these shares on behalf of the employees until the options are exercised. During 2018, 1,200,000 shares have been purchased by
the EBT on behalf of the Group, in order to satisfy the vesting of options under the current share schemes. This has resulted in an
increase in the own share reserve of €3,532,000. At 30 September 2018, the Group held 1,691,991 of the Company’s shares (31
December 2017: 822,246).
On the exercise of options in the year, €468,000 was credited to the own share reserve (2017: €166,000), with the corresponding
charge to retained earnings.
The EBT holds the shares at cost.
Other reserve
Other reserves includes the credit to equity for equity-settled share-based payments. See note 34 for full details. The charge for the
period ended 30 September 2018 was €129,000 (2017: €1,942,000). On the exercise of Top-Up and Substitute option agreements
in the period, €468,000 was debited to retained earnings with the corresponding credit to the own share reserve (2017: exercise of
Jointly Owned Equity (JOE) Share Subscription Agreements and Top-Up option agreements: €166,000).
Foreign currency translation reserve
Foreign currency translation reserve
30 September
2018
€000
31 December
2017
€000
13,915
15,829
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.
· 148 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 29. Distributions made and proposed
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
Cash dividends on ordinary shares declared and paid:
Interim dividend for 2018: 2.50 €cents per share (2017: 2.38 €cents per share)
5,025
4,760
Proposed dividends on ordinary shares:
Final cash dividend for 2018: 6.01 €cents per share (2017: 5.72 €cents per share)
11,946
11,437
Dividend payments included in the consolidated cashflow statement of €16,398,000 (2017: €15,730,000) reflect the movement in
exchange rates from the date of declaration to the date of payment and include the payment of the final dividend from the prior year.
The proposed dividend on ordinary shares is subject to approval at the AGM and is not recognised as a liability as at
30 September 2018.
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 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:
• 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.
· 149 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
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 which, at the end of 30 September 2018, 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.
30 September 2018
Euro
Polish Złoty
Czech Koruna
31 December 2017
Euro
Polish Złoty
Czech Koruna
Increase in basis
points
Effect on profit/
(loss) before tax
€000
–50/+50
–50/+50
–50/+50
–50/+50
–50/+50
–50/+50
124/(124)
76/(76)
208/(208)
145/(145)
171/(171)
255/(255)
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
Change in EUR
vs. PLN/CZK/
GBP rate
+ 5%
– 5%
+ 5%
– 5%
+ 5%
– 5%
2018
€000
70
(77)
175
(193)
2
(2)
2017
€000
34
(38)
115
(127)
(708)
783
of the Group.
EUR–PLN
EUR–CZK
EUR–GBP
· 150 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 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 accounts
receivable which are past due.
The carrying amount of accounts receivable is reduced by an allowance for doubtful debts 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 of the movement in allowance for doubtful debts. Management does not believe
that the Group is subject to any significant credit risk in view of the Group’s large and diversified client base which is located in
several jurisdictions.
Other receivables and financial assets
Other receivables and financial assets consist largely of VAT and excise duty receivables and customs guarantees. As the
counterparties are Revenue and Customs Authorities in the various jurisdictions in which the Group operates, credit risk is
considered to be minimal and therefore no further analysis has been performed.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed in accordance with the Group’s policy. The Group deposits
cash with reputable financial institutions, from which management believes loss to be remote. The Group’s maximum exposure to
credit risk for the components of the statement of financial position at 30 September 2018 and 31 December 2017 is the carrying
amounts as illustrated in notes 23 and 32. The Group’s maximum exposure for financial guarantees is noted in note 24 and in the
liquidity table overleaf.
· 151 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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 tables below summarise the maturity profile of the Group’s undiscounted financial liabilities at 30 September 2018 and 31
December 2017:
As at 30 September 2018
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
–
1,588
66
69,845
–
71,499
81,443
4,971
201
133
2,491
89,239
Total
€000
81,443
6,559
267
69,978
2,491
160,738
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 30 September 2018, and the interest rates and margins applicable at this time.
The Group has €108,006,000 of undrawn facilities available to it under the terms of the RCF (31 December 2017: €71,559,000).
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 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
–
1,918
83
72,285
–
74,286
114,191
9,360
109
–
2,491
126,151
Total
€000
114,191
11,278
192
72,285
2,491
200,437
· 152 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 Capital risk management
The primary objective of the Group’s capital management is to ensure that it has the capital required to operate and grow the
business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital structure to
ensure it meets changing business needs.
In addition, the Directors consider the management of debt to be an important element in controlling the capital structure of the
Group. The Group may carry significant levels of long-term structural and subordinated debt to fund investments and acquisitions
and has arranged debt facilities to allow for fluctuations in working capital requirements. There have been no changes to the capital
requirements in the current period.
