C&C Group plc (LON:CCR), a leading, vertically integrated premium drinks company which manufactures, markets and distributes branded beer, cider, wine, spirits and soft drinks across the UK and Ireland, has issued a summary of unaudited financial performance in respect of the year ended 29 February 2024 (FY2024) following a delay in the preparation of the Group’s Annual Report and Accounts for FY2024.
Details of the delay are set out in the separate announcement issued this morning, 7 June, titled: “Prior Year Accounting Adjustments and Directorate Changes”. A summary of the prior period adjustments is also included below. We currently expect that the Group’s Audited Annual Report and Accounts for FY2024 will be issued before the end of June 2024 in accordance with the Group’s regulatory requirements under the UK Transparency Regulations.
BASIS OF PRESENTATION – UNAUDITED
This announcement constitutes an unaudited update on FY2024 financial performance and is not, nor is it intended to be, a preliminary statement of annual results. Due to the results presented in this announcement being unaudited and not having been agreed with the Group’s auditors as would be required for a preliminary statement of annual results, further adjustments could arise from the finalisation of the audit and Accounts which would need to be reflected in the Group’s Audited Annual Report and Accounts when published.
The information in this announcement is unaudited and does not constitute statutory accounts for the purposes of the Irish Companies Act 2014 (the ‘Act’). Statutory accounts for the year ended 28 February 2023 have been delivered to the Irish Companies Registration Office and contained an unqualified audit report, which did not draw attention to any matters by way of emphasis and did not contain any negative statements under Sections 336(3) to 336(5) of the Act. As noted above, certain prior year adjustments are expected to be made to the FY2023 results and these are summarised below.
| UNAUDITED FY2024 FINANCIAL OVERVIEW | ||||||||||
| FY2024 | FY2023(i) (ii) | FY2024 | FY2023(i) | |||||||
| €’m except per share items | Underlying(iii) | Statutory | ||||||||
| Net revenue | 1,652 | 1,681 | 1,652 | 1,686 | ||||||
| EBITDA(iv) | 94 | 115 | (50) | 104 | ||||||
| Operating profit/(loss) | 60 | 82 | (84) | 71 | ||||||
| Operating margin | 4% | 5% | NM | 4% | ||||||
| Profit/(loss) before Tax | 39 | 66 | (111) | 52 | ||||||
| Net Debt (including lease liabilities)Net Debt (excluding lease liabilities) | 16758 | 15579 | 16758 | 15579 | ||||||
| Net Debt:EBITDA (excluding lease liabilities) | 0.8x | 0.9x | NM | 1.0 | ||||||
| Please see page 6 for footnotes. NM = not meaningful. | ||||||||||
Financial Highlights
· Group Revenues expected to be broadly in line (-2%) with prior year(i)(ii) despite previously announced ERP disruption.
· Underlying operating profit(iii) expected to be in line with market expectations.
· Pre-Tax Exceptional items expected of €150m including €125m goodwill impairment.
o FY23 exceptional prior year adjustment of €12m in respect of onerous apple contracts.
· Underlying operating profit(iii) prior year adjustments impact aggregating to an expected €5m charge over three years;
o FY23 – €1m expected charge, FY22 – €3m expected credit, FY21 – €7m expected charge.
· Strong Free Cashflow Generation(iii) underpinned by balance sheet strength.
Operational Highlights
· Tennent’s(v) and Bulmers(vi) brands gain market share; Premium brands 24% volume growth in GB.
· Service levels restored to pre-ERP implementation levels.
· Commencement of Transformation Project to drive Group wide efficiency.
Outlook
· Current trading in line with expectations.
· Proposed Final Dividend of 3.97c per share, subject to shareholder approval at AGM, reflecting strength of current and future cashflows.
· Current €15m share buyback programme successful with €12m utilised to date.
· Commence next €15m tranche of buyback from 1 September 2024.
· Commitment to return €150m to shareholders by end of FY27 remains unchanged.
PERFORMANCE OVERVIEW
The Group expects to report net revenue for FY2024 of €1,652m which would be broadly in line(i)(ii) (-2%) versus last year despite the one-off disruption of the ERP System implementation (ERP). Operating profit before exceptional items in the year is expected to be €60m and overall earnings before exceptional items, finance income & expense, tax, depreciation and amortisation charges are anticipated to be €94m.
