DIRECTORS' REPORT


The Directors present the annual report and audited consolidated financial statements of the Group for the year ended 29 February 2012.

PRINCIPAL ACTIVITIES, BUSINESS REVIEW AND FUTURE DEVELOPMENTS
The Group’s principal trading activity is the production, marketing and selling of cider and beer.

During the year, the Group acquired Hornsby’s, the number two domestic US cider brand, from E & J Gallo Winery. The Group also disposed of its Northern Ireland wholesaling business (Quinns of Cookstown) to Britvic Northern Ireland. There has been no other material change in the nature of the business of the Group.

The information to be included with respect to the review of the business and future developments as required by section 13 of the Companies (Amendment) Act 1986 is contained in the Operations Review on pages 10 to 17.

RESULTS
For the year ended 29 February 2012, the Group reported Revenue of €716.7 million (FY2011: €770.0 million) and Net Revenue of €480.8 million (FY2011: €509.9 million).

Operating profit before exceptional items amounted to €111.2m (2011: €100.9m). This was in line with guidance given during the year that operating profit would be in the range of €108m to €115m.

Profit for the year attributed to equity shareholders amounted to €95.7m (2011: €300.4m). On this basis, adjusted basic earnings per share amounted to 29.4c (2011: 93.4c per share) and diluted earnings per share amounted to 28.7c (2011: 91.0c per share).

Earnings excluding exceptional items amounted to €92.2m (2011: €84.0m). On this basis, adjusted basic earnings per share amounted to 28.3c (2011: 26.1c per share) and adjusted diluted earnings per share amounted to 27.6c (2011: 25.4c per share). Earnings from continuing operations amounted to €97.5m (2011: €71.2m). Basic earnings per share from continuing operations amounted to 30.0c (2011: 22.1c per share) and diluted earnings per share from continuing operations amounted to 29.2c (2011: 21.6c per share).

The financial statements for the year ended 29 February 2012 are set out on pages 59 to 119.

DIVIDENDS
An interim dividend of 3.67 cent per share for the year ended 29 February 2012 was paid in December 2011. Subject to approval at the Annual General Meeting, it is proposed to pay a final ordinary dividend of 4.5 cent per share to shareholders who are registered at close of business on 25 May 2012.

BOARD OF DIRECTORS
The following changes have occurred in the composition of the Board since 18 May 2011, the date of the last Directors’ Report. Mr John Dunsmore resigned as Group Chief Executive Officer on 31 December 2011 and resigned as a Director on 29 February 2012. Mr Stephen Glancey was appointed Group Chief Executive Officer on 1 January 2012. Mr Kenny Neison was appointed Group Chief Financial Officer on 1 January 2012. Mr Liam FitzGerald resigned as a Director on 29 February 2012. Mr Tony Smurfit and Mr Stewart Gilliland were appointed as Directors on 17 April 2012.

The names, functions and date of appointment of the current Directors are as follows:

Director Function Appointment
Sir Brian Stewart Chairman 2010
Stephen Glancey Group Chief Executive Officer 2008
Kenny Neison Group Chief Financial Officer 2009
John Burgess Non-executive 2004
Stewart Gilliland Non-executive 2012
John Hogan Non-executive 2004
Richard Holroyd Non-executive 2004
Philip Lynch Non-executive 2004
Breege O’Donoghue Non-executive 2004
Tony Smurfit Non-executive 2012


Short biographical notes on each Director are given here.

In line with the provisions of the UK Corporate Governance Code, C&C Group is adopting a policy of annual re-election for all Board Directors. Consequently, all Directors will offer themselves for re-election at the Company’s Annual General Meeting to be held on 27 June 2012.

INTERESTS OF DIRECTORS AND COMPANY SECRETARY
Information in relation to the beneficial and non-beneficial interests in the share capital of Group companies held by the Directors and Company Secretary who held office at 29 February 2012 is contained within the Report of the Remuneration Committee on Directors’ Remuneration on pages 47 to 55.

RESEARCH AND DEVELOPMENT
Certain Group undertakings are engaged in ongoing research and development aimed at improving processes and expanding product ranges.

