Stock Spirits Group PLC H Results

Transcription

1 Stock Spirits Group PLC H Results 20 August 2015

2 Disclaimer This presentation has been prepared by Stock Spirits Group PLC ( Stock Spirits Group or the Group ). By attending the meeting where the presentation is made, or by reading the presentation slides, you agree to be bound by the following conditions. This presentation contains forward looking statements, which are based on the Stock Spirits Group Board's current expectations and assumptions and may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. These statement typically contain words such as [ anticipate, assume, believe, expect, plan, intend ] and words of similar substance. The forward looking statements contained in this presentation are based on past trends or activities and should not be taken as a representation that such trends or activities will continue in the future. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of variables which could cause actual results or trends to differ materially, including, but not limited to: conditions in the market, market position of the companies comprising the Stock Spirits Group, earnings, financial position, cash flows, return on capital and operating margins, anticipated investments and economic conditions; the Group's ability to obtain capital/additional finance; a reduction in demand by customers; an increase in competition; an unexpected decline in revenue or profitability; legislative, fiscal and regulatory developments, including, but not limited to, changes in environmental and health and safety regulations; exchange rate fluctuations; retention of senior management; the maintenance of labour relations; fluctuations in the cost of raw material and other input costs; and operating and financial restrictions as a result of financing arrangements. Accordingly, readers should not place undue reliance on forward looking statements due to the inherent uncertainty herein. No statement in this presentation is intended to constitute a profit forecast, nor should any statements be interpreted to mean that earnings or earnings per share will necessarily be greater or lesser than those for the relevant preceding financial periods for the Group. Each forward looking statement relates only as of the date of the particular statement. Except as required by the Listing Rules, the Disclosure and Transparency Rules, the Prospectus Rules, the London Stock Exchange or otherwise by law, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Other than the financial results shown in the presentation, the information contained in this presentation has not been independently verified and no reliance should be placed on such information. No representation, warranty or undertaking, expressed or implied, is made by the Group or its advisors, representatives, affiliates, offices, employees or agents as to, and no reliance should be placed on, the Company nor any of its advisors, representatives, affiliates, offices employees of agents shall have any liability whatsoever (in negligence or otherwise) for any direct or consequential loss, damages, costs or prejudices whatsoever arising from the use of this presentation or its contents or otherwise arising in connection with the presentation. The information in this presentation does not constitute an offer to sell or an invitation to buy shares in Stock Spirits Group PLC or an invitation or inducement to engage in any other investment activity. 2

3 Agenda SECTION PRESENTER Business Review & Outlook Chris Heath (CEO) Financial Results Lesley Jackson (CFO) Concluding Remarks Chris Heath (CEO) Q&A 3

4 Business Review Chris Heath Chief Executive Officer

5 Summary Weak H1 results due to difficult Q1 - Caused by continued disruption resulting from the 2014 duty increase in Poland Stock Polska is fighting back Much better Q2 in Poland, and therefore for the Group GDP growth and most other economic indicators improving in all core markets Other markets performing well and overall in line with expectations Despite issues in Poland, we have continued to invest in our core brands and NPD across the group 5

6 Poland Operational Highlights Summary Recap on 2014 Market disruption 15% Excise duty increase on January 1st 2014 Adversely affected consumer demand and disrupted customer buying patterns Customers pre duty increase buy-in at the end of 2013 resulted in high customer inventories at the start of 2014 High customer inventories were maintained in H1 as customers continued to buy product at pre duty increase prices As expected, discounts and rebates to customers increased to encourage the sell through of excess inventories Competitors became more aggressive on price and launched some successful NPD Market disruption continued through the whole of 2014 and into 2015 Lessons have been learnt 6

7 Poland Operational Highlights Summary We are fighting back! Actions taken Stock Polska MD left the business in January 2015 and Group management were moved in to run Stock Polska until a new MD is recruited Ian Croxford, Group COO as acting Managing Director Richard Hayes, Group Sales & Marketing Director as acting Marketing Director Paula Cardwell, Group Finance as acting Polish Finance Director Sales force has been restructured, refocused and re-motivated Relationships are being rebuilt with key customers Core brand packaging has been upgraded and exciting new marketing activities introduced The NPD programme for 2015 and beyond has been expanded and accelerated Results are coming through Market share is stabilising / growing Profitability is improving Excellent results from Beam Suntory distribution agreements 7