Set against a difficult market backdrop, we are pleased with the performance of our brands in FY2024 with Tennent’s and Bulmers continuing to gain share in Scotland and the Republic of Ireland respectively(v)(vi). Premiumisation remains a strategic focus for our business, and we are pleased with the performance of our Premium beer brands which, in GB, delivered volume growth of 24% in the year. Magners volumes in GB declined 18% however Magners in GB contributes modest profit to the Group. Reflecting the performance of the Magners brand in GB, we expect to book a non-cash exceptional charge of €125m relating to a reduction in intangible assets (goodwill) associated with the C&C Brands CGU(vii) in the UK.
As previously communicated the implementation of a complex ERP system upgrade in our Matthew Clark and Bibendum (“MCB”) business had a material impact on the performance of the GB distribution business and, as a consequence, the Group in FY2024. However, we are pleased that we were able to restore service levels back to pre-ERP implementation levels and it is our belief that our service levels were industry leading over the key Christmas trading period. This reflects the Group’s commitment to deliver market leading customer service through GB’s preeminent distribution platform.
Despite the challenges in FY2024, we have stabilised the business and we have continued to execute our strategy by:
· strengthening our portfolio and distribution system;
· premiumising our portfolio;
· extending our customer offering;
· investing in technology;
· driving efficiencies in our network and support office functions;
· improving capability in key management roles, and;
· ensuring we continue to meet our ambitious sustainability commitments.
The Group’s unaudited Balance Sheet remains strong with available liquidity(viii) of €390m at 29 February 2024 and leverage(ix) (excluding leases) at year end was 0.8x. Leverage(ix), including leases, was 1.8x.
GROUP STRATEGY
Our strategy is focused on driving two key areas:
Brand Strength – we have two market leading brands; Bulmers in Ireland(vi) and Tennent’s in Scotland(v) and our objective is to maintain those market positions, whilst expanding our brand portfolio principally through the growth of premium beer brands, most notably Menabrea and Heverlee.
Distribution Strength – our objective is to be the leading drinks distributor in the UK and Ireland in terms of service, quality and scale. We see significant opportunities to gain market share and drive significant efficiencies which will drive margin improvements in the medium-term.
Underpinning our strategy are three objectives:
– Simplification – we are embarking on a significant transformation programme to simplify how we operate the business in the most efficient manner.
– Winning through People – people are at the heart of our sector. Ensuring we have a people strategy underpinned by strong Recruit, Reward and Retain activities ensures we have the best teams to deliver our strategic goals.
– ESG – sustainability is at the heart of our organisation with a clear focus on ensuring the Group delivers to a better world.
CURRENT TRADING AND OUTLOOK
Trading in the first quarter of FY2025 has been encouraging and is in line with our expectations. The Group is well placed to take advantage of the critical summer period ahead, including the Euro ’24 tournament which includes the participation of the Scottish and English football teams. Whilst we remain cautious about the consumer outlook for the year, the market dynamics indicate that consumers are seeking affordable treats including visits to pubs and restaurants. At this stage therefore there is no change to our expected earnings for FY25 and future years.
Given the strength of our balance sheet and the Group’s strong cash generation characteristics, the Board has previously communicated our intention to distribute €150m to shareholders over the three fiscal years, FY2025 to FY2027 and we are pleased to reaffirm this commitment. In that regard, on 1 March 2024, a €15m share buyback programme was announced and we have utilised €12m of the allocated funds. Our assessment remains that this is an appropriate allocation of capital and as such we intend to launch a further €15m share buyback programme from 1 September 2024.
The Board has proposed, subject to shareholder approval at AGM, a final dividend of 3.97 cent per share to be paid on 23 August 2024 to ordinary shareholders registered at the close of business on 19 July 2024. In addition to the interim dividend of 1.89 cent per share, paid to shareholders on 1 December 2023, this delivers a full year dividend of 5.86 cent per share to shareholders.
In addition to the management changes announced separately today, the simplification of the business includes an overhaul of the Executive Committee comprising the creation of Group functional roles. This year we have seen external appointments in Finance, Marketing, Human Resource and Technology, together with the retention of our very experienced Chief Commercial Officer and Chief Operating Officer.
