Results For The Year

COVID-19 and related restrictions have had an unprecedented impact on the drinks and hospitality sector, impacting all of the Group’s stakeholders and it has had a material impact on our results for the year ended 28 February 2021.

C&C is reporting net revenue of €736.9 million, operating loss⁽ⁱ⁾ of €59.6 million, liquidity⁽ⁱⁱ⁾ of €314.6 million and net debt⁽ⁱⁱⁱ⁾ excluding IFRS 16 Leases, of €362.3 million. Net debt⁽ⁱⁱⁱ⁾ including IFRS 16 Leases was €441.9 million. The Group returned to profitability and underlying cash generation once trade restrictions were eased in July, August and September 2020. Our core brands performed strongly in FY2021, with Bulmers, Magners and Tennent’s each gaining market share^(vii) in the off-trade channel.

The Group’s performance in FY2021 has been profoundly 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 €736.9 million was down 56.1%.

Our core brands performed strongly in the off-trade channel with Bulmers, Magners and Tennent’s all gaining market share^(vii) however, the impact of the lockdowns and restrictions in the on-trade resulted in the Group reporting an operating loss for the year of €59.6 million⁽ⁱ⁾, down from a profit of €118.6 million in the prior year^(i)(iv). The Group returned to profitability and underlying cash generation once trade restrictions were eased in July, August and September 2020.

Cash and liquidity have been a key focus for the Group throughout FY2021. In March 2020, the Group announced the successful issue of approximately €140 million of US Private Placement notes (“USPP”). The unsecured notes have maturities of 10 and 12 years and diversify the Group’s sources of debt finance. Post year end, the Group announced a rights issue, as outlined in further detail below, thus ensuring the business has the optimum capital structure and financing to emerge from COVID-19 in a position of strength to pursue its strategy.

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 as outlined in detail below.

During the current financial year, the Group extended the repayment period of its term loan and implemented various working capital initiatives, including the negotiation of temporary extensions to suppliers, and UK and Irish tax authorities’ payments terms. Payment of dividends were paused and the Group availed of Government furlough schemes across the UK and Ireland to support 2,000 colleagues’ jobs that were directly and adversely impacted by the pandemic and restrictions on the hospitality sector.

Post year end, the Group has also announced that the outcome of a cost reduction programme it had undertaken would deliver annualised savings of €18 million against its pre COVID-19 cost base.

Accounting Policies

As required by European Union (‘EU’) law, the Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) 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 151 to 166.

Finance Costs, Income Tax and Shareholder Returns

Net finance costs before exceptional items of €19.5 million were incurred in the financial year (FY2020: €19.8 million). The Group successfully negotiated financial covenant waivers as a consequence of the impact of COVID-19 with its lenders. Exceptional finance costs of €7.9 million were incurred directly associated with these waivers including waiver fees, increased margins payable and other professional fees associated with the covenant waivers.

Income tax credit for the year was €14.4 million (FY2020: charge €12.3 million) excluding exceptional items and equity accounted investments’ tax credit/charge. The credit primarily arises due to the recognition of a deferred tax asset on the losses incurred by the Group in the financial year.

Due to the emergence of COVID-19, no final dividend is being declared and no interim dividend was paid. In the current financial year, a payment of €0.4 million was made to recipients of dividend accruing share-based payment awards. A credit of €0.2 million 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. In the prior financial year, total dividends to ordinary shareholders amounted to €48.1 million, of which €29.7 million was paid in cash, €18.1 million or 37.6% was settled by the issue of new shares and €0.3 million was accrued with respect to LTIP dividend entitlements.

Exceptional items

Total exceptional items, before the impact of taxation, of €36.1 million 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 charge of €4.6 million from operating activities at 28 February 2021 in this regard. The Group reviewed the recoverability of its debtor book and advances to customers and booked a credit of €6.1 million with respect to its provision against trade debtors and a charge of €1.2 million with respect to its provision for advances to customers. The Group incurred exceptional charges of €5.8 million with respect to inventory, this related to inventory that became obsolete, all as a consequence of the COVID-19 restrictions. The Group incurred costs of €1.7 million with respect to a provision for lost kegs, €0.3 million with respect to the write off of an IT intangible asset where the project will now not be completed, due to COVID-19 and a net credit of €0.6 million with respect to the release of a trade provision. Other costs of €2.3 million were incurred, which included site improvement costs, impairment of brand dispense equipment and an excess holiday accrual all directly linked to the pandemic.

