Stock Spirits Group PLC (LON:STCK) have received questioning from a private investor over their decision to not pay out a special dividend.
Western Gate Private Investments Ltd have responded to the decision as the firms Annual General Meeting fast approaches.
Western Gate holds a 10% stark in the spirits focused business, requisitioned the resolution. Known as resolution 20, it calls for a €0.1219 per share special dividend to be paid March 20.
Notably, this would be a large ruse that the €0.0631 per share final dividend recommended by the Stock Spirits board.
Stock Spirits declared that under its own articles of association, no dividend declared by shareholders via an ordinary resolution can exceed the amount recommended by its board. Given that Stock Spirits does not recommend the special dividend, an AGM vote in favor of resolution 20 would not compel Stock Spirits to pay.
Stock continued to defend their decision saying that this would limit the firms ability to grow through mergers, acquisitions and organic growth.
Western said that Stock Spirits would not be pausing the special dividend even if shareholders approved it, believing it “shows a total disregard for shareholder rights and is a further red flag to shareholders that the company is run for the board and management rather than for the shareholders themselves”.
According to Western Gate, “there is no economic behind the decision to recommend voting against the resolution” given that Stock Spirits would still have a net debt to earnings before interest, tax, depreciation, and amortisation ratio 20% below the upper level defined by the Stock Spirits board and 33% below the sector average.”
Stock Spirits speak out following an impressive update
“We do not believe that this is the right time, both from an M&A perspective and an organic business perspective. On the latter point, the expected excise duty increases in Poland and Czech from the start of 2020 require us to maintain our financial strength to ensure we can respond to market developments, which we expect will only become fully apparent by May 2020. Payment of a special dividend would place the company at a disadvantage at a particularly sensitive time,” said Stock Spirits.
In December, the firm saw a good year of growth as its successful strategy of premiumisation continues to make progress.
Stock Spirits said said for the financial year ended September 30 its revenue rose 9.2% to €312.4 million from €282.4 million in a comparative period a year ago.
Another impressive figure which caught shareholder interest was that pretax profit had risen 24% from €282.4 million to €312.4 million.
The company increased its annual dividend by 5.1% which would have put the icing on the cake for shareholders, however this does not seem to have satisfied Western Gate.
“While there are challenges in certain areas of our business, notably in managing any impact that might result from the proposed excise tax increases in the Czech Republic and Poland, we remain confident in the strength of our brands, the quality of our people and the viability of our strategy. As a result, we feel well positioned for future success,” the company said.
Stock continues to outperform market
Shareholders of Stock Spirits should be very pleased with the recent update, however pressures from Western Gate have only come about due to the impressive performance.
Stock have managed to outperform competitors such as Fever-Tree (LON:FEVR) who saw their revenues bruised for the full year.
Fever-Tree said that it expects revenue for the full year to lie within the £266 million to £268 million range, which represents a year-on-year growth of 12-13%.
Additionally, the company previously warned in July that the UK had seen a moderation in growth rates for the first half of 2019.
Certainly, shareholders of Stock Spirits can remain optimistic as we transition into a new year, however the dispute between Western Gate and Stock will have to be resolved soon as the AGM draws closer.
Shares of Stock Spirits trade at 209p (-0.95%). 6/1/20 11:45BST.
