Annual Report 2014

operations REVIEW

Republic of Ireland (ROI)

ROI

FY2014

FY2014

FY2014

Constant Currency(i)

Total

Gleeson

Excl Gleeson

FY2013

Change

€m

€m

€m

€m

%

Revenue

330.6

185.1

145.5

133.8

8.7%

Net revenue

237.3

143.1

94.2

92.2

2.2%

- Price /mix impact

1.1%

- Volume impact

1.1%

Operating profit

48.2

5.2

43.0

39.3

9.4%

Operating margin
(Net revenue)

20.3%

3.6%

45.6%

42.6%

Volume – (kHL)

622

615

1.1%

Total ROI (excluding Gleeson)+-

C&C’s LAD(ii) volumes in ROI were up 1.1% and ahead of a market that was level year on year. A robust performance in the on trade helped deliver a positive price/mix of +1.1%. Operating profit increased 9.4% to €43.0 million with operating profit margin improving by 3ppts to 45.6%. Reduced spend on consumer marketing and some cost benefit from the integration of Gleeson into the Group’s ROI business contributed to the margin uplift.

Cider in ROI+-

In FY2014, cider net revenue increased by 1.7% of which volume accounted for 0.7% and price/mix for 1.0%. Bulmers brand volume finished slightly ahead of the prior year helping to increase its share of LAD by 50 basis points to 9.2%. The brand experienced positive volume swings of 8ppt and 7ppt in the on-trade and off-trade, respectively. In both channels of trade the brand outperformed the marketplace, highlighting the beneficial impact of a good summer on cider consumption.

The Bulmers brand is in strong health and the new 2013-14 “Now is a Good Time” advertising campaign, digital media and various sponsorship events appear to be resonating well with consumers and helping to keep the brand relevant and front of mind. As C&C’s Irish business model continues in its evolution towards a customer centric model, investment in sales, customer lending and price have reduced the levels of consumer marketing required. Over the past 12 months, advertising and promotion spend was €3.0 million lower than last year. Value growth in both the on and off-trade channels suggests that brand presence is certainly undiminished.

Beer in ROI+-

The Group’s enhanced route to market and on-trade position in ROI contributed to a market outperformance in the on-trade with Tennent’s volume up 14.6% and ABI branded volume up 39.8%. Despite a decline of 16.0% for Tennent’s in the off-trade, overall beer volume for the Group was up 3.7% year on year. The enhanced distribution and sales reach acquired through the Gleeson business gives reason to be optimistic on the outlook for C&C beer in the ROI on-trade.

As a measure of confidence in the reconfigured business model, C&C recently completed construction of a new craft brewery in Clonmel and is launching Clonmel 1650, a premium, authentic Irish lager.

Gleeson+-

The Gleeson business performed in line with first year expectations. Despite a complex and challenging integration there was no significant disruption to customer service or operational performance. In the 12 months to 28 February 2014, Gleeson recorded net revenue of €143.1 million, EBITDA of €8.3 million and operating profit of €5.2 million.

Initial synergies from the consolidation of sales, marketing and finance overheads provided some benefit for the Bulmers margins in FY2014. Full year benefit will flow through in FY2015. In addition, the Group expects to begin delivering on revenue and operational synergies over the next few years, improving on this year’s reported operating margin of 3.6% for Gleeson.

For note references to the Operations Review please see page 29.