Polish difficulties hit Stock Spirits FY profits

Central and Eastern European spirits producer Stock Spirits saw its operating profits plummet 22.3% last year due to further “disruption” in the Polish market.

Stock Spirits has reported a significant drop in operating profit and revenue

In the 12 months to 31 December 2015, the group’s operating profits fell to €41.7 million, compared to €53.6m in 2014, and follows a previously revised profit guidance.

Profit after tax fell 46%, from €35.8m to €19.4m, while total revenue dropped almost 11%, from €292.7m in 2014 to €262.6m in 2015. Total volume sales fell almost 18%, from 14.4m nine-litre cases to 11.8m cases.

The group’s disappointing performance has been largely attributed to another “difficult year” in Poland, where it struggled against previous tax hikes and “severe pressure” from competitors.

Stock Spirits saw its Polish market value share slide from 38.1% to 30.9%.

“2015 saw another year of disruption in the Polish market and I am personally very disappointed that we had to issue revised profit guidance in November 2015,” said Chris Heath, CEO of Stock Spirits.

“Our team in Poland have worked incredibly hard to put in place the necessary building blocks to return the business to growth and I acknowledge their hard work and commitment during this difficult period.”

However, Heath said he was “very pleased” with the group’s performance in other markets, which all saw profit growth in H2 2015, compared to H2 2014.

In Czech Republic, Stock Spirits witnessed another year of “strong growth” for Fernet and increased its total market value share 2.1% to 35%. Meanwhile “great progress” was recognised in the international and Slovakian markets, and “positive momentum” helped bat away the effects of duty hikes at the start of the year in Italy.

David Maloney, chairman of Stock Spirits, initiated a review of the group’s corporate strategy and a “root to branch” assessment to its business in Poland after Stock Spirits’ revised profit guidance, issued in November 2015, hit share prices.

The review found that while the firm’s “strategic goals” outlined in its initial public offering (IPO) were “still valid”, Stock Spirits is currently “too dependent” on its key Polish market, particularly as competitor pressure mounts.

The group has also found difficulty in making “meaningful acquisitions” in Central and Eastern Europe due to the “effective elimination” of Ukraine and Belarus as “potential targets”. Trade in the countries has been hit by ongoing geopolitical turbulence.

In addition, Maloney said a number of Stock Spirits’ assets have been “intrinsically undervalued” and may be disposed. The group will also seek to extend its portfolio of third party products.

“As difficult as 2015 has been I am encouraged by the performance in a number of our markets, and that the strategy we have followed there continues to deliver the expected results,” said Heath.

“I am positive that as the market develops the actions we are taking in Poland will over time deliver the desired results.

“We move forwards into 2016 acutely aware of the objectives that need to be delivered and I remain focused upon delivering an improvement in the value of the business.”