Last checked at 25 Oct 2018 07:00
RESULTS FOR THE 6 MONTHS ENDED 31 AUGUST 2018
C&C Group plc (‘C&C’ or the 'Group’), a leading manufacturer, marketer and distributor of branded cider, beer, wine, spirits and soft drinks announces results for the 6 months ended 31 August 2018 (“H1’19”).
| H1’19 Financial highlights | ||||||||
| €m except per share items | Existing C&C Group(i)(ii) | 5mths MCW and Bibendum(iii)(ii) | Total C&C Group(ii) | Organic growth %(iv) | ||||
| Net revenue(v) | 309.2 | 529.5 | 838.7 | +6.4% | ||||
| Adjusted EBITDA(vi) | 58.9 | 7.3 | 66.2 | +2.6% | ||||
| Operating profit(ii) | 52.3 | 6.1 | 58.4 | +4.0% | ||||
| Operating margin | 16.9% | 1.2% | 7.0% | (40bps) | ||||
| Reported growth % | ||||||||
| Basic EPS (cent) | 14.6 | +15.0% | ||||||
| Adjusted diluted EPS(vii) (cent) | 15.4 | +19.4% | ||||||
| Dividend per share (cent) | 5.33 | +2.3% | ||||||
| Free cash flow (excl. exceptionals)(viii) | 97.9 | +29.8% | ||||||
| Free cash flow(viii)/Adjusted EBITDA(vi) (% conversion) | 147.9% | +170bps | ||||||
| Net debt(ix) | 278.9 | |||||||
FINANCIAL
Adjusted diluted EPS(vii) of 15.4c representing 19.4% year on year growth, Basic EPS +15%. Group revenue growth of 186% and operating profits(ii) up 16%, includes €6.1m for Matthew Clark and Bibendum. Core C&C business net revenue increase of +6.4% and operating profit of +4.0%(ii). Net debt(ix) to EBITDA(vi) at 31 August 2018 of 2.10x (28 February 2018: 2.37x). Strong free cash flow(viii) of €97.9m(ii) and cash conversion 147.9%(ii) of Adjusted EBITDA(vi). Refinance of Group banking facilities of €600m and increased receivables purchase facility. Proposed interim dividend 5.33c per share +2.3%. Group trading in line with expectationsSTRATEGIC HIGHLIGHTS
Acquisition of Matthew Clark and Bibendum completed in the period. New distribution agreement in UK and Ireland with Tsingtao. Multi-year sponsorship of Cheltenham Gold Cup by Magners and Bulmers. £6m invested in IT Systems and new Water Treatment Plant in Wellpark. Scotland logistics transferred in-house.OPERATIONAL HIGHLIGHTS
Bulmers, Magners and Tennent’s each in share and revenue growth in key markets Bulmers Revenue +4%; Volume +5%. Magners Revenue +11%; Volume +12%. Tennent’s Revenue +7%; Volume +0.1%. Super-premium/Craft now 7.5% of branded revenues; organic volume growth +23%. Matthew Clark and Bibendum Service and stock levels normalised. Experienced management teams appointed. Expected not to exceed €16m EBIT for FY19. Post stabilisation business capable of delivering normalised EBIT margins of 2.0%-2.5%. Admiral Good performance from Admiral Taverns comparable EBITDA +0.8%(x).Stephen Glancey, C&C Group CEO, commented:
“Trading through the first six months has been strong driven by favourable summer weather and the impact of the World Cup. Encouragingly, our key brands have all delivered market share in their key markets and year on year revenue growth. In our core business, wholesale and wine also performed well with +11% revenue growth, shipping 0.56 million cases of wine a 2% increase from last year.
We are reporting revenue growth of 186% and earnings growth of 16%. This includes the recently acquired Matthew Clark and Bibendum businesses. Core earnings (excluding these acquisitions) were up 4.0% in the half.
Since the acquisition of Matthew Clark and Bibendum our absolute focus has been the stabilisation of the businesses. By the end of September we settled £129m of monies owed to suppliers, paid taxes owed of £31m and collected £146m of monies due from customers.
Cash flow remains strong and notwithstanding the acquisition our net debt(ix) to EBITDA(vi) at the half year was 2.1x. We are targeting 2.0x by end FY 2020.
Looking ahead, we have a degree of momentum in our core business and recognise the criticality of Christmas trading for Mathew Clark and Bibendum. We’re very pleased with the way this business is responding following a very difficult trading period earlier in the year, with operational KPIs now trending satisfactorily in the circumstances. That said, it will only be once the business has proven itself through the important Christmas trading cycle that we can be confident that it has been restored to health.
Both Matthew Clark and Bibendum are unique businesses with great market access and long established reputations and represent excellent acquisitions for the Group. With experienced management in place we are confident that in time these businesses will materially enhance shareholder value for C&C.
Looking forward there is much economic and political uncertainty and of course Brexit. We have plans in place to manage the various scenarios on Brexit that may emerge and do not anticipate material customer or financial disruption.
C&C’s core business is in good health with a strong balance sheet and a focus on shareholder value. Management are confident in the medium term that Matthew Clark and Bibendum will each unlock significant value and opportunity for all shareholders.”
