UPDATE 2-Stock Spirits says Q1 consumption hurt by Polish excise duty hike

Tue May 13, 2014 5:40am EDT

(Adds CEO, analyst comments, updates share price)

By Aastha Agnihotri

May 13 (Reuters) - Stock Spirits Group Plc, the biggest vodka producer in Poland and the Czech Republic, will look to increase prices in the longer term to help boost revenue after a jump in Polish excise duties hurt consumption in the first quarter.

Buckinghamshire-based Stock Spirits said it still expected to deliver full-year results in line with management expectations, although it was too soon to say when demand for spirits would pick up in Poland.

The company, which listed on the London Stock Exchange in October, gets about 60 percent of its revenue from the country.

"Markets usually bounce back after a duty increase but it is too early to tell when this will be," Chief Executive Chris Heath told Reuters after Stock Spirits issued a trading update on Tuesday.

"Having said that we do look for price increases as a strategy in the long term to boost profit," he said.

Heath said vodka sales in Poland fell "a bit", as expected, in the first quarter ended March 31 after the government increased the excise duty on alcohol by 15 percent on Jan. 1.

He declined to comment on expectations for full-year earnings, but said he was comfortable with analyst estimates.

Analysts on average expect company to report full-year pretax profit of 51.36 million euros ($70.65 million) on revenue of 330.58 million euros, according to Thomson Reuters I/B/E/S.

Stock Spirits' drinks range from high-end Polish vodka Czysta de Luxe to fruit-flavoured liquors and Italian brandies.

Earlier this year, the company said it was looking for expansion opportunities in Central and Eastern Europe after signing a deal with Diageo Plc, the world's biggest distiller by sales, to distribute drinks in the Czech Republic.

"Its focuses on Central and Eastern Europe and vodka are both attractive for growth," analysts at Oriel Securities said, reiterating their "buy" rating on the stock.

Stock Spirits was established in 2007 when U.S. private equity firm Oaktree Capital Management merged Czech business Stock with Polish counterpart Polmos Lublin.

Oaktree was Stock Spirits' biggest shareholder until it sold its 36.8 percent stake last month.

Stock Spirits company is also pinning its hopes on a project to install refrigerators to sell chilled vodka through small retailers in Poland. About 20,000 refrigerators have already been installed, the company said.

"The main benefit ... is that customers can buy vodka which is already chilled especially in small size bottles which tend to be consumed on the go thereby giving us a lift in sales as this is a high-margin business," Health said.

Under Polish law, only beer is allowed to be advertised and promoted through television, radio and billboards. Advertising of spirits is allowed only at point of sale ,such as liquor stores, restaurants and bars.

"Therefore we refer to these fridges as a "beacon of light" as this gives us an opportunity to boost sales and raise our profile," Heath said.

Stock Spirits' shares were down 1.8 percent at 284.25 pence at 0920 GMT, compared with its IPO price of 235 pence. ($1 = 0.7270 euros) (Reporting by Aastha Agnihotri in Bangalore; Editing by Ted Kerr)