PRIOR YEAR ADJUSTMENTS
As outlined previously, and further to the separate announcement today, 7 June, regarding inventory in Ireland and other balance sheet items and the accompanying change in management, the Group expects to record prior year items in the income statement as summarised in the table below. There will also be an impact on the unaudited FY24 Interim results – details of which will be provided at the interim results in October.
| Impact on Underlying Operating Profit €m | UnauditedFY2023 | UnauditedFY2022 | UnauditedFY2021 | UnauditedCumulative Impact | |
| Inventory – Clonmel facility | (2) | (3) | (5) | (10) | |
| Timing of accruals and release of Goods Received Not Invoiced balances | 1 | 5 | (3) | 3 | |
| Timing of release of retrospective customer discounts | 2 | – | 1 | 3 | |
| Change in accounting treatment of glassware* | (1) | – | – | (1) | |
| Other accruals | (1) | 1 | – | – | |
| Total (decrease)/increase in underlying operating profit | (1) | 3 | (7) | (5) | |
*Note: FY24 operating profit impact of €2m charge.
In addition, the Group expects to record an exceptional prior year (FY2023) charge of €12m with respect to onerous apple contracts.
OPERATING REVIEW
GREAT BRITAIN
As previously communicated, the implementation of a complex ERP system upgrade in our Matthew Clark and Bibendum (“MCB”) business had a material impact on the performance of the GB distribution business in FY2024. Service levels, defined as On-Time-In-Full (“OTIF”), have fully recovered and we believe they were industry leading in the GB distribution business over the key Christmas trading period reflecting the Group’s commitment to deliver market leading customer service through GB’s preeminent distribution platform. In February 2024 we also successfully transitioned to a new London Distribution depot, with no impact to customer service.
Net revenue of the Group’s GB business is expected to be down 3% in FY2024 compared to the prior period(i)(ii), with underlying operating profit(iii) expected to be down €25m(i)(ii) principally reflecting the ERP disruption.
Branded
Branded Revenue was up 5%(i)(ii) in the year with Branded Margins improving by 2ppt(i)(ii). Tennent’s performed strongly again in FY2024 with Net Sales Revenue up 13%(i) on volumes that were down 1%. Across combined on- and off-trade in Scotland, Tennent’s gained 0.3%ppts volume share of beer, to 29.0%(v). We continue to successfully and efficiently invest in the Brand. A new brand platform of “Raised in Scotland” led to an investment in an “OOOFT!” campaign which launched in July, across TV, Out of home & digital medial channels, conveying the emotional triumph in the first sip of Tennent’s. OOOFT! breakthrough communication platform connected with consumers, delivering the Brand’s best ever recorded brand health score- growing from an index of 14 to 19 (with Quality seeing the greatest improvement) whilst lager competitors declined year on year(xi). We also continued our partnership with Scottish Rugby Union, in the lead up to and during the Rugby World Cup. OOOFT! and Rugby World Cup campaign delivered combined reach to all Scottish adults of 97% at a frequency of 17 times(xii).
Our Premium beer brands delivered volume growth of 24% and net revenue growth of 27% in the period. Menabrea’s volumes and net sales revenue were up 30% relative to the prior financial year. A number of new national listings for Menabrea were secured this year including Loungers & Cosy Club in the On-trade and Waitrose in the Off-trade. Heverlee also performed strongly with volumes up 22% and net sales revenue up 34%.
Magners, which is distributed in the UK through a third-party, saw volumes in GB down 18% in the period with net revenue down 10%(i). Magners contributes modest profit to the Group. At 29 February 2024, reflective of the performance of the Magners brand in the UK we expect to book an exceptional charge of €125m relating to a non-cash reduction in intangible assets (goodwill) associated with the C&C Brands CGU(vii) in the UK.
The Group put in place further decarbonisation initiatives in FY2024, aimed at tackling our Scope 1 and 2 emissions. In Wellpark, the Group’s Glasgow based manufacturing facility, these included the installation of heat recovery on our anaerobic digestion and boiler plants, with further technology improvements to the compressed air generation and spent grains handling systems. Overall, the Group has exceeded its Scope 1 and 2 (Location Based) carbon emissions carbon targets in FY2024, delivering a 10% reduction (V FY2023) and a 24% reduction (V FY2020 baseline).
Distribution
The implementation of a complex ERP system upgrade in our Matthew Clark and Bibendum (“MCB”) business had a material impact on the performance of the GB distribution business in FY2024. Net Revenue of the Group’s GB distribution business is expected to be down 3%(i)(ii) in FY2024 relative to the prior financial year with underlying operating profit(iii) expected to be down €30m(i)(ii) primarily as a consequence of the ERP system upgrade issues. Adverse mix, both from a customer and product perspective, continue to impact performance.
