Results For The Year

Once again, COVID-19 and its related restrictions have posed significant challenges to the drinks and hospitality sector, effecting all of the Group’s stakeholders and materially impacting our results for the year ended 28 February 2022. Despite significant challenges the Group returned to profitability for the year.

C&C is reporting net revenue of €1,438.1m, operating profit⁽ⁱ⁾ of €47.9m, liquidity⁽ⁱⁱ⁾ of €438.7m and net debt⁽ⁱⁱⁱ⁾ including leases, of €271.3m. Net debt⁽ⁱⁱⁱ⁾ excluding IFRS 16 Leases was €191.3m. Following the easing of on-trade restrictions in the first half of FY2022, trading was ahead of plan with the Group returning to profitability and underlying cash generation. However, renewed Government restrictions on the hospitality industry in the second half of the year, particularly across the key Christmas trading period adversely impacted performance. With the lifting once again of restrictions towards the latter stages of FY2022, the Group’s on-trade performance improved yet again, providing a platform for a clean start to FY2023. Cost inflation pressures and concerns associated with the potential consequences of the ongoing conflict in Ukraine have grown over recent months. In response to this challenging and evolving inflationary backdrop and uncertain macro environment, in November 2021 the Group implemented a series of price increases which, alongside our previously announced cost reduction programme and cost hedge positions afford us a degree of cost protection as we enter into FY2023.

The Group’s performance in FY2022 continued to be significantly impacted by COVID-19 and the associated on-trade restrictions in our core markets. As a direct result, and on a constant currency basis^(iv), net revenue for the Group of €1,438.1m increased by 87.8%.

Bulmers and Tennent’s continued to build on market share gains, our distribution businesses returned to profitability and we successfully executed our previously announced cost reduction programme. The continued, intermittent lockdowns and restrictions in the on-trade resulted in the Group reporting an operating profit for the year of €47.9m⁽ⁱ⁾, up from a loss of €63.6m in the prior year^(i)(iv) and €74.8m⁽ⁱ⁾ below the Group FY2020 outcome (on a constant currency basis). Adjusted diluted EPS for FY2022 is 7.5 cent.

Liquidity and net debt reduction have been a key focus for the Group throughout FY2022. The Group completed a successful Rights Issue in June 2021 issuing 81,287,315 New Ordinary Shares at 186 pence per New Ordinary Share, raising gross proceeds of £151.2m (€176.3m). As a result of this, the Group reduced leverage with a significant reduction in net debt, improving the Group’s overall liquidity position and providing the Group with the capital structure to both support the business during further potential disruptions from COVID-19 and to deliver on its strategy. The Group maintains a robust liquidity position with available liquidity of €438.7m at 28 February 2022 and at year end achieved Net Debt/ EBITDA of 3.4x. Our target Net Debt/ EBITDA level is less than 2x.

The potential impact on the Group’s profitability from the challenging inflationary cost environment and concerns associated with the potential consequences of the ongoing conflict in Ukraine is a key focus as the Group enters FY2023. This risk has been somewhat mitigated to date by a successfully executed €18.0m cost reduction plan, recent price increases and input cost hedging but we remain very vigilant of the risk this level of cost inflation poses to our cost base and more generally consumer confidence and spending as we progress into FY2023.

Accounting Policies

As required by European Union (‘EU’) law, the Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and as applied in accordance with the Companies Act 2014, applicable Irish law and the Listing Rules of the UK Listing Authority. Details of the basis of preparation and the accounting policies are outlined on pages 154 to 170.

Finance Costs, Income Tax and Shareholder Returns

Net finance costs before exceptional items of €16.1m were incurred in the financial year (FY2021: €19.5m), with €7.4m being incurred post the receipt of Rights Issue gross cash proceeds of £151m (€176m). The Group successfully negotiated financial covenant waivers as a consequence of the impact of COVID-19 with its lenders. Exceptional finance costs of €6.7m were incurred directly associated with these waivers including waiver fees, increased margins payable and other professional fees associated with the covenant waivers.

In FY2022, the UK trading group increased its contribution to overall Group profits. Expectedly, this impacts the Group’s effective tax rate for FY2022 of 18.8%, as UK generated profits are taxed a rate of 19% as compared to that of 12.5% in Ireland. Further pressure on the Group’s effective tax rate is to be expected with the increase of the UK’s corporate tax rate to 25% from 1 April 2023 and the expected implementation of a 15% corporate tax rate in Ireland (for large multi-national corporations) towards the end of FY2023. The Group continues to manage its effective tax rate in line with its published tax strategy.

