Western Gate calls for the removal of David Maloney, Chairman and - - PowerPoint PPT Presentation

Western Gate calls for the removal of David Maloney, Chairman and John Nicolson, Senior Independent Director

• f Stock Spirits

Key issues and rationale for shareholder action

January 2019

1

Important notice and disclaimer

This presentation has been derived from publicly available information only. Any opinions expressed in this presentation are those of Western Gate only and no reliance may be placed for any purposes whatsoever on the information or opinions contained in this presentation or on its completeness. No representation or warranty, express or implied, is given by or on behalf of Western Gate or its subsidiary undertakings, affiliates, respective agents or advisers or any of such persons’ affiliates, directors, officers

• r employees or any other person as so to the fairness, accuracy, completeness or verification of the

information or the opinions contained in this presentation and no liability is accepted for any such information or opinions. This presentation is being made only to and is directed only at persons in the United Kingdom having professional experience in matters relating to investments, being investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended. This presentation is not directed at and should not be relied upon, used or transmitted to any person to whom it would be unlawful to make this document available. Furthermore, for the avoidance of doubt, this presentation is not intended to be directed or available in any jurisdiction where it would be unlawful to direct it or make it available. Nothing contained in this presentation is or is to be construed as an offer of securities or an invitation or inducement to engage in investment activity including the purchase, sale, exchange or subscription for securities of any nature. Western Gate does not assume any liability stemming from this presentation and one is not entitled to direct any claims against Western Gate based on this presentation. Any decision taken based on this presentation is at the sole risk of the person taking this decision.

2

Stock Spirits Group

Key areas of concern regarding Resolutions 4 and 5

• Stock Spirits has failed to articulate and execute a credible growth strategy with limited M&A
• Despite one of the lowest leverage ratios (x0.53) in the sector of and good cash generation, the Company offers one of the lowest cash return to

shareholders amongst its peers

• Stock Spirits continues to suffer from an underperforming share price down 18% and lack lustre TSR down 16% from the beginning of January 2018 to

date

• A slower than anticipate recovery of market share in Poland and declining market share in Italy and Czech Republic
• The Board continues to treat corporate governance as a box-ticking exercise whilst ignoring shareholders and over-seeing a culture of group think
• All of Western Gate’s concerns have been left un-addressed following a meeting with the Chairman

Shareholder action needed

Western Gate calls for:

• The removal of David Maloney, Chairman and John Nicolson, Senior Independent Director of Stock Spirits
• The immediate commencement of a process to appoint independent replacements - using an independent executive search firm – who engender a

culture of diversity, challenge the Executives’ growth strategy, its execution and optimize the Company’s capital allocation policies

• In light of Stock Spirits’ cash generation and unconvincing growth strategy, Western Gate calls upon the Board to increase the dividend and or

introduce a special dividend

• Shareholders to vote against Resolutions 2,4,5 and 18

The Board needs a new culture and culture is set from the top

3

Key Issues regarding Resolutions 4 and 5

4

Stock Spirits is not growing…. …it consistently discusses M&A…

100 200 300 400

2013 2014 2015 2016 2017 2018*

Revenue (€ millions)

*Pro Forma

CAGR: -3.67%

Source: latest Company annual reports

2013 2014 2015 2016 2017 2018 2019

despite constant mentions since IPO and several major sector acquisitions in 2018 demonstrating there are deals available for proactive companies

2013 IPO 2014 2015 2016 2017 2018 2019

Small bolt on acquisition of spirits business in the Czech Republic - €5m 25% acquisition of Quintessential Brands Ireland Whisky Ltd - €18.3m

… but fails to execute a credible M&A strategy…

10 20 30 40 50 60 2013 2014 2015 2016 2017 2018

Stock Spirits mentions of “M&A”

Prospectus Intention to Float Preliminary Results Annual Report Interim Results

Source: latest Company filings

5

Failure to articulate and execute a credible growth strategy, with limited M&A, has delivered a continued underperforming share price

60 70 80 90 100 110 120 130 29/12/2017 29/01/2018 28/02/2018 31/03/2018 30/04/2018 31/05/2018 30/06/2018 31/07/2018 31/08/2018 30/09/2018 31/10/2018 30/11/2018 31/12/2018

Share Price: Stock Spirits vs. C&C vs. Diageo vs. FTSE 250

Stock Spirits Diageo C&C FTSE 250

Stock Spirits’ share price is down 17.95% from 01 January 2018 to date, 6.8% since its IPO in October 2013 and 30.5% since its peak.

Source: Yahoo Finance

• 17.95%
• 9.94%

+1.03% +11.64%

6

Failure to articulate and execute a credible growth strategy, with limited M&A, has delivered pitiful TSR

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 29/12/2017 29/03/2018 29/06/2018 29/09/2018 29/12/2018

Stock Spirits vs peers: Total Shareholder Return

Stock Spirits Diageo C&C FTSE 250

Stock Spirits’ TSR is down 15.74% from 01 January 2018 to date.

