Strategic development

In FY2020 we continued to mark progress in advancing our strategic objectives. The Group completed the acquisition of Matthew Clark and Bibendum in April 2018 and therefore FY2020 is the first full year of our ownership of these two businesses. The performance of the acquired businesses was positive, as we completed the stabilisation phase and are well progressed into the simplification initiatives identified. Investment into our insight capability, improvements to our logistics network and an even sharper focus on our ESG objectives are highlights of the year in review and which will support our medium term objectives.

Inclusion into the FTSE 250 in December 2019 marked an important and proud day for the Group. As set out in my letter to shareholders on 10 September 2019, with the majority of the Group’s revenue and earnings now coming from the UK and, mindful that the majority of our shareholders are based in the UK and North America, the inclusion of C&C in to FTSE UK Index series has increased the awareness of C&C among the investor community.

The progressions of our brand-led distribution strategy is underpinned by our entrepreneurial culture at C&C. Our people are our greatest asset and their inherent mind-set as business owners is crucial for our decentralised model which we operate. This allows for our autonomous business units to remain dynamic and flexible to capitalise on emerging opportunities with efficiency and speed.

Financial Performance

The numbers referred to in this section are pre-application of IFRS16. Reported net revenue for FY2020 of €1,719.3 million represents an increase of 7.8% versus last year on a constant currency basis. This includes a proportional uplift from an additional month of ownership of the Matthew Clark and Bibendum businesses versus FY2019. Excluding this extra month, net revenue increase for the year is 2.6% despite the challenging comparatives presented by last year’s warm weather and FIFA World Cup.

Our operating profit in the year is €116.4 million and our overall earnings before interest, tax depreciation and amortisation was €131.9 million. The FY2020 performance represents a 10.5% increase in adjusted diluted earnings per share and 9% increase in EBITDA on a constant currency basis. FY2020 marks the second consecutive year of double digit EPS growth. Basic EPS is 2.8c.

The Company’s strong inherent cash generation and conversion characteristics remained throughout the course of the year allowing us to pay down debt as we targeted a Net Debt / EBITDA multiple of 2.0x. Our year end net debt of €233.6 million was €68.0m lower than last year and represents 1.77x our trailing twelve months EBITDA. Cash conversion (pre-exceptional items) at 103.5% was resilient and our ten year average is 73%.

Finance costs in the year amounted to €16.3m which is an increase of 4.5% versus FY2019. This reflects full year access to components of our debt structure as opposed to only 7 months in FY2019. We continued to mitigate our sales ledger risk by leveraging our receivables purchase programme which contributed to €131m to closing cash for FY2020. Whilst improving our working capital and bolstering customer default protection, this facility does come at a cost of additional interest.

On the 27th March 2020, we announced the successful issue of the equivalent of approximately €140m in Euro and Sterling of new US Private Placement notes. Secured after the financial year end, this issue has diversified our sources of debt financing and extended their maturity out to 2032 on attractive terms with covenants aligned to those of the Company’s existing debt facilities.

Capital Allocation

The sustainable stewardship and growth of our business remains the guiding principle underpinning our capital allocation strategy. The long-term sequential components of this strategy remain; investment in existing business, bolt-on acquisitions, debt repayment and the return of surplus cash to shareholders.

Capital investment in the existing business stood at €19.4 million for the year with a range of projects undertaken. These projects enhanced our operational efficiency and provided momentum towards our environmental and sustainability targets.

At our Clonmel facility in Ireland, we invested €2.5m in a waste water treatment facility similar to the infrastructure already installed at our Wellpark site in Glasgow. This technology has dramatically improved our wastewater quality and significantly reduced our impact on the local ecological system on which we rely. This had the added benefit of mitigating our forward effluent charges as well as providing a bio-gas by-product which we can incorporate within our heating system thereby reducing energy usage and cost.

We spent €2.5 million on property and equipment investments in the year across the Group, a proportion of which was on the opening of our Five Lamps micro-brewery and visitor centre in Camden Street, Dublin. Iconic and steeped in local history, this former cinema has undergone a radical modernisation and transformation, whilst respecting its original features, which includes a first floor dedicated to the Five Lamps Dublin Brewery. This investment is testament to the growth of the brand and will allow consumers an opportunity to experience first-hand the culture, heritage and authenticity of Five Lamps.

