The Board has overall responsibility for the Group’s system of internal control, for reviewing its effectiveness and for confirming that there is a process for identifying, evaluating and managing the principal risks affecting the achievement of the Group’s strategic objectives. This system of internal control can only provide reasonable and not absolute, assurance against material misstatement or loss.
The Group has established a risk management process to ensure effective and timely identification, reporting and management of risk events that could materially impact upon the achievement of the Group’s strategic objectives and financial targets. This involves the Board considering the following:
- the nature and extent of the principal risks facing the Group;
- the likelihood of these risks occurring;
- the impact on the Group should these risks occur; and
- the actions being taken to manage these risks to the desired level.
The Audit Committee oversees the effectiveness of the risk management procedures in place and the steps being taken to mitigate the Group’s risks.
A process for identifying, evaluating and managing significant risks faced by the Group, in accordance with the UK Corporate Governance Code 2018 and the FRC Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, has been in place for the entire period and up to the date the financial statements were approved. These risks are reviewed by the Audit Committee and the Board, who will also consider any emerging risks for inclusion in the Group Risk Register.
The risks facing the Group are reviewed regularly by the Audit Committee with the executive management team. Specific annual reviews of the risks and fundamental controls of each business unit are undertaken on an ongoing basis, the results and recommendations of which are reported to and analysed by the Audit Committee with a programme for action agreed by the business units.
Internal Controls and Risk Management
The key features of the Group’s system of internal control and risk management include:
- review, discussion and approval of the Group’s strategy by the Board;
- clearly defined organisation structures and authority limits for the operational and financial management of the Group and its businesses;
- corporate policies for financial reporting, treasury and financial risk management, information technology and security, project appraisal and corporate governance;
- review and approval by the Board of annual budgets for all business units, identifying key risks and opportunities;
- monitoring of performance against budgets on a weekly basis and reporting thereon to the Board on a periodic basis;
- an internal audit function which reviews key business processes and controls; and
- review by senior management and the Audit Committee of internal audit findings, recommendations and follow up actions.
The preparation and issue of financial reports, including consolidated annual financial statements is managed by the Group Finance function with oversight from the Audit Committee. The key features of the Group’s internal control procedures with regard to the preparation of consolidated financial statements are as follows:
- the review of each operating division’s period end reporting package by the Group Finance function;
- the challenge and review of the financial results of each operating division with the management of that division by the Group Chief Financial Officer;
- the review of any internal control weaknesses highlighted by the external auditor, the Group Chief Financial Officer, Head of Internal Audit, Company Secretary and Group General Counsel and the Audit Committee; and
- the follow up of any critical weaknesses to ensure issues highlighted are addressed.
The Directors confirm that, in addition to the monitoring carried out by the Audit Committee under its terms of reference, they have reviewed the effectiveness of the Group’s risk management and internal control systems up to and including the date of approval of the financial statements. This review had regard to all material controls, including financial, operational and compliance controls that could affect the Group’s business. The Directors considered the outcome of this review and found the systems satisfactory.
Principal Risks and Uncertainties
During the year, the Audit Committee and the Board carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties set out on pages 34 to 40 represent the principal uncertainties that the Board believes may impact the Group’s ability to effectively deliver its strategy and future performance. The register of risks includes the impact of COVID-19 which is addressed in greater detail on page 34. The list does not include all risks that the Group faces and it does not list the risks in any order of priority. The actions taken to mitigate the risks cannot provide assurance that other risks will not materialise and adversely affect the operating results and financial position of the Group. These principal risks are incorporated into the modelling activity performed to assess the ability of the Group to continue in operation and meet its liabilities as they fall due for the purposes of the Viability Statement on pages 41 to 42.
Prior to the start of FY2021 on 1 March 2020, COVID-19 began to have an impact on global economies and on businesses generally. This impact has increased significantly since then. Similar to businesses across many sectors and specifically the drinks industry, government imposed restrictions, while necessary to slow the spread of COVID-19, have had a significant impact on many of the Group’s outcomes, principally the on-trade, as well as the Group’s employees, many of whom have been furloughed. Our primary concern is for the welfare of our people, their families and the communities in which we operate. To that end, we have followed the advice from the respective governments at all times and will continue to do so to protect our people and our operations.
