Operating Review
We operate broadly decentralised business units in relevant geographies and mainly seek to share back office, IT and procurement efficiencies. We believe proximity to customers and consumers, inherent in our business model, provides us with a distinct competitive advantage over our international competitors over the long term.
It also allows the Company to attract more entrepreneurial talent. We aim to minimise our head office structure and ensure that, within a controlled environment, the decision making is as close to our customer as possible. Our key operational geographies are marked by strong free trade customer penetration and this fragmentation requires investment in sales and distribution infrastructure. It also supports our philosophy of a one-stop shop model underpinned by our fabric brands; Bulmers, Magners and Tennent’s.
Ireland
Core Brands
€m Ireland | |||
|---|---|---|---|
Constant currency(i) | FY2020 | FY2019 | Change % |
Net revenue | 227.7 | 219.8 | +3.6% |
- Price / mix impact | (0.6%) | ||
- Volume impact | +4.2% | ||
Operating profit (excluding IFRS 16) (ii) | 40.2 | 40.3 | (0.2%) |
Operating margin | 17.7% | 18.3% | (60bps) |
Operating profit (ii) | 40.5 | 40.3 | +0.5% |
Operating margin | 17.8% | 18.3% | (50bps) |
Volume – (kHL) | 1,416 | 1,359 | +4.2% |
- of which Bulmers | 366 | 392 | (6.6%) |
In Ireland we operate a full multi beverage model with Gleeson being the largest last mile distribution business on the Island. It sells a range of owned brands such as Tipperary Water, Finches soft drinks and of course our beer and cider brands. In Gilbey’s with Bibendum we have the largest independent wine business shipping 878k cases annually. Divisional sales in the year increased from €219.8m to €227.7m, representing revenue growth of 3.6%.
Over the last few years there has been huge competitive pressure on Bulmers draught taps from scale players and we ceded distribution. FY2020 saw more competitor cider launches. This competitor investment coupled with an exceptionally warm summer the previous year provided a challenging backdrop for Bulmers, against which revenue declined -7.7%.
In grocery, Bulmers’ share of total cider declined from 49.2% to 46.8% (iii) in a highly competitive market. Importantly in the run up to Minimum Unit Pricing (MUP) in Ireland we maintaining a price premium over standard lager of 10%.
Despite the very challenging backdrop this year Operating Profit was broadly flat, a testament to the Irish, brand-led distribution model.
We seek to provide route to market access for as wide a possible range of craft beers, ciders and spirits and actively encourage market participation responding to both consumer and customer demand. Gleeson stock more than 368 beer and cider SKUs as well as a wide range of premium wine.
We have exclusive distribution rights for a range of beers including San Miguel and certain AB InBev brands (from 1st July 2020 we will have all AB InBev brands). Franchise arrangements provide scale and enhanced customer reach.
Great Britain
Core Brands
€m Great Britain Constant currency(i) | FY2020 | FY2019 | Change % |
|---|---|---|---|
Net revenue | 334.1 | 310.5 | +7.6% |
- Price / mix impact | +7.7% | ||
- Volume impact | (0.1%) | ||
Operating profit (excluding IFRS 16)(ii) | 43.5 | 42.7 | +1.9% |
Operating margin | 13.0% | 13.8% | (80bps) |
Operating profit(ii) | 44.9 | 42.7 | +5.2% |
Operating margin | 13.4% | 13.8% | (40bps) |
Volume – (kHL) | 2,626 | 2,628 | (0.1%) |
- of which Tennent’s | 977 | 1,004 | (2.7%) |
- of which Magners | 530 | 543 | (2.4%) |
In Scotland there is no exclusivity on other beers or ciders, but the strength of our system means that we are a natural partner for other brand owners. Our distribution business grew net revenues by 12% as we launched our Convenience direct-to-store solution in recognition of the shift in channel mix following the introduction of Minimum Unit pricing legislation.
The Tennent’s brand increased revenue in the critical independent free trade against challenging prior year comparatives that reflected a much warmer summer and a soccer World Cup. The strength of the Tennent’s brand has also been reflected in the Off-Trade channel where our share has grown to 26.3%(iii).
Recent investments behind the Tennent’s brand have strengthened the brand’s role as a fabric brand in Scotland. Conscious of our commitment to our local communities, during the year we launched the “Because life is bigger than beer” sustainability campaign behind Tennent’s. The campaign underpins our environmental pledges.
