We completed the acquisition of Wallaces Express during the year and integration and restructuring of that business with the Group’s existing business in Scotland has progressed well.
C&C is reporting net revenue of €683.9 million (up 10.3%), operating profitOperating profit is before exceptional items. of €115 million (down 9.2%) and adjusted diluted EPSAdjusted basic/diluted earnings per share (‘EPS’) is before exceptional items. Please see Note 9 to the financial statements. of 27.2 cent (down 7.8%).
On a constant currency basisConstant currency calculation is set out at the bottom of this page., the net revenue is up 6.6% primarily as a result of the consolidation of the current year acquisition of Wallaces Express in the Group’s numbers while operating profit(i) for the year was down 11.2%. Excluding Wallaces Express, net revenue and operating profitsOperating profit is before exceptional items. are down 7.7% and 12.6% respectively on a constant currency basis.
The results for the year were disappointing, primarily driven by the performance in C&C Brands and the US. This resulted in the Group failing to achieve its guidance targets communicated last July. However, the Group did achieve guidance communicated in January for both operating profit and free cashflow conversion.
In C&C Brands, intense competition between off-trade retailers coupled with continuing brand proliferation, has led to significant pressure on both volumes and pricing, highlighting the need for structural change to the fixed cost base. Changes in this area are well advanced.
In the US, the disruptive element of new market entrants, attracted by the category growth resulted in volume decline in a business where we are investing in infrastructure. This has resulted in profit erosion. The destabilising impact of new entrants is reducing and we are now better positioned to share in the continued dynamic growth of the category. As a result of rebasing our profit expectations of the business we have reassessed the value of our intangible assets in the US and have taken an impairment charge of €150 million as at year end date. This non-cash adjustment has been treated as an exceptional cost.
In Ireland and Scotland the focus remains on building our brand led wholesale model. We completed the acquisition of Wallaces Express during the year and integration and restructuring of that business with the Group’s existing business in Scotland has progressed well. We believe we have made significant progress and expect the integrated model to be in place in Scotland by summer 2015. We believe the branded wholesale model is the right business model for stable mature profitable territories such as Ireland and Scotland.
Currency has been positive for us in FY2015 and helped offset some of the decline in C&C Brands and the US. Cash generation has improved on last year and the business remains conservatively geared. This balance sheet strength allowed us to invest €30 million in a share buy-back programme in the latter half of the year, purchasing 9,025,000 shares at an average share price of €3.29. All shares acquired as part of the share buy-back programme are held as treasury shares.
As required by European Union (EU) law, the Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC), applicable Irish law and the Listing Rules of the Irish Stock Exchange and the UK Listing Authority.
Net finance costs decreased to €8.8 million (2014: €11.0 million). This reflects a reduction in interest rates and the fact that drawn debt for the last two months of the year, post the negotiation of the Group’s 2014 multi-currency facility, was predominately drawn in euro at more favourable interest rates than those payable under the 2012 facility when the bulk of the drawn debt was denominated in USD. Drawn debt for the period did not change materially from the prior year. Interest income in FY2015 was €0.2 million greater than FY2014. Net finance costs are also inclusive of an unwind of discount on provisions charge of €0.9 million (2014: €0.9 million).
The income tax charge in the year excluding the charge in relation to exceptional items and equity accounted investees amounted to €14.6 million. This represents an effective tax rate of 13.7%, an increase of 0.6 percentage points on the prior year. The Group has more profits taxed in the UK in the current year following the acquisition of Wallaces Express which has resulted in this increase year on year. The effective tax rate of 13.7% reflects the fact that the Group is established in Ireland’s low tax environment, allowing the Group to avail of the 12.5% tax rate on profits generated in Ireland.
We completed the acquisition of Wallaces Express during the year and integration and restructuring of that business with the Group’s existing business in Scotland has progressed well.
Subject to shareholder approval, the proposed final dividend of 7.0 cent per share will be paid on 10 July 2015 to ordinary shareholders registered at the close of business on 22 May 2015. The Group’s full year dividend will therefore amount to 11.5 cent per share, a 15.0% increase on the previous year. The proposed full year dividend per share will represent a payout of 42.3% (FY2014: 33.9%) of the full year reported adjusted diluted earnings per shareAdjusted basic/diluted earnings per share (‘EPS’) is before exceptional items. Please see Note 9 to the financial statements.. This increase in both the dividend per share and payout ratio reflects confidence in the stability of earnings and cash generation capability of the core business.
A scrip dividend alternative will be available. Total dividends paid to ordinary shareholders in FY2015 amounted to €35.1 million, of which €29.5 million was paid in cash, €0.1 million was released with respect to previously accrued LTIP (Part I) dividend entitlements where the related LTIP (Part I) were deemed to have lapsed in the current financial year, while €5.7 million or 16% (FY2014: 10%) was settled by the issue of new shares.