Management manage capital on an ongoing basis to ensure that covenant requirements on the third party debt are met.
The Group regards its total capital as follows:
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)
2018
€000
31,583
351,881
383,464
2018
€000
50,143
(81,459)
(267)
(31,583)
2018
€000
35,848
0.88
2017
€000
53,143
354,309
407,452
2017
€000
61,341
(114,292)
(192)
(53,143)
2017
€000
56,324
0.94
· 153 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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 30 September 2018
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
Contingent liabilities (note 24)
As at 31 December 2017
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
Contingent liabilities (note 24)
Financial assets
and liabilities at
amortised cost
€000
Total book value
€000
50,143
114,083
4,877
50,143
114,083
4,877
(267)
(81,300)
(69,978)
(2,491)
(267)
(81,300)
(69,978)
(2,491)
Loans and
receivables
€000
61,341
160,224
4,770
Amortised cost
€000
Total book value
€000
Fair value
€000
–
–
–
61,341
160,224
4,770
61,341
160,224
4,770
–
–
–
–
(192)
(192)
(192)
(113,995)
(113,995)
(113,995)
(72,285)
(2,491)
(72,285)
(2,491)
(72,285)
(2,491)
At 30 September 2018 and 31 December 2017 there were no financial instruments and therefore no analysis using the fair value
hierarchy has been performed.
· 154 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
31. Related party transactions
Note 33 below provides details of the Group’s structure including information about the subsidiaries of Stock Spirits Group PLC.
In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal
form. There were no transactions with related parties in the period to 31 December 2017 or 30 September 2018, 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 56 and the senior management team are deemed to be key management personnel. It is
the Board and senior management team which have responsibility for planning, directing and controlling the activities of the Group.
Total compensation to key management personnel was included in 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
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
5,294
330
209
632
–
6,465
5,342
443
306
1,845
730
8,666
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 30 September 2018, no Directors (2017: nil) had any retirement benefits accrued under either money purchase schemes or
under defined benefit schemes.
In 2018 no Director (2017: 1) 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.
The following table provides the total amount of transactions that have been entered into with Quintessential Brands Ireland
Whiskey Limited and its related entities for the period to 30 September 2018. There were no such transactions in 2017.
Subsidiaries:
Stock Plzeň-Božkov s.r.o.
Stock S.r.l.
Stock d.o.o.
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
–
4
5
5
14
31
8
67
32
138
–
–
5
5
10
31
5
15
-
51
· 155 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
32. Cash and cash equivalents
For the purposes of the cashflow statement, cash and cash equivalents include cash on hand and in banks, net of outstanding bank
overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cashflow statement can be reconciled to the
related items in the statement of financial position as follows:
30 September
2018
€000
31 December
2017
€000
50,143
61,341
30 September
2018
€000
31 December
2017
€000
2,030
9,814
18,254
14,887
5,158
50,143
1,445
7,883
21,958
24,610
5,445
61,341
Cash and bank balances
Cash and cash equivalents are denominated in the following currencies:
Sterling
Euro
Czech Koruna
Polish Złoty
Other currencies
Total
· 156 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
33. Group structure and acquisition details
Details of Group undertakings as of 30 September 2018 and 31 December 2017 are as follows:
Group company
and registered office address Relation
30 September 2018
31 December 2017
Country of incorporation
Proportion of voting rights shares held
Stock Spirits (UK) Limited
Stock Plzeň-Božkov s.r.o.1
Stock S.r.l.1
F.lli Galli, Camis & Stock A.G.1
Stock Polska Sp. z.o.o.1
Stock International s.r.o.1
Stock Spirits Group Services AG1
Stock BH d.o.o.1
Stock d.o.o.1
Baltic Distillery GmbH1
Stock Slovensko s.r.o.1
Stock Finance (Euro) Limited1
Stock Finance (Złoty) Limited1
Stock Finance (Koruna) Limited1
England3 Subsidiary
Czech Republic5 Subsidiary
Italy7 Subsidiary
Switzerland8 Subsidiary
Poland4 Subsidiary
Czech Republic5 Subsidiary
Switzerland8 Subsidiary
Bosnia9 Subsidiary
Croatia10 Subsidiary
Germany11 Subsidiary
Slovakia6 Subsidiary
England2,3 Subsidiary
England2,3 Subsidiary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
England3 Subsidiary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
All shareholdings in subsidiaries are represented by Ordinary shares.