ENDS
Summary notes to highlights pages are set out below.
| (i) | Extant C&C businesses as at 1st March 2018 (prior to the acquisition of the Matthew Clark, Bibendum and other marketing services businesses acquired on 4th April 2018) financial results for the 6 months to 31 August 2018. | |
| (ii) | Before exceptional items of €3.1m on a before tax basis. | |
| (iii) | The financial results of the Matthew Clark, Bibendum and other marketing services businesses acquired on 4th April 2018 (date of acquisition) until 31 August 2018. The opening balance sheet remains provisional and will be finalised in our annual report to February 2019. | |
| (iv) | Organic growth (adjusting for constant currency and prior year reclassification of the businesses owned by C&C Group in both the period 1 March 2017 to 31 August 2017 and 1 March 2018 to 31 August 2018. | |
| (v) | Net revenue is recorded net of discounts, intra group transactions, VAT and excise duty in respect of own brand and contract brewing and packaging of certain products. In respect of the drinks wholesaling of third party products, net revenue is inclusive of excise duty where applicable. | |
| (vi) | Adjusted EBITDA is earnings before exceptional items, finance income, finance expense, share of equity accounted profit after tax, tax, depreciation and amortisation charges. A reconciliation of the Group’s operating profit to Adjusted EBITDA is set out on page 15. | |
| (vii) | Adjusted basic/diluted earnings per share (‘EPS’) excludes exceptional items. Please also see note 5 of the condensed financial statements. | |
| (viii) | Free Cash Flow (‘FCF’) is a non GAAP measure that comprises cash flow from operating activities net of capital investment cash outflows/(inflows) which form part of investing activities. FCF highlights the underlying cash generating performance of the on-going business, but does include cash inflows and outflows resulting from the Group’s purchase receivables programme, which amounted to an €106m inflow in the period. A reconciliation of FCF to Net Movement in Cash per the Group’s Cash Flow Statement is set out on page 15. | |
| (ix) | Net debt comprises borrowings (net of issue costs) less cash. | |
| (x) | Comparable EBITDA in Admiral Taverns is calculated as earnings before interest, tax, depreciation and amortisation and exceptional items and adjusted for the impact of pub acquisitions and disposals and the KNDL distribution contract entered into in July 2017. |
Conference call details | Analysts & Institutional Investors
C&C Group plc will host a live conference call and webcast, for analysts and institutional investors, today, 25 October 2018, at 08:30 BST (03:30 ET). Dial in details are below for the conference call. The webcast can be accessed on the Group’s website: www.candcgroupplc.com.
Ireland: + 353 1 431 1252Europe: + 44 333 300 0804USA: + 1 631 913 1422Passcode: 47966017#
For all conference call replay numbers, please contact FTI Consulting.
Contacts
C&C Group plcStephen Glancey | Group Chief ExecutiveJonathan Solesbury | Chief Financial OfficerJoe Thompson | Head of Investor RelationsTel: +44 7980 844 580Email: Joe.Thompson@candcgroup.com
FTI ConsultingMark Kenny/Jonathan Neilan/Paddy BerkeryTel: +353 1 765 0886Email: CandCGroup@fticonsulting.com
Novella CommunicationsTim Robertson/Toby AndrewsTel: +44 203 151 7008Email: TimR@novella-comms.com
About C&C Group plc
C&C Group plc is a premium drinks company which owns, manufactures, markets and distributes branded beer, cider, wine, spirits, soft drinks and bottled water. C&C Group brands include: Bulmers the leading Irish cider brand; Tennent’s, the leading Scottish beer brand; Magners the premium international cider brand; as well as a range of super-premium and craft ciders and beers. C&C Group also owns and manufactures Woodchuck, a leading craft cider brand in the United States and manufactures and distributes a number of third party international beer brands in Scotland and Ireland. C&C is also a leading drinks wholesaler in the UK and Ireland, where it operates under the Matthew Clark, Bibendum, Tennent's and C&C Gleeson brands. C&C Group has a minority investment in the Admiral Taverns tenanted pub group, which owns over 800 pubs across England & Wales. C&C Group is headquartered in Dublin with manufacturing operations in Co.Tipperary, Ireland; Glasgow, Scotland; and Vermont, US. C&C Group plc is listed on the Irish and London Stock Exchanges.
Note regarding forward-looking statements
This announcement includes forward-looking statements, including statements concerning current expectations about future financial performance and economic and market conditions which C&C believes are reasonable. However, these statements are neither promises nor guarantees, but are subject to risks and uncertainties, including those factors discussed on page 18 that could cause actual results to differ materially from those anticipated.
OPERATING REVIEW
Ireland
| €m Ireland | ||||||
| Constant currency(i) | H1’19 | H1’18 | Change % | |||
| Net revenue(ii) | 124.5 | 116.8 | +6.6% | |||
| - Price / mix impact | +1.8% | |||||
| - Volume impact | +4.8% | |||||
| Operating profit(iii) | 26.1 | 26.0 | +0.4% | |||
| Operating margin | 21.0% | 22.3% | (130bps) | |||
| Volume – (kHL) | 756 | 722 | +4.8% | |||
| - of which Bulmers | 229 | 218 | +5.1% | |||
Market insight
Long alcoholic drink (LAD) volumes in the Republic of Ireland were +3%(iv) in the 6 months to 31 August 2018, benefitting from the good summer and the World Cup. This growth came in the off-trade (+8%)(iv), with on-trade volumes remaining subdued at -2%(iv). Cider increased its share of LAD to 13.8%(iv) (H1’18: 13.1%)(iv).
Competition remains intense with significant new product launches by major international brewers across beer and cider, heightening competition for bar space and consumer attention.
Macro-economic indicators are strong, with economic growth forecast to continue +4% through 2018(v). This economic expansion remains concentrated in the major urban areas and given uncertainty around Brexit, consumer spending in rural areas and Northern Ireland is more constrained.
