LONDON (Alliance News) - Western Gate Private Investments Ltd said Tuesday it has requested the removal of Chris Heath, the chief executive of Stock Spirits Group PLC, as a director of the company and asked the company to start a search for a replacement.
Western Gate is the largest individual shareholder in Stock Spirits, holding a 9.7% stake. It also nominated two new independent non-executive directors to stand for election to the board of Stock Spirits at its annual general meeting on May 17.
Western Gate said it held a series of meetings and exchanges with Stock Spirits' executive and non-executive directors, none of which addressed the concerns it has with the business.
It said its first concern is over a decline in Stock Spirits market share in Poland from 38.4% at the company's IPO in October 2013 to 26.3% in December, accompanied by a 34% decline in Polish revenue between financial years 2013 and 2015. Western Gate said Stock Spirits failed to address the local market dynamics in Poland, despite "mounting evidence" of a changing competitive landscape.
Second, Western Gate cited an "underperforming share price" which has more than halved from a peak of 315 pence and was 37% below the listing price of 235p on April 1.
Third, Western Gate raised concerns over corporate costs which it said have more than doubled since 2011, while revenue has declined 11% over the same period. Corporate costs totalled EUR16.7 million in 2015, which Western Gate said it believes are mainly comprised of head office costs in the UK, where Stock Spirits has no major revenue-generating operations.
The shareholder also said Stock Spirits' executive management have "continued to be very well rewarded notwithstanding poor underlying business performance". According to Western Gate, in the lead up to the company's initial public offering, Heath received compensation of EUR1.3 million in 2012, EUR2.8 million in 2013 and EUR0.8 million in 2014.
Heath's salary in 2014 was also 28% above the average of Stock Spirits' peer groups, while Chief Financial Officer Lesley Jackson's salary was 19% above, Western Gate claimed.
Finally, Western Gate highlighted the loss of five regional managers since the company's IPO, noting that no dedicated Polish CEO has been in place since January 2015 as Stock Spirits chooses to remotely control operations from the UK. It said this has contributed to "significant in-country management instability".
Western Gate has nominated Alberto Da Ponte and Randy Pankevicz as independent non-executive directors. Da Ponte has worked in the drinks industry for 25 years, including roles at Heineken Group, Unilever PLC and Cadbury Schweppes.
Pankevicz has been in the drinks industry for 25 years, primarily at PepsiCo International.
Western Gate said it believes the executive management team has run out of ideas about how to stem the ongoing market share losses affecting the Polish business and the board would benefit from "added relevant experience, a fresh perspective and renewed energy".
The shareholder added that it will also ask the board to conduct a board-level review of its mergers and acquisitions strategy.
"Financial performance has been poor, market share has been lost in its core Polish market, salaries and costs are too high and remote control management of the business from the UK, where the company has no major revenue generating operations, is clearly not working. The executive team consistently blames others instead of being on the ground in Poland addressing the local market dynamics and managing the business. A fresh perspective on the board will benefit all stakeholders," Western Gate's Luis Amaral said in a statement.
Western Gate is an investment vehicle of Amaral's family office. Amaral is also the largest shareholder in Eurocash, one of Stock Spirit's largest customers in Poland.
Later on Tuesday, Stock Spirits released a statement saying it believed Amaral's position represented a conflict of interest.
"Given this conflict of interest, the company does not believe that Mr Amaral's and Western Gate's interests on the management and strategy of the company are necessarily aligned with the long-term interests of all minority shareholders as a whole," Stock Spirits said.
It added that it is reviewing Western Gate's notice and will respond in more detail in due course.
Stock Spirits has issued two profit warnings over the last two years, blaming its poor results on a competitive pricing environment and irregular buying patterns from customers in Poland. In 2015, pretax profit dropped to EUR19.4 million from EUR35.8 million as revenue fell to EUR262.6 million from EUR292.7 million.
It recently completed a review of the Polish business and said at the time of its full-year results in March that it would undertake actions to try to restore the business to health.
But on Tuesday, Western Gate criticised the findings of the review, saying they contained "nothing new to adequately address the most serious problem in its business - the dramatic loss of market share in the core Polish market and resulting decline in revenue".
Shares in Stock Spirits were trading up 1.4% at 147.75 pence on Tuesday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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