8 Spirits Route to Market in Poland Wholesalers Customers c.85 Modern Trade Stores c.3,100 Discounter Stores c.3,100 Traditional Stores c.64,000 Horeca (On Trade Bars etc) c.20,000 Market Highlights >30 million consumers Vodka and vodka based liqueurs represent c.87% of the total spirits market Polish GDP growth and other economic indicators getting stronger Poland remains a very large and attractive spirits market Stock sales Source: Management estimates, Nielsen and OECD Typically 2-4 months Consumer purchase 8

9 Vodka Market Trends by Channel Discounters gaining at the expense of Traditional and Modern Trade channels Total market Discounters Traditional Modern Trade 20% 15% Value Volume 20% 15% Value Volume 20% 15% Value Volume 20% 15% Value Volume 10.5% 10% 10% 10% 10% % MAT Trend 5% 0% -5% -10% 1.7% -4.4% 5% 0% -5% -10% 1.7% 5% 0% -5% -10% 0.1% -5.8% 5% 0% -5% -10% -0.3% -5.9% -15% -15% -15% -15% +0.8% +15.9% -2.4% -1.4% -20% -2.7% -20% 10.2% -20% -6.0% -20% -4.8% Source: Nielsen, Total Poland, Total Vodka x.x% x.x% YTD Value % Change YTD Volume % Change 9

10 Market Share Trends - Discounters Roust aggressively growing share in Discounters Volume shares in discounters Key highlights 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% JUN 2013 SEP 2013 Proportion of key brand volumes through discounters 29% 16% 11% 20% Stock Polska Roust Marie Brizard DEC 2013 MAR 2014 JUN 2014 SEP 2014 DEC 2014 June 2013 June % 60% 28% 30% 22% 19% MAR % JUN % 40.0% 20.1% 16.8% We have broadly maintained our volumes in this channel whilst others have been aggressively growing their volumes through heavy discounting We are happy to work with Discounters on a basis that benefits both parties, whilst competitors appear to be using this channel to achieve fast volume gains Soplica R Zubrowka R Bols R Krupnik R CDL Stock Prestige R (Roust) (Roust) (Roust) (Marie Brizard) (Stock) (Stock) Source : Nielsen, Total Poland, Total Vodka Volume 10

11 Vodka Pricing Trends Average vodka retail price index since June % 14% 12% 10% 8% 6% Stock Polska Roust Marie Brizard 13.8% 10.2% 7.7% Key highlights Stock s vodka price trends fully reflect the 2014 excise duty increase and our ongoing premiumisation strategy 4% 2% 0% -2% JUL 2013 AUG 2013 SEP 2013 OCT 2013 NOV 2013 DEC 2013 JAN 2014 FEB 2014 MAR 2014 APR 2014 MAY 2014 JUN 2014 JUL 2014 AUG 2014 SEP 2014 OCT 2014 NOV 2014 DEC 2014 JAN 2015 FEB 2015 MAR 2015 APR 2015 MAY 2015 JUN 2015 Source : Nielsen, Total Poland, Total Vodka 11

12 Mainstream Vodka Pricing Trends Competitor brand prices relative to CdL Key highlights Discount Premium 4% 2% 0% -2% -4% Zubrowka R (Roust) Krupnik R (Marie Brizard) -4.7% Both directly competitive brands (Zubrowka R and Krupnik R) have significantly reduced price in relation to CdL Zubrowka repositioned shelf price from a 3% premium to CdL to a 6% discount -6% -5.7% -8% JUN 2013 SEP 2013 DEC 2013 MAR 2014 JUN 2014 SEP 2014 DEC 2014 MAR 2015 JUN 2015 Average market price - % difference to CdL June'13 June'14 June'15 Zubrowka R (Roust) 2,6% -2,7% -5,7% Krupnik R (Marie Brizard) -1,3% -0,6% -4,7% Source : Nielsen, Total Poland, Total Vodka 12