Operating performance
Cider
Bulmers had an excellent first half, returning to volume growth of +5% and increasing its share of LAD by 50bps to 8.4%(iv). In line with the broader market, this growth was led by a strong outperformance in the off-trade, with volumes ahead by 11%. Our branded sales team in Dublin also made good progress in winning back key on-trade customers in higher volume marquee accounts. The Group’s on-trade share of cider stabilised in the period.
The performance this summer demonstrates the inherent strength of the brand and its close affinity with Irish consumers. Our latest brand health scores confirm Bulmers is consistently ranked the No.1 cider brand in Ireland across all measures and the No.3 brand in LAD(vi).
Magners in Northern Ireland also had a positive first half, with volumes and revenues showing double digit growth.
Super-premium and Craft
Super-premium and craft portfolio had another strong year in Ireland. Five Lamps, our Dublin craft brewery increased revenues by 50%. Despite significant launch activity by the major brewers, the recently launched Dowd’s Lane range of traditional craft Ales, Stouts and Ciders has been well received by customers and consumers. We recently entered distribution partnerships with the craft brands Killarney Brewing Company and Sullivans Brewing Company. Heverlee, our premium Belgian lager, had another strong performance, particularly in Northern Ireland, with volumes +21%.
Wholesale distribution and wine
Gleesons is the largest wholesaler and wine merchant in Ireland. The momentum we saw last year continued in the first half. Wholesale volume growth was +9% as a strengthened management team drove rate of sale and new customer wins. The on-trade wine business in Ireland was up 14% in volume terms in the half, driven by investment in sales teams and range extensions within some of our exclusive wine relationships. In aggregate, we shipped 464k cases of wine in the half year across the on and off-trade.
The capability of Matthew Clark and Bibendum will over time greatly enhance the range, service and value we are able to offer our wholesale and wine customers in Ireland.
Financial performance
The strong volume and revenue performance of the division was driven primarily by the volume growth of our Irish cider, craft/super-premium and our non-alcoholic drinks brands, plus the good volume performance in Wholesale. Price/mix for the division was up +1.8% despite business mix changes and a deflationary price environment in the off-trade.
Operating profit for the division was up 0.4%, with margins diluted by increased input prices and pension costs (€0.7m).
Great Britain
| €m | Great Britain | |||||
| Constant currency(i) | H1’19 | H1’18 | Change % | |||
| Net revenue(ii) | 163.5 | 151.0 | +8.3% | |||
| - Price / mix impact | (0.4%) | |||||
| - Volume impact | +8.7% | |||||
| Operating profit(iii) | 23.4 | 21.3 | +9.9% | |||
| Operating margin | 14.3% | 14.1% | +20bps | |||
| Volume – (kHL) | 1,424 | 1,310 | +8.7% | |||
| - of which Tennent’s | 531 | 531 | +0.1% | |||
| - of which Magners | 313 | 279 | +12.0% | |||
Market insight
This year weather and the World Cup also had a significant impact on the performance of the UK hospitality sector. The first quarter saw particularly cold weather severely disrupting consumer spending in February and March. From April onwards the UK enjoyed a sustained period of warm and sunny weather stimulating demand across the drinks industry, with wet-led pubs and those with outside space as well as the off-trade being the main beneficiaries. The sunny weather combined with England’s prolonged run in the World Cup produced particularly strong trading environment through June and July.
LAD markets responded positively with volumes in the period +3%(vii) for GB beer and +6%(vii) for GB cider and value ahead by +4%(vii) and +7%(vii), respectively.
In Scotland, Minimum Unit Pricing (MUP) legislation was implemented from 1st May 2018. C&C has been supportive of this legislation since inception. We anticipated that MUP would lead to a reduction in overall off-trade beer and cider volumes. However, good weather and the World Cup stimulated demand, particularly among the casual consumer. Accordingly, in the first half, total beer volumes in Scotland were up marginally +0.7%(viii) and value +3.5%(viii).
Operational performance
Tennent’s
The Tennent’s brand has had another good trading period continuing the momentum of recent years.
The introduction of Minimum Unit Pricing of alcohol in Scotland on 1st May 2018 was one of the most significant and far-reaching legislative changes in alcohol retailing for a generation. It is still early days, but Tennent’s has traded well since the introduction of MUP. This is due to the strength of the Tennent’s brand and our planning and innovation to ensure that Tennent’s continued to serve the needs of Scottish consumers. Tennent’s volumes were +1% in the off-trade, well ahead of the category(viii), gaining both shelf space and share. As of the end of September 2018, Tennent’s is enjoying a five year market share high in the off-trade(ix).
On-trade volumes were flat overall, but in the important direct supply independent free trade Tennent’s continued to grow customers, share and value.
Magners and GB cider portfolio
Magners has had a very strong summer with volumes +8% in the Scottish IFT and +12% across the rest of the UK (through AB InBev); well ahead of expectations and the category as a whole. Good weather and the World Cup clearly contributed, but distribution continues to expand in UK grocery, wholesale and national on-trade accounts. Magners Dark Fruit gained national listings in both on and off-trades and Magners Original is now pouring at Wembley Stadium.
In July 2018, we announced the sponsorship of the Cheltenham Gold Cup for our Magners and Bulmers Irish cider brands. This significant multi-year brand investment in one of the highest profile UK and Irish sporting and social occasions, will build on the clear momentum we are currently seeing in our Irish cider brands.
Wholesale distribution and wine
Operational and financial performance at our Tennent’s wholesale distribution and wine businesses in Scotland continued to strengthen through the period. Wholesale customer numbers were +10% since February and volumes +6% year-on-year (FY2018: +3%), with revenues ahead by more. Our on-line ordering platform now accounts for 31% of volumes (FY2018: 24%).
