The just-drinks Interview - Stock Spirits CEO Chris Heath - Part II
In the first part of our interview with Stock Spirits' CEO, Chris Heath looked back at the company's IPO last year, and what it now means for the company to be standing on its own two feet. Today, in part two, Heath considers the company's current performance, its distribution tie-ups with Beam Suntory and Diageo and the differences between private and public ownership.
While Stock Spirits' ownership has changed in recent months, one constant has been the company's performance in the last few years. Thanks to its private ownership structure, however, this hadn't been shouted about as much as Heath would no doubt have wanted.
“Our EBITDA has delivered a sixth consecutive year of record growth,” he says. “That's at a time when the economics are not exactly in our favour. Indeed, all of the indicators in 2013 were heading in the right direction: volume growth, top-line sales growth, margin improvement, almost 100% cash conversion. It was a fantastic year.” Indeed, the one blemish on Stock's full-year report came from one-off costs generated from the IPO process.
The future looks bright, then.
And, Stock's portfolio offers some shining examples: “(Vodka brand) Stock Prestige just became our sixth millionaire brand,” boasts Heath. “And, that's a premium brand. Lubelska (vodka and vodka-based liqueurs) is also going from strength to strength in Poland: we launched two new flavours last year and they're both performing at the top end of our expectations. And, in the Czech Republic, we've seen herbal bitters finally come back a bit. That's good because bitters is a high-margin category.”
Stock Spirits' CEO, Chris Heath
Speaking of bitters, speculation last month linked Stock with a possible move for Pernod Ricard's Czech bitters brand, Becherovka. At the time, just-drinks played down the likelihood of a move by Stock, as it is already the clear market leader in the Czech bitters segment through its namesake brand. However, Heath believes otherwise: “Becherovka is in a different category to Stock Bitters,” he says. “It's a liqueur – how that would be interpreted by the competition authorities remains to be seen.”
Has he been on the 'phone to Czech's competition authorities about this yet? He laughs: “Nice try.”
Although we touched on Stock's acquisition strategy last week, some commentators have suggested that the company could itself be ripe for a takeover in the coming years.
A distraction, no? “The only way we're going to be of interest to anybody is if we keep performing,” says Heath. “All we've got to do is go out and keep growing the business. We don't speculate on who might come in and make an offer for us because that would be a major distraction. We want to acquire more businesses so we can grow our geographic footprint so we can do more of the same.”
With around 90% of the company's sales hailing from Czech, Italy and Poland, one can understand Heath's desire to expand Stock's presence. But, its international division, initially set up in 2009, is not performing as hoped. “It's the one part of the business that has been mixed,” Heath admits. “We saw some good growth in some parts of the world but, with the economic situation, there's been a reluctance for distributors to take on a lot of new brands, especially if you're not investing large amounts of money behind them. So, we've taken a cautious approach, to be honest. We had some growth, but we had some credit issues in a couple of our markets, and we changed the management team in 2012.
“While we had a good year in 2013, albeit from a small base, we're short of the plans we had in place for the division five years ago," he adds. "But, we've got some good relationships with some good partners that have stood by us through the tough times. We had a very good year in 2013 in international business, but there's plenty more to go for.”
“Both are working very well,” says Heath. “The handover's been pretty smooth. We went into it from a strategic point of view: We wanted to strengthen our portfolios at the premium end and we wanted to get into dark spirits more than we were. It gave us an opportunity to work with some very premium brands to go alongside our own premium brands. They recognise how strong our distribution platform is.”
Is this the shape of things to come, then? “There is scope for others,” he notes. “I wouldn't necessarily want to do them in Poland or Czech, but we've got fully-owned sales and marketing operations in six countries altogether. I don't want our teams distracted too much, I wouldn't take on additional brands just for the margin.”
Heath concedes that, as a brand owner as well, Stock has to perform a balancing act when it comes to such arrangements. “You just need to be aware that there are differences. You want to do a great job for the brand owner, but equally you don't want to shoot yourself in the foot. We made it very clear in all our discussions with Beam and Diageo of the way we would handle any potential clashes. We didn't want to spend the next two years arguing about certain things. We've established the ground rules up front, and we'll deliver against that.”
Wrapping up, I can't resist asking Heath which he prefers; the warm shelter of private ownership with its myriad of eccentricities, or the cold reality of public ownership with its (relative) freedom. “We're very new to PLC, so it's a bit difficult to say at the moment,” he says.
“I think they both have their merits. Oaktree were terrific supporters. They asked smart questions and, so long as we could give them smart answers, they pretty much supported everything we wanted to do. The world's quite different for us now. We've met with all of our main investors several times and they're very supportive of what we want to do. If you continue to follow the strategy that you said you were going to follow and you deliver the results, then that relationship is pretty good, normally. We have a very good relationship with them at the moment.”
And, what of Heath himself. Having guided Stock through the IPO, is his work with the company done? “When we've got leadership positions in all the markets of Central and Eastern Europe,” he says, then it might be done.
“At the moment, no!”
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