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Burn Stewart poised to grow following continental shift

THE world of Burn Stewart Distillers, the Scotch whisky firm behind the Scottish Leader, Black Bottle and Bunnahabhain brands, was turned on its axis when it changed hands for £160 million back in April.

SPIRITED: Fraser Thornton was instrumental in setting up deals to sell Lascelles and Burn Stewart having been sent to Jamaica to come up with a plan for CL. Picture: Alan Peebles
SPIRITED: Fraser Thornton was instrumental in setting up deals to sell Lascelles and Burn Stewart having been sent to Jamaica to come up with a plan for CL. Picture: Alan Peebles

The deal, the biggest acquisition to have taken place in the industry so far this year, saw the one-time listed distiller swap a Trinidad-based owner, CL Financial, for one head-quartered on the other side of the Atlantic.

For Burn Stewart managing director Fraser Thornton, the switch to South Africa's Distell Group was a case of the right owner at the right time for the East Kilbride firm.

While he insists CL had not lost its thirst for the drinks sector, or indeed Burn Stewart, bigger factors at play were to ultimately lead its hand.

Through its interests in financial services and real estate, CL had been exposed to the global financial crash more than five years ago, with its problems ultimately leading the government in Trinidad and Tobago to provide emergency loans.

With demand for quality Scotch whisky rising around the globe, the sale of Burn Stewart offered a quick means to boost the balance sheet in a way that profits from operating companies could not.

Lascelles de Mercado, another former part of CL which owns rums Wray & Nephew and Appleton, had beaten Burn Stewart to the exit door shortly before, with Gruppo Campari its destination. Angostura is the last remaining drinks interest of CL.

Mr Thornton was instrumental in setting up the deals to sell Lascelles and Burn Stewart, having been seconded to Jamaica in 2011 to come up with a plan for CL's drinks interests. He said their disposal has suited all parties concerned.

Mr Thornton said: "In an industry like ours, you are always balancing short-term needs with really needing to take a long-term view in terms of brand development, whether you are going to try and focus on Bunnahabhain as a 12 year old or Deanston as a 20 year old. Those are long-term things, and they require investment.

"When you've got a shareholder who needs income and wants income generation quickly, that starts to sit uncomfortably against the long-term planning needs of the business. That's the bottom line. And so what I would say was that they had really lost any appetite to engage in those long-term planning discussions."

Fortunately for Burn Stewart, it now has an owner which is willing to engage in those terms.

When the Distell deal was announced, Mr Thornton expressed satisfaction the company had found an owner with the desire and wherewithal to invest in its future.

He spoke of ramping up production and expanding in international markets by virtue of Distell's strength in Africa, where it is the dominant player in wine, South African brandy and, increasingly, cider. He also raised the prospect of growing Burn Stewart's 260-strong headcount, which is spread between its head office and bottling operation in East Kilbride (150), its distilleries on Islay, Mull and at Deanston, and its sales arm in Taiwan (40).

Speaking several months on, he reports that the integration is proceeding well.

Mr Thornton said: "One of the great things about the process with Distell is they really have been prepared to take time to learn and understand the business they have bought.

"They haven't rushed in with a blueprint that says "this is exactly how things must be". So consequently all of our people have had a chance to input and interact with the guys at Distell.

"The first stage of our integration process was always going to be to pull together our international distribution capability. That is exactly where we are at just now - we are just beginning that process now.

"Other more company specific integration topics like IT systems and that kind of thing will follow through the course of next year. From a very positive point of view, none of it is driven from a cost saving or people reduction point of view - there is nothing of that nature. We are genuinely trying to merge two entities to make a stronger whole."

The sale underscored the appeal of the industry to major companies as they look to capitalise on the high demand for Scotch around the world.

Last year Remy Cointreau acquired the Bruichladdich Distillery on Islay for £58m, while this year a flurry of distillers have made moves to strengthen their positions in the sector.