Again, the focus on premium beers and ciders helped enhance value with volume growth of our premium portfolio at 1.2%. This included an exceptional year for the Tsingtao brand which delivered volume growth of 53%. On average the margin on these products is higher than the blended average for mainstream brands. The move to an in house system for logistics will lower future costs and the transition was extremely smooth from a customer perspective.
In the UK, AB InBev provides route to market access for our cider portfolio and we are proud to be represented by them and sold as part of their internationally renowned portfolio. Our share was maintained in FY2020 with cider volumes though ABI down 2.5% year on year. Again, at retail we maintained a price premium over the market leading apple cider brand.
Matthew Clark and Bibendum
Core Brands
Matthew Clark and Bibendum | FY2020 12 months | FY2020 11 months | FY2019 11 months | LFL Change % | Change % |
|---|---|---|---|---|---|
Net revenue | 1,119.6 | 1,036.4 | 1,024.4 | +1.2% | +9.3% |
- Price / mix impact | +5.9% | +5.8% | |||
- Volume impact | (4.7%) | +3.5% | |||
Operating profit (excluding IFRS 16)(ii) | 26.4 | 26.5 | 15.9 | +66.7% | +66.0% |
Operating margin | 2.4% | 2.6% | 1.6% | +100bps | +80bps |
Operating profit(ii) | 29.0 | 29.1 | 15.9 | +83.0% | +82.4% |
Operating margin | 2.6% | 2.8% | 1.6% | +120bps | +100bps |
Volume – (kHL) | 2,731 | 2,514 | 2,639 | (4.7%) | 3.5% |
- Volume – (cases k 9L) | 30,344 | 27,933 | 29,322 | (4.7%) | 3.5% |
In our first full year of ownership we continue to be pleased with the service levels and contribution from both Matthew Clark and Bibendum. The businesses have delivered operating margin in line with our stated goals for the year and did so whilst continuing to carefully manage cash and working capital.
Net revenues for the combined MCB Group in FY2020 were €1,119.6m and we are reporting net operating profits and operating margins of €26.4m.and 2.4% respectively.
Revenue grew 9.3%, on a like for like basis revenue grew by 1.2%, in part reflecting planned withdrawal of loss or low margin business. Our customer service metrics remained a core focus in the year, building on the progress made since acquisition. Our OTIF (on time in full) metrics was in excess of 95% for the year and our stock availability remained high at 98% throughout the year. Net Promoter Scores were also high across both businesses with scores finishing the year at 53.6 for Matthew Clark and 52.8 for Bibendum.
Throughout the year, our unparalleled scale and service capabilities allowed us to welcome a range of new suppliers to our supply chain network, from global brands to local craft producers. We also strengthened our existing strategic supplier partnerships to further develop our core offering to over 20,000 customer outlets we served.
Bibendum ended the year in a breakeven profit position, an important milestone in the recovery of the business. Bibendum’s business was more damaged when we acquired it than Matthew Clark and so the recovery to profitability was always going to take longer. Revenues grew 1.8% in the year with a number of new business wins secured. Bibendum’s Off-Trade offering has also provided a revenue stream post COVID-19 and we continue to work collaboratively with our Off-Trade partners in meeting the current consumer demand.
As part of our simplification programme within Matthew Clark and Bibendum our marketing services businesses Elastic and Peppermint were shut down and disposed of respectively.
With Matthew Clark 100% focused on the on-trade the COVID-19 crisis presents a unique challenge to this business unit. We are focused on supporting our people, customers and suppliers as best we can during this current period of disruption.
International
Core Brands
€m International | FY2020 | FY2019 | Change % |
|---|---|---|---|
Net revenue | 37.9 | 39.9 | (5.0%) |
- Price / mix impact | +0.5% | ||
- Volume impact | (5.5%) | ||
Operating profit (excluding IFRS 16)(ii) | 6.3 | 6.5 | (3.1%) |
Operating margin | 16.6% | 16.3% | +30bps |
Operating profit(ii) | 6.4 | 6.5 | (1.5%) |
Operating margin | 16.9% | 16.3% | +60bps |
Volume – (kHL) | 239 | 253 | (5.5%) |
We continue to consolidate our various positions within our International division. Volumes were down 5.5% and revenues fell 5.0%. Profit at €6.3m was only marginally behind the previous year reflecting loss of lower profit business and cost reduction. We experienced disruption through a distributor switch in Italy and exited a number of low volume export markets. In the US the success of other new categories, such as Hard Seltzers, has put further pressure on our portfolio of Ciders with revenues down 6.2%.
