Annual Report 2014

operations REVIEW

CIDER - United Kingdom (UK)

Cider UK

Constant Currency(i)

FY2014

FY2013

Change

€m

€m

%

Revenue

164.1

188.4

(12.9%)

Net revenue

112.8

132.7

(15.0%)

- Price /mix impact

(4.0%)

- Volume impact

(11.0%)

Operating profit

20.7

29.2

(29.1%)

Operating margin (Net revenue)

18.4%

22.0%

Volume – (kHL)

1,082

1,216

(11.0%)

Cider UK+-

Volume of C&C ciders began to stabilise in the second half of the year with a decline of 6.8% comparing to 14.0% in the first half and 22.2% in Q1 2014. Performance was some way below a category that returned to volume growth of 2%(ii) this year, boosted by a good summer. The proliferation of new entrants and range extensions into cider continues to commoditise the cider space in England and Wales and pricing remains under pressure for brands reliant on national distribution and scale. For C&C, price/mix declined by 4.0% in the year, leading to net revenue being down 15.0%.

The Group recognises the scale and importance of the UK cider category and continued to invest in its assets during FY2014. Rather than retrench in the face of market headwinds, a new advertising campaign for Magners was launched and investment in the Shepton Mallet cider business up-weighted. This partially accounts for an operating profit decline of 29.1% to €20.7 million and a 3.6ppt drop in Cider UK’s operating margin to 18.4%.

The investment decisions reflect our view that both the authenticity of the Magners brand and the differentiation offered by the brands within the Shepton portfolio give them long term value worth protecting and supporting.

In Scotland and Northern Ireland, the superior strength of our business model and portfolio helped to deliver category outperformance in FY2014.

Magners brand+-

Magners brand volume declined by 10%. Distribution remained broadly static with the loss of volume attributable to a lower rate of sale per outlet, reflecting increased consumer choice in the fridge and on the shelf.

In Scotland, the brand performed well growing 6.5% year on year and picking up market share. Magners Golden Draught in Scotland was up 17.6%.

Gaymers and Shepton Mallet Cider Mill (SMCM) portfolio+-

The SMCM branded portfolio experienced a slight recovery in the year. Excluding the Gaymers brand, portfolio volume was down 9% compared to 18% in the previous year. The Gaymers brand had a difficult year with competition significantly increasing in the fruit segment.

Those brands within the portfolio that are not exposed to the national distribution dynamics have shown encouraging signs during the year. Addlestones is beginning to develop and K Cider grew 13% in the year. The new product development (‘NPD’) pipeline is healthy with encouraging feedback following the launch of Hornsby’s in the UK and Montano Italian cider. The business picked up a number of awards during the year for niche and premium craft cider developments.

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