13 Stock is Fighting Back Brand refreshment initiative New more premium packaging for ŻOŁĄDKOWA DE LUXE New more premium packaging for ŻOŁĄDKOWA GORZKA OLD NEW OLD NEW Unique slimmer, taller, more elegant bottle Unique slimmer, taller, more elegant bottle Enhanced embossing for more premium feel 1822 date and prominent emboss to emphasise heritage 6 x distilled and awards highlighted to emphasise quality Awards highlighted and fuller description of unique ingredients and taste to emphasise quality Communications focus Communications focus This is how vodka should taste Inspired by a recipe from

14 Stock is Fighting Back Active brand support by channel Innovative and impactful off shelf displays to generate trial Added value on pack driving repeat purchase rather than price reduction Improved fridge utilisation Store specific planograms and reallocation of fridges to higher value stores Illustrative example 14

15 Stock is Fighting Back New Products Launched in H New Premium Clear Vodka New ZG Flavour Variant New Packaging Innovation The Spirit of Adventure Heritage with a Modern Twist Pot Shots Affordable Fun 15

16 Market Share Trends - Summary Stock market shares stabilising / growing Monthly market shares total market Key highlights 45% 40% 35% 30% 25% 20% Stock Polska (Value) Roust (Value) Marie Brizard (Value) Stock Polska (Volume) Roust (Volume) Marie Brizard (Volume) Monthly value market share (1) MAT value market share (1) 34.9% 31.6% 31.4% 34.6% Roust core brands show aggressive pricing and focus on growth in Discounters Stock has maintained it s focus on value creation rather than chasing uneconomic market share Stock s share is now stabilising / growing as a result of improved packaging, better marketing activities, innovative & successful NPD 15% 14.0% 13.8% Traditional Trade returning to normal 10% JUN 2013 SEP 2013 DEC 2013 MAR 2014 JUN 2014 SEP 2014 DEC 2014 MAR 2015 JUN 2015 Source : Nielsen, Total Poland, Total Vodka, % shares by month (1) As of end of June

17 Stock is Fighting Back More New Products for Q Premium Sparkling Vodka New Creamy Style Lubelska Flavours New Range of Mainstream RTDs Innovative New Product Concepts 17

18 Stock is Fighting Back More New Products for Q Expansion into growing new categories Premium Vermouth Aperitivo Prosecco RTD spritzers. Leveraging the Stock Brand Equity 18

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20 Other Markets Operational Highlights Summary Profitable market share growth in Czech Republic, Slovakia, Croatia & Bosnia Successful New Product Launches in line with growth strategies New Beam Suntory distribution agreements started well in Croatia and Bosnia New MD for Italy & International (former Drambuie CEO) joined in April

21 Czech Republic Operational Highlights Summary Value share of total spirits (%) Profitable market share growth Spirits leadership position extended 31.0% 33.4% YTD June 2014 YTD June 2015 Value share of HBL category (%) Successful rejuvenation of Herbal Bitters Category Successful launch of new Fernet Stock Flavours 41.6% 42.3% YTD June 2014 YTD June 2015 Value share of domestic category (%) 53.0% Successful launch of new Bozkov flavours Source : Nielsen, Total Czech Republic, Total Off Trade 45.4% YTD June 2014 YTD June

22 Enhanced Marketing Support & Portfolio Expansion in Czech Republic Inspirational Nevymeknem marketing campaign making the highly profitable herbal bitters category relevant again Distinctive new serving ritual to promote consumption growth Current New NPD Two new flavours in a highly profitable category that has seen little innovation for many years Building on the very successful Nevymeknem marketing campaigns 22

23 Enhanced Marketing Support & Portfolio Expansion in Czech Republic Current New Taking economy advertising to a new level Building awareness and frequency amongst lapsed and new users on the Czech Republic s number one spirits brand by volume Communications include core flavour variants and NPD NPD Two new flavours in a very large category that has seen little innovation for many years 23