Admiral Taverns
We entered our joint venture in the Admiral Taverns Pub estate originally in December 2017, and continued to invest to support the growth of the estate in FY2020. The total estate now consists of over 1,000 wet-led outlets. Admiral is treated as an equity accounted investment and our consolidated earnings, pre-exceptionals, for the year were €3.1m.
Environmental, Social and Governance
The recent prevalence of ESG is a welcomed paradigm that we as a Company are pleased to prioritise. Historically, the Group has invested in a host of initiatives and resources in this arena designed to benefit our broad spectrum of stakeholders as well as mitigating risk and driving further efficiencies. These efforts were relatively unheralded however as we progressed with our tacit commitments in this field. The emerging trends now call for enhanced transparency and communication within the ESG sphere, a trend which we are now fully immersing in as we increase our efforts to communicate our range of initiatives that we have proudly invested behind in support of our stakeholders and local communities for years.
Our Responsibility Report is set out on pages 37 – 49.
Environmental
Sustainability Commitment
Our first foray into this enhanced reporting came in May of FY2020 with a detailed overview of our Sustainability capabilities and commitments as part of our Capital Markets Day. This was designed to give an overview of our industry leading abilities such as our water ratio of 3 and our zero waste to landfill policies. This was also a forum for us to set out our ambitious targets as we strive for continual improvement.
Many of these commitments were captured in the year by our ‘Because Life is Bigger than Beer’ campaign under the Tennent’s brand in Scotland. Underpinning this campaign is a €16 million investment which enabled the introduction of pioneering green-technology and strategic partnerships. This campaign encapsulates our commitments to be out of single-use plastic by 2022 and to be carbon neutral by 2025. Work has already begun switching from plastic packaging to cardboard, an initiative which will remove 150 tonnes of plastic from the environment each year. Our carbon dioxide recovery system will remove the equivalent of 27,000 flights from Glasgow to London of CO2 out of the atmosphere.
Similarly in Ireland, where our production site is already carbon neutral, investment continued in our ground water protection programme to upgrade the site drainage and wastewater network. This technology, already installed at our Wellpark site causing improvement of wastewater quality there of over 90%, will protect the water sources of the surrounding Tipperary countryside.
In January we launched the first ever Drinks Industry Sustainability Index – Trends Report in collaboration with sustainable research company, Footprint Intelligence. The report analyses the extent to which the drinks industry is adopting sustainable strategies and practices for packaging, waste, water, emissions, energy, social impact and raw materials and helps identify sustainable operating practices to assist in the reduction of the drinks industry’s carbon footprint. This initiative aligns with our ambitious sustainability commitment of being 100% carbon-neutral by 2025, a target the Group is on course to deliver.
Social
People and Culture
A strong and entrepreneurial culture within C&C is what differentiates us from our larger international peers. At its core, C&C is a local business guided by local values and imbedded in the local communities we serve. With a decentralised business model, our business units deploy a high degree of autonomy within their markets. Being in close proximity to our local stakeholders ensures we are able to meet and adapt to bespoke needs. This requires our people to be entrepreneurial in their thinking, steering the local business units as they would their own business.
Our team is therefore our greatest asset and we acknowledge the contribution of all our colleagues in delivering the significant progress we made this year.
Social Responsibility
For C&C, the local communities we serve have long featured as a priority in our strategic planning and we continue to undertake a range of initiatives designed to benefit our local stakeholders across the geographies we operate in.
In Ireland, we support a variety of local charities and partnerships. This includes an established partnership with Inner City Enterprise (ICE) in Dublin, a charity which advises and assists unemployed people in Dublin’s inner city to set up their own businesses, to which C&C donates annually. During the year, we also donated to the Irish Society for the Prevention of Cruelty to Children (ISPCC), Ireland’s national child protection charity to support the services they provide, all run by professionally trained ISPCC staff and volunteers. We also proudly sponsor local teams including the Tipperary Ladies Gaelic Football Team, Liffey Wanderers and under age soccer clubs: Kilcullen AFC, and Crumlin AFC.