In the current financial year, as part of the Group’s capital allocation approach the Group undertook share re-purchases. The Group invested €30.0 million in on market share repurchases, purchasing 9,025,000 shares at an average price of €3.29. The Group’s UK stockbrokers, Investec, conducted the share re-purchase programme. All shares acquired are held as treasury shares. At the AGM held on 3 July 2014, shareholders granted the Company and its subsidiaries authority to make market purchases of up to 10% of its own shares.
FY2015 represented a year of revaluation, restructuring, integration and consolidation. Consequently costs of €173.4 million were incurred, which due to their nature and materiality were classified as exceptional items for reporting purposes, a presentation which, in the opinion of the Board, provides a more helpful analysis of the underlying performance of the Group.
The main items which were classified as exceptional include:-
(a) Impairment of intangible assets: Brand values and goodwill are assessed for impairment on an annual basis by comparing the carrying value of the assets with their recoverable amounts using value in use computations. A review of the carrying value of all intangible asset values was completed during FY2015 and as a result of this review an impairment charge of €150 million was taken with respect of the Group’s intangible assets in the US. This represented a write down of 19% of the Group’s intangible assets. The magnitude of the impairment charge is increased due to the strengthening of the dollar against the euro in the current financial year; a comparable impairment last year would have resulted in a charge of €122.7 million.
(b) Restructuring costs: Restructuring costs of €2.8 million comprising severance and other initiatives primarily arose from a reorganisation programme in England & Wales.
(c) Acquisition related costs: The Group completed the acquisition of Green Light Brands Ltd., Monuriki Drinks Ltd., and Monuriki Sales and Marketing Ltd. during the current financial year for €3.2 million. These were external consultancy entities that provided sales and marketing services to the Group’s Shepton Mallet Cider Mill business and its International Wines & Spirits division. A decision was taken to bring these entities in-house as part of a rationalisation initiative of the Group’s sales and marketing structure. The Group also incurred costs of €0.5 million with respect of the Group’s preliminary approach for the Spirit Pub Group.
(d) Revaluation of property, plant & equipment: In line with Group policy, an external valuation of the Group’s property plant & equipment was completed in FY2015. This resulted in a net revaluation loss of €10.5 million accounted for in the income statement and a gain of €5.3 million which was accounted for within other comprehensive income. Also during the year, in light of a material reduction in the utilisation levels of a bottling line located at the Group’s Shepton Mallet cider manufacturing plant, a decision was taken to impair the bottling line by €3.3 million.
(e) Impairment of investment in equity accounted investee: The Group impaired its investment in the Maclay Group plc as a result of the Maclay Group plc entering administration proceedings during the financial year. This resulted in an impairment of the Group’s investment of €2.0 million and the impairment of related derivative financial instruments of €0.6 million which were accounted for within finance expense.
(f) Integration costs: Integration costs of €2.2 million were incurred in the financial year comprising professional and other related fees primarily attributed to the integration of the acquired Wallaces Express and Gleeson businesses with the Group’s existing business.
(g) Profit on disposal of property, plant & equipment: A profit of €0.8 million was realised following the disposal of land & buildings which were surplus to requirements.
Balance sheet strength provides the Group with the financial flexibility to pursue its strategic objectives. It is Group policy to ensure that a medium/long term debt funding structure is in place to provide the Group with the financial capacity to promote the future development of the business and to achieve its strategic objectives.
During the current financial year the Group amended and updated its committed €450 million multi-currency five year syndicated revolving loan facility. The facility agreement provides for a further €100 million in the form of an uncommitted accordion facility and permits the Group to have additional indebtedness to a maximum of €150 million, giving the Group debt capacity of €700 million. The debt facility matures on 22 December 2019. At 28 February 2015 net debtNet debt comprises borrowings (net of issue costs) less cash & cash equivalents. was €157.8 million representing a net debt:EBITDAEBITDA is earnings before exceptional items, finance income, finance expense, tax, depreciation, amortisation charges and Equity accounted investees’ (loss)/profit after tax. ratio of 1.1x.
Brand values and goodwill are assessed for impairment on an annual basis by comparing the carrying value of the assets with their recoverable amounts using value in use computations. As outlined above an impairment with respect to the US business was taken in the current financial year. All other business segments had sufficient headroom. No reasonable movement in any of the underlying assumptions would result in an impairment in the Ireland, Scotland, C&C Brands or Export business segments.
Management reviews the Group’s cash generating performance by measuring the conversion of EBITDAEBITDA is earnings before exceptional items, finance income, finance expense, tax, depreciation, amortisation charges and Equity accounted investees’ (loss)/profit after tax. to Free Cash FlowFree Cash Flow is a non GAAP measure that comprises cash flow from operating activities net of capital investment cash outflows which form part of investing activities. Free Cash Flow highlights the underlying cash generating performance of the on-going business. A reconciliation of FCF to Net Movement in Cash & Cash Equivalents per the Group’s Cash Flow Statement is set out above. as we consider that this metric best highlights the underlying cash generating performance of the continuing business.