This strong performance includes our specialist wine business in Scotland which sold c. 90k cases in the half (+18%). The increased breadth of portfolio and expertise provided by Matthew Clark and Bibendum will enhance our customer offer.
Super-premium and Craft
Super-premium and craft brands had another strong period of organic growth in Scotland and across the rest of Great Britain. Menabrea increased volumes by +50% in GB, achieving solid growth in all channels. Heverlee was +61% and Drygate, our Scottish craft joint venture, was +16%. Orchard Pig saw new listings at the major supermarkets and on-trade distribution points up 36%(x).
We strengthened our international premium beer portfolio securing exclusive rights to distribute Tsingtao, the leading Chinese beer in the UK, across Ireland and the UK.
The acquisition of Matthew Clark and Bibendum presents an exciting opportunity to accelerate the momentum we have already seen from this premium portfolio across the broader UK on-trade.
Admiral Taverns
Admiral Taverns has traded positively through the period – its predominantly wet-led, community pubs benefitting from good weather, the World Cup and continued investment. Comparable EBITDA(xi) for the 6 months to August 2018 is up 0.8% at £12.6m. Admiral is accounted for as an equity accounted investment of C&C and it contributed €2.3m of after tax income to the Group profits in the period.
Financial performance
Revenue and profit increases were predominantly driven by the strong performance across our Tennent’s, Magners and premium brand portfolio, as well as continued progress in wholesale and wine.
Price/mix for the division was marginally down as the strong rate performance of Tennent’s was offset by new contract wins in own label which added c. 78kHL of volume in the period, but at lower rates and margin. Operating margins were 20bps ahead, due to strong operational gearing within our branded businesses, partially offset by rising input costs.
Matthew Clark and Bibendum
| Matthew Clark and Bibendum | ||||
| 5 months to 31 August 2018 | ||||
| €m | £m | |||
| Net revenue(ii) | 529.5 | 467.4 | ||
| Adjusted EBITDA(xii) | 7.3 | 6.4 | ||
| Adjusted EBITDA margin | 1.4% | |||
| Operating profit(iii) | 6.1 | 5.4 | ||
| Operating margin | 1.2% | |||
| Volume – (kHL) | 1,488 | |||
On 4 April 2018, the Group announced the acquisition of Matthew Clark and Bibendum (MCB). The businesses were acquired as going concerns, safeguarding over 2,000 jobs and ensuring business continuity for customers and suppliers. They had been operating under severe financial and operational stress for an extended period and stock availability, customer service levels, supplier relations and financial controls were in our view significantly below the appropriate level. Since then we have made excellent progress in stabilising and restoring these businesses to their respected position within the UK hospitality sector.
Customers
Customer service levels are approaching normalised levels, with On Time in Full deliveries (OTIF) as at end September 2018 at 95% (April 2018: 64%) and stock availability of Top 400 SKUs 96% (April 2018: 42%).
Suppliers
As at 30 September, all overdue balances owing to HMRC have been paid and £129m has been repaid to suppliers. Supplier relations and credit terms are returning to normal.
Cash and opening balance sheet
We have recovered £146m of the opening balance sheet owed by customers. Stock build is normalised at both businesses. The C&C Group receivables purchase programme is providing significant working capital funding to the business. This is the first time we have reported the Matthew Clark results in our half year as well as the acquisition balance sheet. While these results are unaudited, we have been working with our auditors – EY – to establish the opening balance sheet and appropriate accounting policies. EY has been appointed to perform the statutory audit of Matthew Clark which is substantially complete. The opening balance sheet remains provisional and will be finalised in our annual report.
Financial control
Since acquisition a huge amount of work has gone into establishing a robust financial control and reporting environment. In this, we were assisted by Alix Partners and have appointed Ernst & Young as auditors who are completing a substantive audit for the year ended 31 April 2018. A rigorous system of daily, weekly and quarterly cashflow forecasting and monitoring has been implemented. We are also substantially through a programme of purchase ledger, sales ledger and bank reconciliations.
Management
New experienced management teams have been appointed for both businesses, augmented with financial support from C&C.
Financial performance
The performance of MCB in the 5 months to 31 August 2018, was severely impacted by the business disruption linked to Conviviality Group’s collapse. Having been heavily disrupted in April and May, Matthew Clark Wholesale recovered to generate EBIT of €6.8m (£6.0m) for the period. The EBIT margin was 1.7% for the 5 months.
Bibendum was loss-making in the 5 month period, and we expect performance to stabilise in the second half.
Our initial assessment is these businesses combined will not exceed €16m of EBIT for the period ended February 2019, and should generate normalised EBIT margins in the range of 2.0-2.5%, once the current stabilisation period is complete.
International
| €m | International | |||||
| Constant currency(i) | H1’19 | H1’18 | Change % | |||
| Net revenue(ii), (xiii) | 21.2 | 22.7 | (6.6%) | |||
| - Price / mix impact | +13.4% | |||||
| - Volume impact | (20.0%) | |||||
| Operating profit(iii) | 2.8 | 3.0 | (6.7%) | |||
| Operating margin | 13.2% | 13.2% | - | |||
| Volume – (kHL) | 141 | 176 | (20.0%) | |||
Operating performance
In the period, we accelerated our strategy of rationalising our international distributor network towards a smaller number of higher quality, proven international partners, and focusing activity on core brands in more established cider markets where there is the greatest opportunity to build meaningful, long term brand value.