Due to COVID-19 and the impact this had on global economies and on business generally, the Board concluded it was not appropriate to pay an interim dividend or a final dividend for FY2022. In the prior financial year, due to the emergence of COVID-19, no interim or final dividend was paid, a payment of €0.4m was made to recipients of dividend accruing share-based payment awards and a credit of €0.2m was recognised in the Income Statement as a consequence of dividend accruing share-based payment awards now deemed to be not capable of achieving their performance conditions, and hence both the share-based payment award and related dividend accrual were deemed to have lapsed.

Exceptional items

Total exceptional items, before the impact of taxation, of a €11.3m credit were incurred in the current financial year.

COVID-19

The Group has continued to account for the ongoing COVID-19 pandemic as an exceptional item and has incurred an exceptional credit of €17.5m from operating activities at 28 February 2022. The Group reviewed the recoverability of its debtor book and advances to customers and booked a credit of €7.9m with respect to its provision against trade debtors and a credit of €5.5m with respect to its provision for advances to customers. The Group also realised an exceptional credit of €4.1m with respect to inventory, this related to inventory that had previously been assessed as unsaleable before becoming obsolete, all as a consequence of the COVID-19 restrictions.

Restructuring costs

A credit of €1.2m relating to restructuring costs was incurred in the current financial year. This included severance costs of €0.6m which arose as a consequence of the optimisation of the delivery networks project in England and Scotland. In addition, the Group realised a credit of €1.8m in relation to the profit on disposal of a property as a direct consequence of the optimisation project.

Impairment of property, plant & equipment

Property (comprising freehold land & buildings) and plant & machinery are valued at fair value on the Consolidated Balance Sheet and reviewed for impairment on an annual basis. During the current financial year, as outlined in detail in note 11, the Group engaged external valuers to value the freehold land & buildings and plant & machinery at the Group’s Clonmel (Tipperary), Wellpark (Glasgow) and Portugal sites. Using the valuation methodologies, this resulted in a net revaluation gain of €0.6m accounted for in the Consolidated Income Statement and a gain of €2.5m accounted for within Other Comprehensive Income.

Rights Issue costs

The Group completed a successful Rights Issue in June 2021 issuing 81,287,315 New Ordinary Shares at 186 pence per New Ordinary Share, raising gross proceeds of £151.2m (€176.3m). Attributable costs of €9.2m were incurred, of which €6.6m was debited directly to Equity and €2.6m was recorded as an exceptional charge in the Group’s Condensed Consolidated Income Statement.

Profit on disposal

During the current financial year, as outlined in further detail in note 10, the Group completed the sale of its wholly owned US subsidiary, Vermont Hard Cider Company to Northeast Kingdom Drinks Group, LLC on the 2 April 2021 for a total consideration of €17.5m (USD 20.5m) (comprised of cash proceeds of €13.4m (€12.9m net cash impact on disposal) and promissory notes of €4.1m at the date of transaction), realising a profit of €4.5m on disposal.

Finance income

The Group earned finance income of €0.2m relating to promissory notes issued as part of the disposal of the Group’s subsidiary Vermont Hard Cider Company.

Finance expense

As outlined previously, during the current financial year, the Group successfully negotiated covenant waivers due to the impact of COVID-19 with its lenders. Costs of €6.7m were incurred in the year directly associated with these waivers including waiver fees, increased margins payable and other professional fees associated with covenant waivers.

Equity accounted investments’ exceptional items

On 17 May 2022, the Group announced the sale of its joint venture investment in Admiral Taverns, to Proprium Capital Partners for a total consideration of €65.8m (£55.0m). The sale of the shares will be completed and the consideration will be paid in three tranches during FY2023, subject only to FCA approval. Admiral Taverns was classified as an asset held for sale as at 24 February 2022.

The net impact of exceptional items in relation to Admiral is a charge of €3.7m. The Group continued to equity account for this investment up until this date, with the Group recognising a credit of €2.7m with respect to its share of Admiral Taverns’ exceptional items. This included a credit of €4.1m with respect to the Group’s share of the revaluation gain arising from the fair value exercise to value Admiral’s property assets. The Group also recognised an exceptional charge of €1.4m in relation to its share of other exceptional items for the year, including the Group’s share of acquisition costs of €1.4m incurred with respect to Admiral Taverns’ acquisition of Hawthorn. The Group also recognised its share of other exceptional items for the year of €0.5m, primarily relating to restructuring costs. This was offset by a release from the expected loss provision with respect to the recoverability of Admiral Taverns’ debtor book as a consequence of COVID-19 of €0.5m.