The Group’s performance during the year resulted in an EBITDA to Free Cash Flow conversion ratio of 58.8% (FY2014: 40.9%). A reconciliation of EBITDA to operating (loss)/profit and a summary cash flow statement are set out below.
In compliance with IFRS, the net assets and actuarial liabilities of the various defined benefit pension schemes operated by the Group companies, computed in accordance with IAS 19(R) Employee Benefits, are included on the face of the Group balance sheet as retirement benefit obligations.
The Group is reporting a retirement benefit obligation surplus of €3.7 million in relation to its NI defined benefit pension scheme and a deficit of €37.3 million in relation to its two ROI defined benefit pension schemes. All schemes are closed to new entrants. There are 4 active members in the NI scheme and 73 active members (less than 10% of total membership) in the ROI schemes. In line with a funding plan approved by the Pensions Board for the ROI schemes, the Group is committed to contributions of 14% of Pensionable Salaries to fund future pension accrual of benefits; a deficit contribution of €3.4 million; and an additional supplementary deficit contribution of €1.9 million. The Group reserves the right to reduce or terminate the supplementary benefit deficit contribution, on consultation with the Trustees and on advice from the scheme actuary that it is no longer required due to a correction in market conditions. The scheme actuaries advised that as at 31 December 2014 the schemes were on track to meet the minimum funding standard and risk reserve by 31 December 2016, the end of the funding period.
At 28 February 2015, the retirement benefit obligations on the IAS 19(R) Employee Benefits basis amounted to €33.6 million gross and €29.7 million net of deferred tax (FY2014: €21.4 million gross and €18.8 million net of deferred tax). The movement in the deficit is as follows:
The increase in the deficit in the current financial year is primarily as a result of a reduction in the discount rate applied to liabilities: for the ROI scheme, discount rates reduced from 3.4% - 3.6% at 28 February 2014 to 1.7% - 1.9% at 28 February 2015 while for the NI scheme, the discount rate reduced from 4.4% at 28 February 2014 to 3.6% at 28 February 2015. The impact of this was partially offset by strong asset growth, inflation linked assumptions being more favourable (ROI: 1.5% compared to 2% in FY2014 and NI: 3.1% compared to 3.3% in FY2014) and employer contributions.
All other significant assumptions applied in the measurement of the Group’s pension obligations at 28 February 2015 are broadly consistent with those as applied at 28 February 2014.
The most significant financial market risks facing the Group continue to include foreign currency exchange rate risk, commodity price fluctuations, interest rate risk and creditworthiness risk in relation to its counterparties.
The Board of Directors set the treasury policies and objectives of the Group, the implementation of which is monitored by the Audit Committee. There has been no significant change during the financial year to the Board’s approach to the management of these risks. Details of both the policies and control procedures adopted to manage these financial risks are set out in detail in note 22 to the financial statements.
The Group’s reporting currency and the currency used for all planning and budgetary purposes is the euro. However, as the Group transacts in foreign currencies and consolidates the results of non-euro reporting foreign operations, it is exposed to both transaction and translation currency risk.
Currency transaction exposures primarily arise on the sterling, US, Canadian and Australian dollar denominated sales of the Group’s euro subsidiaries. The Group seeks to minimise this exposure, when economically viable to do so, by maximising the value of its foreign currency input costs and creating a natural hedge. When the remaining net exposure is material, the Group manages it by hedging an appropriate portion for a period of up to two years ahead. Forward foreign currency contracts are used to manage this risk in a non-speculative manner. The Group had no outstanding forward foreign currency contracts as at the year-end date.
The effective rate for the translation of results from sterling currency operations was €1:£0.795 (year ended 28 February 2014: €1:£0.846) and from US dollar operations was €1:$1.295 (year ended 28 February 2014: €1:$1.334).
Comparisons for revenue, net revenue and operating profit for each of the Group’s reporting segments are shown at constant exchange rates for transactions by subsidiary undertakings in currencies other than their functional currency and for translation in relation to the Group’s sterling and US dollar denominated subsidiaries by restating the prior year at FY2015 effective rates.
Applying the realised FY2015 foreign currency rates to the reported FY2014 revenue, net revenue and operating profit rebases the comparatives as shown in Table 3 above.
The Group is exposed to commodity price fluctuations, and manages this risk, where economically viable, by entering into fixed price supply contracts with suppliers. The Group does not directly enter into commodity hedge contracts. The cost of production is also sensitive to variability in the price of energy, primarily gas and electricity. It is Group policy to fix the cost of a certain level of its energy requirement through fixed price contractual arrangements directly with its energy suppliers.
The Group seeks to mitigate risks in relation to the continuity of supply of key raw materials and ingredients by developing trade relationships with key suppliers. The Group has over 60 long-term apple supply contracts with farmers in the west of England and has an agreement with malt farmers in Scotland for the supply of barley.
In addition, the Group enters into insurance arrangements to cover certain insurable risks where external insurance is considered by management to be an economic means of mitigating these risks.
Group Chief Financial Officer