Annual Report 2015

C&C has five business segments, which comprise:

Ireland

This segment includes the sale of the Group’s own branded products in the Island of Ireland, principally Bulmers, Magners, Tennent’s, Clonmel 1650, Heverlee, Finches and Tipperary Water. It also includes the Gleeson beer, wine and spirits distribution and wholesaling business and the AB InBev brands distributed by the Group in Ireland. The Irish manufacturing plants are located in Clonmel and Borrisoleigh in Co. Tipperary.

BrandsBulmers is ROI only. Magners is NI only.

Distribution RightsBudweiser is NI only.

Scotland

This segment includes the sale of the Group’s own branded products in Scotland, with Tennent’s, Caledonia Best, Heverlee and Magners the principal brands. It also includes the Wallaces Express wholesale business in Scotland and the AB InBev brands distributed by the Group in Scotland. The Scottish manufacturing plant is located at the Wellpark Brewery in Glasgow.

Brands

Distribution Rights

C&C Brands

This segment includes the sale of the Group’s own branded products in England & Wales, principally Magners, Tennent’s, K cider and Chaplin & Cork’s. It also includes the production and distribution of private label cider products. The C&C Brands manufacturing plant is located at Shepton Mallet in Somerset.

Brands

Distribution Rights

North America

This segment includes the sale of the Group’s cider and beer products in the US and Canada. The Vermont Hard Cider Company, LLC manufactures the Woodchuck, Wyder’s and Hornsby’s brands at its cidery in Middlebury, Vermont, which it distributes in North America alongside Magners, Tennent’s and other C&C brands.

Brands

Export

This segment includes the sale and distribution of the Group’s own branded products, principally Magners, Gaymers, Blackthorn, Hornsby’s and Tennent’s outside of the UK, Ireland and North America, notably in continental Europe, Asia and Australia. It also includes the sale of some third party brands. The Group operates mainly through distributors in these markets.

Brands

Exporting to over 50 markets internationally.

  • Andorra
  • Australia
  • Austria
  • Bahamas
  • Bahrain
  • Bermuda
  • Brazil
  • Belgium
  • Bulgaria
  • Canada
  • Caribbean
  • China
  • Costa Rica
  • Cyprus
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Germany
  • Gibraltar
  • Greece
  • Hong Kong
  • Hungary
  • India
  • Israel
  • Italy
  • Japan
  • Latvia
  • Lithuania
  • Luxembourg
  • Malaysia
  • Malta
  • Mexico
  • Netherlands
  • New Zealand
  • Norway
  • Philippines
  • Portugal
  • Qatar
  • Russia
  • Singapore
  • South Korea
  • Spain
  • Sri Lanka
  • Sweden
  • Switzerland
  • Taiwan
  • Thailand
  • Turkey
  • UAE
  • Ukraine
  • United Kingdom
  • USA
  • Vietnam

Irish Cider Brands

Bulmers Original is a premium, traditional blend of Irish cider with an authentic clean and refreshing taste. Also in the range are Bulmers Pear and Bulmers Berry.

Magners is a premium, traditional blend of Irish cider with a crisp, refreshing flavour and a natural authentic character. Also in the range are Magners Orchard Berries and Magners Pear.

English Cider Brands

Gaymers is a clean, crisp, easy drinking medium cider made using the finest English apples.

Blackthorn is a West Country legend and one of the country’s best known and widely drunk ciders due its secret blend of bittersweet English cider apples. The range includes Blackthorn Gold, Blackthorn Dry and Black ‘n Black.

Ye Olde English is a traditional medium dry cider made using a unique blend of dessert and cider apples to deliver a deliciously refreshing taste.

Addlestones is a naturally cloudy premium cider that is twice fermented but never filtered to deliver its unique, smooth taste.

Chaplin & Cork’s is an award winning range of exquisite Somerset ciders made using pure juice from the finest English cider apples. The range includes Somerset Gold and Somerset Reserve.

K cider is a full strength, premium cider expertly pressed with a unique blend of English cider apples to deliver a full bodied flavour and rich golden colour.

Other English cider brands include Natch, Special VAT and Taunton Traditional.

American Cider Brands

Woodchuck Hard Cider is a premium hard cider handcrafted in Vermont, USA from the highest quality ingredients while offering an innovative range of ciders.

Wyder’s Cider was formulated in 1987 by cider master Ian Wyder and is now available throughout the central and western United States.

Hornsby’s is a cider which combines traditional cider-making techniques with an American heritage. It comes in two styles, Crisp Apple and Amber Draft. In the UK Hornsby’s is sold in two flavoured varieties: Crisp Apple and Strawberry and Lime.

Wine and Spirit Brands

The Group’s portfolio of wine and spirit brands sold in the on-trade includes the Oliver & Greg’s and Moondarra wine brands, Odessa Vodka and Squires Gin.