Service levels, defined as On-Time-In-Full (“OTIF”), have been fully restored to pre-ERP implementation levels and we believe they were industry leading in the GB distribution business over the key Christmas trading period reflecting the Group’s commitment to deliver market leading customer service through GB’s preeminent distribution platform. In February 2024 we also successfully transitioned to a new London Distribution depot “Orbital West” with no impact to customer service. This flagship facility underlines the Group’s significant investment in increased capacity and ongoing commitment to industry-leading customer service, as well as significantly contributing to our wider carbon reduction programme and sustainability agenda.
From a market perspective(xii), while spend/value was down 0.8% in FY2024 compared to the previous 12 months, volumes were down 2.2% with consumers buying fewer drinks. Beer and cider sales values have seen modest increases and have outperformed wine, spirits and RTDs, driven by a combination of occasionality towards lower-tempo and drinks-only occasions. This is reflected in the types of outlets where spend has been better protected (i.e. pubs), versus outlets that are more challenged (i.e. restaurants, nightclubs). Spirits sales eased after a bumper year last year, when the return to trade drove consumers to cocktails and shots for their up-tempo occasions. The decline in wine sales has also slowed with declines of 0.6% value and 4.5% volume. Demand has been impacted by consumers cutting back on meals out and the subsequent underperformance of restaurants.
IRELAND
Completely unaffected by the ERP issues in GB, our Ireland division’s net revenue is expected to have increased by 3%(i) (ii) in the year to €286m. Underling operating profit(iii) is expected to show an increase of €3m(i)(ii). Total Ireland operating margin is expected to be 9% (i)(ii) with Branded Margin expected to be 16% as the cumulative inflationary cost pressures outweigh the benefit of pricing actions in the branded business. Distribution margins are expected to be up 1ppt(i)(ii) relative to the prior year.
Branded
We were pleased with the performance of our iconic Bulmers brand in Ireland with Net Revenue growth of 8% relative to the prior period(i). Between the on and off-trade, Bulmers remains the largest and most popular cider brand in the Republic of Ireland (“ROI”)(vi). Aided by our marketing campaign, Bulmers total ROI market share, from a volume perspective, increased by 0.2ppt to 59.5% at the end of Feb 2024(vi) while the Bulmers brand index (equity measure) increased by 10% over the same period(xiv).
Five Lamps had a decent performance in the year with volume and net revenue growth of 4% and 17% respectively, albeit from a low base.
Building on the work undertaken in previous years to reduce our Clonmel manufacturing site’s energy usage, a 1 MW heat pump system was installed in our Clonmel site in H1 FY2024.
Distribution
Delivering market-leading customer service is core to the Group’s success as a brand-led distributor and we are pleased that OTIF levels remained at c.98% across the Island of Ireland. The Distribution business is expected to have net revenue growth of 8%(i)(ii) in the year on volumes that were down 2%. We were particularly pleased with the performance of Corona where net revenue was up 18% on volumes that were up 5%, and San Miguel where volumes increased 27% in the period. Corona is now the No 1 Premium Lager in the ROI off-trade with a market share of 17.3%(xv). Within the ROI on-trade we are seeing positive impact from the rollout of Corona Draught(xvi).
Budweiser, which we distribute exclusively in the ROI since Summer 2020, also had net revenue growth relative to the prior period and encouragingly is in volume share growth on a 3-month MAT basis in the ROI Off Trade after a strong Christmas performance(xv). This performance reflects the focus and investment that has gone into repositioning the brand with retailers and consumers.
EXCEPTIONAL ITEMS
A total net exceptional charge, before the impact of taxation, of €150m is expected to be reported in the current financial year. In the opinion of the Board the presentation of these items as exceptional allows for more useful analysis of the underlying performance of the Group. A summary of the Exceptional Items is set out below, but most of this net charge in FY2024 is from a decision to impair (non- cash) goodwill associated with the C&C Brands CGU(vii) in the UK by €125m; restructuring costs of €8m and costs of €10m associated with the ERP implementation. The FY2023 exceptional items have been restated to include an expected €12m exceptional charge with respect to onerous apple contracts.
| UnauditedFY2024€’m | Unaudited FY2023(i) €’m | |
| Impairment of intangible asset (a) | 125 | – |
| Restructuring costs (b) | 8 | 13 |
| ERP implementation costs (c) | 10 | – |
| Deposit Return Scheme costs (d) | 1 | – |
| COVID-19 | – | (2) |
| Rights Issue Costs | – | 1 |
| Operating profit exceptional charge | 144 | 12 |
| Impairment of assets held for sale (a) | 3 | – |
| Profit on disposal | – | (1) |
| Finance expense (e) | 3 | 3 |
| Net exceptional charge | 150 | 14 |
(a) Impairment of intangible assets
A non-cash impairment charge of €125m has been recognised at year end associated with the C&C Brands CGU(vii) in the UK reflecting continuing challenging trading conditions in the crowded and competitive UK cider market. It should be noted that the Group did consider whether this should be classified as an FY2023 item, in light of a prior year charge in respect of the onerous apple contracts described below and have concluded it is an FY2024 matter.