Similarly in Scotland, the Group supports a host of charitable and community projects. This includes the award-winning Tennent’s Training Academy – situated on the Wellpark Brewery site. The Training Academy continues its work in supporting charities and schools with a programme of training and learning sessions across a range of hospitality sectors. We also held several fundraising events during the year to support KidsOut, a charity which provides support to disadvantaged children across the UK. This included a Question of Sport dinner, at which over 300 people across the sector attended raising approximately £70,000.
To highlight the incredible support offered by pub teams and customers for charities and good causes in England, we partnered with Pubaid to support Charity Pub of the Year.
Governance
Our Corporate Governance policies underpin the effective stewardship of your business and provide essential mechanisms to narrow the downside potential emanating from the inherent enterprise risks in our objective of generating long-term sustainable value for shareholders.
In FY2020, we realigned our Corporate Governance framework in harmony with the UK Corporate Governance Code (the “Code”) which was published in July 2018 and became effective for the Group on 1 March, 2019. We as the Board consider that the Group has acted in accordance with the provisions of the Code however note that deviation was unavoidable for a period from 15th January when I was appointed Interim Executive Chairman following the retirement of Stephen Glancey as CEO. Further explanation can be found in the Corporate Governance Report on page 58.
Board Developments
In October, we announced that Jim Clerkin, Non-Executive Director, would replace Vincent Crowley, Senior Independent Director, as a member of the Remuneration Committee and that Helen Pitcher, Non-Executive Director, would be appointed as a member of the Nomination Committee.
CEO Selection Process
Following the retirement of Stephen Glancey, a thorough selection process, guided by global executive search firm Spencer Stuart, remains on-going to appoint our new CEO. On behalf of myself and the Board, I would like to thank Stephen for his significant contribution to C&C over many years. In the interim, the management team and I are committed to ensuring we continue to execute our strategic priorities and navigate through the short term challenges the COVID-19 pandemic has presented and position the Group to be a winner post the crisis.
COVID-19
The global COVID-19 pandemic has presented unprecedented challenges to each community we serve and placed enormous pressure on frontline healthcare workers. We recognise that there is a responsibility on all businesses to help fight this virus and we have implemented a number of initiatives in light of this. Across our core geographies, we have provided hand sanitizers, bottled water and soft drinks whilst also supporting foodbanks to ensure those who are most vulnerable can access the basic necessities they require. We will continue to provide support where we possibly can and hope we can in some way alleviate the challenges being faced by society as a whole.
Summary and outlook
The FY2020 results were strong and reflect the incremental impact of the full year of Matthew Clark and Bibendum ownership. During the year the entire management team worked closely on various projects and synergy initiatives.
The result of the UK’s exit from the European Union (“Brexit”) on 31st January 2020 and its impact in terms of the exit deal including tariffs and trade agreements remain unclear. With continued uncertainty we will continue to monitor developments closely. We will continue to work closely and navigate through the immediate term challenges presented by Brexit and COVID-19.
Our top priority is protecting the health and wellbeing of our people, customers, suppliers, business partners and community. We are continuously monitoring the advice provided by the health authorities and in line with that guidance, the Group has implemented an extensive range of measures to provide the safest environment we can for our stakeholders.
We continue to implement a series of measures to reduce operating costs, maximise available cash flow, and maintain and strengthen the Group’s liquidity position. These measures include:
- Capital spend significantly reduced
- Reduced discretionary spend
- Prudent and rigorous working capital management
- Continue to actively engage with the Irish and UK Tax Authorities
- Salary reductions across our workforce with Board remuneration reduced also.
- Approximately 70% of employees have been placed on furlough.
Given the absolute focus on liquidity, and with the high levels of uncertainty, the Group will not declare a final dividend for the current financial year. The Group has taken these extensive measures to ensure that we preserve cash and have the financial flexibility to avail of opportunities that will present themselves as we, and the drinks industry, emerge from this crisis.
Stewart Gilliland
Interim Executive Chairman
Summary notes to interim Executive Chairman’s Report are set out below.
(i) FY2019 comparative adjusted for constant currency (FY2019 translated at FY2020 F/X rates).
(ii) Before exceptional items
(iii) OUTLET On Trade Market model & CGA OPMS WE 25/01/20 (GB On Trade); AC Nielsen Total Business BWS Category Report to 07.03.20 (GB Off Trade); CACI NI Weekly OA Expenditure and Social Scene Profile 2018 (NI On Trade); Internal calculations (NI Off Trade)