Investment in intangible assets for the year amounted to €4.5m in the year, the majority of which related to ERP system upgrades across the recently acquired distribution businesses. This upgrade means the same ERP package is now deployed across each business unit of the Group, ensuring a more homogeneous and efficient approach to data processing.

We continued our support of the Independent Free Trade in both Scotland and Northern Ireland by lending to outlets seeking growth capital for their business plans. These loans are primarily secured by freehold assets and are conditional upon the outlet purchasing our products over the tenure of the agreement. Guided by our capital allocation hurdle rate, we invested net proceeds of €4.2m and our total loan book stands at €55.1m.

In line with our policy of offsetting scrip dividend dilution, we acquired 5.6 million shares throughout the year at an average EUR equivalent price of €4.03. These shares were subsequently cancelled following purchase.

Our Brands

Consumption trends within the beverages market continue to hinge on premiumisation, authenticity and local provenance. The progression of our brand-led distribution model across our core geographies has provided us with valuable on-trade outlet access.

Following exceptionally warm summer weather in 2018, FY2020 was always going to be challenging, however our local, fabric brands maintained a flat net revenue performance for the year.

We invested €10.7m million in the Admiral Taverns Pub estate in support of growth. The total estate now consists of over 1,000 wet-led outlets.

Our brands are locally produced. Bulmers in Ireland is only ever made in Clonmel and we buy only Irish apples to create a liquid famed for its refreshment, authenticity and its 100% Irish heritage. Tennent’s Lager was first brewed at Wellpark Brewery, Glasgow in 1885 from the finest Scottish barley using only locally sourced water. Little has changed in the intervening 135 years and Tennent’s Lager remains the biggest and most popular alcohol brand in Scotland. Magners like Bulmers is 100% Irish and is only made at our cider mill in Clonmel, Co. Tipperary. Exported to over 60 countries, the most important market is the UK which accounts for 81% of brand volume. Last year Magners benefitted from both an exceptionally warm summer and the football World Cup.

In Ireland Bulmers revenue declined 7.7%, suffering against tough comparatives bolstered by sunny weather and significant investment in competitor brands. Growth of Five Lamps and investment in a new Visitor Centre in Dublin city centre demonstrate our strategy of identifying a local brand with a unique heritage and supporting the sustainable growth of that brand while retaining its essence and authenticity. Third party brand revenue in Ireland grew by 5.3% in the year. We continue to support the implementation of minimum unit pricing (MUP) in Ireland, as we did in Scotland where we are encouraged by the impact this responsible legislation is having since its introduction.

In Great Britain, Tennent’s continues to enjoy particularly strong brand health, we launched the “Life is Bigger than Beer” campaign during the year as part of our ESG sustainability awareness campaign. Revenue growth for the brand was +5.3% and the Visitors Centre welcomed an incremental 11,000 visitors in the year. Following the introduction of minimum unit pricing in Scotland, in FY2020 we invested in our capability to service and supply the convenience channel direct. This incremental volume has bolstered our third party brand revenue in Scotland which grew by +11.8% in the year. Magners volume in GB declined by -2.4% in the year, outperforming the wider market which faced tough comparatives in the year.

Focused brand investment combined with a strong social media, digital and trade marketing presence improved brand health scores on all of our key brands.

Matthew Clark and Bibendum delivered revenue growth of 9.3% with margins in line with our previously stated goal for the year. We continue to maintain high levels of customer service, coupled with unrivalled range to ensure we remain the supplier of choice to the on-trade in the GB.

The performance of our international division was disappointing with sales revenue down from €39.9m to €37.9m, a drop of 5.0%, mainly due to our continued focus on key, sustainable markets only. Margins have improved this year as a consequence of this more focused approach to export.

Our strategy over the last few years has been a combination of investing or partnering in the growth of this premium category. Five Lamps in Dublin, Drygate in Scotland and Orchard Pig cider in the UK are examples of working with others to create brands for tomorrow. In Menabrea, Heverlee and Tsingtao we also have exclusive distribution rights for these authentic premium products. Growth in volumes for our super premium and craft portfolio was 2.6%. They now account for 5.9% of branded volumes and at 8.4% of NSV, we are moving towards our medium term target of 10%.