1. Wholly owned held indirectly through subsidiary undertakings
2. In connection with an internal corporate reorganisation, Stock Finance (Euro) Limited and Stock Finance (Złoty) Limited were liquidated in July 2018
3. The registered office is Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH, United Kingdom
4. The registered office is ul Spoldzielcza n.6 Lublin 20-402, Poland
5. The registered office is Palirenska 641/2, PSC 32600, Czech Republic
6. The registered office is Galvaniho 7/A Bratislava – mestská časť Ružinov 821 04, Slovakia
7. The registered office is Tucidide 56 bis, 20 134 Milan, Italy
8. The registered office is Domanda Verurraltungs GmbH, Baarerstrasse 43, 6302 Zug
9. The registered office is Džemala Bijedića 185, Ilidža, 71000 Sarajevo, Bosnia Herzegovina
10. The registered office is Josipa Lončara 3, 10000 Zagreb, Croatia
11. The registered office is Baltic Distillery GmbH, Gartenweg 1, 18334 Dettmannsdorf
· 157 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 34. Share-based compensation
Share options issued at IPO
Post-IPO awards were valued by reference to the share price at admission to the London Stock Exchange.
The Group EBT holds the shares for all vested share options. At IPO several members of key management were issued a total of
1,538,124 £0.10 ordinary share options in Stock Spirits Group PLC. The options vested immediately upon grant.
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Company to settle any
personal income taxes on behalf of the recipient. Consequently there is no liability to the Company on exercise of the options.
Exercisable options
Number outstanding
Weighted average exercise price
Expiration period
The movements in the awards outstanding during the period were as follows:
At 1 January 2018
Exercised
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Performance Share Plan (PSP):
30 September
2018
31 December
2017
458,501
£nil
5 years
758,501
£nil
6 years
Number
758,501
(300,000)
458,501
458,501
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 2018 plan, financial targets are based 50% on EPS targets and 50% on cashflow conversion.
The performance period is usually three financial years beginning with the financial year in which the award is granted. The vesting
period for grants made under the 2018 scheme is 2.72 years with an exercise period of 7.28 years to reflect the impact of the
change in year-end to 30 September from 31 December. The exercise price of PSP options is £nil.
Awards were granted over 382,661 shares on 14 March 2018 (2017: 1,611,583 shares). An additional 4,521 options were also issued
under the 2017 PSP scheme. The Executive Directors are required to hold the shares (other than those sold to sell to cover tax and
social security due on exercise) for a period of two years from the date of vest. These new options were valued using the Black-
Scholes model. Dividends accrue to the participants prior to option exercise.
In the 2017 plan, financial targets were based 50% on EBITDA targets and 50% on cashflow conversion for senior management
excluding the Executive Directors. For Executive Directors the performance conditions were 50% EPS targets and 50% cashflow
conversion targets. These options were valued using the Black-Scholes model. Dividends accrue to the participants prior to
option exercise.
The performance period for the 2017 PSP scheme is three financial years, beginning with the financial year in which the award is
granted. The vesting period for grants made under this scheme is three years with an exercise period of seven years. The exercise
price of PSP options granted under this scheme is £nil.
· 158 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018 The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
Further information on the PSP is set out in the Directors’ Remuneration Report on pages 71 to 86.
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)
2018 PSP
Holding period
2018 PSP
No holding period
2017 PSP
209.8 pence
259.0 pence
187.0 pence
259.0 pence
259.0 pence
187.0 pence
2.72 years
2.72 years
3 years
0.82%
0%
36.39%
n/a
0.82%
0%
36.39%
n/a
0%
n/a
n/a
n/a
Due to the limited historic data available at the time of the 2017 scheme being issued, Stock Spirits Group PLC 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 2018
Granted
Forfeited
Lapsed
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Number
2,614,863
387,182
(207,916)
(1,058,236)
1,735,893
–
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 (RSA):
On 14 March 2018, awards were granted over 453,897 shares (2017: 534,419 shares). An additional 2,261 options were also issued
under the 2017 RSA scheme.
Participation in the 2018 RSA is restricted to the senior management team, excluding Executive Directors. Vesting is dependent
upon continued employment as at the date of the announcement of the 2020 results and an underpin that Adjusted EBITDA in 2020
is greater than Adjusted EBITDA in 2017. No dividends accrue to the Plan participants prior to exercise. The exercise price of RSU
options is €nil.
Participation in the 2017 RSA was restricted to the senior management team, who were previously included in the 2014 or 2015
PSP schemes and still employed by the Group in March 2017. Vesting is dependent upon continued employment as at the date of
the announcement of the 2018 results. No dividends accrue to the Plan participants prior to exercise. The exercise price of 2017
RSA options is £nil.
· 159 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
34. Share-based compensation continued
Restricted Stock options (RSA): continued
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value of nil-cost options is determined using a Black-Scholes model.
Further information on the RSA is set out in the Directors’ Remuneration Report on pages 71 to 86.
The principal assumptions made in measuring the fair value of RSA awards were as follows:
2018
RSA
2017
RSA
236.8 pence
172.8 pence
259.0 pence
187.0 pence
2.72 years
1.72 years
0.82%
3.3%
36.39%
0%
n/a
n/a
Number
479,465
456,158
–
935,623
–
Number
1,000,000
(1,000,000)
–
–
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
The movements in the awards outstanding during the period were as follows:
At 1 January 2018
Granted
Lapsed
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Special Option Award – Managing Director of Polish business
In 2016, 1,000,000 awards were issued to the Managing Director of the Polish business.
