Annual Report 2015

Our long term strategy is to build a sustainable international cider-led, multi-beverage business through a combination of organic growth and selective acquisitions.

The medium-term strategic goals for the Group are:

to maintain strong brand market combinations in core geographies through brand and customer investment and by developing our brand-led wholesale platforms

to transform our international business through investment in brands and infrastructure and through the development of strategic alliances and acquisitions

thus enhancing future earnings growth and maximising shareholder value. We seek to generate high free cash conversion and maintain a sound and efficient balance sheet.

Cash Generation
  • Our core businesses are strongly cash generative. We therefore focus on cash. We critically review the value for money of all brand and capital investment. Our current emphasis is on investment at the customer interface, to drive revenue. Group management relentlessly drive to reduce costs – in production, distribution and commercial overheads.
Revenue Generation and Earnings Growth
  • In our core geographies of Ireland and Scotland, we seek revenue generation through a full-service brand-led wholesale model predominantly focused on brands and customers. In the rest of Great Britain and internationally we focus on volume growth.
  • We seek to make brand innovations at low cost and exploit niche markets.
  • We seek earnings growth through revenue generation, cost control and margin improvement.
Engagement
  • We engage with our workforce and incentivise them to ensure alignment with shareholders.
  • Local management are incentivised with financial targets relevant to their local business unit.
  • Where necessary, we are prepared to buy in expertise on a margin-sharing basis.
Strategic Capital
  • We seek local expansion in our core territories. Potential acquisitions must complement our business and meet our strategic objectives.
  • We are prepared to make larger transformational acquisitions, and we are ready to seize opportunities as they arise. The strength of our balance sheet and experience at integrating businesses minimises execution risk.
  • We will make disposals where they will enhance shareholder value.
  • In the absence of capital investment opportunities we will return surplus cash to our shareholders.
Social Responsibility
  • Throughout the Group we seek to operate compliantly with the law and as good corporate citizens.

Objective 1

During FY2015

to maintain strong brand market combinations in core geographies by investing in our customer proposition, brands and developing our brand-led wholesale platforms

  • we completed the acquisition of, and commenced integration of, Wallaces Express to create a brand-led wholesale offering in Scotland
  • we continued to integrate the Gleeson business in Ireland with the creation of one back office function and depot rationalisation in Dublin
  • we created a unified sales and marketing organisation in our C&C Brands business to enhance commercial focus and reduce costs
  • we continued to invest in our premium brands, notably Bulmers, Tennent’s, Magners and Woodchuck

Objective 2

During FY2015

to transform our international business through investment in brands and infrastructure and through the development of strategic alliances and acquisitions

  • we opened the new $34.5 million state of the art cidery in Vermont
  • we refreshed the Woodchuck brand and launched new innovative craft ciders in the US
  • we established a solid distribution platform in Australia
  • we continued to open up new markets in Asia
  • we leveraged distributor relationships and brand strength to deliver growth in Europe

In FY2016 our core strategic objective continues to be to enhance future earnings growth. In FY2016 the focus will continue around our recently acquired businesses but with our balance sheet strength and high cash conversion, we are well positioned to take advantage of opportunities as they arise.

Core Objective

Our core strategic objective continues to be to enhance future earnings growth

  • In FY2016 the focus will continue to be around our recently acquired businesses
  • With our balance sheet strength and high cash conversion, we are well positioned to take advantage of opportunities as they arise

Strategic priorities

Recently-acquired businesses

  • To integrate the Tennent’s and Wallaces Express businesses to achieve synergy benefits, creating an integrated brand-led wholesale business
  • To leverage our Island of Ireland integrated brand-led wholesale platform to drive revenue growth and reduce costs

Existing businesses

  • To maintain the earnings of the C&C Brands business through improved sales execution and innovation
  • To grow international earnings

Cash conversion

  • To maintain the strong cash conversion characteristics of the business and to invest either within the business or in returning value to shareholders
  • To maintain an appropriately leveraged balance sheet to achieve earnings growth

Corporate responsibility

  • Targeting further sustainability improvements across the Group
  • Focusing our social responsibility agenda on engagement in the community
  • Achieving a continuous improvement in workforce health and safety
Strategic Priority
To enhance earnings growth
KPI

Operating Profit
Operating profit (before exceptional items)

FY2015 Performance
FY2013
 
€114.60m
FY2014
 
€126.70m
FY2015
 
€115.00m
KPI

Operating Margin
Operating profit (before exceptional items), as a percentage of net revenue

FY2015 Performance
FY2013
 
24.00%
FY2014
 
20.40%
FY2015
 
16.80%
FY2016 Focus

To seek continuing growth, through revenue enhancement, acquisition synergies and cost control

Strategic Priority
To enhance earnings growth
KPI

Adjusted diluted earnings per share
Attributable earnings before exceptional items divided by the average number of shares in issue as adjusted for the dilutive impact of equity share awards

FY2015 Performance
FY2013
 
27.90c
FY2014
 
29.50c
FY2015
 
27.20c
FY2016 Focus

To achieve adjusted diluted eps growth in real terms

Strategic Priority
To deliver sustainable shareholder returns
KPI

Progressive dividend/return to shareholders
Total dividend per share paid and proposed in respect of the financial year in question