PRINCIPAL RISKS AND UNCERTAINTIES
Under Irish company law (Statutory Instrument 116/2005 European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005), the Group and the Company are required to give a description of the principal risks and uncertainties which they face.

The principal risks and uncertainties faced by the Group’s businesses are set out below. The Group considers that currently the most significant risks to its results and operations over the short term are (a) strategic failures, (b) the continued switch in consumer purchasing from the on-trade to the off-trade, (c) concerns arising out of the eurozone crisis and (d) failing to attract and retain high-performing employees.

Risks and uncertainties relating to strategic goals

  • The Group’s strategy is to focus upon earnings growth through organic growth, acquisitions and joint ventures and entry into new markets. These opportunities may not materialise or deliver the benefits or synergies expected and may present new social and compliance risks. The Group seeks to mitigate these risks through due diligence and careful investment.


Risks and uncertainties relating to revenue and profits

  • The majority of the Group’s revenue derives from Ireland and the UK, where growth opportunities are limited. The Group seeks to maintain the relevance of its products in these markets through brand investment.
  • Economic conditions in the Group’s principal markets may affect consumer spending and confidence. The Group seeks to mitigate these risks through careful forecasting and regular monitoring of market conditions and by maximising operating efficiency.
  • The number of on-trade premises in Ireland and the UK is in decline and consumers are switching to the off-trade. Customers, particularly in the on-trade where the Group has exposure through cash advances to customers, may experience financial difficulties. The Group monitors the level of its exposure carefully.
  • The Group’s customers may increase their negotiating strength through gains in market share or consolidation. The Group seeks to offset this risk by developing new markets and customers for its products and through product innovation.
  • Consumer preference may change, new competing brands may be launched and competitors may increase their marketing or change their pricing policies. The Group has a programme of brand investment and innovation to maintain and enhance the market position of its products.
  • Seasonal fluctuations in demand, especially an unseasonably bad summer in Ireland or the UK, could materially affect demand for the Group’s cider products.


Risks and uncertainties relating to costs and production

  • Input costs may be subject to volatility and inflation and the continuity of supply of raw materials may be affected by the weather and other factors. The Group seeks to mitigate some of these risks through long term or fixed price supply agreements. The Group does not seek to hedge its exposure to commodity prices by entering into derivative financial instruments.
  • Circumstances such as the loss of a production or storage facility or disruptions to its supply chains or critical IT systems may interrupt the supply of the Group’s products. The Group seeks to mitigate the operational impact of such an event by the availability of multiple production facilities, fire safety standards and disaster recovery protocols, and the financial impact of such an event through business interruption and other insurances.


Financial risks and uncertainties

  • There is continued concern surrounding the euro currency and the implications of Ireland’s continued participation. The Group’s operations involve the sale and purchase of goods denominated in currencies other than the euro, principally pounds sterling and the US dollar. Fluctuations in value between the euro and these currencies may affect the Group’s revenues and costs. The Group seeks to mitigate currency and interest rate risks through hedging and structured financial contracts to hedge a portion of its foreign currency transaction exposure and to fix a portion of its variable rate interest exposure.
  • The Group’s shares have a primary listing on the Irish Stock Exchange and are denominated in euro and the continued economic crisis may affect liquidity. The Group keeps its listings under review.
  • The solvency of the Group’s defined benefit pension schemes may be affected by a fall in the value of their investments, market and interest rate volatility and other economic and demographic factors. Each of these factors may require the Group to increase its contribution levels. The trustees of the pension schemes have recently obtained clearance from the Pensions Board pursuant to s50 of the Pensions Act 1990 to reduce contractual benefits in the schemes.