24 Further Portfolio Expansion in Slovakia Current New in 2014/15 Two new flavours in a highly profitable category that has seen little innovation for many years Building on the very successful Nevymaknem marketing campaigns Innovative new Iced concept in the long established & highly profitable Fruit Distillate category Value share of HBL category (%) 39.1% 36.9% YTD June 2014 YTD June 2015 Value share of Fruit Distillates (%) 19.7% 19.8% YTD June 2014 YTD June 2015 Value share of Vodka (%) Leverage existing core brands to enter growing flavoured vodka category 6.8% 7.8% YTD June 2014 YTD June 2015 Source : Nielsen, Total Slovakia, Total Off Trade 24

25 Innovation and NPD is at the heart of our strategy A key driver of Stock s market share and EBITDA growth since 2007 Will continue to be our focus going forward Stepped up a gear in new product launches in H1 14 new products to be launched in Q3 More to come in Q4 Significant launch costs in H1 to support current and future growth Delights consumers, helps to improve relationships with customers 25 25

26 Operational Highlights Summary The building blocks are in place for a stronger H2 Poland Normalised trading/purchasing conditions since Easter have continued Shipments more inline with depletions No significant destock expected in H2 New terms have been agreed with almost all wholesalers Reduced levels of aggressive pricing are emerging competitor prices rising in wholesale channel Reinvigorated sales force changes having a positive effect on performance Strong NPD pipeline - will help drive additional sales Market share has started to recover Other Markets Continued positive momentum in Czech and Slovakia Other markets in line with expectations 26

27 Financial Results Lesley Jackson Chief Financial Officer

28 Consolidated Statutory P&L Consolidated statutory P&L ( k) H H % Change Revenue 137, , % Cost of goods sold (64,618) (49,758) Gross profit 73,108 58, % Gross profit margin % 53.1% 53.9% Selling expenses (31,932) (33,399) Other operating expenses (17,964) (19,680) Operating profit before exceptional items 23,212 5, % Exceptional items (479) 0 Operating profit 22,733 5,212 Net finance costs (3,227) (3,248) (Loss) / profit before tax 19,506 1,964 Income tax credit / (expense) (2,673) (1,733) Profit for the year 16, EBITDA before exceptional 28,610 10, % EBITDA Margin % 20.8% 10.0% Earnings per share (basic) Key highlights Net sales revenue and COGS impacted by poor Q1 in Poland Revenue per case up 8.9%, increase in gross margin to 53.9%, driven by: Market mix Product mix Reductions in discounts & rebates COGS per case unchanged from Market and product mix have impacted movement Increase in selling expenses driven by NPD investment Other operating expenses impacted by 2 nd year of performance share plan and negative FX EBITDA margin declined in Q1, improvement in Q2 28

29 Volume & Net sales revenue overview Volume (m 9L cases) and Net sales revenue ( m) % change y-o-y % -21.5% Key highlights Improving mix of underlying product sales volumes In H1 2014, 51% of volume was represented by clear vodka In H1 2015, clear vodka had fallen to 41% Typically, the Other category has higher margins vs. clear vodka H H Clear Vodka Other Net Sales Revenue ( m) 29

30 Poland H1 performance Key financials Net sales revenue ( m) EBITDA ( m) H1 14 H1 15 Key highlights Extremely weak Q1, but with major improvement in Q2 on the re-emergence of more normal trading conditions Reported results Net Sales revenue down to 52.5m EBITDA before exceptionals down to 9.2m Margin impaired by poor Q1 performance % % H1 14 H1 15 xx.x% EBITDA margin (%) 30

31 Poland Quarterly EBITDA Re-emergence of more normal trading conditions since Easter Q1 Polish EBITDA Trends (1) Q2 Polish EBITDA Trends (1) Average Average (1) Indexed to the average quarterly Polish EBITDA, where the average is benchmarked to

32 Polish shipments vs. depletions Comparison of retail sales out vs. Stock Polska sales in Stock sales to customers indexed to retail sales out (1) Retail sales out Stock sales in to customers Comments Depletions in Q1 were much higher than shipments into customers In Q2 Depletions more closely matched shipments Total Q Total Q Total H Source : Nielsen with coverage factor of 1.18 applied, management information (1) Indexed to retail sales out, where retail sales out is benchmarked to

