Eastern European drinks group Stock Spirits (STCK) reported first half revenues up 8% to €156.9m, driven by strong performances in Poland and Czech Republic where the group gained market share.

However investors seem unimpressed due to the relatively lacklustre growth in earnings before interest, taxes, depreciation and amortisation (EBITDA) and the shares have slipped 1% to 232p.

READ MORE ABOUT STOCK SPIRITS HERE

Stock Spirits took its share of the Polish vodka market up by two percentage points, from 26.6% to 28.4%. Success in vodka is being mirrored in whisky, where the company grew Jim Beam, its key distribution brand, by 15.5% in volume terms and 16.6% in value terms, increasing its market share to 9.2% from 8.8% last year.

In Czech Republic, Stock Spirits increased its leading market share position to a five-year high of 34.7% from 33.6%.

However the cost of goods sold increased by 12% in absolute terms while costs per litre rose 6.8%.

As well as inflation pressures at production facilities, the higher volume of premium products sold and the relative increase of third party products impacted gross margins which fell to 47% from 48.8%. This tempered growth in EBITDA to just 4.2%.

MORE BOLT-ON ACQUISITIONS

The company has signed contracts to acquire Bartida and its sister company Bartida Retail, a premium spirits business focused on the On-Trade market in Czech Republic.

The sale price is €3.7m with a further payment of up to €3.7m, dependent on achievement of certain key performance targets. The current owners will continue to work in the business for five years to ensure a smooth transition.

Bartida’s has annual revenues of €8.8m and operating profits €1m. The acquisition is expected to be earnings-enhancing in the first full financial year of ownership.

ROOM FOR FURTHER GROWTH

Free cash flow as a percentage of EBITDA improved from 79% to 93.2%, helped by the reduction in inventories. Leverage was reduced to 0.4 times, giving the firm flexibility for future growth of the business.

Management continues to assess a range of acquisition opportunities to enhance growth and deliver further shareholder value. If it can't find any opportunities, however, the company has said it will consider shareholder distributions. Stock Spirits last paid a special dividend of 12.65c in 2016.


Issue Date: 14 May 2019