• 15.74%
• 9.67%

+5.34% +16.00%

7

Stock Spirits offers one the lowest cash returns to shareholders, despite good cash generation

In light of the Company’s good cash generation and lack of M&A, we call upon the Board to increase the dividend and or introduce a special dividend

Stock Spirits’ has the lowest gearing in the sector: Yet pays out one of the lowest cash returns:

2,37 2,22 1,27 0,53

0,5 1 1,5 2 2,5 C&C Group Diageo Schloss Wachenheim Stock Spirits

Net Debt / EBITDA 2018

*

Gearing ratio Net Debt / EBITDA

0,66 0,54 0,51 0,36

0,2 0,4 0,6 0,8 C&C Group Diageo Stock Spirits Schloss Wachenheim

DPS / EPS 2018

Cash returns DPS / EPS

*

8

* Proforma 18’ Source: latest Company annual reports

Slow and inadequate recovery of market share in Stock’s core vodka business in Poland

28,2% 35,9% 40,3% 43,2% 44,7% 36,9% 29,7% 26,2% 26,3% 27,8% 13,7% 13,8% 14,1% 12,6% 9,9% 21,2% 20,5% 19,4% 18,0% 17,5% 2014 2015 2016 2017 2018 OTHERS MARIE BRIZARD STOCK ROUST 29,0% 37,3% 41,5% 44,2% 45,7% 36,1% 28,4% 24,7% 25,4% 27,2% 14,6% 14,8% 15,1% 13,5% 10,8% 20,3% 19,5% 18,8% 16,9% 16,3% 2014 2015 2016 2017 2018

Value market share Volume market share

Source: Nielsen, Total Poland; total off trade, total vodka (defined as the sum of total clear, total flavoured and total vodka based flavoured liqueurs) % volume or value share.

• Stock Spirits’ market share remains below 2014 levels of 36.9% value market share and 36.1% volume market share
• In Poland in 2018, Stock Spirits gained 1.5%. value market share and 1.8% volume market while Marie Brizard and Others continue to lose market share.

9

35,0% 32,1% 33,7% 33,1% 4,4% 4,3% 4,4% 4,2% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 40,0% 2015 2016 2017 2018

Stock Spirits’ market share, total spirits in secondary markets

Czech Rebuplic Italy

A declining market share in Czech Republic and Italy

• In Czech Republic, Stock’s market share fell from 33.7% to 33.1%
• In Italy from 4.4% to 4.2%

Source: latest Company annual reports

10

Corporate Governance treated like a “box ticking” exercise

The Chairman and SID roles are held by entrenched Directors (Maloney and Nicolson) who have large responsibilities for the governance model including concerns with:

• Shareholders being ignored - Western Gate raised its concerns regarding M&A and capital allocation with Maloney and the Board in Q3

2018, all of which have been left substantially un-addressed;

• The Board suffers from insufficient gender diversity and both Maloney and Nicolson are members of the Nomination Committee;
• Insufficient evaluation of the Board:
• Internal evaluations are led by the Company secretary and lack objectivity, with the last external evaluation having been in 2016;
• Disclosures in the Annual Report appear to be of the boiler-plate variety, and don’t offer much insight into the process or findings
• Western Gate successfully requisitioned the appointment of two new independent Non-Executive Directors to provide the Board with a

fresh perspective and relevant experience in May 2016:

• The Board deemed the two independent directors appointed by shareholders in 2016 as non-independent, even though they were

deemed to be independent by the executive head hunters; the proxy advisers and the UK corporate governance Code. This had the effect of preventing them from joining any Board committees

11

Key Issues regarding Resolutions 2 and 18

12

Resolution 2 - Remuneration

• The Annual Bonus for 2018 paid out 97% of base salary even though the share price and TSR have slumped;
• The remuneration structure could be encouraging short termism and the annual bonus scheme has a larger maximum payout than under the long-

term incentive arrangements; and

• The Key Result Area (KRA) target for M&A was not achieved and yet 14% of the maximum 20% of this personal target element of the Annual Bonus

was paid out, thus the M&A targets represent a maximum of 6% of annual bonus. 13

• Resolution 18 allows the Company to call general meetings at 14 days’ notice, rather than the statutory 21 days
• Stock Spirits states in its Notice of AGM that this resolution will increase ‘flexibility’
• Western Gate see this as an attempt to:
• Undermine shareholder rights
• Give more power to Directors
• Limit shareholders right to prepare for General Meetings and act if necessary

Resolution 18 gives more power to the Directors

14

Western Gate’s voting intentions

Western Gate will be voting against the following AGM resolutions as a protest against these directors and a mandate from shareholders for change:

• Resolution 2 – to approve the Director’s Remuneration Report
• Resolution 4 – to re-elect David Maloney as a Director
• Resolution 5 – to re-elect John Nicolson as a Director
• Resolution 18 – short-notice of general meetings, other than annual general meetings

1

This is to ultimately drive the appointment of a suitable Chairperson with the right skill set to hold the Executive team accountable and optimize shareholder returns Western Gate URGES SHAREHOLDERS VOTE AGAINST RESOLUTIONS 2, 4, 5 and 18

15

A large protest vote against Maloney and Nicolson should be taken as a mandate for change to review the Company’s M&A strategy, capital allocation and dividend policy

Other investors share some of our views of the Chairman as, since 2015, 20-30% of shareholders have consistently voted against his re-election:

*From independent traditional institutional investors, does not include Western Gate

16

Appendix

17

Introduction to Western Gate

Western Gate

• Western Gate is a private family office investor representing the interests of Luis Amaral
• Western Gate is currently a 10% owner and the largest shareholder in Stock Spirits Eurocash
• Luis is majority shareholder and CEO of Eurocash, a ~Warsaw listed wholesaling Company with all of its operations in Poland
• Eurocash is the largest customer of Stock Spirits

Luis Amaral

• Luis Amaral is a Portuguese citizen who has been operating businesses in Poland for 20 years
• Luis gained initial business experience at Unilever and Nissan in Portugal before joining Jeronimo Martins Holdings (JMH) as director of Poland in

1995

• While at JMH, planned and executed the expansion of Biedronka, the market leading discount supermarket chain in Poland, opening 550 stores
• Luis spent 2000 – 2002 working in private equity in Latin America before returning to Poland in 2003 to lead the management buyout of Eurocash from

JMH No conflict of interest

• As the largest shareholder in Stock Spirits, Western Gate is fully aligned financially with all shareholders to see the business turned around

18