As a result of the same property valuation exercise, a gain of €2.2m with respect to the Group’s share of the revaluation was recognised in Other Comprehensive Income.

Also in the current financial year, the Group assessed the carrying value of its equity accounted investment as a result of its classification as an asset held for sale as at 24 February 2022 and recognised an impairment charge of €6.4m. This impairment charge reverses previously accumulated gains and losses in relation to the application of equity accounting for the Admiral Taverns investment, to reflect the recoverable value of the Group’s investment in line with the agreed consideration of €65.8m (£55.0m).

Other

During the current financial year, €0.3m was released against a provision for legal disputes.

Balance Sheet Strength and Debt Management

Balance sheet strength provides the Group with the financial flexibility to pursue its strategic objectives. It is our policy to ensure that a medium/long-term debt funding structure is in place to provide us with the financial capacity to promote the future development of the business and to achieve its strategic objectives. To ensure the business was equipped with the optimum capital structure and financing to emerge from the COVID-19 pandemic in a position of strength, the Group announced a Rights Issue on the 26 May 2021. The Group successfully completed the Rights Issue in June 2021 raising gross cash proceeds of £151.2m (€176.3m). As a result of this, the Group reduced leverage, improving the Group’s overall liquidity position and providing the Group with the capital structure to both support the business during further potential disruptions from COVID-19 and to deliver on its strategy.

The Group manages its borrowing requirements by entering into committed loan facility agreements. In July 2018, the Group amended and updated its committed €450m multi-currency five year syndicated revolving loan facility and executed a three-year Euro term loan. Both the multi-currency facility and the Euro term loan were negotiated with eight banks, namely ABN Amro Bank, Allied Irish Bank, Bank of Ireland, Bank of Scotland, Barclays Bank, HSBC, Rabobank and Ulster Bank. In FY2020 the Group availed of an option within the Group’s multi-currency revolving loan facility agreement to extend the tenure for a further 364 days from termination date. The multi-currency facility agreement is therefore now repayable in a single instalment on 11 July 2024. During the prior financial year, the Group renegotiated an extension of the repayment schedule of the Euro term loan with its lenders and the last instalment is now payable on 12 July 2022.

In March 2020, the Group completed the successful issue of new USPP notes. The unsecured notes, denominated in both Euro and Sterling, have maturities of 10 and 12 years and diversify the Group’s sources of debt finance. The Group’s Euro term loan included a mandatory prepayment clause from the issuance of any Debt Capital Market instruments however a waiver of the prepayment was successfully negotiated in addition to a waiver of a July 2020 repayment, as a consequence of COVID-19, which now becomes payable with the last instalment in July 2022.

As outlined previously, as a direct consequence of the impact of COVID-19, the Group successfully negotiated waivers on its debt covenants from its lending group for FY2021, and these have been extended up to, but not including, the August 2022 test date.

As part of the agreement reached to waive the debt covenants, a minimum liquidity requirement and a gross debt restriction have been put in place. The minimum liquidity requirement and gross debt restriction will remain in place until the Group is able to show compliance with its original debt covenant levels at the 28 February 2023 or any subsequent test date or earlier if compliance can be demonstrated and with respect to the minimum liquidity requirement, the Group must maintain liquidity of at least €150.0m each month.A monthly gross debt cap of €700.0m in the current financial year applied which will continue during FY2022.

The Group complied with these new minimum liquidity and gross debt requirements during the financial year.

The Group maintains a £200m committed receivables purchase facility, renewable annually in May. As at 28 February 2022, €84.1m of this facility was drawn (FY2021: €45.0m, FY2020: €131.4m).

Cash generation

Summary cash flow for the year ended 28 February 2022 is set out in the table below. Overall liquidity remains robust. The increase in the Group’s receivables purchase programme, as a direct consequence of increased trading was partly offset by the Group’s repayment of previously deferred tax payments to the UK and Irish Tax Authorities in accordance with our agreed repayment schedules of €64.3m and an investment in stock in Q4 FY2022. The contribution to year end Group cash from the receivables purchase programme was €84.1m compared to €45.0m (€46.3m on a constant currency basis^(iv)) at 28 February 2021 - a cash inflow of €37.8m^(iv). In FY2022 €64.3m of previously deferred tax payments were repaid and €28.8m will be repaid in FY2023.