The awards have lapsed in 2018 as the financial targets were not met during the performance period.
The movement in the awards under this scheme during the year are as follows:
At 1 January 2018
Lapsed
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Deferred Annual Bonus Plan:
In respect of 2017 an annual bonus was paid to Mirek Stachowicz of 32.1% of salary. 25% of the bonus earned was deferred into
shares. Options over 13,661 shares were awarded. The exercise price of the options is €nil. Dividends accrue prior to exercise.
The vesting period is two financial years from the date of grant with an exercise period of eight years.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value of nil-cost options is determined using a Black-Scholes model.
· 160 ·
Notes to the consolidated financial statements continuedat 30 September 2018Stock Spirits Group PLC · Annual Report & Accounts 2018
The principal assumptions made in measuring the fair value of 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
Share-based compensation expense
2018 DABP
243.0 pence
243.0 pence
2.0 years
0.83%
0%
29.75%
The expense recognised in other operational expenses for employee services received during the period 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)
9 months to
30 September
2018
€000
Year to
31 December
2017
€000
129
20
149
1,942
342
2,284
The total value of cash-settled share-based compensation awards recognised in liabilities at 30 September 2018 is €125,000 (2017:
€342,000). These represent employer’s social security on share options and accrued dividend equivalents.
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
2018
€000
5,005
12,267
2,801
20,073
2017
€000
4,977
12,778
4,076
21,831
The total charge under operating leases as of 30 September 2018 was €3,668,000 (2017: €4,356,000).
36. Commitments for capital expenditure
Commitments for the acquisition of property, plant and equipment as of 30 September 2018 are €656,000 (2017: €511,000).
37. Events after the balance sheet date
Further correspondence was received from the Polish tax authorities in relation to its inquiry covering the 2013 tax return of the
Group’s Polish subsidiary. Refer to note 13 for further details.
· 161 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Stock Spirits Group PLC · Annual Report & Accounts 2018
Company statement of financial position
at 30 September 2018
Non-current assets
Investments
Other receivables
Current assets
Other receivables and prepayments
Cash and cash equivalents
Total assets
Non-current liabiliti es
Trade and other payables
Current liabiliti es
Trade and other payables
Total liabiliti es
Net assets
Capital and reserves
Issued share capital
Share premium
Own share reserve
Merger reserve
Share-based compensati on reserve
Retained earnings
30 September
2018
£000
31 December
2017
£000
Notes
3
4
5
6
7
8
9
9
9
9
9, 12
256,341
256,301
31
66
256,372
256,367
15,173
1,223
16,396
272,768
15,414
656
16,070
272,437
91
130
2,047
2,138
2,006
2,136
270,630
270,301
20,000
–
(3,000)
83,837
9,136
160,657
270,630
20,000
155,428
(272)
83,837
9,021
2,287
270,301
Notes 1 to 14 are an integral part of the fi nancial statements.
The standalone fi nancial statements of Stock Spirits Group PLC, registered number 08687223, on pages 162 to 177, were approved
by the Board of Directors and authorised for issue on 5 December 2018 and were signed on its behalf by:
Mirek Stachowicz
Paul Bal
Chief Executi ve Offi cer
Chief Financial Offi cer
5 December 2018
5 December 2018
· 162 ·
Company statement of cashflows
for the 9 month period ended 30 September 2018
Operating activities
Profit for the period
Adjustments to reconcile profit to net cashflows:
Other financial income
Interest expense
Share-based compensation
Working capital adjustments
Decrease/(increase) in trade receivables and other assets
Increase/(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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the start of the period
Cash and cash equivalents at the end of the period
9 months to
30 September
2018
£000
Year to
31 December
2017
£000
Notes
17,809
169
(264)
169
36
17,750
510
44
554
18,304
–
–
(142)
(14,481)
(3,114)
(17,737)
567
656
1,223
(334)
238
568
641
(2,137)
(352)
(2,489)
(1,848)
22
22
(238)
(13,634)
(102)
(13,974)
(15,800)
16,456
656
12
10
9
6
· 163 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
Company statement of changes in equity
at 30 September 2018
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 2017
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)
Own shares acquired for incentive schemes (note 9)
Own shares utilised for incentive schemes (note 9)
Dividends (note 10)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,729
–
–
–
–
–
–
(103)
41
169
169
169
169
–
–
1,729
(103)
(41)
–
– (13,634)
(13,634)
Balance at 31 December 2017
20,000 155,428
83,837
9,021
(272)
2,287 270,301
Profit for the period
Total comprehensive income
Share-based compensation charge (note 12)
Own shares acquired for incentive schemes (note 9)
Own shares utilised for incentive schemes (note 9)
Dividends (note 10)
–
–
–
–
–
–
–
–
–
–
–
–
Cancellation of share premium (note 9)
– (155,428)
–
–
–
–
–
–
–
–
–
115
–
–
–
–
–
–
–
(3,144)
17,809
17,809
17,809
17,809
–
–
115
(3,144)
416
(386)
30
–
(14,481)
(14,481)
– 155,428
–
Balance at 30 September 2018
20,000
–
83,837
9,136
(3,000) 160,657 270,630
· 164 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018
Notes to the Parent Company financial statements
at 30 September 2018
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 5 December 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 that there are no material
uncertainties which lead to significant doubt that the entity can continue as a going concern for a period of at least 12 months from
the date of approval of the financial statements.