The Group also distributes a number of wine brands in the Republic of Ireland including Santa Rita, Blossom Hill, Carmen Discovery and Yellow Tail.

Soft Drinks

Tipperary Natural Mineral Water is filtered from the Devils Bit Mountain in County Tipperary and is bottled at source in the village of Borrisoleigh.

Finches is a range of premium soft drinks in orange and pink lemon flavours produced in Ireland with pure natural spring water.

Beer Brands

Tennent’s Lager is brewed to the highest standards to create a lager with a crisp taste and refreshingly clean finish. Tennent’s has been made with pride in the heart of Glasgow since 1885, but is famous far beyond its home city. Tennent’s Lager is Scotland’s best-selling lager.

Tennent’s Black T is brewed in Glasgow using finest natural ingredients, including 100% Scottish barley. It is a golden lager with a well rounded flavour and a distinct smooth maltiness.

Caledonia Best is a modern, distinctive ale that is balanced, sweet and smooth, with a malty roast flavour and a pleasant hoppy bitterness.

Heverlee is a premium Belgian Beer, which is endorsed by the Abbey of the order of Prémontré, in the town of Heverlee in Leuven.

Clonmel 1650, named after one of the most historic events in the town of Clonmel, is a fine example of a pilsner style lager with a slightly fruity estery nose and a subtle hoppy character.

Other beer brands include Tennent’s Beer aged with Whisky Oak, Tennent’s Extra, Tennent’s Scotch Ale, Tennent’s 1885, Lemon T, Tennent’s T2 and Roundstone.

Constant CurrencyOn a constant currency basis; constant currency calculation is set out here.
FY2015
Ireland
FY2014
Change
€m
€m
%
Revenue
403.2
399.2
1.0%
Net revenue
286.9
293.1
(2.1%)
Operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items.
59.1
58.2
1.5%
Operating margin
(Net Revenue)
20.6%
19.9%
Volume – (kHL)
Excluding Gleeson
976
971
0.5%

The Group’s LAD volumes in Island of Ireland, excluding Gleeson were up 0.5% during the year. Off trade volume was up 2.8% whereas on trade volume declined by 3.8%. Despite volume growth, net revenue declined 2.1%. Strong performance in off-trade resulted in a negative price/mix impact, although underlying rates remain healthy in both on and off-trade. The timing of changes in a number of distribution agreements resulted in lower Gleeson revenues during the year. The Group delivered savings through ongoing integration and cost focus. As a consequence, operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items. increased to €59.1million and operating margins increased to 20.6%.

Cider

In FY2015, cider net revenue in Island of Ireland decreased by 7.5% of which volume accounted for 4.1% and price/mix for 3.4%. The cider category in Republic of Ireland performed below the wider LAD category partly due to the one-off impact of the exceptional summer on cider in the previous financial year. As a consequence Bulmers brand volume as a percentage of LAD slipped to 8.8% (from 9.2% dive previous yearPer Nielsen/CGA). From a consumer and customer perspective the brand remains exceptionally strong with distribution at 95% in the on-trade and continued high scores in brand equity measures. During FY2015 we maintained marketing investment on the Bulmers brand and have recently launched an up-weighted FY2016 plan. The ‘Not a Moment Too Soon’ campaign has resonated exceptionally well with target audience since it first aired on TV. The heavyweight campaign will be structured around a programme of TV, radio, outdoor, cinema and digital advertising throughout the year.

Beer

Beer volumes were positive in the year with Tennent’s, recent new product launches and ABI brands all doing well. The performance of the portfolio highlights the credential of the business for balancing and driving owned brands and third party partnership brands. Clonmel 1650, a premium Irish authentic lager brewed in the new craft brewery in Clonmel, was rolled out to over 500 targeted outlets across Ireland during the second half of the year. Encouraging rate of sale and growing distribution give reason to be optimistic on the outlook for the new brand. Clonmel 1650 and Heverlee have been particularly successful in gaining traction in Northern Ireland.

Gleeson

The Gleeson business has had a mixed year. Integration has significantly changed the business model in Ireland. The Irish business now services customers with one Island of Ireland sales force, from a new information technology platform and we are in the process of setting up a central telesales operation. Support functions have been consolidated and the restructured sales, marketing and finance functions have delivered cost savings in the year. There has been some pressure on Gleeson revenues as a consequence of gains and losses in distribution contracts. A number of brand owners made the decision earlier in the year to move to alternative distributors for competitive reasons. In the latter part of the year we won a number of new high quality contracts, most notably distribution rights for Corona lager in Ireland and a sizeable wine supply deal. Inevitably, there will be some volatility in revenue as old arrangements cease and new ones commence and the business continues to develop the operating model to mitigate the impact of revenue volatility.

