Stock Spirits drinks to hard 2013, better 2014

By bne IntelliNews March 27, 2014

Nicholas Watson in Prague -

In its first set of results since the IPO in October, the Central and Eastern European booze maker and distributor Stock Spirits Group said its operating profit rose 7.5% as the market recovered from the methanol poisoning scandal in the Czech Republic and drinkers in the region continued to migrate toward drinking premium locally made brands.

Stock - which was created in 2007 with the backing by Oaktree Capital Management in order to consolidate CEE's leading national producers of spirits and liqueurs - said a major reorganization of its business ahead of the IPO meant net profit fell for the year fell to €8.9m from €26.2m in 2012. But the 2012 figure had been inflated by the disposal of its US business, while the fall in 2013 profit was attributed to costs associated with the IPO and a refinancing of the business. "We got €15.1m of exceptional costs primarily associated with the IPO, the partial refinancing and the corporate restructuring around the IPO, and there was €11.7m of other non-recurring one-off items," says Lesley Jackson, Stock's CFO.

Stripping out those non-recurring, exceptional costs to get a like-for-like comparison gives a 2013 operating profit of €62.8m on revenues that were up 16.4% to €340.5m. Adjusted Ebitda increased 22.3% to €83.7m.

The share price was largely flat on the day at 284.50 pence. The shares were sold in the IPO at 235p a share.

Total volume of spirits sold was up 11.4% to 17.4m of 9-litre cases. This included the launch of several new product lines, including new flavours of Lubelska vodka, Bozkov rum and Stock Prestige vodka. The latter became the group's sixth "millionaire" brand, selling over 1m 9-litre cases in 2013.

The company said the results stood out against a difficult backdrop that included a 15% excise duty in Poland from January 1 and the continued fallout from the methanol poisonings that occurred in 2012 from the Czech illegal alcohol trade, which killed 38 people in the Czech Republic and four in Poland, and led to a temporary ban on the sale and export of all beverages with an alcohol content above 20% volume. "We made a good recovery following the temporary prohibition in late 2012," said the company.

Indeed, the scandal may have actually tempted more Czech consumers away from the illegal alcohol trade (which has deep roots that are entwined with local politics). "Out of this desperately sad event is that new regulations have been introduced into the markets to protect consumers and protect legal producers like ourselves - let's not forget, the crisis was caused by illegal production, not legal," says Jackson.

"There is a premiumization taking places across all our market - they have more disposable income and treat themselves to better quality product," she adds.

Industry players caution how far and fast this process can go. "Certainly the Bozkov product was not implicated in this scandal at all so I can see how their sales might've benefited, though I'm always surprised at how as little as CZK3-4 (10-15 cents) can make the difference in the sales in some parts of the Czech Republic - people are really counting the pennies there," says one industry insider, who declined to be named.

Looking ahead, the company said 2014 has started well, despite the challenges posed by the Polish excise duty increase, and the group is well placed to capitalise on the opportunities available in the CEE region, in which it currently has operations in Italy, Poland, the Czech Republic, Slovakia, Slovenia, Croatia and Bosnia-Herzegovina. "We view the future with confidence," it said.

Though no further acquisitions were unveiled with the results, Jackson said the company has ambitions to expand into other markets that exist "in the corridor between the Baltic Sea right the way down to northern Turkey - anything east of where we are but not going into Russia."

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