The Audit Committee and the Board have assessed the potential impact of COVID-19 on the business and worked closely with the executive team to put in place measures to protect the business and its prospects, in the best interests of all stakeholders. The Board continues to closely monitor the impact of, and developments in respect of, COVID-19 and the guidance of governments and health authorities; and is overseeing all business continuity actions being undertaken by the Group’s management team.
As the pandemic continues into FY2022, it drives increasing risk trends which are detailed below.
One principal risk category was split into two standalone principal risks – Information Technology; and Cyber Security and Data Protection – reflecting the increase in online trade and increased frequency of cyber-attacks in the sector.
Principal Risk Matrix
- 1. COVID-19
- 2. Regulatory / Social Attitude Changes to Alcohol
- 3. Economic & Political
- 4. Sustainability & Climate Change
- 5. Change in Customer Dynamics & Group Performance
- 6. People & Culture
- 7. Health & Safety
- 8. Product Quality & Safety
- 9. Supply Chain Operations & Costs
- 10. Information Technology
- 11. Cyber Security & Data Protection
- 12. Business Growth, Integration and Change Management
- 13. Compliance with Laws & Regulations
- 14. Brand & Reputation
- 15. Financial & Credit
Risk & Uncertainties
The Group is exposed both to the immediate impact of the COVID-19 pandemic and the uncertainty created by the continuing measures taken by governments to minimise the spread and mitigate the impact of coronavirus on society.
The Group’s business units have been significantly disrupted by the Irish and UK governments passing legislation to close pubs, bars, restaurants and clubs, there is a significant risk to our on-trade business and the overall viability of the hospitality industry.
Operations may be impacted as staff self-isolate if they or anyone within their homes develop symptoms. In addition, employees may be required to be temporarily or permanently furloughed during the period.
Where there is a COVID-19 impact on the other principal risks contained within this table, we have provided an explanation of what the impact is and the mitigations.
The Group acted quickly to respond to the emergence of the COVID-19 virus to protect the health and wellbeing of employees and the interests of all stakeholders; and ensure, as a minimum, it is in compliance with local government and health authority guidelines.
The Group has implemented its business continuity planning and restricted all unnecessary access to its operations in line with government and health service guidelines and consistent with industry best-practice. All travel has been suspended unless business critical, gatherings (such as customer tastings) are suspended and visitors are no longer allowed on site. Staff are also not allowed to move between production facilities to minimise exposure risk.
The Group is ensuring that all employees who can work from home are doing so safely. The Group is also offering support to employees who have children in school and has put in place additional measures to aid personal wellbeing.
The Group has strengthened its financial position through renegotiating the timing of term loan repayment, securing covenant waivers from lenders and diversifying our sources of funding through the successful issue of approximately €140 million of US private placement notes.
In May 2021, the Group announced an equity raise to strengthen the balance sheet and reduce leverage to deal with the challenging environment and ensure the Group remains resilient in the event of further negative developments in the pandemic.
The Group has suspended all unnecessary capital expenditure, reduced marketing spend, reduced other operating costs and implemented a range of working capital controls to protect liquidity including furloughing all non-essential employees.
The Group has put in place measures to help affected customers including in the course of the pandemic, a three month holiday on capital and interest repayments to loan customers, full credit or ‘new for old’ on un-broached kegs, together with a dedicated helpline to offer advice and guidance around government support initiatives that have been introduced and how to access them, as well as assistance and advice in relation to hygiene measures.
The Group will continue to monitor guidance from governments and health authorities and implement measures in line with best practice.
The Group may be adversely affected by changes in government regulations affecting alcohol pricing (including duty), sponsorship or advertising.
The Group and business units continue to engage with trade bodies to ensure any proposed changes to legislation and restrictions are appropriate within the industry.
The Group is actively involved in BBPA and also complies with all Portman Group guidance.
