20th Apr 2016 08:42
LONDON (Alliance News) - The largest shareholder in drinks distribution Stock Spirits Group PLC hit back at the company on Wednesday and outlined its intentions having already managed to oust the chief executive ahead of the group's annual general meeting next month.
Stock Spirits has been locked in a battle with Western Gate Investments Ltd, which owns 9.7% of the company, over its future strategy following a tough 2015 when Stock Spirits saw its market share in its key Polish market slump.
Western Gate scored a victory in the battle on Monday when Chris Heath stepped down as Stock Spirits' chief executive and took early retirement. Western Gate had been seeking to remove Heath at the group's annual meeting on May 23.
Western Gate, an investment vehicle of the family office of Luis Amaral, is also proposing the appointment of Alberto Da Ponte and Randy Pankevicz as non-executive directors. Amaral is also the largest shareholder in Eurocash, one of Stock Spirit's largest customers in Poland.
On Tuesday, Stock Spirits outlined reason for shareholders to vote against Western Gate, focused on Amaral's connection to Eurocash. The group said Amaral's shareholding in Eurocash represented "an overriding conflict of interest".
Stock Spirits also criticised Western Gate for pushing the company to "chase market share" at the expense of profitability.
On Wednesday, Western Gate hit back. It said Stock Spirits, in its response to Western Gate's proposals, "has unfairly sought to discredit us and made various unjustified statements about our intentions."
It added it believes Stock Spirits' board's efforts "would be better spent constructively focusing on turning around the company's business rather than needlessly attacking its largest shareholder."
Western Gate also more directly responded to the criticism of Amaral's holding in Eurocash. Western Gate said it would "like to reassure shareholders" Amaral is not seeking to chase market share at the expense of profitability for the benefit of the Eurocash business.
Stock Spirits product sales account for only 3.0% of Eurocash turnover, Western Gate said, meaning any contribution to Eurocash's profit is "negligible".
Western Gate added a number of shareholders in Eurocash are also on the Stock Spirits shareholder register, so it would not be in the interest of Western Gate or Amaral to "jeopardise the good relationships they enjoy with the majority of these shareholders."
Western Gate said it does want Stock Spirits to focus its attention on winning back market share and has seen little evidence of any turnaround in the negative trend here.
It said it calculated Stock Spirits would still have seen adjusted earnings before interest, taxation, depreciation and amortisation in Poland fall 34% in 2015 even if it held its adjusted Ebitda margin at 2013 levels.
The issue, Western Gate said, is customers are not buying Stock Spirits products, and the company must address this "as a matter of urgency".
Western Gate also hit back at the accusation made by Stock Spirits that the directors proposed by Western Gate would not be independent. Western Gate rejected the notion, saying just because the directors have been proposed does not mean they are not independent.
The shareholder added it was "not thus far reassured" of any turnaround in performance, despite Stock Spirits having said last week it had seen an improved performance in the first quarter.
Western Gate said the improvement Stock Spirits highlighted reflected the business stabilising at a "significantly lower level of sales" in the first quarter, absent of any indication of a return to sustainable growth. It also said comparison to the first quarter of 2015 were "misleading" given the destocking which took place in the period.
Stock Spirits shares were down 0.3% at 154.50 pence on Wednesday.
By Sam Unsted; [email protected]; @SamUAtAlliance
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