This year marked a period of unprecedented turmoil in our world which is impacting the lives of all our stakeholders. COVID-19 has had an unparalleled impact on the hospitality sector and specifically C&C with the entire financial year impacted by continuously evolving national lockdowns and regional trading restrictions. During what has been one of the most challenging periods for the drinks industry the continued health, safety, and wellbeing of our stakeholders remains our top priority.
I would like to extend my appreciation to our colleagues for their continued support. They are core to the success of our business and the resilience we have displayed during FY2021. They have all had to rapidly adapt to a change in their working environment, whether working from home or within one of our distribution depots or manufacturing sites, whilst managing the various complications of COVID-19, such as home schooling. The impact of COVID-19 has meant that many of our customers have been unable to trade since March 2020 and others are navigating the impact of their third lockdown, closing their businesses and furloughing staff again. We have supported our customers throughout this period of uncertainty, displaying compassion and flexibility for those in the hospitality sector; and agility in meeting off-trade demand, fundamentally putting them at the centre of our decision making. Lastly, I would like to extend my sincere thanks to our supplier base for their support, which has been key in what we have been able to do in the hospitality sector whilst also meeting changes in demand dynamics in the off-trade.
Operating Results
The Group reacted quickly to the pandemic, displaying agility and resilience in navigating the near term challenges, while positioning the business to deliver on its strategy as and when normal trading conditions return. We worked swiftly to establish a safe, compliant and supportive working environment and took action to secure our short-term liquidity position. In addition, we tightly controlled our working capital, implementing a cost streamlining programme whilst accelerating optimisation of our distribution network and e-commerce offering. We responded quickly to the change in consumption dynamics meeting the increased off-trade sales, ensuring continuity of supply and continuing to tailor and develop our portfolio to meet consumer demand and preferences. Encouragingly, the inherent strength of our brand led distribution business model and the fundamental role the Group occupies in the infrastructure of the UK and Irish drinks market supported a strong return to profitability and cash generation on the easing of trade restrictions in July, August and September. However, the on-trade restrictions have been longer and tougher than anticipated with Ireland experiencing one of the longest hospitality sector lockdowns in the world and H2 FY2021 providing only 54 trading days out 181 where the on-trade was open across all of C&C’s core markets. The off-trade channel saw a temporary change in consumer consumption dynamics with considerable year-on-year growth. Reflecting the special affinity our core brands have with their local markets, we are pleased to report that Bulmers, Tennent’s and Magners performed strongly in FY2021, with each gaining volume share in the off-trade channel. However, with on-trade operating under restrictions for the period, the Group’s total net revenues declined by 56.1% against FY2020 on a constant currency basis, delivering a pre-exceptional operating loss of €59.6 million for FY2021.
The strength of our service offering and unrivalled scale and reach of our drinks distribution platform and the power of this route to market has driven significant distribution deals in FY2021. In Ireland we strengthened our partnership with Budweiser Brewing Group, beginning exclusive distribution of Budweiser, on the island of Ireland. With the addition of Budweiser, C&C now has exclusive distribution of Budweiser Brewing Group’s complete beer brand portfolio across Ireland. In the UK, we were chosen as exclusive distributor and representative of Tito’s Handmade Vodka, the #1 selling spirit brand in the USA. Most recently we agreed a new long-term partnership with Innis & Gunn to sell and distribute Scotland’s #1 craft beer in the UK and Ireland on-trade. The Group also received an 8% equity stake at only nominal cost as part of the agreement. Our commitment to becoming the preeminent brand led drinks distributor in our core markets has led to the divestment of non-core assets including the Tipperary Coolers business in Ireland and more recently the divestment of Vermont Hard Cider Company in the USA which completed in April 2021.
We were pleased that the UK and the European Union signed a Trade and Cooperation Agreement, which provided for, among other things, zero-rate tariffs and zero quotas on the movement of goods between the UK and the European Union. The Brexit transition period formally ended on 31 December 2020 and to date we have had minimal disruption to our operations and supply chain.
People and Culture
Our people are at the heart of our business and our decentralised business model puts them in the centre of the local communities we serve. Their compassion, commitment and resourcefulness during this period of adversity has been extraordinary. We recognise that many colleagues have been placed on furlough for the many months and we thank those affected for their perseverance and patience. Through my role as interim Executive Chair until 2 November 2020, I had the pleasure of working day to day with the local management teams, gaining a deeper understanding of the challenges faced and our responses. The pandemic has presented both physical complications in our manufacturing sites and distribution network, in addition to challenges around employee wellbeing and engagement.