Within the context of supporting responsible drinking initiatives, the Group supports the work of its trade associations to present the industry’s case to government.
The Group has developed low, and zero, alcohol options for brands in order to address legislation and possible duty increases as well as appeal to those consumers looking for a healthier choice.
Our business, financial results and operations may be adversely affected by economic or political instability and/or uncertainty, in particular relating to the impact of the COVID-19 pandemic.
The Group may also be impacted by the UK’s exit from the European Union.
The Group’s performance is also impacted by potential recessions, inflation, exchange rates, taxation rates and social unrest.
The full extent of the financial impacts of COVID-19 on economies is as yet unknown.
The stress placed on political systems to combat the social and economic impacts of COVID-19 may result in increased political instability in some countries.
The Board and management will continue to consider the impact on the Group’s businesses, monitor developments and engage with the UK, Irish and Scottish governments to help ensure a manageable outcome for our businesses.
The Group took a number of immediate measures to respond to the impact of the emergence of COVID-19, some of which continue to be in operation to mitigate its ongoing impact.
Group businesses are active members in respected industry trade bodies including being a steering committee member of the all-party UK Parliamentary Beer Group.
On an ongoing basis, the Group seeks, where appropriate, to mitigate currency risk through hedging and structured financial contracts and take appropriate action to help mitigate the consequences of any decline in demand within its markets.
We have implemented action plans to protect the profitability and liquidity of the Group and mitigate a significant proportion of our cost base. We continue to review our cost base for additional savings.
We remain vigilant to changes in local jurisdictions and retain the flexibility to take appropriate mitigating action as necessary.
Failure to implement policies and meet required sustainability and ethical standards and social perceptions could significantly impact C&C’s reputation as well as potentially impact future growth.
The Group seeks to operate as efficiently and sustainably as possible. There are objectives in place to continually reduce emissions in line with the Paris Agreement.
The Group is seeking to continually reduce waste levels and also the use of single use plastics. The Group continues to be proactive in conserving water usage and minimising energy usage.
Both Clonmel and Wellpark sites continue to be ISO 14001 accredited for an effective environmental management system.
The Group ensures strong overall corporate social responsibility of suppliers is reviewed and assessed both on an ongoing basis and as part of new tenders to ensure sustainability and ethical practices are a fundamental part of the supply chain.
Consumer preference may change, new competing brands may be launched and competitors may increase their marketing or change their pricing policies. Failure to respond to competition and/or changes in customer preferences could have an adverse impact on sales, profits and cash flow within the Group.
COVID-19 may have an impact on the viability of a certain cohort of the Group’s customers and on underlying consumer behaviour and preferences.
Through diversification, innovation and strategic partnerships, we are developing our product portfolio to enhance our offering of niche and premium products to satisfy changing consumer requirements including the production of low and non-alcoholic variants of our brands.
The Group has a programme of brand investment, innovation and product diversification to maintain and enhance the relevance of its products in the market.
The Group also operates a brand‐led model in our core geographies with a comprehensive range to meet consumer needs.
In order to specifically assist customers manage the impact of COVID-19, the Group has given a ‘holiday’ on capital and interest repayments to loan customers, full credit or ‘new for old’ on un-broached kegs, together with a dedicated helpline to offer advice and guidance around government support initiatives that have been introduced and how to access them as well and assistance and advice in relation to hygiene measures.
The Group’s performance is dependent on the skills and experience of its high-performing colleagues throughout the business, which could be affected by their loss or the inability to recruit or retain them.
Failure to continue to evolve our culture, diversity and inclusion could impact our reputation and delivery of our strategy.
The closure of the on-trade and substantial parts of the business during the year has had a significant impact on the Company’s workforce.
The Group seeks to mitigate this risk through appropriate training, remuneration policies and succession planning.
The Group also seeks to ensure good employee relations through engagement and dialogue.
In respect of the impact of COVID-19 on employees, the Group has implemented an extensive range of measures to provide the safest working environment possible for our people.
