GROUP CHIEF EXECUTIVE OFFICER’S REVIEW
chairmans statement


This has been a robust year for the Group. In our domestic markets, our brands and businesses performed well against a tough economic backdrop. Maintaining and developing our core domestic businesses has been a key objective, alongside brand innovation and international development. Internationally, we are building momentum across several markets. We continue to believe, and demonstrate, that the cider category is an exciting place to be.

Focusing on Brand-Market Combination

Our business model seeks growth through our brand-market combination, combining brand investment with a focus on local markets. In a challenging economic environment in ROI and the UK, the Group’s results for the year demonstrate the resilience of this model. On a constant currency basis, revenues of our continuing businesses declined by 4.8% but Group operating profit increased by 9.0% to €111.2m. Bulmers revenues and operating profit in ROI remained under pressure but an increased contribution from beer offset the decline. The Tennent’s brand performed well, and the overall operating profit in Scotland increased. The Magners brand in GB finished the year in positive revenue growth for the first time in five years. On the supply side we had some good contract packaging wins.

Our export cider and beer volumes grew by 31.9% during the year. We invested in the global growth of cider with the acquisition of the Hornsby’s brand in the US and through new distribution agreements in key markets for our core brand, Magners. Our high conversion of earnings to free cash flow allowed us to end the year with a healthy balance sheet and a well-invested asset base.

This is the third financial year that the Group has delivered earnings in line with stated guidance. Our products and our business model are delivering long term reliable results. We now seek to expand internationally to maximise shareholder returns.

Strategic Model and Key Objectives

Our strategic model is anchored on four fundamentals:

BRAND MARKET COMBINATIONS: using our brand presence in local markets
MULTI-BEVERAGE PLATFORMS: offering attractive brand portfolios to customers
AUTHENTIC LOCAL BRANDS: backing brands that have a strong local support
A CONSERVATIVE APPROACH TO THE BALANCE SHEET AND CASH MANAGEMENT:
maintaining our high free cash flow and applying it prudently

Based on these fundamentals, our objectives for the year focused on four key areas:

HOLD MAGNERS SHARE IN GB’S GROWING CIDER CATEGORY, WHILE IMPROVING UNIT PRICING
HOLD EARNINGS IN ROI
MAINTAIN MEANINGFUL GROWTH MOMENTUM IN INTERNATIONAL MARKETS
DELIVER ON THE SYNERGIES OF TENNENT'S INTEGRATION, AND PURSUE BENEFITS OF PRICING AND MARGINS

1. Hold Magners Share in Great Britain

The cider category continued to grow by about 5% in GB, the world’s largest cider market. Market data show that consumers are trading up to premium brands. The considerable investment behind the Magners brand’s premium quality and image has positioned it well to take advantage of this trend.

Magners brand volumes in GB grew by 2.8% during the year and the brand posted positive revenue growth for the first time in five years. This was a considerable achievement given the arrival of a high profile and wellresourced new entrant into the market.

Good marketing and innovation were key factors in our success. Brand health scores remained good. In innovation, we had a successful launch of Magners Specials, our first variants in the flavoured category. Magners Pear has delivered another successful year and Magners Golden Draught continues to be rolled out across the on-trade.

This was a positive performance for Magners but we believe that we have not fully delivered on share of cider value in Great Britain. This will be one of our objectives for the coming year.

2. Hold Earnings in ROI

In another difficult year in the Irish market, our objective was once again to hold earnings. Consumers were increasingly looking for value, and price deflation and the shift from the ontrade to the off-trade affected overall revenue. Bulmers cider brand volumes and revenues declined but a meaningful contribution from our beer portfolio enabled us to achieve stable operating profits from the Irish business.

We achieved our objective by focusing on two initiatives:

  • We increased our investment in price in the off-trade while continuing to invest in marketing. The ‘Doing Our Bit’ marketing campaign contributed significantly to Bulmers maintaining its brand position.
  • The second element was the performance of the beer portfolio – specifically the growth of Tennent’s in the on-trade and off-trade.

ROI’s economic conditions remain unpredictable. The deflationary environment will continue to put pressure on our business, but consumption across the Irish drinks sector is broadly stable, which must be viewed positively as ROI remains a highly attractive and profitable market.

3. Maintain Momentum in International Markets

Globally it is estimated that over 17 million hectolitres of cider were produced last year (Canadean). In excess of 40% of global cider consumption occurs in markets outside of Ireland and the UK. In these markets the category typically represents less than 2% of LAD volumes but volumes are growing steadily.

With the acquisition of the Hornsby’s cider brand last November, the Group is now the No.2 cider producer in the US market, whilst in Australia Magners is the No. 3 cider brand. We continue to focus on North America and Australia as we consider that they represent the best investment opportunities for the Group.

Our North American volumes grew by 25% for the year, a performance which is line with estimated category growth rates. The acquisition of Hornsby’s gives us a recognised indigenous US brand that is complementary to our own Irish and English brands and greatly enhances our presence in a growing market.

In Canada, where Magners volumes grew by 85%, we entered into a long term distribution arrangement with Moosehead. In Australia, where Magners volumes grew by 78%, we entered into a new long term distribution arrangement with Suntory. Both Moosehead and Suntory are highly credible companies and these relationships offer the potential for accelerated growth in fast-growing cider markets.

Magners is exported to over 30 countries worldwide. The markets we supply offer increasingly positive opportunities and we are putting significant effort into growing our international platform. We broadened the Magners range in Australia and the US to include Magners Selections. Tennent’s also features heavily, with a new range of export brands.

The growth of the global cider market puts us in a unique position in terms of our brands and our intellectual capital, and we have positioned ourselves to benefit from the category’s development and to drive it forward.