Fiscal, regulatory and liability-related risks and uncertainties

  • The Group may be adversely affected by changes in excise duty or taxation on cider and beer in Ireland, the UK and other territories. An upward movement in the Irish corporation tax rate and /or changes in Irish corporate tax legislation could have a material impact on the Group’s profits.
  • The Group may be adversely affected by changes in government regulations affecting alcohol pricing, sponsorship or advertising. Within the context of supporting responsible drinking initiatives, the Group supports the work of its trade associations to present the industry’s case to government.
  • The Group’s operations are subject to extensive regulation, including stringent environmental, health and safety and food safety laws and regulations and competition law. Failure to comply with all legislation could lead to prosecutions and damage to the reputation of the Group and its brands. The Group has in place a permanent legal and compliance monitoring function addressing these issues and it provides training to its employees.
  • The Group is vulnerable to contamination of its products or base raw materials, whether accidental, natural or malicious. Contamination could result in a recall of the Group’s products, damage to brand image and civil or criminal liability. The Group has established protocols and procedures for incident management and product recall and mitigates the financial impact by appropriate insurance cover.
  • Fraud, corruption and theft against the Group whether by employees, business partners or third parties is a risk, particularly as the Group develops internationally. The Group maintains appropriate internal controls and procedures to guard against economic crime.


Employment-related risks and uncertainties

  • The Group’s continued success is dependent on the skills and experience of its executive Directors and other high-performing personnel and could be affected by their loss or the inability to recruit or retain them. The Group seeks to adequately reward, motivate and retain its senior personnel through appropriate remuneration policies.
  • Whilst relations with employees are generally good, work stoppages or other industrial action could have a material adverse effect on the Group. The Group seeks to ensure good employee relations through engagement and dialogue.


As required by Irish company law (Statutory Instrument 765.2004), the financial risk management objectives and policies of the Company and the Group, including hedging activities and the exposure of the Company and the Group to financial risk, are set out in the Group Chief Financial Officer’s Review here and note 23 to the financial statements.

ACCOUNTING RECORDS
The measures taken by the Directors to secure compliance with the requirements of Section 202 of the Companies Act, 1990 with regard to the keeping of proper books of account are to employ accounting personnel with appropriate expertise and to provide adequate resources to the finance function. The books of account of the Company are maintained at Group offices in Annerville, Clonmel, Co. Tipperary.

POLITICAL DONATIONS
No political donations were made by the Group during the year that require disclosure in accordance with the Electoral Acts, 1997 to 2002.

CORPORATE GOVERNANCE
The corporate governance statement of the Company for the year, including the main features of the internal control and risk management systems of the Group, is contained in the Directors’ Statement on Corporate Governance on pages 37 to 46.

DIRECTORS’ REMUNERATION
The Report of the Remuneration Committee on Directors’ Remuneration is set out on pages 47 to 55. The Board will present this report to shareholders at the Annual General Meeting for the purposes of a non-binding advisory vote.

SUBSTANTIAL HOLDINGS
As at 16 May 2012, the following shareholders have notified the Company as to their interest in 3% or more of the share capital of the Company.

Shareholder %
Invesco Limited 8.98
Independent Franchise Partners, LLP 7.03
Oppenheimer Funds, Inc. and OFI Institutional Asset Management, Inc. 5.88
Southeastern Asset Management, Inc. 5.36
Investec Asset Management Limited 4.05
Franklin Templeton Institutional, LLC 4.04
F&C Asset Management plc 3.99
Deutsche Bank AG 3.21


As far as the Company is aware, other than as stated above, no other person or company has an interest in 3% or more of the share capital of the Company.

SHARE PRICE
The price of the Company’s ordinary shares as quoted on the Irish Stock Exchange at the close of business on 29 February 2012 was €3.665 (2011: €3.535). The price of the Company’s ordinary shares ranged between €2.70 and €3.69 during the year.

AUDITOR
In accordance with Section 160(2) of the Companies Act, 1963, the auditor, KPMG, Chartered Accountants, Statutory Audit Firm, will continue in office.

ISSUE OF SHARES AND PURCHASE OF OWN SHARES
At the Annual General Meeting held on 29 June 2011, the Directors received a general authority to allot shares. Authority was also granted to Directors to allot shares for cash otherwise than in accordance with statutory pre-emption rights. Resolutions will be proposed at the Annual General Meeting to be held on 27 June 2012 to allot shares to a nominal amount which is equal to approximately one-third of the issued ordinary share capital of the Company. In addition, a resolution will also be proposed to allow the Directors allot shares for cash otherwise than in accordance with statutory pre-emption rights up to an aggregate nominal value which is equal to approximately 5% of the nominal value of the issued share capital of the Company, and in the event of a rights issue. If granted, these authorities will expire at the conclusion of next year’s Annual General Meeting or 27 September 2013, whichever is the earlier. The Directors have currently no intention to issue shares pursuant to these authorities except for issues of ordinary shares under the Company’s share option plans and the Company’s scrip dividend scheme.