Diageo announced this month that it is to spend £18m to build a second distillery - Mortlach in Speyside - as part of a £1 billion investment it is making in its whisky-making infrastructure. That came just days after Edrington unveiled a £100m plan to build a new distillery and visitor centre for The Macallan, also in Speyside.

Pernod Ricard, the Paris-based owner of Chivas Regal, is investing heavily on an ongoing basis to expand its production facilities, while an auction for the bulk of Whyte & Mackay could raise as much as £1bn.

In this context, Mr Thornton did not rule out Distell making moves to make further acquisitions in the sector.

He said: "I would imagine their appetite for the sector is clearly strong, given the acquisition of Burn Stewart. And they are an acquisitive group at the end of the day, so they may well in the longer term and look to other opportunities in the sector as well. I suspect some of that will depend on how well the Burn Stewart business does over the next few years.

"From a Burn Stewart perspective, certainly our view for a long time had been we have more than enough on our plate in terms of growing what we have got, and that the benefits in the short to medium term would come more from increasing and directing our focus on key brands in key markets, rather than adding something else into the mix.

"It is certainly true to say we have a portfolio of brands that are capable of substantial growth, but it's like anything - it doesn't happen easily. They need focus, care and attention. That's our immediate objective."

The move to Distell is the latest stage in an eventful journey for Burn Stewart in the past 20 years.

Mr Thornton, a marketing graduate and chartered accountant, joined in 1996, after seven years with PwC.

At that time it was listed on the London Stock Exchange following a flotation in 1991, a move led by his father, Bill, who had bought into the firm as part of a private equity deal in 1988.

As the 1990s progressed Burn Stewart found itself vulnerable to a downward cycle in the industry. With the company heavily involved in bulk supply and private label whisky, its stock declined as an over-supply of spirit in the market caused prices to fall. Those circumstances had ultimately left it open to a takeover, which happened when CL swooped in 2002. But by then steps had already been taken to reshape the business.

It acquired Deanston Distillery in 1991 with the proceeds of its flotation, and added Tobermory on Mull to reduce its reliance on the bulk and own label markets. CL then bought Bunnahabhain on Islay in 2003 in its first significant investment as owner.

Mr Thornton said: "Certainly, by the mid to late 1990s we had a view that the long-term health of the business would probably have to be built around brands, rather than commodities, and the acquisition of malt brands was going to be a major part of that.

"The truth of the matter is that, in volume terms, blended Scotch dominates the Scotch whisky industry, but the dynamic between volume and value is shifting a bit. The value that the malt category is contributing is growing ahead of the volume. But it actually remains an industry where the majority of what we sell is blended Scotch."

Mr Thornton's own position has also changed over the years, with roles ranging from developing its malt brands in North America to the posts of UK sales manager and marketing manager for Europe and Asia.

He joined the board when he became marketing director in 2006, and rose to become managing director in 2006.

Now fully immersed in Burn Stewart again, he is relishing the chance of getting stuck into the "guts of a business".

A key task this year had been to the relaunch of Black Bottle - a brand he regards as a classic example of the art of blending. The Scotch, which used to style itself the blend made from all the Islay malts, has been reformulated and repackaged. It has a new label and bottle reflecting how it looked when the Graham family began blending and bottling whisky more than roots a century ago. For the record, the bottle is black again after years of being green.

Black Bottle enjoys a strong and loyal customer base, particularly in its native Scotland, but Mr Thornton said it is a market that had not been getting any younger. He noted: "The thought is that, to take a strong proposition to some international markets, we have got to have something that is clearly very different and differential.

"Then we have to believe that a lot of our existing consumers will continue to support what is an upgraded and improved version of the brand they know and love.

"It is not like we have cheapened the brand or brought it down in quality in any way, shape or form - we have done the very opposite. We have improved every aspect of the brand. We also hope we can start to attract new consumers in this country back into the brand."

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