Capital expenditure in FY2022 amounted to €14.9m, with almost 50% relating directly to ESG initiatives and investments, namely the completion of our Out of Plastics projects for owned alcohol brands in Wellpark and Clonmel and an investment in Ireland’s largest rooftop solar panel installation in Clonmel which will provide 10% of the site’s electricity requirement.

Table 1 – Reconciliation of Adjusted EBITDA^(v) to Operating profit/(loss)

Table 2 – Cash flow summary

* Other relates to the add back of share options, pension contributions: adjustments from charge to payment and the add back of intangible asset impairment.

Retirement Benefits

In compliance with IFRS, the net assets and actuarial liabilities of the various defined benefit pension schemes operated by the Group companies, computed in accordance with IAS 19 Employee Benefits, are included on the face of the Consolidated Balance Sheet as retirement benefits.

Independent actuarial valuations of the defined benefit pension schemes are carried out on a triennial basis using the attained age method. An actuarial valuation process is currently ongoing. The most recently completed actuarial valuations of the ROI defined benefit pension schemes were carried out with an effective date of 1 January 2021 while the date of the most recent actuarial valuation of the NI defined benefit pension scheme was 31 December 2020.As a result of these updated valuations the Group has committed to contributions of 27.5% of pensionable salaries for the Group’s staff defined benefit scheme. There is no funding requirement with respect to the Group’s executive defined benefit pension scheme or the Group’s NI defined benefit pension scheme, both of which are in surplus. The Group has an unconditional right to these surpluses when the scheme concludes.

There are 2 active members in the NI scheme and 51 active members (less than 10% of total membership) in the ROI staff defined benefit pension scheme and no active members in the executive defined benefit pension scheme.

At 28 February 2022, the retirement benefits computed in accordance with IAS 19 Employee Benefits amounted to a net surplus of €37.6m gross of deferred tax (€20.0m surplus with respect to the Group’s staff defined benefit pension scheme, €11.1m surplus with respect to the Group’s executive defined benefit pension scheme and a €6.5m surplus with respect to the Group’s NI defined benefit pension scheme) and a net surplus of €31.5m net of deferred tax.

The key factors influencing the change in valuation of the Group’s defined benefit pension scheme obligations gross of deferred tax are as outlined below:

The increase in the surplus from €4.9m at 28 February 2021 to a surplus of €37.6m at 28 February 2022 is primarily due to an actuarial gain of €32.8m over the year. The actuarial gain was driven by the increase in the discount rates used to value the pension benefit obligation. The impact of the increase in discount rates was partially offset by the increase in the inflation-related assumptions.

Financial Risk Management

The main financial market risks facing the Group continue to include commodity price fluctuations, foreign currency exchange rate risk, interest rate risk, creditworthiness in relation to its counterparties and liquidity risk.

The Board of Directors set the treasury policies and objectives of the Group, the implementation of which are monitored by the Audit Committee. Details of both the policies and control procedures adopted to manage these financial risks are set out in detail in note 24 to the consolidated financial statements.

Currency Risk Management

The reporting currency and the currency used for all planning and budgetary purposes is Euro. However, as the Group transacts in foreign currencies and consolidates the results of non-Euro reporting foreign operations, it is exposed to both transaction and translation currency risk.

Currency transaction exposures primarily arise on the Sterling, US, Canadian and Australian Dollar denominated sales of our Euro subsidiaries and Euro purchases in the Group’s Great Britain (GB) business. We seek to minimise this exposure, when possible, by offsetting the foreign currency input costs against the same foreign currency receipts, creating a natural hedge. When the remaining net currency exposure is material, the Group enters into foreign currency forward contracts to mitigate and protect against adverse movements in currency risk and remove uncertainty over the foreign currency equivalent cash flows. Forward foreign currency contracts are used to manage this risk in a non-speculative manner when the Group’s net exposure exceeds certain limits as set out in the Group’s treasury policy. In the current financial year, the Group had €22.2m forward foreign currency cash flow hedges outstanding.

The average rate for the translation of results from Sterling currency operations was €1:£0.8524 (year ended 28 February 2021: €1:£0.8959) and from US Dollar operations was €1:$1.1701 (year ended 28 February 2021: €1:$1.1602).

