C&C Group plc, the leading manufacturer, marketer and distributor of branded cider, beer, wine and soft drinks has released results for the six months ended 31 August 2014, with Stephen Glancey, C&C Group CEO, taking the opportunity to comment briefly on the thinking behind the approach for Spirit Pub Company:
Spirit Pub Company
“C&C has a differentiated multi-beverage model in Ireland & Scotland ensuring a resilient base for sustainable operating profit and free cash flow. This combined with our inherent balance sheet strength provides optionality on capital deployment. Prospective investment opportunities will always be driven by strategic fit and long term shareholder value.
“With this in mind the Group approached the Board of Spirit Pub Company with a preliminary approach which was subsequently rejected by the Spirit Board. Our route-to-market capability in Ireland & Scotland is not matched in England and Wales and the concept of vertical integration in the sector is well established. Against this backdrop the Group are of the view that our commercial interests could be materially enhanced through direct participation in the management of high quality retail assets. Such models are well established in the UK and over time the combination of cash flow from branded alcohol together with excellent retail outlets have provided sustainable returns for shareholders. Such a combination would provide the Group with the enhanced position in an important consumer market while offering a range of commercial options across all our domestic markets.”
C & C Group results
Stephen Glancey commented at greater length on the results:
“The strength of our core business in Ireland & Scotland underpinned profit delivery of €69.2m in the period. Given the lower than expected contribution from the US and England & Wales businesses, this is a solid outcome.
“Our businesses in Ireland & Scotland are the cornerstone of the Group representing 86% of operating profit. Central to both are strong brands and excellence in customer service. In these geographies we are delivering on our differentiated and focussed strategy of creating multi-beverage branded distribution models. In Ireland we combined our operations, and the C&C Gleeson’s business now spans the Island of Ireland. With integration of the Gleeson’s business complete and improving consumer sentiment, we are well positioned to drive future earnings growth. Scotland reported a resilient performance despite the significant task of integrating Wallaces and Tennent Caledonian. The acquisition is on track to deliver expected returns and integration will be completed early next year. This will ultimately provide a strong foundation for growing our combined business.
“The overall UK cider market remains challenging. Magners underperformed the market in the first half and we saw only modest improvement in our Shepton Mallet division in volume and value. While profit contribution is small in the context of the Group, management are evaluating internally the optimal structure of the business in England & Wales.
“In the US, performance remains below expectation and the Woodchuck brand has been further impacted by the disruption of new market entrants. While we have re-based our expectations in the US, the market remains both attractive and dynamic and we are confident in the long-term prospects for the category generally and specifically our US cider business. In time, we expect to participate meaningfully in category growth.
“Export performance has been encouraging across Europe, Asia and Canada. Excluding Australia, Magners volumes grew by 18.6% while Tennent’s export volumes grew by 12.9%. Australia remains challenging with distributor issues still to be resolved.
“Under the takeover code given the Spirit situation no new operating profit guidance can be provided. The Board are proposing an interim dividend of 4.5 cent per share representing 4.7% growth on last year.”
H1 2015 Overview
- Operating profit of €69.2m reflects earnings growth in our core businesses of Ireland and Scotland offset by challenges in the US and England & Wales.
- In Ireland & Scotland excellent progress has been made integrating Gleesons and Wallaces. Both acquisitions are delivering to plan as we move to a differentiated multi-beverage branded wholesale model.
- H1 outcome represents a solid performance given tough prior year comparisons in Ireland, the early stage in our US marketing investment programme, and, an intensively competitive trading environment in England & Wales.
- The cider category in England & Wales remains highly competitive. While earnings in this area represent a small component of our operating profit, we remain committed to ensuring both a profitable and sustainable presence for our brands.
- Performance in the US has been disappointing and Woodchuck was impacted by new market entrants. However, we have a high quality and stable distributor network in place, a new state of the art cidery, new packaging and a new marketing plan, which will support Woodchuck in the second half.
- The Group’s (non-US) export business is growing with further export volume growth for Magners and Tennent’s in Europe, Canada and Asia. Excluding Australia, volumes grew 14.2% year on year.
- We continue to drive innovation and new product development in our portfolio. Following on from the success of Caledonia Best ale, Heverlee hand crafted premium Belgian lager and Montano Italian cider, we have recently launched Clonmel 1650, a new premium Irish lager and Menabrea, an award winning Italian lager. Tennent’s Gluten free beer was also awarded a gold medal at the World Beer Championships in Chicago.
- C&C retains a strong underlying cash generative capability. We anticipate full year cash conversion of 60% to 70% of EBITDA despite cash investment in expansion including the new cidery in Vermont and new craft breweries in Clonmel and Glasgow.
- C&C’s proposed interim dividend is 4.5 cent per share, representing year-on-year growth of 4.7%. The increase reflects the Group’s strong balance sheet, underlying cash generation capability and commitment to deliver value for shareholders.
About C&C Group plc
C&C Group plc is a manufacturer, marketer and distributor of branded cider and beer. The Group manufactures Bulmers, the leading Irish cider brand, Magners, the premium international cider brand, Gaymers cider and the Shepton Mallet Cider Mill range of English ciders and the Tennent’s beer brand. C&C Group also owns Woodchuck and Hornsby’s, two of the leading craft cider brands in the United States. The Group’s Irish wholesaling subsidiary, Gleeson Group, owns and manufactures Tipperary Water and Finches soft drinks. The Group also distributes a number of beer brands in Scotland, Ireland and Northern Ireland, primarily for Anheuser- Busch Inbev, and owns Wallaces Express a Scottish drinks wholesaler.