4. Achieve operating profit and margin growth from Tennent’s

Tennent’s is a very positive story for the Group.

While reported volumes and revenues in Tennent’s declined, the underlying economic performance of Tennent’s was robust. The Group’s pursuit of value growth in the off-trade in Scotland led to a loss of volume but a significant improvement in operating profit and margins. In the independent free trade in Scotland, the brand continued to excel and gain share, whilst the expiry of legacy contracts with on-trade multiples allowed us to improve margins.

In Northern Ireland Tennent’s continued to perform robustly in the on-trade. There was substantial loss of volume in off-trade multiples but positive growth amongst local groups.

Our significant reinvestment in the Tennent’s brand, as described below, is delivering excellent brand health scores. By investing in the brands, we are starting to attract more young adults to the brands. The launch of Caledonia Best in Scotland and Caledonia Smooth in Northern Ireland and ROI has been well received by customers and consumers. These premium ales have opened up a new category for the Group.

Gaymers
The Group’s focus for the Gaymers portfolio remained on achieving value. Whilst there was a significant reduction in volume and net revenue, the removal of low margin activity ensured that earnings from the Gaymers business contributed in line with expectations. This leaves room for improvement in the years ahead.

Manufacturing and Production
The supply side of the business has delivered strongly. The Group was successful in winning a number of profitable beer and cider production and packaging contracts. There has been good management of input costs and the price stability achieved has helped to protect our margins. We milled a record number of apples – 81,000 tonnes – in ROI and the UK, and this offered us some forward protection.

New Launches

Our innovation stream continues to flow, and the year saw the launch of Magners and Bulmers Specials and Magners Selections overseas, Caledonia Best and Caledonia Smooth. These have been covered under the different markets above. We are committed to innovation as new products invigorate our brands and consumer interest, and maintain and build presence in our markets.

Since acquisition we have returned Tennent’s to its quality roots. This is underlined through our development of a premium lager – Tennent’s Original Export – which was launched in April 2012. This draws on an original export recipe and uses only Scottish barley.

Overseas, we have launched a new range of Tennent’s products, Tennent’s Scotch Ale, Tennent’s 1885 and Tennent’s Extra, focused initially on the Italian market.

Marketing

Our philosophy is that local brands appeal to local customers and consumers who are looking for authentic, quality brands with a strong heritage. Our marketing efforts and brand strategies, therefore, are tailored to reach consumers in each of our core markets. As such, we are investing heavily in our key brand assets to maintain a premium price position for the brands in the UK and ROI.

In the UK, the award-winning ‘Method in the Magners’ campaign stretched into its second year and has continued to evolve with the new ‘Made in the Dark’ campaign, maintaining brand awareness through television advertising, posters and through digital marketing channels.

In ROI the ‘Doing Our Bit’ advertising campaign for Bulmers featured the well known economist David McWilliams. The campaign was based on the ethos of doing something, no matter how small, for Ireland.

The Hugh Tennent campaign in Scotland plays on Tennent’s heritage and the authenticity of the brand. We continued our football sponsorships of Glasgow Rangers and Celtic. The T in the Park concert is now in its 19th year. In Northern Ireland we once again held the Tennent’s Vital concert after a four year gap.

Our international marketing efforts focused on a television campaign for Magners in Australia – the first of its kind – and digital and Facebook campaigns in the United States.

Brand health scores remain high across our core markets, emphasising both the importance and success of these campaigns.

People

The management team of the Group has evolved during the year. John Dunsmore stepped down from his position as Group CEO after a highly productive three years that helped to establish the Group’s success and direction. The strategy of the business has not changed and we remain committed to the long term objectives of the Group.

The team has been strengthened during the year with the appointment of several high calibre individuals, thus enabling us to develop our international capability.

The Group’s management and staff have worked hard to ensure the ongoing success of the business and the quality of our brands. Our remuneration philosophy focuses on stakeholder participation by the management team through equity participation, to align their interests with those of shareholders. During the year we revamped the structure of our employee share and incentive rewards, making them more relevant to the different levels of staff. This included introducing partnership and share matching plans for all employees alongside the existing Groupwide bonus incentive scheme for both managerial and non-managerial staff.

Corporate Responsibility

As discussed in our Corporate Responsibility report, we have appointed a Director of Corporate Affairs to spearhead our Corporate Responsibility agenda. We have taken an active role in our trade bodies the National Association of Cider Makers and the British Beer & Pub Association and directly with government. We have voiced our support for minimum alcohol pricing as long as it is fair, proportionate and reasonably implemented, and is part of an overall programme to reduce the abuse of alcohol. Alongside other industry players we have pledged a reduction of 30 million units of alcohol in the period to 2015 from the Group’s products. Our businesses make a substantial contribution to rural economies in ROI and the UK. We have long term purchase contracts with apple growers in the west country and are offering long term barley contracts to farmers in Scotland.

Outlook

The Group continues to develop and we are pleased with the progress that has been achieved during the year. Our investment case focuses on our long term ambition to be a leading player in the growing global cider category. To achieve such a goal we need a solid business base – Bulmers, Magners and Tennent’s give us that foundation.

C&C is now a focused cider-led LAD business. While we remain cautious about the near term prospects of our core markets, the continuing global growth of the cider category, and C&C’s unique position within the sector, underscore our belief in the prospects for our business. C&C’s balance sheet strength and free cash flow characteristics will enable us to capitalise on organic and acquisition growth opportunities.

THE CIDER CATEGORY
CONTINUES TO GROW IN THE
WORLD’S LARGEST MARKET,
AS WELL AS EXHIBITING A
TREND THAT INDICATES
CONSUMERS ARE TRADING UP
TO MORE PREMIUM BRANDS.


Stephen Glancey
Group Chief Executive Officer


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