The financial statements are presented in Sterling (£), rounded to the nearest thousand (£000) unless otherwise stated. They have
been prepared under the historical cost convention.
These financial statements have been prepared for the 9 month period ended 30 September 2018 (2017: 12 months to 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 period has been disclosed in
the statement of changes in equity.
New/Revised standards and interpretations adopted in 2018
The following amendments to existing standards and interpretations were effective for the period, but either they were not
applicable to or did not have a material impact on the Company:
•
IFRS 9: Financial Instruments
•
IFRS 15: Revenue from Contracts with Customers
•
IFRIC Interpretation 22: Foreign Currency Transactions and Advance Consideration
• Clarification to IFRS 15: Revenue from Contracts with Customers
• Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4: Applying IFRS 9 Financial instruments with IFRS 4 Insurance Contracts
• Amendments to IAS 40: Transfers of Investment Property
• Annual Improvements to IFRS Standards 2014–2016 Cycle: minor amendments to IFRS 1 and IAS 28
• Amendment to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses
• Amendments to IAS 7: Disclosure Initiative
· 165 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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:
IFRS 16: Leases
IFRS 17: Insurance Contracts
Amendments to IFRS 9: Financial Instruments
Amendments to IAS 19: Employee Benefits
Amendments to IAS 28: Investments in Associates and Joint Ventures
Effective dates1
1 January 2019
1 January 2021
1 January 2019
1 January 2019
1 January 2019
Annual Improvements to IFRS Standards 2015–2017 Cycle: minor amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 1 January 2019
The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Company financial
statements in the period of initial application. The Company will continue to monitor any potential impact as the new standards
become more imminent.
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 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.
· 166 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Notes to the Parent Company financial statements continuedat 30 September 2018 The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings is
recognised by the Parent Company, in its individual financial statements, as an increase in the costs of investments in its subsidiaries,
with the corresponding credit being recognised directly in equity as a credit to the share-based payments reserve equivalent to the
IFRS 2 cost.
Repurchase and reissue of ordinary shares (own shares)
When shares recognised in equity are repurchased, the amount of consideration paid – which includes directly attributable costs – is
recognised as a deduction from equity. Repurchased shares are classified as own shares and are presented in the own share reserve.
When own shares are sold or re-issued subsequently, the amount received is recognised as an increase in equity and the resulting
surplus or deficit on the transaction is presented within retained earnings.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period.
These are classified as non-current assets. The Company’s loans and receivables comprise Other receivables and Cash and cash
equivalents in the balance sheet.
Other receivables
Other receivables are non-interest-bearing and are recognised initially at fair value, and subsequently at amortised cost, reduced by
appropriate allowances for estimated irrecoverable amounts.
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.
3. Investments
Carrying value at 1 January 2018
Increase in investments from share-based payments
Carrying value at 30 September 2018
See note 33 to the consolidated financial statements.
4. Other receivables due in more than one year
Cost of arranging bank loans > 1 year
£000
256,301
40
256,341
30 September
2018
£000
31 December
2017
£000
31
66
· 167 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
5. Other receivables and prepayments
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: amounts falling due after more than one year
Other payables
30 September
2018
£000
31 December
2017
£000
14,844
15,295
301
28
104
15
15,173
15,414
30 September
2018
£000
31 December
2017
£000
1,223
656
30 September
2018
£000
31 December
2017
£000
91
130
Other payables falling due after more than one year represents social security costs of £91,000 (2017: £130,000) in relation to the
Share Plans.
8. Trade and other payables
Trade payables
Accruals
VAT and social security
Amounts due to subsidiary undertakings
Other payables
30 September
2018
£000
31 December
2017
£000
92
1,063
216
501
175
2,047
143
1,285
346
7
225
2,006
Other payables includes £146,000 (2017: £225,000) which represents Employer’s social security costs in relation to share-
based compensation.