Comparisons for revenue, net revenue and operating profit before exceptional items for each of the Group’s reporting segments are shown at constant exchange rates for transactions by subsidiary undertakings in currencies other than their functional currency and for translation in relation to the Group’s Sterling and US Dollar denominated subsidiaries by restating the prior year at current year average rates.

Segmental reporting

In September 2021, the Group announced to the market as part of its ‘One C&C’ target that it would be combining all of the Great Britain (‘GB and RoW’) trading businesses with immediate effect aligning management structures and beginning a significant change programme of simplification and integration. This led to our previously reported GB, Matthew Clark Bibendum and International businesses being absorbed under one management team led by one Managing Director. The Ireland business remains unchanged. Considering the changes in the operational management and organisational structure, the Group has aligned its reporting segments with how the business is now managed. Furthermore and to aid more useful analysis of the Group’s business performance, the Group has introduced Branded, Distribution and Co-pack/Other secondary analysis to its reporting this year.

Applying the realised FY2022 foreign currency rates to the reported FY2021 revenue, net revenue and operating loss(i) are shown in the table below:

Table 3 – Constant currency comparatives

Notes to the Group Chief Financial Officer’s Review

(i) Before exceptional items.

(ii) Liquidity is defined as cash plus undrawn amounts under the Group’s revolving credit facility.

(iii) Net debt comprises borrowings (net of issue costs) less cash plus lease liabilities capitalised under IFRS 16 Leases.

(iv) FY2021 comparative adjusted for constant currency (FY2021 translated at FY2022 F/X rates).

(v) Adjusted EBITDA is earnings/(loss) before exceptional items, finance income, finance expense, tax, depreciation, amortisation charges and equity accounted investments’ profit/(loss) after tax. A reconciliation of the Group’s operating profit/(loss) to EBITDA is set out on page 58.

(vi) Free Cash Flow (‘FCF’) that comprises cash flow from operating activities net of capital investment cash outflows which form part of investing activities. FCF highlights the underlying cash generating performance of the ongoing business. FCF benefits from the Group’s purchase receivables programme which contributed €84.1m (FY2021: €45.0m reported/€46.3m on a constant currency basis) inflow in the year. A reconciliation of FCF to net movement in cash per the Group’s Cash Flow Statement is set out above.

Commodity Price and Other Risk Management

The Group is exposed to commodity price fluctuations, and manages this risk, where economically viable, by entering into fixed price supply contracts with suppliers. We do not directly enter into commodity hedge contracts. The cost of production is also sensitive to variability in the price of energy, primarily gas and electricity. Our policy is to fix the cost of a certain level of energy requirement through fixed price contractual arrangements directly with our energy suppliers. Evolving cost inflation pressures and concerns associated with the potential consequences of the ongoing conflict in Ukraine have grown over recent months, heightening the risk around cost and to some extent continuity of supply of raw materials and ingredients.

The Group seeks to mitigate risks in relation to the continuity of supply of key raw materials and ingredients by developing trade relationships with key suppliers. We have long-term apple supply contracts with farmers in the west of England and have an agreement with malt farmers in Scotland for the supply of barley.

In addition, the Group enters into insurance arrangements to cover certain insurable risks where external insurance is considered by management to be an economic means of mitigating these risks.

Cyber Incident

On 19 April 2021, the Group announced that it had experienced a cyber security incident within its Matthew Clark Bibendum (MCB) operations. In response, certain IT systems and applications used in those business units were pro-actively shut down and were securely restored over the course of a number of weeks. By the end of May 2021, MCB was again using their IT systems and applications. The cyber security incident affected MCB only, with other Group business and production sites unaffected throughout the period.

The Group incurred €2.6m of costs in FY2022 as a direct result of the cyber security incident in April. These costs primarily related to specialist advisory fees incurred to investigate and respond to the incident and subsequent improvements and additional protection tools to enhance the security of the IT systems. Following the incident affecting Matthew Clark and Bibendum IT systems in April 2021, the Group has reviewed its information security and cyber preparedness policies and procedures, enhanced its Information Technology systems and controls, including the appointment of a Technology and Transformation Director and Group Head of IT. As a demonstration of the Group’s commitment to tackling cyber security, it is currently pursuing Cyber Essentials Plus accreditation from the National Cyber Security Centre (NCSC).

Patrick McMahon

Group Chief Financial Officer