Europe and Africa
Our EMEA markets have had a challenging first half. The transition of Tennent’s to distribution by AB InBev in Italy has resulted in significant disruption to volumes in what was the brand’s largest export market. Increased competitor activity in Spain and France and reduced British tourist numbers impacted the performance of Magners in these markets. In addition, planned withdrawals from low value markets in Africa and the travel retail channel also had a significant impact on volumes, albeit limited impact on margin. Overall, EMEA volumes were 71kHL –17% (FY2018: +3%).
Asia Pacific
Volumes were down in Australia and New Zealand in the half due to the phasing of shipments in the prior period to support of the launch of Juicy Apple in New Zealand and to ensure certainty of supply through last year’s transition to Coca-Cola Amatil (CCA) in Australia. We remain pleased with progress under CCA relationship and depletions data is encouraging as we enter the key summer trading months.
North America
From 1st April 2018, we resumed full control for the sales and marketing of our American and International cider brands in the US. The transition is now complete, with the majority of distributor relationships migrated to our sales team in Vermont. This is a smaller team focused on core brands, regions and relationships. Accordingly, branded volumes still declined in the period by 19% (FY2018: -25%) as some national listings unwound, but operating profits remained stable.
Financial performance
Operating profits for the International division were down versus the same period last year at €2.8m, with simplification and reduced cost infrastructure across both our North America and Export businesses offsetting the volume declines.
Operational efficiency
We continue to invest in the operational side of our business to deliver on-going efficiency and sustainability benefits for the Group. We completed the implementation of the JDE platform for our business in Ireland. This brings all areas of the Group (including Matthew Clark and Bibendum) onto the same IT platform, enhancing our management information and on-line ordering capabilities, as well as bringing back office efficiencies. We also brought back in-house certain outsourced logistics operations in Scotland.
As with all major UK brewers and food manufacturers, we experienced significant disruptions to supplies of CO2 over the busy summer period. Our CO2 recovery plant in Clonmel ensured that we were able to maintain full production of our brands through this period. A second recovery plant has been commissioned for Wellpark. In addition, we will put an anaerobic digester into Wellpark to reduce waste water charges and improve our environmental footprint.
A new visitor centre at the Tennent’s Brewery in Wellpark, Glasgow will open in November, providing a much enhanced experience for the 22,000 people who take our brewery tour each year.
Notes to Operating Review are set out below.
| (i) | H1’18 comparative adjusted for constant currency (H1’18 translated at H1’19 F/X rates) as outlined on page 17. | |
| (ii) | Net revenue is recorded net of discounts, intra group transactions, VAT and excise duty in respect of own brand and contract brewing and packaging of certain products. In respect of the drinks wholesaling of third party products, net revenue is inclusive of excise duty where applicable. | |
| (iii) | Before exceptional items of €3.1m on a before tax basis. | |
| (iv) | Nielsen Ireland Databases on and off-trade – MAT and 6 months to August 2018 as stated and comparative periods | |
| (v) | OECD – Developments in Individual and Selected Non-member economies – May 2018 | |
| (vi) | YouGov Brand Index polling – Republic of Ireland – 13 September 2018. | |
| (vii) | GB: off-trade Nielsen scantrack 26 weeks to 8 September 2018; off-trade CGS OPMS 26 weeks to 11 August 2018. | |
| (viii) | Scotland: off-trade Nielsen scantrack 26 weeks to 8 September 2018; off-trade CGS OPMS 26 weeks to 11 August 2018. | |
| (ix) | Scotland: off-trade Nielsen scantrack week: 8 September 2018. | |
| (x) | CGA Distribution survey MAT –July 2018. | |
| (xi) | Comparable EBITDA in Admiral Taverns is calculated as earnings before interest, tax, depreciation and amortization and exceptional items and adjusted for the impact of the KNDL distribution contract entered into in July 2017. | |
| (xii) | Adjusted EBITDA is earnings before exceptional items, finance income, finance expense, share of equity accounted investments’ profit after tax, tax, depreciation and amortisation charges. A reconciliation of the Group’s operating profit to Adjusted EBITDA is set out on page 15. | |
| (xiii) | Under the terms of the distribution agreement with Pabst Brewing Company (PBC), C&C’s reported revenues and net revenue in the US up to 1st April 2018 comprised Cost of Goods Sold at production cost plus a royalty payment. From 1st April 2018, C&C’s reported revenue and net revenue in the US comprised third party achieved selling price. For comparative purposes only, the impact of this change in commercial terms for our US revenues on the comparative period would be to increase reported net revenues for the comparative period (H1’17) by €3.0m ($3.6m). |
Financial review
A summary of results for the six months ended 31 August 2018 is set out in the table below.
| Period ended 31 August 2018(ii)
€m | Periodended 31August2017 asrestated(ii) €m | CC(i) Periodended 31August2017 asrestated €m | Change % | CC(i) –Change
% | ||||||
| Net revenue | 838.7 | 292.8 | 290.5 | 186.4% | 188.7% | |||||
| Operating profit(ii) | 58.4 | 50.5 | 50.3 | 15.6% | 16.1% | |||||
| Net finance costs | (5.0) | (3.8) | ||||||||
| Share of equity accounted investments’ profit after tax | 2.5 | - | ||||||||
| Profit before tax | 55.9 | 46.7 | 19.7% | |||||||
| Income tax expense(ii) | (8.4) | (6.9) | ||||||||
| Effective tax rate* | 15.0% | 14.8% | ||||||||
| Profit for the period attributable to equity shareholders(ii) | 47.5 | 39.8 | ||||||||
| Basic EPS | 14.6 cent | 12.7 cent | ||||||||
| Adjusted diluted EPS(iii) |
| 15.4 cent | 12.9 cent | |||||||
\* The effective tax rate is calculated based on the profit before tax excluding exceptional items.