FY2015 Performance
FY2013
 
8.75c
FY2014
 
10.00c
FY2015
 
11.50c
KPI

Dividend Cover
Dividend cover is Dividend/Adjusted diluted EPS

FY2015 Performance
FY2013
 
31.40%
FY2014
 
33.90%
FY2015
 
42.30%
FY2016 Focus

To generate improved operating cash flows

Strategic Priority
To ensure safe and healthy working conditions
KPI

Workplace safety accident rate
The number of injuries that resulted in lost-work days, per 100,000 hours working time in production facilitiesClonmel, Wellpark and Shepton

FY2015 Performance
FY2013
 
2.70
FY2014
 
1.60
FY2015
 
0.68
FY2016 Focus

To achieve best practice across the Group, including acquired businesses

Strategic Priority
To generate strong cash flows
KPI

Free Cash Flow
Free 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

FY2015 Performance
FY2013
 
€54.80m
FY2014
 
€61.60m
FY2015
 
€82.30m
KPI

Free Cash Flow Conversion Ratio
The conversion ratio is the ratio of free cash flow as a percentage of EBITDA before exceptional items

FY2015 Performance
FY2013
 
40.20%
FY2014
 
40.90%
FY2015
 
58.80%
FY2016 Focus

To generate improved operating cash flows

Strategic Priority
To ensure the appropriate level of financial gearing and profits to service debt
KPI

Net debt: EBITDA
The ratio of net debt (Net debt comprises borrowings (net of issue costs) less cash) to Adjusted EBITDA

FY2015 Performance
FY2013
 
0.85×
FY2014
 
0.99×
FY2015
 
1.13×
FY2016 Focus

This ratio will be held consistent with free cash flow conversion and returns to shareholders

Strategic Priority
To achieve the highest standards of environmental management
KPI

Reduction in CO² emissions
Tonnes of CO² emissionsClonmel, Wellpark and Shepton in FY2013, plus Vermont in FY2014 and FY2015. FY2015 includes the new cidery in Vermont and the new brewery at Clonmel

FY2015 Performance
FY2013
 
39,938.00t
FY2014
 
36,618.00t
FY2015
 
37,955.00t
KPI

Waste recycling
Tonnes of waste sent to landfillClonmel, Wellpark and Shepton

FY2015 Performance
FY2013
 
120.00t
FY2014
 
113.00t
FY2015
 
27.00t
FY2016 Focus

To achieve best practice across the Group, including acquired businesses

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 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) levels of competition in Great Britain (“GB”) and the United States and (c) failure to attract and retain high-performing employees.

Risks and uncertainties relating to strategic goals

Risks and Uncertainties
Mitigation
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 management risks and social and compliance risks.
The Group seeks to mitigate these risks through due diligence, careful investment and continuing monitoring and management post-acquisition.

Risks and uncertainties relating to revenue and profits

Risks and Uncertainties
Mitigation
The GB off-trade and increasingly the GB on-trade continues to be highly competitive, driven by consumer pressure, customer buying power and the launch of heavily-invested competing products.
The Group seeks to mitigate the impact on volumes and margins through developing its multi-beverage brand portfolio and seeking cost efficiencies.
The US cider market has also become highly competitive.
The Group is responding through brand investment and has strengthened its distributor network.
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, innovation and product diversification to maintain and enhance the relevance of its products in the market.
Seasonal fluctuations in demand, especially an unseasonably bad summer in Ireland could materially affect demand for the Group’s cider products.
Geographical and brand diversification is helping to mitigate this risk.
Customers, particularly in the on-trade where the Group has exposure through advances to customers, may experience financial difficulties.
The Group monitors the level of its exposure carefully.

Risks and uncertainties relating to costs and production

Risks and Uncertainties
Mitigation
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

Risks and Uncertainties
Mitigation
The Group’s reporting currency is the euro but it transacts in foreign currencies and consolidates the results of non-euro reporting foreign operations. Fluctuations in value between the euro and these currencies may affect the Group’s revenues, costs and operating profits.
The Group seeks to mitigate currency risks, where appropriate, through hedging and structured financial contracts to hedge a portion of its foreign currency transaction exposure. It has not entered into structured financial contracts to hedge its translation exposure on its foreign acquisitions.
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 Group seeks to mitigate this risk by continuous monitoring, taking professional advice on the optimisation of asset returns within agreed acceptable risk tolerances and implementing liability-management initiatives such as the reduction in member contractual benefits approved by the Pensions Board in February 2012.

Fiscal, regulatory and political risks and uncertainties

Risks and Uncertainties
Mitigation
The Group may be adversely affected by changes in excise duty or taxation on cider and beer in Ireland, the UK, the US and other territories.
The Group is not able to materially mitigate this risk, which is outside its control.
The Group may be adversely affected by changes in government regulations affecting alcohol pricing, sponsorship or advertising, and product types.
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.

Liability-related risks and uncertainties

Risks and Uncertainties
Mitigation
The Group’s operations are subject to extensive regulation, including stringent environmental, health and safety and food safety laws and regulations and competition law. Legislative non-compliance or adverse ethical practices 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 and training function and an extensive programme of corporate responsibility.
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 are risks, particularly as the Group develops internationally.
The Group maintains appropriate internal controls and procedures to guard against economic crime and imposes appropriate monitoring and controls on subsidiary management.

Employment-related risks and uncertainties

Risks and Uncertainties
Mitigation
The Group’s continued success is dependent on the skills and experience of its executive Directors and other high-performing personnel, including those in newly acquired businesses, and could be affected by their loss or the inability to recruit or retain them.
The Group seeks to mitigate this risk through appropriate remuneration policies and succession planning.
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.