These measures include reducing all unnecessary access to the Group’s operating facilities and ensuring that all employees who can work from home are doing so. The Group is also offering support to employees who have children in school and has put in place additional measures to aid personal wellbeing.
The Group employed a number of measures to retain as many members of the workforce as possible including through the use of government furlough schemes.
A health and safety related incident could result in serious injury to the Group’s employees, contractors, customers and visitors, which could adversely affect our operations and result in reputational damage, criminal prosecution, civil litigation and damage to the reputation of the Group and its brands.
The continuing COVID-19 pandemic presents a specific risk to the health and welfare of the Group’s employees, as measures required to be adopted by societies and businesses to help prevent the spread of the virus adversely effect our employees.
The Group has a Health, Safety and Environmental (‘HSE’) team who are responsible for ensuring that the Group complies with all health, safety and environmental y laws and regulations with ongoing monitoring, reporting and training.
The Group has established protocols and procedures for incident management and product recall and mitigates the financial impact by appropriate insurance cover.
The Group has specific business continuity plans and a range of measures to protect the business and the health and wellbeing of employees including strict safety, hygiene and two metre social distancing measures. The safety and wellbeing of our employees has been, and continues to be, our overriding priority. Executive Management are monitoring events closely with regular Board oversight evaluating the impact and designing appropriate response strategies.
The quality and safety of our products is of critical importance and any failure in this regard could result in a recall of the Group’s products, damage to brand image and civil or criminal liability.
The COVID-19 virus continues to present additional risk to the safe production of the Group’s products.
The Group has implemented quality control and technical guidelines which are adhered to across all sites. Group Technical continually monitor quality standards and compliance with technical guidelines.
The Group also has quality agreements with all raw material suppliers, setting out our minimum acceptable standards. Any supplies which do not meet the defined standards are rejected and returned.
The Group has enacted specific business continuity plans and a range of measures to protect the business in line with the advice of governments and local health authorities; and ensure the safe production and distribution of the Group’s products.
Circumstances such as the prolonged loss of a production or storage facility, disruptions to its supply chains or critical IT systems and reduced supply of raw materials may interrupt the supply of the Group’s products, adversely impacting results and reputation.
COVID-19 also poses the risk of an interruption to the supply of raw materials or to the effective operation of the Group’s manufacturing facilities.
Also, there is a risk of increased input costs due to poor harvests and price of inputs.
The Group seeks to mitigate the operational impact of such an event through business continuity plans, which are tested regularly to ensure that interruptions to the business are prevented or minimised and that data is protected from unauthorised access, contingency planning, including involving the utilisation of third party sites and the adoption of fire safety standards and disaster recovery protocols. The Group seeks to mitigate the financial impact of such an event through business interruption and other insurance covers.
The Group has enacted specific business continuity plans including a range of measures to protect the integrity of production and distribution facilities and increased packaging capacity to meet increased take home demand. To date we have maintained strong levels of service into our customer base. We have taken action to ensure our facilities are staffed sufficiently, that our production plans optimise the capacity available at each of our sites and that we prioritise the SKUs that current consumer demand requires. The Group is also working closely with its suppliers to protect the integrity and consistency of supply of raw materials.
The Group seeks to minimise input risks through long‐term or fixed price supply agreements. The Group does not seek to hedge its exposure to commodity prices by entering into derivative financial instruments.
The Group relies on IT systems and supporting infrastructure to manufacture and trade effectively. Any significant disruption or failure of key systems could result in business disruption and revenue loss, accident or misappropriation of confidential information.
Failure to properly manage existing systems, or the implementation of new IT systems may result in increased costs and/or lost revenue, and reputational damage.
The Group has continued to focus on modern cloud-based assets which are naturally more resilient to failure.
Business and IT continuity has been maintained during the coronavirus pandemic by updating operating models to ensure the safety of our workforce and customers. Nevertheless, the risk of disruption or failure of critical IT infrastructure, as well as process failure remains a significant risk.