Constant CurrencyOn a constant currency basis; constant currency calculation is set out here.
FY2015
Scotland
FY2014
Change
€m
€m
%
Revenue
332.2
253.5
31.0%
Net revenue
223.6
138.5
61.4%
Operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items.
39.2
38.5
1.8%
Operating margin
(Net Revenue)
17.5%
27.8%
Volume – (kHL)
Excluding Wallaces Express
1,300
1,357
(4.2%)

Operating profitsOperating profit and profit for the year attributable to equity shareholders is before exceptional items. in Scotland (including Wallaces Express) increased by 1.8% to €39.2million. The decline in operating margin is purely a function of moving from a branded model to a branded wholesale model where third party brands are sold at lower margins alongside own brands.

Operating profit growth would have been stronger had it not been for challenging trading conditions in the final quarter following the introduction of stricter “drink drive” legislation in Scotland. The Tennent’s brand remains in robust health with better than market performance in both on and off trade channels. The Group increased brand investment on Tennent’s in FY2015 and is planning a further increase in the next financial year.

Brands launched in recent years continue to make good progress. Caledonia Best, which has captured 22% of on-trade smooth draught ale since its launchPer Nielsen/CGA, grew 3.6% in the year. Equally, Heverlee, our authentic hand-crafted premium Belgian lager, continues to make great progress in Scotland with volume growth of 116% in the financial year.

Overall net revenue increased by 61.4% with the inclusion of Wallaces Express following acquisition.

Integrating the wider TCB and Wallaces Express business onto one platform has been a complex and time intensive process. Integration is well underway with sales force already merged, new information technology platform developed and a new distribution footprint established. A key element of the distribution footprint is an agreement with DHL, which will drive significant cost savings. The most important changes will take place in the next few months with the new information technology platform and new distribution platform fully implemented and the critical transition to a one stop customer service offering. Completion is anticipated by summer 2015. The resulting single platform will reinforce our customer centric, brand led wholesale model and will enable the business to optimise revenue performance in the medium term and deliver cost synergies in FY2016.

The Drygate craft brewery opened in Glasgow during the year. This is a joint venture with Williams Bros which facilitates our participation in the craft arena. The joint venture is operated independently of the Wallaces TCB business.

New lending in the year was €5.6million, down from €11.2million in the prior year. The business is continuing to invest new money in support of the independent free trade.

Constant CurrencyOn a constant currency basis; constant currency calculation is set out here.
FY2015
C&C Brands
FY2014
Change
€m
€m
%
Revenue
182.0
212.6
(14.4%)
Net revenue
107.0
131.1
(18.4%)
– Price/mix impact
(7.4%)
– Volume impact
(11.0%)
Operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items.
10.4
16.7
(37.7%)
Operating margin
(Net Revenue)
9.7%
12.7%
Volume – (kHL)
1,435
1,613
(11.0%)

The commercial environment in the C&C Brands segment remains challenging with intense competition as off-trade retailers fight for market share. This coupled with brand proliferation and range extensions on the supply side has led to a deflationary pricing environment and a squeeze on established brands. Our business has been impacted by these dynamics, experiencing a net sales revenue decline throguh volume and price/mix. As a consequence of operational gearing, volume and revenue performance has had a significant impact on the profitability of the business with operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items. falling to €10.4million.

The Magners brand remains our key brand within C&C Brands but its performance has been affected by both retailer and competitive headwinds. Volume was down 14.1% and price/mix 6.5% in the year. Consumer affinity for the brand remained strong with the brand regaining number one in premium apple cider In the off-tradePer Nielsen/CGA. However, economically the existing business model Is not tenable. The business has therefore taken action to stabilise performance next year through cost reduction to support a hold share strategy on the Magners brand. The Group will continue to focus on Magners as a value driver both domestically and internationally.

Performance of other brands in the portfolio was mixed. K Cider had a difficult year with volumes down 37% due to the loss of a key route to market customer. As we move into the new financial year, we have established a wider route to market base for K cider and volumes are recovering. There was an improvement in the performance of a number of our heritage brands. Across both the on and off-trade, Shepton Mallet Cider Mill branded volumes were down 1% versus a decline of 18% in the previous twelve months. At the same time, the brands moved into positive value growth in the off-trade after a period of re-branding and focus. The business is seeing some positive early signs in niche activity through the launch of Chaplin & Cork’s, an awarding winning range of premium craft ciders.

The Group does not envisage any improvement in the competitive environment in the short to medium term and is therefore in the process of transitioning to a lower-cost operating model with a more focused brand portfolio approach. The first step in this process is rationalisation of the commercial cost base. This is now largely complete with a unified sales and marketing organisation assuming responsibility for the full brand portfolio in C&C Brands. This will deliver cost savings from the start of FY2016, and critically, will enable a more focussed approach to brand portfolio deployment. We will continue to review different strategic options for the long term.