C&C including the acquired Matthew Clark and Bibendum businesses is reporting net revenue of €838.7m, operating profit(ii) of €58.4m, basic EPS of 14.6 cent and adjusted diluted EPS(iii) of 15.4 cent. On a constant currency(i) basis, net revenue for existing C&C increased by 6.4% while operating profit(ii) increased by 4.0%. Please see operating review for commentary on the performance of the business in the six month period to 31 August 2018.
Finance costs, income tax and shareholder returns
Net finance charges of €5.0m (31 August 2017: €3.8m) were incurred in the period. The increase is in line with the increase in debt during the period.
The income tax charge for the period amounted to €8.4m. This excludes the tax credit of €0.4m relating to exceptional items. In line with IAS 34 Interim Financial Reporting this represents an effective tax rate of 15.0% and reflects the current estimate of the average annual effective income tax rate for the year ending 28 February 2019. This forecasted effective tax rate reflects the fact that the Group is established in Ireland and as a result it benefits from the 12.5% tax rate on profits generated in Ireland.
During the period, the Group increased the maximum size of its existing receivables purchase programme with a financial institution from €75m to €223m (£200m) to facilitate the inclusion of certain Matthew Clark and Bibendum trade receivables. This agreement includes the substantive transfer of credit risk of trade receivables and accordingly such receivables are de-recognised from the balance sheet in line with IFRS 9 and cash proceeds received are not included within bank loans for the purposes of Net Debt/EBITDA covenant testing.
As at 31 August 2018, the Group had transferred €256.6m (£230.3m) (February 2018: €63.5m) of trade receivables into this programme and had received €161.1m (£144.6m) (February 2018: €54.7m) of cash proceeds. The Group continued to recognise an asset of €126.7m (£113.7m) (February 2018: €45.1m) representing the extent of its continuing involvement in these trade receivables.
The Board declared a final dividend of 9.37 cent per share for the financial year ended 28 February 2018 resulting in a full year dividend for that financial year of 14.58 cent per share and representing a payout of 66.3% (FY2017: 60.2%) of the full year reported (FY2018) adjusted diluted earnings per share. The dividend was paid to shareholders on 13 July 2018 and was settled €21.5m in cash and €7.3m by way of a scrip alternative.
The Board has declared an interim dividend of 5.33 cent per share for the financial year ending 28 February 2019. This represents growth of 2.3% over the FY2018 interim dividend of 5.21c. Payment will be on 14 December 2018 to shareholders registered at the close of business on 2 November 2018. A scrip alternative will be offered to shareholders. Dividends declared but unpaid at the date of approval of the financial statements are not recognised as a liability at the balance sheet date.
Exceptional items
The Group has incurred exceptional costs on a before tax basis of €3.1m in the current period. This comprised of acquisition and integration related costs of €2.2m, primarily with respect to the integration of the acquired businesses Matthew Clark and Bibendum. The Group incurred restructuring costs amount to €0.9m arising as a result of the Group’s acquisitions in the current and prior period.
Cash flow generation
Management reviews the Group’s cash generating performance by measuring the conversion of Adjusted EBITDA(iv) to Free Cash Flow(v). The Group generated Free Cash Flow(v) pre-exceptionals of €97.9m in the period representing 147.9% (31 August 2017: 130.9%) of adjusted EBITDA(iv) and ended the period in a net debt(vi) position of €278.9m.
Summary cash flow for the six months ended 31 August 2018 is set out in the table below.
| Six months ended 31 August 2018 | Six months ended31 August 2017 | |||
| €m | €m | |||
| Operating profit before exceptional items | 58.4 | 50.5 | ||
| Depreciation and amortisation charge | 7.8 | 7.1 | ||
| Adjusted EBITDA(iv) | 66.2 | 57.6 | ||
| Net capital expenditure | (7.9) | (4.9) | ||
| Advances to customers | 0.5 | (0.9) | ||
| Working capital movement | 44.8 | 29.0 | ||
| 103.6 | 80.8 | |||
| Exceptional items | (2.9) | (3.2) | ||
| Net finance charges/tax paid | (6.8) | (5.0) | ||
| Pension contributions paid | - | (0.7) | ||
| Other* | 1.1 | 0.3 | ||
| Free Cash Flow(v) (FCF) | 95.0 | 72.2 | ||
| FCF(v)/Adjusted EBITDA(iv) | 143.5% | 125.3% | ||
| Free Cash Flow(v) (FCF) | 95.0 | 72.2 | ||
| Exceptional items | 2.9 | 3.2 | ||
| Free Cash Flow before exceptional cash outflow | 97.9 | 75.4 | ||
| FCF(v)/Adjusted EBITDA(iv) before exceptional cash outflow | 147.9% | 130.9% | ||
| Free Cash Flow(v) (FCF) | 95.0 | 72.2 | ||
| Acquisition of equity accounted investments | - | (2.0) | ||
| Acquisition of businesses | - | (10.3) | ||
| Proceeds from exercise of share options/equity interests | (0.1) | 2.1 | ||
| Shares purchased under share buyback programme | - | (30.6) | ||
| Issue costs paid | (5.0) | |||
| Dividends paid | (21.5) | (26.0) | ||
| Drawdown of debt | 268.1 | 35.0 | ||
| Repayment of debt | (238.6) | - | ||
| Net increase in cash | 97.9 | 40.4 |
* Other primarily relates to share options add back, pensions credited to operating profit and net profit on disposal of property, plant and equipment.