Failure of our IT infrastructure or key IT systems may result in loss of information, inability to operate effectively, financial or regulatory penalties, loss of financial control and negatively impact our reputation. Failure to comply with legal or regulatory requirements relating to data security (including cybersecurity) or data privacy in the course of our business activities, may result in reputational damage, fines or other adverse consequences, including criminal penalties and consequential litigation, adverse impact on our financial results or unfavourable effects on our ability to do business.
COVID-19 also poses specific IT risks including the potential for key personnel to contract the virus, the Group’s IT support services being unable to discharge their obligations due to the impact of the virus on their own operations or an increase in the number of malicious emails sent to colleagues working from home.
The risk level continues to rise as more employees work from home and this has led to an increase in the risk of malware and phishing attacks across all organisations.
The Group’s IT security controls including gateway firewalls, intrusion prevention systems, security incident monitoring and virus scanning have, where appropriate, been reviewed, tested and updated during the year. Regular communications are sent out to colleagues containing advice on IT security particularly in relation to home working and phishing emails.
The Group’s approach is one of ongoing enhancement of controls as threats evolve with the target being to align controls, and in particular to implement any new services or changes to the environment.
The Group also has a suite of information security policies in place including data protection (GDPR) and electronic information and communications.
The Group has enacted specific business continuity plans including co-ordination with key third party IT suppliers and consideration of keyman risk for the Group’s IT personnel.
We have implemented configuration changes to block phishing emails, increased awareness campaigns to help our people identify these types of attacks, and increased frequency of penetration testing.
The recent incident affecting Matthew Clark and Bibendum IT systems has emphasised the need for continued focus on information security. The Group has commenced a detailed review of its information security and cyber preparedness policies and processes.
As the Group reacts to the effects of the COVID-19 pandemic, it is necessary to adjust to change and assimilate new business models. The breadth and pace of change can present strategic and operational challenges.
Business integration and change that are not managed effectively could result in unrealised synergies, poor project governance, poor project delivery, increased staff turnover, erosion of value and failure to deliver growth.
Significant projects and acquisitions have formal leadership and project management teams to deliver integration.
Regular Group communications ensure effective information, engagement and feedback flow to support cultural change.
The Executive Management team oversees change management and integration risks through regular meetings.
The Group operates in an environment governed by strict and extensive regulations to ensure the safety and protection of customers, shareholders, employees and other stakeholders. These laws and regulations include hygiene, health and safety, the rules of the London Stock Exchange and competition law. Changing laws and regulation may impact our ability to market or sell certain products or could cause the Group to incur additional costs or liabilities that could adversely affect its business. Moreover, breach of our internal global policies and standards could result in severe damage to our corporate reputation and/or significant financial penalty.
Companies face increased risk of fraud and corruption, both internally and externally, due to financial pressures and changes to ways of working as a consequence of COVID-19.
The Group has in place permanent legal and compliance functions that ensure the Group is aware of all new regulations and legislation, providing updated documentation, training and communication across the Group.
The Group has a code of conduct, which is approved by the Board and supported by a wide range of policies, including modern slavery, anti-bribery and corruption and diversity.
The Group maintains appropriate internal controls and procedures to guard against economic crime and imposes appropriate monitoring and controls on subsidiary management.
As part of our ongoing process of continuous improvement, we have expanded our web-based learning platform to provide increased engagement on key regulatory and compliance topics for our employees and to communicate our standards and expectations clearly. Internal Audit regularly reviews internal controls and analyses financial transactions to mitigate the risk of error or fraud.
The Group faces considerable risk if we are unable to uphold high levels of consumer awareness, retain, attract key associates and sponsorships for our brands and inadequate marketing investment to support our brands.
Maintaining and enhancing brand image and reputation through the creation of strong brand identities is crucial for sustaining and driving revenue and profit growth.
The closure of on-trade outlets and a reduction in the Group’s marketing and brand advertising due to COVID-19 may impact the Group’s brand health scores.
To mitigate this risk, C&C has defined values and goals for all our brands. These form the foundation of our product and brand communication strategies.
Central to all our brand image initiatives is ensuring clear and consistent messaging to our targeted consumer audience.