The Group has followed government policy, ensuring only essential staff attend their normal place of work and quickly established a safe and compliant working environment. Thanks to the excellent work of our colleagues and suppliers, the Group’s supply chain and production facilities remained fully operational throughout the period. A programme of stringent ongoing COVID-19 compliance health and safety audits has been put in place in our operational sites to ensure we provide the safest environment we can for our colleagues, business partners, customers and communities where we operate.
The Group has put in place a number of measures to ensure we are supporting our colleagues including the provision of impartial advice and information on physical and mental health, financial concerns as well as access to specific counselling services. As part of this we have established a network of thirty employee volunteer mental health first aiders who have been trained and qualified to support our wider team on wellbeing and mental health issues. In addition, we offered free flu vaccines to all employees. We remain committed to meaningful employee engagement and understanding the needs of our workforce and continued to conduct employee surveys throughout the pandemic to better tailor the initiatives and supports we have in place.
In supporting our local communities and those that need it most, our colleagues, including some of those on furlough, have worked with our suppliers, business partners and customers to deliver PPE to the NHS, care home workers and other essential workers. We have also made food, drink and sanitiser donations to food banks, charities and community groups across the UK and Ireland.
The Board recognises that the unique mix of our dedicated and passionate people, alongside the inherent strengths of the Group’s business model, are the basis from which we will create and drive long-term shareholder value. Our colleagues’ individual and collective contributions are greatly appreciated and we will continue to invest and build on the work completed in FY2021 to improve the working environment we provide our people.
Capital Allocation
As part of our actions around securing liquidity, we have postponed non-committed capital expenditure and significantly reduced discretionary spending, marketing and brand advertising. Capital investment has been focused into our ESG (Environmental, Social and Governance) initiatives which has included an investment to move Wellpark Brewery out of plastics during FY2022, removing 150 tonnes of plastic annually. We remain committed to continuing our investment into ESG and delivering an objective of increasing importance to our stakeholders.
As we announced on 30 April 2020 and as part of liquidity actions, the Board resolved it would suspend the payment of a dividend. We recognise the importance of dividends and we are determined to resume returning capital to Shareholders as and when the operating environment and resulting financial and cash flow performance of the Group permit us to do so.
Board
The past year has seen considerable evolution of the Board. I had the pleasure to work as interim Executive Chair for most of the year, stepping aside and back to my current role as Non-Executive Chair on 2 November 2020, when David Forde joined as Chief Executive Officer. In addition, Patrick McMahon was appointed to the role of Chief Financial Officer on 23 July 2020 following Jonathan Solesbury’s decision to step down. These key appointments to our senior leadership team represent an exciting new era for C&C and which we believe will deliver long-term value for all our stakeholders. We also announced that Vineet Bhalla would be joining the Board as Independent Non-Executive Director on 26 April 2021. The result is a strengthened Board, with broader and more diverse skills and ethnicity.
In response to the impact of COVID-19 and the evolving situation, the Board put in place additional meetings to ensure the safe stewardship of the business and to support the management teams in navigating our responses. I would like to thank the Board for their additional time and commitment during FY2021.
We remain committed to maintaining the highest standards of governance principles and practice, an overview is included on pages 76 to 77.
Rights Issue
With approximately 80% of C&C’s pre-COVID-19 net revenues derived from the on-trade, the prolonged and continued impact of lockdowns and on-trade trading restrictions has been considerable. To ensure the business is equipped with sufficient liquidity to manage further near term trading uncertainty and deleveraging of the balance sheet to ensure it is in a position to execute its proven long term strategy, we announced on 26 May 2021, a rights issue fundraising. The Board considered various alternative methods of optimising the Group's capital structure, however with the continued impact from COVID-19 expected through H1 FY2022, it concluded that the most appropriate course of action is to raise equity.
Conclusion
As we manage the economic and operational challenges presented by COVID-19 and position our business for the future, I am encouraged by the agility and resilience of our business and the responses we have put in place to protect all our stakeholders. The Group’s business model has proven that it supports a strong return to profit and underlying cash generation, once trading restrictions in the on-trade are eased. There is continued momentum in the vaccine programmes within our core markets and a roadmap has been communicated by the respective governments for the easing of trade restrictions. With that in mind, and the rights issue announced on 26 May 2021, I look to FY2022 with optimism and believe C&C will emerge from the pandemic a stronger business and positioned well for the long-term to capitalise on the prospects that present themselves as trade resumes across the hospitality sector.
Stewart Gilliland
Chair