Constant CurrencyOn a constant currency basis; constant currency calculation is set out here.
FY2015
North America
FY2014
Change
€m
€m
%
Revenue
47.5
59.5
(20.2%)
Net revenue
45.3
56.9
(20.4%)
– Price/mix impact
(2.8%)
– Volume impact
(17.6%)
Operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items.
1.5
10.9
(86.2%)
Operating margin
(Net Revenue)
3.3%
19.2%
Volume – (kHL)
323
392
(17.6%)

United States

The cider category has experienced excellent growth with volume of 25.6m cases in calendar year 2014, up 54% on the previous yearPer Nielsen/CGA. For our cider business, however, the year was defined by severe market disruption as global and domestic brewers invested heavily to build a distribution footprint for their new brands. At the same time, a small but growing local craft cider movement has become a market feature. As a consequence our share of the category has come under pressure and Woodchuck brand depletions were down 15%.

During the year we have continued to invest in the US business. The new state of the art $34.5m cidery In Vermont was completed and is now in operation. The Woodchuck brand has been refreshed with new packaging and a new marketing campaign with activity focussed on selected States. The Group have also launched a number of innovative Woodchuck line extensions. The two most recent launches are Hopsation and Gumption and both have received positive feedback from distributors and consumers. In the last 6 months the Group has seen Woodchuck share of the key off-trade channel stabilise in the month on month retail dataPer Nielsen/CGA. In addition, the distributor network has been stable and supportive during FY2015. There are encouraging signs as we move into the FY2016.

Shipments of the Magners brand grew by 2% despite competitive pressure from new entrants. The brand now enjoys wider distribution across the United States which has helped deliver the volume growth. Blackthorn shipment volumes grew by 29% with a dry authentic English cider offering something different to the consumer. The Hornsby brand continued to decline in the year as we focus on other brands in the portfolio.

Despite the numbers of new entrants to the category, the retail pricing environment has remained relatively stable with a price point similar to high end craft beer and well above the beer category average.

The business continued to invest in sales and marketing activities despite lower volumes with the combined cost now 27% of sales. At the same time, factory utilisation deteriorated due to the cessation of a major packaging contract towards the end of FY2014. The combined effect of volume decline, loss of contract packaging and increased investment in sales/marketing was significant downward pressure on operating profit. The US asset is well invested, however, and as the market stabilises any uplift in volume will flow through to bottom line profitability.

Constant CurrencyOn a constant currency basis; constant currency calculation is set out here.
FY2015
Export
FY2014
Change
€m
€m
%
Revenue
21.6
22.1
(2.3%)
Net revenue
21.1
21.9
(3.7%)
– Price/mix impact
(5.0%)
– Volume impact
1.3%
Operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items.
4.8
5.2
(7.7%)
Operating margin
(Net Revenue)
22.7%
23.7%
Volume – (kHL)
155
153
1.3%

Export includes all markets outside of the UK, Ireland and North America. Volume in Export segment grew by 1.3% relative to prior financial year. Overall performance was adversely impacted by Australia where shipment volumes declined 61% and net revenue declined by 70%. This was as a consequence of a difficult distributor transition with excess stock in the market limiting shipments and leading to price concessions to clear stock. The excess stock has now been cleared, shipments have resumed with a strong final quarter, and we have solid distribution platform with Bacardi Lion leading into FY2016.

Volumes excluding Australia grew by 17% with particular success in Europe where the business enjoyed 22% growth. This was driven by an excellent performance in Italy where the Tennent’s Extra brand moved volume up by 57%. The Netherlands, Portugal and Germany contributed volume growth of 46%, 31% and 28% respectively.

Outwith Europe, the Group continued to develop its presence in Asia with volume growth of 39% excluding India. Thailand, Taiwan and Malaysia were the primary drivers of growth. The Group is also investing for the future, opening a regional office in Singapore and increasing commercial resource in the Asia region.

The Group is now exporting to over 50 countries with the top 3 accounting for around 50% of sales.

During the year the Magners brand grew by 17% (excluding Australia) with double digit growth in Asia, Portugal and the Netherlands. The Tennent’s brand grew by 37% with the uplift primarily coming from Italy.

The distributor transition in Australia impacted financial performance with FY2015 operating profitOperating profit and profit for the year attributable to equity shareholders is before exceptional items. of €4.8m being 7.7% lower than the previous year. Excluding Australia, the export markets achieved modest profit improvement year on year.

Over the last 12 months, the cider category has shown some signs of fulfilling its potential with dynamic growth in a number of new markets in Europe and Asia. The export market opportunity for the Group is growing in scale and we intend deploying additional resource in FY2016 to start capitalising on it.