The Group has classified its Portuguese businesses as a disposal group at the year end, resulting in a non-cash goodwill impairment charge of €3m following the re-measurement of the fair values of the disposal group.
(b) Restructuring costs
A strategic review of the Group’s structure and operations was initiated during the current financial year to reduce costs and drive efficiency improvements in future periods. Redundancy costs plus associated legal and other related costs totalling €4m were incurred during the period in this regard. Additional personnel costs of €2m were also incurred in the period in respect the Group’s former CEO David Forde.
Following the significant alcohol duty reforms in the UK during the year, the Group reassessed its cider operations and recorded a charge of €1m associated with the exit of surplus outsourced production capacity requirements and an impairment of stock.
The Group incurred origination, transition, and dual running costs of €1m directly associated with the exit of the Matthew Clark and Bibendum depot facility at Park Royal in London, and transfer of operations and relocation of assets to the new Orbital West London facility. These one-off costs were incurred to ensure minimal service disruption during this rationalisation of the supply chain logistics operating model.
The prior year exceptional restructuring cost is expected to be restated (as presented in the table above), to include an expected prior period adjustment charge of €12m with respect to onerous obligations with its apple suppliers under existing long-term contractual arrangements.
(c) ERP implementation costs
As a direct consequence of the ERP implementation issues in the Group’s GB distribution business, an exceptional charge of €10m was incurred during the period to restore service levels back to normal. Due to their size, nature and incidence, these costs have been classified as exceptional items as they are not reflective of the underlying performance of the business and are one-off in nature.
(d) Other items
Other items include a €1m write off associated with the Deposit Return Scheme (‘DRS’) in Scotland following the announcement by the Scottish Government in June 2023 that the scheme would be delayed until at least October 2025.
(e) Finance expense
Exceptional finance costs were incurred in the period; €2m of finance expenses were incurred as a direct consequence of the ERP system implementation disruption from increased use of the Group’s debtor securitisation facility. An additional €1m of interest on lease liabilities has been classified as exceptional in the current year, relating to dual lease costs directly associated with the change to a new London facility as outlined previously.
Footnotes:
i. FY2023 numbers have been restated to reflect the impact of a number of prior period adjustments as outlined on page 3.
ii. FY2023 Net revenue; EBITDA; Operating Profit; Operating Margin and Profit before tax have been represented to be on a constant currency basis (FY2023 translated at FY2024 FX rates).
iii. Underlying numbers exclude the impact of exceptional items.
iv. EBITDA is earnings before exceptional items, finance income, finance expense, tax, depreciation, and amortisation.
v. CGA OPM 52 w/e 24.02.24; IRI Circana, Total Grocery – Scotland, 52 w/e 24.02.24.
vi. ROI CGA OPM 29.02.23; Nielson IQ Total off-trade including Dunnes & Discounters 52 weeks to week ended 25.02.24 vs 52 weeks to end Feb 2023.
vii. Cash generating unit.
viii. Liquidity is defined as cash plus undrawn amounts under the Group’s revolving credit facility.
ix. Leverage is Net Debt(x)/Adjusted EBITDA(iv).
x. Net debt comprises borrowings (net of issue costs) less cash plus lease liabilities capitalised under IFRS 16 Leases.Net debt excluding leases comprises borrowings (net of issue costs) less cash.
xi. You Gov to end of 2023.
xii. Media post campaign analysis – Clear Decisions run across campaign period.
xiii. CGA OPM, 52 weeks to 24.02.24.
xiv. YouGov, period Feb’23 to Feb’24.
xv. Nielson IQ Total off-trade including Dunnes & Discounters 52 weeks to week ending 25.02.24 vs 52 weeks to end Feb 2023
xvi. ROI CGA OPM 29.02.23
Conference Call
C&C Group will host a live conference call for analysts and institutional investors, today, 7 June 2024, at 08:30 BST (03:30 ET). Please contact [email protected] for further details.