· 168 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Notes to the Parent Company financial statements continuedat 30 September 2018 9. Authorised and issued share capital and reserves
The movements in called up share capital and share premium accounts are set out below:
At 1 January 2017 and 1 January 2018
200,000,000
20,000,000
155,428,080
Number of
Ordinary shares
Ordinary
shares
£
Share
Premium
£
Cancellation of share premium
At 30 September 2018
Share premium
–
–
(155,428,080)
200,000,000
20,000,000
–
On 25 October 2013 the Company was admitted to the London Stock Exchange and placed 22,127,660 ordinary £0.10 shares at a
premium of £2.25 per share. Also included in share premium was capitalised listing costs, which were incurred directly in connection
with the registration and distribution of shares.
It was confirmed on 12 June 2018 by the High Court of Justice of England and Wales that the Share Premium Account has been
cancelled, crediting the sum of £155,428,080 to retained earnings. This amount is now considered to be distributable. The Share
Premium Cancellation was approved by shareholders at the AGM held on 22 May 2018.
Own share reserve
The own share reserve comprises the cost of the Company’s shares, which are held by the Employee Benefit Trust (EBT) on behalf
of the employees until the options are exercised. During the 9 months ended 30 September 2018, 1,200,000 shares have been
purchased by the EBT on behalf of the Group, in order to satisfy the vesting of options under the current share schemes. This has
resulted in an increase in the own share reserve of £3,144,000. At 30 September 2018 the EBT held 1,691,991 of the Company’s
shares (2017: 822,246).
On the exercise of options in the period £416,000 (2017: £41,000) was credited to the own share reserve.
The EBT holds the shares at cost.
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.
Share-based compensation reserve
Share-based compensation reserve includes the credit to equity for equity-settled share-based payments. See note 12 for full
details. The equity charge for the period ended 30 September 2018 was £115,000 (2017: £1,729,000).
10. Distributions made and proposed
Cash dividends on ordinary shares declared and paid:
Interim dividend for 2018: 2.50 €cents (2.25 Sterling pence) per share
(2017: 2.38 €cents (2.19 Sterling pence))
Proposed dividends on ordinary shares:
Final cash dividend for 2018: 6.01 €cents (5.35 Sterling pence) per share
9 months to
30 September
2018
£000
Year to
31 December
2017
£000
4,474
4,350
(2017: 5.72 €cents (4.85 Sterling pence))
10,632
9,697
· 169 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
11. Risk management
The Company’s principal financial liabilities are trade and other payables. The Company’s principal financial assets include other
debtors, prepayments and cash and cash equivalents that derive directly from its operations.
The Company is exposed to a variety of risks including market risk, credit risk and liquidity risk. The Company’s senior management
oversees and agrees the policies for managing each of these risks. These are summarised below.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument, leading to a financial loss.
The Company is exposed to credit risk from its financing activities, including deposits with banks and financial institutions.
Financial instruments and cash deposits
Credit risk from balances with banks and financial institutions is managed in accordance with the Group’s policy (refer to note 30 of
the consolidated financial statements). The Company deposits cash with reputable financial institutions, from which management
believes loss to be remote. The Company’s maximum exposure to credit risk for the components of the statement of financial
position at 30 September 2018 is the carrying amounts as illustrated in note 6.
Other receivables and prepayments
Other receivables and prepayments consist largely of amounts receivable from subsidiaries. As there are deemed to be no going
concern issues with any of the individual Group entities, loss is considered to be remote; consequently, credit risk is minimal and
no further analysis has been performed.
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying values and fair values of all financial instruments that are carried in the
financial statements.
As at 30 September 2018
Cash and cash equivalents (note 6)
Other receivables (note 4,5)
Trade and other payables (note 7,8)
As at 31 December 2017
Cash and cash equivalents (note 6)
Other receivables (note 4,5)
Trade and other payables (note 7,8)
Liquidity risk
Financial assets
and liabilities at
amortised cost
£000
1,223
14,921
(1,873)
Total book
value
£000
656
15,350
(1,790)
Total
book value
£000
1,223
14,921
(1,873)
Fair value
£000
656
15,350
(1,790)
Loans and
receivables
£000
656
15,350
Payables
£000
–
–
–
(1,790)
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.
· 170 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Notes to the Parent Company financial statements continuedat 30 September 2018 The table below summarises the maturity profile of the Company’s undiscounted financial liabilities.
As at 30 September 2018
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)
–
(1,809)
(64)
–
(1,873)
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)
Market risk
Market risk is the risk that the fair value of future cashflows of a financial instrument will fluctuate because of changes in market
prices. The Company’s exposure is primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Financial instruments affected by market risk are limited to cash and cash equivalents.
Currency risk
The Company engages in foreign currency transactions to a very limited extent. No financial assets or liabilities are held in foreign
currencies. Due to the Company’s lack of exposure to currency risk no sensitivity analysis has been performed.