Executive Management, Group Legal and internal/external PR consultants work together to ensure that all sponsorship and affiliations are appropriate and protect the position of our brands.
The Group is monitoring the impact of the rapidly changing trading environment on the Group’s brands and will make necessary investment decisions to protect the Group’s brand health scores and reputation.
The Group is subject to a number of financial and credit risks such as adverse exchange and interest rate fluctuations, availability of supplier credit, credit management of customers and possible increase to pension funds deficits and cash contributions.
COVID-19 may have a further impact on the Group’s liquidity, due to lower on-trade revenues; customers’ ability to honour their obligations, and the Group’s ability to access supplier credit.
Non-conformities of accounting and financial controls could impair the accuracy of the data used for internal reporting, decision-making and external communication.
The Group seeks to mitigate currency risks, where appropriate, through hedging and structured financial contracts to hedge a portion of its foreign currency transaction exposure. It has not entered into structured financial contracts to hedge its translation exposure on its foreign acquisitions.
In relation to pensions, continuous monitoring, taking professional advice on the optimisation of asset returns within agreed acceptable risk tolerances and implementing liability‐management initiatives.
A range of credit management controls are in place which are regularly monitored by management to minimise the risk and exposure.
The Group is working with all customers and suppliers to minimise the adverse impact of COVID-19 on the business.
Contracts may be renegotiated. We continue to focus on retention and new sales opportunities as customers move to more resilient and “best in class” operations.
A range of key internal financial controls, such as segregation of duties, authorisations and detailed reviews are in place with regular monitoring by management to ensure the accuracy of the data for reporting purposes.
Assessment of the Group’s Prospects
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of this report. That expectation factors in the current and expected impact of COVID-19 on the financial performance and cash flows of the Group. Please refer to the “Going Concern” section of the Audit Committee Report on pages 87 to 88 of this Annual Report for further detail. The going concern assessment indicated that even in a reasonable worst case scenario the Group, absent the impact of the potential rights issue, has sufficient access to liquidity to operate over this assessment period and to satisfy the Group’s minimum liquidity and gross debt covenant requirements. Accordingly, we continue to adopt the going concern basis in preparing the Group’s and Company’s financial statements.
As set out in Provision 31 of the UK Corporate Governance Code, the Directors have assessed the prospects of the Group and its ability to meet its liabilities as they fall due over the medium-term. Specifically, the Directors have assessed the viability of the business over a two-year period to February 2023. The assessment period has been adjusted to reflect the unique aspects of on-trade reopening within the Group’s core markets in England, Scotland and Ireland over the coming months and to align with the working capital statement prepared in contemplation of the proposed rights issue. The Directors intend to return to a three-year assessment period next year. In conducting the assessment the Directors have taken account of the Group’s current position and prospects, the Group’s strategy, the Board’s risk appetite and the Group’s Principal Risks and Uncertainties as set out above and how these are identified, managed and mitigated. Based on this assessment, which includes a robust assessment of the potential impact that these risks would have on the Group’s business model, future performance, solvency and liquidity, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the two-year period to February 2023 .
Group’s strategic planning process
The Board considers annually a strategic plan. Current year business performance is reforecast during the year and a more detailed budget is prepared for the following year. The most recent financial plan was approved by the Board in March 2021 and subsequently updated in April 2021 in the light of the recent partial re-openings of hospitality in UK nations. The Directors acknowledge the heightened uncertainty of the Group’s strategic plans in the current environment and as a result have considered a range of different scenarios. The plan is reviewed and approved by the Board, with involvement from the Group CEO, Group CFO and the management team. Part of the Board’s role is to consider the appropriateness of key assumptions, considering the external environment, business strategy and model including the impact of COVID-19.
Period of Assessment
The Directors have determined that the two year period to February 2023 is an appropriate period over which to provide its viability statement. This period has been considered for the following reasons:
- The business model can be evolved for significant changes in market structure or government policy over the two year period;
- Two years is the reporting period applicable to the launch of the rights issue announced on 26 May 2021;
- For major investment projects two years is considered by the Board to be a reasonable time horizon for an assessment of the outcome; and
- Furthermore, beyond this period, performance is impacted by global macroeconomic and other considerations, which become increasingly difficult to predict, a good example of which is the impact of the current COVID-19 pandemic.
