STCK.L Regulatory News (STCK)

31 January 2019

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Stock Spirits Group PLC

Acquisition of Distillerie Franciacorta SpA in Italy

Establishes Stock Spirits as the leading branded grappa player in the Italian Off-Trade

Includes acquisition of spirits brands with the prestigious Franciacorta provenance

Stock Spirits Group PLC ("Stock Spirits"), a leading owner and producer of premium branded spirits and liqueurs that are principally sold in Central and Eastern Europe and Italy, is pleased to announce that it has signed an agreement to acquire Distillerie Franciacorta SpA ("Distillerie Franciacorta" or "the Business"), one of the leading Italian producers of grappa, liqueurs and Franciacorta - a premium Italian sparkling wine that is produced solely in the Franciacorta region.

Founded in 1901, Distillerie Franciacorta is owned by the Gozio family and is located in Franciacorta, in the Lombardy region of Italy. Stock Spirits is acquiring the entirety of Distillerie Franciacorta's spirits and liqueurs business, together with land for the construction of a new production facility. It will also acquire the prestigious Franciacorta wine brands, although all aspects of the wine manufacturing will be retained by the vendor. As part of this transaction, Stock Spirits will also take a long-term lease of the historic Borgo San Vitale site, the distillery and visitor-centre that is an integral part of Distillerie Franciacorta's heritage. Stefano Gozio, one of the selling shareholders of Distillerie Franciacorta and a member of the founding Gozio family, will continue to act as a brand ambassador and consultant to Distillerie Franciacorta.

The grappa category is Italy's fourth largest spirits category, and the total premium price segments in which the Franciacorta brands are positioned grew by 5.0% in value from 2016 to 2017 (IWSR 2018). The acquisition will mean that Stock Spirits will be the number one branded grappa business by value in the Italian Off-Trade.[i] Stock Spirits sees clear synergies with its existing operations, both in the On-Trade, where Stock Spirits can leverage Distillerie Franciacorta's strong presence, and in the Off-Trade, where the acquired brands will benefit from Stock Spirits' current strengths.

The purchase price is up to €23.5 million for the Business with a further €3m for the land, payable in cash in three tranches: an initial payment of €3.0 million upon signing (refundable if the vendors do not complete agreed conditions precedent); a further €21.5 million payable at completion; and up to €2.0 million deferred consideration payable over a four-year period. Completion of the acquisition is conditional upon consultation with trade unions as well as certain restructuring steps, and is expected to occur in the second quarter of the year.

Sales in the year ended 31 December 2018 (unaudited) for the Business to be acquired were €9.7 million, its pro-forma operating profit (i.e. as if the business had been under Stock Spirits ownership during the period) was c. €2.0 million (excluding acquisition one-offs and the costs of integration), and the value of the gross assets of the Business is estimated to be c. €12.0 million at completion. The key assets that are being acquired are the brands. The fair value of these brands and any subsequent goodwill created from the acquisition will be calculated at completion. Stock Spirits anticipates that the acquisition will be earnings neutral in the first complete year of ownership and earnings enhancing thereafter, when it is expected to exceed the cost of capital.

Commenting on the acquisition, Mirek Stachowicz, Chief Executive of Stock Spirits, said: 

"We are delighted to be acquiring Distillerie Franciacorta, which is a business with a fantastic heritage and outstanding brands. This is a truly compelling opportunity that we have been looking at for more than a year now, and we see clear and attractive synergies with our existing Italian operations. Distillerie Franciacorta's deep expertise in local, premium products resonates strongly with Stock Spirits' wider strategy of investing in well-loved national brands with genuine and high quality provenance.

This is our first step in pursuing in-market consolidation opportunities in Italy, and Distillerie Franciacorta will strengthen our position in what is a fragmented but highly attractive market for us. It should also be seen as a clear reflection of our willingness to undertake value-creating M&A as part of our four pillar growth strategy. We welcome Stefano and look forward to working with him in the next phase of the Distillerie Franciacorta story."

Stefano Gozio of Distillerie Franciacorta said:

"We are delighted that a business that so clearly understands our values, brands and heritage is acquiring Distillerie Franciacorta. Mirek and his team at Stock Spirits have made it clear that they will nurture and grow the Franciacorta brands, and that they realise the importance of maintaining production locally. We are thrilled to be joining their operations, and look forward to an exciting new chapter for everyone associated with Distillerie Franciacorta."

For further information:

About Stock Spirits Group

Stock Spirits is one of Central and Eastern Europe's leading branded spirits and liqueurs businesses, and offers a portfolio of products that are rooted in local and regional heritage. With core operations in Poland, the Czech Republic, Slovakia, Italy, Croatia and Bosnia & Herzegovina, Stock also exports to more than 50 other countries worldwide. Global sales volumes currently total over 100 million litres per year.

Stock has production facilities in Poland, the Czech Republic and Germany, and its core brands include products made to long-established recipes such as Stock 84 brandy, Fernet Stock bitters and Limoncè, as well as more recent creations like Stock Prestige and Żołᶏdkowa de Luxe vodkas.

Stock is listed on the main market of the London Stock Exchange. For the proforma year ended 30 September 2018 it delivered total revenue of €282.4 million and operating profit of €48.7 million.

For further information, please visit www.stockspirits.com 

About Distillerie Franciacorta 

Distillerie Franciacorta is a family-owned spirits company that was founded in 1901. Owned by the Gozio family, the company is located in Franciacorta, in the Lombardy region of Italy. It is one of the leading Italian producers of grappa, liqueurs and Franciacorta - an Italian sparkling wine that is produced solely in the Franciacorta region.

Notable products include Grappa Chardonnay di Franciacorta, Grappa Amarone Barricata, Grappa Barolo Invecchiata, and La Santissima Franciacorta sparkling wine.

For further information, please visit https://www.distilleriefranciacorta.com

This announcement may contain 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 statements typically contain words such as "anticipate", "assume", "believe", "expect", "plan", "intend" and words of similar substance. The forward looking statements contained in this announcement 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.