Restructuring costs

Restructuring costs of €8.1 million were incurred in the current financial year. These included severance costs of €6.8 million, of which €4.9 million was incurred with respect to the restructuring of the Group as a consequence of the COVID-19 pandemic and €1.9 million arose as a consequence of the optimisation of the delivery networks in England and Scotland. The Group also incurred additional costs of €2.0 million with respect to the optimisation of the delivery networks in England and Scotland which was offset by a credit of €0.7 million relating to the profit on disposal of a property as a direct consequence of the optimisation project.

Equity accounted investments’ exceptional items

The hospitality and pub industry in the United Kingdom have been significantly curtailed by lockdowns and trading restrictions since March 2020. The Group assessed the carrying value of its equity accounted investments at 28 February 2021, in light of the underutilisation of their pub assets as a direct consequence of such lockdowns, and recorded an impairment charge of €8.9 million with respect to its carrying value of its investment in Admiral Taverns and €0.2 million with respect to the carrying value of its investment in Drygate Brewing Company Limited.

The Group also incurred €8.8 million with respect to its share of Admiral Taverns’ exceptional items. These included a charge of €7.0 million with respect to the Group’s share of the revaluation loss arising from the fair value exercise to value Admiral’s property assets at 28 February 2021. As a result of the same valuation exercise, a loss of €0.4 million with respect to the Group’s share of the revaluation was recognised in Other Comprehensive Income. The Group also recognised €1.8 million with respect to its share of Admiral’s other exceptional items for the year, including €0.8 million with respect to a provision against trade debtors as a consequence of COVID-19, €0.5 million with respect to an Asbestos provision and €0.5 million in relation to other charges directly attributable to COVID-19.

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 loss of €1.2 million accounted for in the Consolidated Income Statement and a gain of €0.9 million accounted for within Other Comprehensive Income.

Other

Other exceptional costs of €2.2 million were incurred by the Group in the year with respect to provision against legal disputes.

Profit on disposal

During the current financial year, as outlined in further detail in note 10, the Group disposed of its Tipperary Water Cooler business for an initial consideration of €7.4 million, realising a profit of €5.8 million on disposal.

Exceptional finance charges

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 €7.9 million were incurred in the year directly associated with these waivers including waiver fees, increased margins payable and other professional fees associated with covenant waivers.

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 is equipped with the optimum capital structure and financing to emerge from the COVID-19 pandemic in a position of strength, we announced on 26 May 2021 a rights issue as outlined in more detail below.

The Group manages its borrowing requirements by entering into committed loan facility agreements. In July 2018, the Group amended and updated its committed €450 million 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 current 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 whether or not the rights issue is achieved. Conditional on a Minimum Equity Raise^(viii) being achieved, the debt covenants for 31 August 2022 were also renegotiated to increase the threshold of the Group’s Net Debt/Adjusted EBITDA covenant to not exceed 4.5x and to reduce the Interest cover covenant to be not less than 2.5x.

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. Where the Minimum Equity Raise^(viii) is not achieved, the minimum liquidity requirement and a gross debt restriction will remain in place until the Group is able to show compliance with its original debt covenant levels at the 31 August 2022 or any subsequent test date, and, with respect to the minimum liquidity requirement, the Group must maintain liquidity of at least €150 million each month (except for July 2021 and December 2021 when the minimum amount of liquidity is €120 million, June 2022 when the minimum amount of liquidity is €80 million and July 2022 when the minimum amount of liquidity is €100 million). A monthly gross debt cap of €750 million in the current financial year applied which will continue during FY2022.

Where the Minimum Equity Raise^(viii) is achieved, the minimum liquidity requirement and a 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, and, with respect to the minimum liquidity requirement, the Group must maintain liquidity of at least €150 million each month.  A monthly gross debt cap of €750 million in the current financial year also applied which will continue during FY2022 but will reduce to €700 million post a Minimum Equity Raise^(viii) being achieved. The minimum liquidity requirement and a gross debt restriction can be lifted earlier in certain circumstances.

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

The Group maintains a £200 million receivables purchase facility.