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, Stock Spirits Group extended its RCF with its banking club by a further two years to November 2022. The other
key facility terms remain unchanged. See note 23 of the consolidated financial statements for further details.
· 171 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 12. Share-based compensation
Share options issued at IPO
Post-IPO awards were valued by reference to the share price at admission to the London Stock Exchange.
The Group EBT holds the shares for all vested share options. At IPO several members of key management were issued a total of
1,538,124 £0.10 ordinary share options in Stock Spirits Group PLC. The options vested immediately upon grant.
Included within the terms of the grant the employee agrees to receive their options net of a deduction to allow the Company to settle any
personal income taxes on behalf of the recipient. Consequently there is no liability to the Company on exercise of the options.
Exercisable options
Number outstanding
Weighted average exercise price
Expiration period
The movements in the awards outstanding during the period were as follows:
At 1 January 2018
Exercised
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Performance Share Plan (PSP)
30 September
2018
31 December
2017
458,501
£nil
5 years
758,501
£nil
6 years
Number
758,501
(300,000)
458,501
458,501
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 2018 plan, financial targets are based 50% on EPS targets and 50% on cashflow conversion.
The performance period is usually three financial years beginning with the financial year in which the award is granted. The vesting
period for grants made under the 2018 scheme is 2.72 years with an exercise period of 7.28 years to reflect the impact of the
change in the year-end to 30 September from 31 December. The exercise price of PSP options is £nil.
Awards were granted over 382,661 shares on 14 March 2018 (2017: 1,611,583 shares). An additional 4,521 options were also issued
under the 2017 PSP scheme. The Executive Directors are required to hold the shares (other than those sold to sell to cover tax and
social security due on exercise) for a period of two years from the date of vest. These new options were valued using the Black-
Scholes model. Dividends accrue to the participants prior to option exercise.
In the 2017 plan, financial targets were based 50% on EBITDA targets and 50% on cashflow conversion for senior management excluding
the Executive Directors. For Executive Directors the performance conditions were 50% EPS targets and 50% cashflow conversion targets.
These options were valued using the Black-Scholes model. Dividends accrue to the participants prior to option exercise.
· 172 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Notes to the Parent Company financial statements continuedat 30 September 2018
The performance period for the 2017 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 granted under this scheme is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
Further information on the PSP is set out in the Directors’ Remuneration Report on pages 71 to 86.
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)
2018 PSP
Holding period
2018 PSP
No holding period
2017 PSP
209.8 pence
259.0 pence
259.0 pence
259.0 pence
2.72 years
2.72 years
187.0 pence
187.0 pence
3 years
0.82%
0%
36.39%
n/a
0.82%
0%
36.39%
n/a
0%
n/a
n/a
n/a
Due to the limited historic data available at the time of the 2017 scheme being issued, Stock Spirits Group PLC expected volatility
was based on the historic volatilities of the companies in the TSR comparator group.
The movements in the awards outstanding during the period were as follows:
At 1 January 2018
Granted
Forfeited
Lapsed
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Number
2,614,863
387,182
(207,916)
(1,058,236)
1,735,893
–
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 (RSA):
On 14 March 2018, awards were granted over 453,897 shares (2017: 534,419 shares). An additional 2,261 options were also issued under
the 2017 RSA scheme.
Participation in the 2018 RSA is restricted to the senior management team, excluding Executive Directors. Vesting is dependent
upon continued employment as at the date of the announcement of the 2020 results and an underpin such that Adjusted EBITDA in
2020 is greater than Adjusted EBITDA in 2017. No dividends accrue to the Plan participants prior to exercise. The exercise price of
2018 RSA options is £nil.
· 173 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information
12. Share-based compensation continued
Restricted Stock options (RSA) continued
Participation in the 2017 RSA 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. Vesting is dependent upon continued employment as at the date of the
announcement of the 2018 results. No dividends accrue to the Plan participants prior to exercise. The exercise price of 2017 RSA
options is £nil.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date. The fair
value of nil-cost options is determined using a Black-Scholes model.
Further information on the RSA is set out in the Directors’ Remuneration Report on pages 71 to 86.
The principal assumptions made in measuring the fair value of RSA 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
The movements in the awards outstanding during the period were as follows:
At 1 January 2018
Granted
Lapsed
Outstanding at 30 September 2018
Exercisable at 30 September 2018
Special Option Award – Managing Director of Polish business
In 2016, 1,000,000 awards were issued to the Managing Director of the Polish business.
The awards have lapsed in 2018 as the financial targets were not met during the performance period.