Viability Assessment and COVID-19
In assessing the impact of COVID-19 pandemic the Directors considered a base case scenario and a reasonable worst case scenario, both of which exclude any upside from the potential rights issue. Key metrics such as cash flow, including working capital and the restoration of working capital improvements following the expected outflows in FY2022, interest cover, liquidity, covenant compliance and headroom in covenants, were subject to sensitivity testing by flexing a number of the key financial assumptions in order to assess the impact of the Group’s Principal Risks and Uncertainties, particularly in respect of the extent and timing of the recovery in the on-trade business from the impact of the COVID-19 pandemic.
The Group’s scenarios assume:
- The base case projection assumes on-trade recovery in England and Scotland continuing from April and May 2021 respectively, Ireland’s on-trade recovery commencing from June 2021,
- The pace of recovery is assumed to be similar across each territory once on-trade restrictions are eased, with gradual improvement to volumes,
- The reasonable worst case projection assumes the same timeline for re-opening of the on-trade as the base case; however volumes are projected to hold flat at modest levels for the remainder of the summer as many on-trade restrictions are assumed to remain in place over that period and then build more gradually from that point,
- The reasonable worst case projection contains linked working capital assumptions reflecting a more challenged supplier credit environment,
- An assumption that after an extended lock-down, the on-trade reopens with volumes that do not recover above 90% in the base case scenario and 80% in the reasonable worse case scenario of the comparable FY2020 period for the rest of the two year period.
The base case and reasonable worst case scenarios also consider:
- Taking action in addressing its fixed cost base with a cost reduction programme expected to deliver annualised savings of €18 million.
- Accelerated the optimisation of the English and Scottish delivery networks which is scheduled to be completed in June 2021. This will consolidate volumes from three separate networks into two, bringing all of our final mile English distribution in house, driving ongoing efficiencies and in turn enhanced future margins.
- Postponing non-committed capital expenditure; temporary management salary reductions and prioritising any discretionary spending.
- Renegotiating the timing of term loan repayment, securing covenant waivers from lenders and the issuing of approximately €140 million of US private placement notes.
- Implementing various working capital initiatives, including the negotiation of temporary extensions to supplier payments terms and agreeing deferrals with the UK and Irish tax authorities.
- Availing of government furlough schemes to support 2,000 colleagues’ jobs that were directly and adversely impacted by the pandemic and restrictions on the hospitality sector over the past 12 months; and,
- Pausing the payment of dividends.
Based on the facts available at the time of reporting, the Directors believe the conclusions reached in the viability testing remain appropriate.
As the pandemic emerged, in order to strengthen the Group’s financial position at March 2020, the Group increased funding sources through issuing of approximately €140 million US private placement notes. As at 28 February 2021, the Group had total undrawn committed credit facilities of €206.9 million, and €107.7 million cash net of overdrafts.
In May 2021, the Group announced a rights issue raise to strengthen the balance sheet and reduce leverage to deal with the challenging environment and ensure the Group remains resilient in the event of further negative developments in the pandemic.
The Audit Committee reviews the output of the viability assessment in advance of final evaluation by the Board. Having reviewed the current performance, forecasts, debt servicing requirements, total facilities and risks, the Board has a reasonable expectation that the Group has adequate resources to continue in operation, meet its liabilities as they fall due and retain sufficient available cash across the assessment period.
The Board therefore has a reasonable expectation that the Group will remain viable over the period of assessment.
Strategic Report Approval
The Strategic Report, outlined on pages 2 to 67, (including the assessment of the Group’s prospects as set out above) incorporates the Highlights, the Business Profile and Key Performance Indicators, the Chair’s Statement, the Group Chief Financial Officer’s report, the Sustainability Report and the Management of Risks and Uncertainties section of this document.
This report was approved by the Board of Directors on 26 May 2021.