Pensions
In compliance with IFRS, the net assets and actuarial liabilities of the various defined benefit pension schemes operated by Group companies, computed in accordance with IAS 19(R) Employee Benefits, are included on the Group Condensed Balance Sheet as retirement benefits.
At 31 August 2018, the Group is reporting a net retirement benefit surplus of €4.0m (31 August 2017 deficit: €13.7m, 28 February 2018 surplus: €1.0m). All schemes are closed to new entrants. There are 3 active members in the Northern Ireland (‘NI’) scheme and 57 active members (less than 10% of total membership) in the Republic of Ireland (‘ROI’) schemes. The Group has an approved funding plan in place, the details of which are disclosed in note 12. Arising from the formal actuarial valuations of the main schemes the Group has committed to contributions of 27% of pensionable salaries. In the short term deficit contributions are not required for the Group’s staff defined benefit pension scheme. There is no funding requirement with respect to the Group’s Executive defined benefit pension scheme in 2018. The funding requirement will be reviewed again as part of the next triennial valuation in January 2021. The 2018 actuarial valuation of the NI defined benefit pension scheme confirmed it was in surplus and the scheme remains in surplus.
The key factors influencing the change in valuation of the Group’s defined benefit pension scheme obligations are as outlined below:-
| €m | ||
| Surplus at 1 March 2018 | 1.0 | |
| Experience variations | (0.2) | |
| Actuarial loss from changes in financial assumptions | (1.8) | |
| Actuarial gain from changes in demographic assumptions | 0.2 | |
| Return on scheme assets excluding interest income | 5.2 | |
| Net loss to the Income Statement | (0.4) | |
| Net surplus at 31 August 2018 | 4.0 |
The increase in the surplus of the Group’s defined benefit pension schemes, since 28 February 2018, as computed in accordance with IAS 19(R) Employee Benefits is primarily as a result of the higher than anticipated investment return on the pension schemes’ assets. The gain due to assets was slightly offset by the change in financial assumptions resulting from lower discount rates as set by corporate bond yields.
All other significant assumptions applied in the measurement of the Group’s pension obligations at 31 August 2018 are materially consistent with those as applied at 28 February 2018 as set out in the Group’s Annual Report at that date.
Foreign currency and comparative reporting
| Six month period ended 31 August 2018 | Six month period ended31 August 2017 | |||||
| Translation exposure | Euro:Stg£ | £0.883 | £0.875 | |||
| Euro:US$ | $1.188 | $1.118 |
As shown above, the average rate for the translation of results from sterling currency operations was €1:£0.883 (period ended 31 August 2017: €1:£0.875) and from US dollar currency operations was €1:$1.188 (period ended 31 August 2017: €1:$1.118). 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 period at current period effective rates.
The impact of restating currency exchange rates on the results for the period ended 31 August 2017 is as follows:-
| Period ended 31 August 2017 as restated €m | FX Transaction €m | FX Translation €m | Period ended 31 August 2017 Constant currency comparative €m | |||||
| Revenue | ||||||||
| Ireland | 170.5 | - | (0.3) | 170.2 | ||||
| Great Britain | 235.1 | - | (2.2) | 232.9 | ||||
| International | 24.1 | (0.1) | (0.6) | 23.4 | ||||
| Total | 429.7 | (0.1) | (3.1) | 426.5 | ||||
| Net revenue | ||||||||
| Ireland | 117.0 | - | (0.2) | 116.8 | ||||
| Great Britain | 152.4 | - | (1.4) | 151.0 | ||||
| International | 23.4 | (0.1) | (0.6) | 22.7 | ||||
| Total | 292.8 | (0.1) | (2.2) | 290.5 | ||||
| Operating profit(ii) | ||||||||
| Ireland | 26.0 | - | - | 26.0 | ||||
| Great Britain | 21.5 | - | (0.2) | 21.3 | ||||
| International | 3.0 | - | - | 3.0 | ||||
| Total | 50.5 | - | (0.2) | 50.3 |
Notes to the Finance Review are set out below.
| (i) | H1’18 comparative adjusted for constant currency (H1’18 translated at H1’19 F/X rates) as outlined on page 17. | |
| (ii) | Before exceptional items. | |
| (iii) | Adjusted basic/diluted earnings per share (‘EPS’) excludes exceptional items. Please also see note 5 of the condensed financial statements. | |
| (iv) | Adjusted EBITDA is earnings before exceptional items, finance income, finance expense, share of equity accounted investments’ profit after tax, tax, depreciation and amortisation charges. A reconciliation of the Group’s operating profit to EBITDA is set out on page 15. | |
| (v) | Free Cash Flow (‘FCF’) is a non GAAP measure that comprises cash flow from operating activities net of capital investment cash outflows/(inflows) which form part of investing activities. FCF highlights the underlying cash generating performance of the ongoing business, it also includes cash inflows and outflows resulting from the Group’s purchase receivables programme, which amounted to an €106m inflow in the period. A reconciliation of FCF to Net Movement in Cash per the Group’s Cash Flow Statement is set out on page 15. | |
| (vi) | Net debt comprises borrowings (net of issue costs) less cash. |
Principal risks and uncertainties
The Directors consider that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining 26 weeks of the financial year remain substantially the same as those stated on pages 24 to 27 of the Group's annual financial statements for the year ended 28 February 2018, which are available on our website, http://www.candcgroupplc.com.
Since publication of the 2018 Annual Report, negotiations have continued between the EU and the UK in relation to the UK’s departure from the EU on 29 March 2019. Our preference in relation to the UK’s departure from the EU is for this to occur in a carefully managed manner, accompanied by a transition period and a negotiated settlement ensuring the continued free trade of goods between the UK and the EU and access to its network of bilateral trade agreements.