33 Sales Patterns Customer ordering trends can disrupt reported earnings Order volumes in June vs. July (1) Comments June July Typically there is a higher volume of orders in June vs. July However, orders in July 2015 were 11% higher than in June 2015 as a result of customer ordering trends Strong start to Q3 Average Source : management information (1) Indexed to the June volume, where the June volume is benchmarked to

34 Poland Key operational drivers of H1 EBITDA performance Re-emergence of more normal trading conditions since Easter Q factors Q factors Erratic customer ordering 2015 customer terms not all agreed Supply chain destocking Competitive pricing environment Market volume decline of 3.8% NPD investment Loss of market share Normalised purchasing New commercial terms with customers Sales force restructuring Stabilisation of market share Competitive pricing environment Market volume decline of 2.6% NPD investment Period end sales timing 34

35 Czech Republic Company performance Key Financials Net sales revenue ( m) EBITDA ( m) H1 14 H Comments Reported results for H vs. H Net sales revenue up by 6.3% to 27.7m EBITDA up 0.5% to 6.7m NPD investment in: Fernet herbal bitters Bozkov Leading to growth in both categories 25.3% 24.0% H1 14 H1 15 x.x% EBITDA margin (%) 35

36 Italy Company performance Key financials Net sales revenue ( m) EBITDA ( m) H1 14 H % 18.9% Comments Net sales declined by 9.8% to 14.6m due to: Raw material price increases and recent duty increases, resulting in a significant increase in selling prices have impacted brandy category As brandy category leader we have been impacted more than competitors Three core categories performing better than recent trends H1 14 H1 15 x.x% EBITDA margin (%) 36

37 Other Segment Slovakia, Croatia, Bosnia, Baltic Distillery & Exports Key financials Net sales revenue ( m) Comments Financial results in line with expectations and driven by: Full year impact of portfolio restructuring of the Slovakian business Business as usual in other markets EBITDA ( m) H1 14 H % 6.8% H1 14 H1 15 x.x% EBITDA margin (%) Slovakian performance reflects on-going: Revenue decline as a result of the elimination of uneconomic SKUs The initial cost of launching new products Two new flavours of Fernet herbal bitters, leading to category and margin growth New distribution agreements with Beam Suntory for Croatia and Bosnia started well 37

38 Free Cash Flow Adjusted free cash flow H vs. H Comments Cash flow in H impacted relative to H by: Decline in EBITDA 11.8% % Inventory build for new Polish warehouse Final dividend paid in H (no dividend payment in H1 2014) Company will pay an interim dividend of per share in September Inventory build expected to reverse in H2 H H x.x% % Adjusted cash flow conversion 38

39 Net debt -70 Net debt H development ( m) x 1.90x (82.4) (3.9) (1.4) Net debt Dec-14 Net cash inflow from op.activities Income tax paid Net capital exp. & sale proceeds for PPE (3.7) 0.9 (4.9) (92.0) Net interest paid Final Dividend Exchange rate Net debt Jun-15 Net debt to EBITDA ratio H1 closing net debt impacted by: Decline in EBITDA, driven by poor Q1 in Poland Inventory build for new warehouse in Poland Significant liquidity available to the business y.yyx 39

40 Net Finance Costs Net finance costs H ( m) Comments H H Interest payable on bank loans Bank commissions and guarantees Interest rate swap instruments (0.3) 0.0 Other net interest (income) / expense Foreign currency exchange loss / (gain) (2.9) (0.9) Total Significant reduction in interest payable on bank loans following reduction in margins in the second half of 2014 Interest rate swap derivative has now ceased, so no impact during 2015 Foreign exchange translation gain has had a lower impact on net finance costs in H1, largely due to movements in the GBP/EUR rate. This is a non-cash movement 40