Cash generation

Summary cash flow for the year ended 28 February 2021 is set out in the table below. Overall liquidity remains robust. The reduction in the Group’s receivables purchase programme, as a direct consequence of reduced trading, is a primary driver of the working capital outflow in the year. The contribution to year end Group cash from the receivables purchase programme was €45.0 million compared to €131.4 million (€129.0 million on a constant currency basis^(iv)) at 29 February 2020 - a cash outflow of €84.0 million^(iv). Partly offsetting the impact of the receivables purchase programme, during the year the Group engaged with the UK and Irish tax authorities to secure deferrals on certain tax payments due, and as at 28 February 2021 this amounted to €77.4 million.

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

Table 2 – Cash flow summary

* Other relates to share options add back, pension contributions: adjustment from charge to payment and net profit on disposal of property, plant & equipment.

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 2018 while the date of the most recent actuarial valuation of the NI defined benefit pension scheme was 31 December 2017. 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 52 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 2021, the retirement benefits computed in accordance with IAS 19 Employee Benefits amounted to a net surplus of €4.9 million gross of deferred tax (€5.5 million deficit with respect to the Group’s staff defined benefit pension scheme, €5.1 million surplus with respect to the Group’s executive defined benefit pension scheme and a €5.3 million surplus with respect to the Group’s NI defined benefit pension scheme) and a net surplus of €3.1 million 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 decrease in the deficit from €7.9 million at 29 February 2020 to a surplus of €4.9 million at 28 February 2021 is primarily due to an actuarial gain of €13.4 million 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 foreign currency exchange rate risk, commodity price fluctuations, interest rate risk, creditworthiness and liquidity risk in relation to its counterparties.

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 Matthew Clark and Bibendum 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 exposure is material, we manage it by hedging an appropriate portion for a period of up to two years ahead. 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 hedged a portion of its Euro payables exposure in Matthew Clark and Bibendum however the Group had no hedges in place at 28 February 2021.

The average rate for the translation of results from Sterling currency operations was €1:£0.8959 (year ended 29 February 2020: €1:£0.8721) and from US Dollar operations was €1:$1.1602 (year ended 29 February 2020: €1:$1.1132).

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.

Applying the realised FY2021 foreign currency rates to the reported FY2020 revenue, net revenue and operating profit(i) is 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. Net debt including leases comprises borrowings (net of issue costs) less cash plus lease liabilities capitalised under IFRS 16 Leases.

(iv) FY2020 comparative adjusted for constant currency (FY2020 translated at FY2021 F/X rates).

(v) Adjusted EBITDA is (loss)/earnings before exceptional items, finance income, finance expense, tax, depreciation, amortisation charges and equity accounted investments’ (loss)/profit after tax. A reconciliation of the Group’s operating (loss)/profit to EBITDA is set out on page 46.

(vi) Free Cash Flow (‘FCF’) that comprises cash flow from operating activities net of tangible and intangible 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 €45.0m (FY2020: €131.4m reported/€129.0m 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.

(vii) IRI, MAT to week ended 21.02.21. Nielsen, Volume Share of Cider, Off-Trade including Dunnes and Discounters, MAT February 2021. Nielsen, Volume Share of Long Alcoholic Drinks, Off-Trade including Dunnes and Discounters, MAT February 2021.

(viii) "Minimum Equity Raise" means the receipt by the Company of at least £125.0 million of gross cash proceeds from the issuance of new ordinary shares in the  Company including in such proceeds the gross amount received by the Company upon issuance of any right to acquire any new ordinary shares in the Company.

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.

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.

Rights Issue

On 26 May 2021, the Group has announced a rights issue. The rights issue is intended, alongside the other actions that the Group has already announced and implemented, to reduce leverage and improve the Group's overall liquidity position thereby 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 as normalised trading conditions return.

The Board has considered a number of different scenarios and assumptions and the impact these might have on the Group's financial position in deciding on the appropriate quantum. These included the potential length of the current lockdown, the impact of ongoing restrictions, the unwinding of temporary working capital supports from government and tax authorities, potential economic impact on demand through the recovery and the likelihood of any further waves of lockdown. Taking these into consideration, the Board believes that a rights issue will not only reduce the Group's leverage but allow it to continue to deliver upon its strategy.

Efficient capital allocation is a central pillar of the Group's strategy. The Board continues to believe that financial strength and balance sheet flexibility is a source of competitive advantage for the Group in the long-term and that a leverage profile of less than 2.0 times Net Debt/Adjusted EBITDA is appropriate for the Group as normalised trading conditions return.

Patrick McMahon

Group Chief Financial Officer