The movement in the awards under this scheme during the year are as follows:
At 1 January 2018
Lapsed
Outstanding at 30 September 2018
Exercisable at 30 September 2018
· 174 ·
2018
RSU
2017
RSU
236.8 pence
172.8 pence
259.0 pence
187.0 pence
2.72 years
1.72 years
0.82%
3.3%
36.39%
0%
n/a
n/a
Number
479,465
456,158
–
935,623
–
Number
1,000,000
(1,000,000)
–
–
Stock Spirits Group PLC · Annual Report & Accounts 2018 Notes to the Parent Company financial statements continuedat 30 September 2018
Deferred Annual Bonus Plan:
In respect of 2017 an annual bonus was paid to Mirek Stachowicz of 32.1% of salary. 25% of the bonus earned was deferred into
shares. Options over 13,661 shares were awarded. The exercise price of the options is £nil. Dividends accrue prior to exercise.
The vesting period is two financial years from the date of grant with an exercise period of eight years.
The compensation expense recognised in relation to these awards is based on the fair value of the awards at grant date.
The fair value of nil-cost options is determined using a Black-Scholes model.
The principal assumptions made in measuring the fair value of awards were as follows:
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
Share-based compensation expense
2018
DABP
243.0 pence
243.0 pence
2.0 years
0.83%
0%
29.75%
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
2018
£000
115
2017
£000
1,729
The expense recognised in other operational expense in respect of the Directors of Stock Spirits PLC during the period is shown in
the following table:
Equity-settled share-based compensation expense
Cash-settled share-based compensation expense
Share-based compensation
13. Subsidiaries
2018
£000
75
(39)
36
2017
£000
496
72
568
The principal subsidiary undertakings of the Company and their details are set out in note 33 to the consolidated financial statements.
· 175 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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:
2018
Subsidiaries:
Stock Spirits (UK) Limited
Stock Polska Sp. z.o.o.
Stock Finance (Koruna) Limited
2017
Subsidiaries:
Stock Plzeň-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
549
–
–
549
–
–
–
–
61
39
6
106
493
8
–
501
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
In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the
legal form.
Compensation of key management personnel
The Executive and Non-Executive Directors are deemed to be key management personnel of Stock Spirits Group PLC. It is the Board
which has responsibility for planning, directing and controlling the activities of the Company.
There were no material transactions or balances between the Company and its key management personnel or members of their
close family. At the end of the period, key management personnel did not owe the Company any amounts (2017: nil).
· 176 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Notes to the Parent Company financial statements continuedat 30 September 2018 Executive and Non-Executive Directors received remuneration for their services to the Company as follows:
Short-term employee benefits
Social security costs
Post-employment benefits
Termination benefits
Share-based compensation
9 months to
30 September
2018
£000
Year to
31 December
2017
£000
1,628
2,030
77
80
–
135
1,920
114
10
379
568
3,101
As at 30 September 2018 no Directors (2017: nil) had any retirement benefits accrued under either money purchase schemes or
under defined benefit schemes.
In 2018 no Directors (2017: 1) made any 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.
· 177 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Syramusa
Inspired by a time honoured
secret recipe handed down
from generation to generation
by Sicilian families. Limoncello
Syramusa’s elegant bottle is
inspired by the classic shapes
of Hellenic amphorae.
· 178 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Additional
information
180 Shareholders’ information
181 Useful links
· 179 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information Shareholders’ information
Financial calendar
Annual General Meeting: 14 February 2019
Results announcement
Interim Results – for the period ending 31 March 2019:
14 May 2019
Shareholder information online
Stock Spirits Group’s registrars are able to notify 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 have logged in you
can check your account details, change your address details or
Corporate Brokers
J.P. Morgan Cazenove
25 Bank Street
London, E14 5JP
Numis Securities Ltd
The London Stock Exchange Building
10 Paternoster Square
London, EC4M 7LT
Legal Advisers
Slaughter & May
1 Bunhill Row
London, EC1Y 8YY
Independent Auditors
KPMG LLP
Arlington Business Park
Theale
Reading, RG7 4SD
review FAQs, one of which will explain how to request a new
Registrars
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 share certificate.
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 entering
your portfolio online and selecting your preferred method of
communication to “Send me paper copies of all communications”.
If you wish to continue receiving shareholder information in the
current format, there is no need to take any action.
Link Asset Services
34 Beckenham Road
Beckenham
Kent, BR3 4TU
Tel: 0871 664 0300
(Calls cost 12 pence a minute plus your phone company’s access
charge, lines are open 8.30am–5.30pm Monday to 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
· 180 ·
Stock Spirits Group PLC · Annual Report & Accounts 2018 Useful links
Link share portal
www.mystockspiritsshares.com
Information for investors
Information for investors is provided on the internet as part of
the Group’s website which can be found at: www.stockspirits.
com/investors
Investor enquiries
Enquiries can be directed via our website or by contacting:
Paul Bal
Chief Financial Officer
Email: 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.
· 181 ·
Overview · Strategic Review · Governance · Financial Statements · Additional Information 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