41 Taxes ( m) Comments H H Current tax expense Prior year tax expense (0.1) 0.5 Deferred tax charge / (Credit) (2.9) 0.1 Total tax expense Current tax expense reflects decline in taxable profit Prior year expense associated with routine corporate tax adjustments Deferred tax credit in 2014, created as a result of continued post IPO corporate restructuring, now complete 41

42 Impact of FX Movements Net sales revenue bridge H Comments (30.3) Overall impact upon net sales revenue and adjusted EBITDA have not been material during 2015 Net sales revenue H Operating activities Impact of FX EBITDA bridge H Net sales revenue H m increase in the carrying value of intangible assets; driven by FX translation 28.6 (16.7) (1.1) 10.8 EBITDA H Operating activities Impact of FX EBITDA H

43 Outlook for H2 vs H Building blocks in place for a stronger H2 Poland Other Markets More normal trading since Easter Discounts and promotions expected to continue at normal levels No further customer destocking expected Continued stabilisation of market share Continuation of positive market and category trends Planned price increases achieved Expected returns from NPD achieved No duty increases expected No significant change in market trends Expected returns from NPD achieved Strong start to Q3 Historically H2 is stronger than H1 43

44 Outlook for Full Year Cautious optimism a weak H1 but we are fighting back 2015 Full Year EBITDA forecast and prior years results m 90 Key assumptions The assumptions supporting our forecast are: No significant change in market trends 80 No change in market shares Normal customer ordering patterns Further NPD in H No significant change in the cost of raw materials FY 2012 act. FY 2013 act. FY 2014 act. FY 2015 est. Expected EBITDA range for FY 2015 is 60m- 68m Main risks: More aggressive competitor behaviour Irregular customer buying patterns 44

45 Concluding Remarks Chris Heath Chief Executive Officer

46 Concluding Remarks H was a very challenging period in Poland Q1 was very weak, Q2 much better and Q3 has started well Poland remains an attractive market, with strong fundamentals Sticking to our strategy is starting to deliver results Other markets performing as expected Near term focus is Poland and growth through NPD and innovation Company will pay an interim dividend of per share in September 46

47 Q&A

48 Appendix

49 Our Mission Statement To create the leading spirits business in CEE Bringing global operational excellence to the region

50 Key Contact Lesley Jackson (CFO) Tel: Mob: Solar House, Mercury Park, Wooburn Green, Buckinghamshire, HP10 0HH 50

51 Sources and footnotes Page Source Notes 7 Nielsen Market share is stabilising source Nielsen total Poland, total off trade, total vodka Stock % market share May and June Management Estimates, IWSR,Nielsen and OECD IWSR 2014 for vodka share of total spirits in Poland. Number of stores Nielsen total Poland, total off trade and management estimates for on trade. Poland economic forecast summary (June 2015) 9,10,11, 12,16 Nielsen Nielsen, total Poland, total off trade, total vodka to June 2015 and Nielsen, total Poland, total discounters to June Nielsen (1) As of end of June Nielsen market share growth source Nielsen total Czech republic, total off trade, total spirits to June 2015 and total Slovakia, total off trade, total spirits to June Nielsen Czech volume and value share performance Total Czech Republic, total off trade, total spirits to June Nielsen Slovakian volume and share performance Total Slovakia, total off trade, total spirits to June 2015

52 Sources and footnotes Continued Page Source Notes 26 CMR data and Nielsen 31 Management information 32 Nielsen, Management information 33 Management information competitor shelf prices rising in wholesale source CMR data. market share recovery source Nielsen total Poland, total off trade, total vodka to June 2015 (1) Indexed to the average quarterly Polish EBITDA where the average is benchmarked to 100 Nielsen with coverage factor of 1.18 applied, management information (1) Indexed to retail sales out, where retail sales out is benchmarked to 100 (1)Indexed to the June volume where the June volume is benchmarked to Nielsen Market volume and share performance source Nielsen, total Poland, total off trade, total vodka to June Nielsen growth in both categories source Nielsen, total Czech Republic, total off trade, total HBL and total rum & domestic categories 37 Nielsen HBL category and margin growth source Nielsen, total Slovakia, total off trade, total HBL category to June Management estimates Poland share stabilised and other markets continuation of positive trends