At the Annual General Meeting held on 29 June 2011 authority was granted to purchase up to 10% of the Company’s Ordinary Shares. No shares were purchased by the Company in the year under review.

Special resolutions will be proposed at the Annual General Meeting to be held on 27 June 2012 to renew the authority of the Company, or any of its subsidiaries, to purchase up to 10% of the Company’s Ordinary Shares in issue at the date of the Annual General Meeting and in relation to the maximum and minimum prices at which treasury shares (effectively shares purchased and not cancelled) may be re-issued off-market by the Company. If granted, the authorities will expire on the earlier of the date of the Annual General Meeting in 2013 and the date 18 months after the passing of the resolution. The minimum price which may be paid for shares purchased by the Company shall not be less than the nominal value of the shares and the maximum price will be 105% of the average market price of such shares over the preceding five days. The Directors will only exercise the power to purchase shares if they consider it to be in the best interests of the Company and its shareholders.

Options to subscribe for a total of 6,744,300 Ordinary Shares are outstanding, representing 1.99% of the issued ordinary share capital. If the authority to purchase Ordinary Shares were used in full, the options would represent 2.21% of the issued ordinary share capital.

At 16 May 2012 the Company has an issued share capital of 339,274,722 ordinary shares of €0.01 each and an authorised share capital of 800,000,000 ordinary shares of €0.01 each.

Under the terms of the C&C Joint Share Ownership Plan (further information on which is contained in the Report of the Remuneration Committee on Directors’ Remuneration on pages 47 to 55) the Company issued 16,000,000 ordinary shares which are held jointly by an Employee Benefit Trust and the individual executives (save for certain holdings which have been sold or been transferred to the Employee Benefit Trust solely or to participants solely), and the shares currently so held are accounted for as treasury shares. These shares are, however, included in the calculation of Total Voting Rights for the purposes of Regulation 20 of the Transparency (Directive 2004/109/EC) Regulations 2007.

TAKEOVER BIDS DIRECTIVE (STATUTORY INSTRUMENT 255.2006 EUROPEAN COMMUNITIES (TAKEOVER BIDS (DIRECTIVE 2004/25/EC)) REGULATIONS 2006)
Details of the Company’s capital structure can be found in note 24 to the financial statements. Details of the rights attaching to shares, and the deadlines for exercising voting rights, are set out in the Report on Corporate Governance on pages 37 to 46, as is a description of the powers of the Board of Directors. There are no restrictions on the transfer of any class of shares, subject to restrictions that may be imposed by the Board under the Articles in limited circumstances, and no limitations on the holding of any class of shares. There are no known arrangements between shareholders restricting transfers of shares or relating to voting rights. Details of Employee Share Schemes, and the rights attaching to shares held in these schemes, can be found in note 4 to the Financial Statements and the Report of the Remuneration Committee on Directors’ Remuneration here. Details of the rights attaching to shares issued under the Joint Share Ownership Plan are set out in the Report of the Remuneration Committee on Directors’ Remuneration on pages 47 to 55. Details of the powers of directors to issue and buy back shares are set out in the previous paragraph. Details of agreements to which the Company is party to, and which contain change of control provisions, are contained in note 19. Change of control provisions relating to the Executive Share Option Scheme and the Joint Share Ownership Plan are set out in the Report of the Remuneration Committee on Directors’ Remuneration here. All of the above details are deemed to be incorporated into this part of the Director’s Report.

ANNUAL GENERAL MEETING
Your attention is drawn to the letter to shareholders and the notice of meeting accompanying this report which set out details of the matters which will be considered at the Annual General Meeting.

Signed
On behalf of the Board

Sir Brian Stewart
Chairman


16 May 2012
Stephen Glancey
Chairman Group Chief Executive Officer
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