However, it is currently unclear whether such an agreement can be reached and we are therefore taking the appropriate steps to put contingency plans in place to prepare C&C for the possibility that the UK leaves the EU with neither a transition period nor agreement on a future free trade agreement in place and with WTO tariff rates applying to imports and exports from the UK with effect from 29 March 2019.
We have undertaken a detailed analysis of the risks and operational challenges to our business from a no-deal Brexit and their potential impact on the business and have contingency planning in place to mitigate these risks and challenges.
The principal risks to our business arising from a no-deal Brexit are: the application of tariffs to cider and wine imports into the UK; increases in tariffs and duty on raw materials imported into the UK from the EU and into the EU from the UK; additional checks and inspections on EU products and raw materials when they enter the UK and on UK products and raw materials when they enter the EU and consequent increased administrative workload and costs; the reduction in the value of Sterling along with an associated increase in cost of goods from overseas; the translation impact of a weaker Sterling given that Euro is our reporting currency; and the risk of queues and delays at UK and EU ports and at a ‘hard’ Irish border as a result of increased customs declarations and regulatory checks.
A no-deal Brexit may also give rise to opportunities for the Group arising from having our manufacturing capability in the Republic of Ireland and the UK, from our wholesale businesses in the UK being at a competitive advantage to some of their competitors in the UK due to their being in a position to stockpile products in advance of a no-deal Brexit and a no-deal Brexit may also provide benefits to our cider business in Ireland as tariff costs will also impact on cider imports from the UK to Ireland.
Our current estimate of the net impact of a no-deal Brexit is that it will not have a material impact on the on-going annual profitability of the Group.
Directors’s responsibility statement in respect of the half-yearly financial report
for the six months ended 31 August 2018
We confirm our responsibility for the half-yearly financial report in accordance with the Transparency Directive (2004/109/EC) Regulations 2007 and the interim Transparency Rules of the Irish Financial Services Regulatory Authority and with IAS 34 Interim Financial Reporting as adopted by the EU, and that to the best of our knowledge:
the condensed set of financial statements comprising the Group Condensed Income Statement, the Group Condensed Statement of Comprehensive Income, the Group Condensed Balance Sheet, the Group Condensed Cash Flow Statement, the Group Condensed Statement of Changes in Equity and the related notes have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; the interim management report includes a fair review of the information required by:(a) Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007,
being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and, a description of the principal risks and uncertainties for the remaining six months of the year; and(b) Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007,
being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and, any changes in the related party transactions described in the last Annual Report that could do so.The Group’s auditor has not audited or reviewed the Condensed Financial Statements or the remainder of the half-yearly financial report.
On behalf of the Board
S. GillilandChairman
S. GlanceyChief Executive Officer
25 October 2018
Group Condensed Income Statementfor the six months ended 31 August 2018
|
| Six months ended 31 August 2018 (unaudited) | Six months ended 31 August 2017 as restated (unaudited) | ||||||||||||
|
| Notes | Before exceptional items €m | Exceptional items (note 4) €m |
Total €m | Before exceptional items €m | Exceptional items (note 4) €m |
Total €m | |||||||
| Revenue | 2 | 980.7 | - | 980.7 | 429.7 | - | 429.7 | |||||||
| Excise duties | (142.0) | - | (142.0) | (136.9) | - | (136.9) | ||||||||
| Net revenue | 2 | 838.7 | - | 838.7 | 292.8 | - | 292.8 | |||||||
| Operating costs | (780.3) | (3.1) | (783.4) | (242.3) | (0.7) | (243.0) | ||||||||
| Group operating profit/(loss) | 2 | 58.4 | (3.1) | 55.3 | 50.5 | (0.7) | 49.8 | |||||||
| Finance expense | (5.0) | - | (5.0) | (3.8) | - | (3.8) | ||||||||
| Share of equity accounted investments’ profit after tax |
| 2.5 | - | 2.5 | - | - | - | |||||||
| Profit/(loss) before tax | 55.9 | (3.1) | 52.8 | 46.7 | (0.7) | 46.0 | ||||||||
| Income tax (expense)/credit | 3 | (8.4) | 0.4 | (8.0) | (6.9) | 0.1 | (6.8) | |||||||
| Group profit/(loss) for the period attributable to equity shareholders | 47.5 | (2.7) | 44.8 | 39.8 | (0.6) | 39.2 | ||||||||
|
| ||||||||||||||
| Basic earnings per share (cent) |
| 5 | 14.6c | 12.7c | ||||||||||
|
Diluted earnings per share (cent) |
| 5 | 14.5c | 12.7c | ||||||||||
All of the results are related to continuing operations.
Group Condensed Statement of Comprehensive Incomefor the six months ended 31 August 2018
| Notes | Six months ended 31 August 2018 (unaudited)
€m | Six months ended 31 August 2017 (unaudited)
€m | ||||
| Other comprehensive income: | ||||||
| Items that may be reclassified to Income Statement in subsequent years: |
|
| ||||
| Foreign currency translation differences arising on the net investment in foreign operations | (3.3) | (30.0) | ||||
| Cash flow hedges | (0.2) | - | ||||
| Items that will not be reclassified to Income Statement in subsequent years: | ||||||
| Actuarial gain on retirement benefits | 12 | 3.4 | 3.2 | |||
| Deferred tax charge on actuarial gain on retirement benefits | (0.5) | (0.4) | ||||
| Net loss recognised directly within Other Comprehensive Income | (0.6) | (27.2) | ||||
| Group profit for the period attributable to equity shareholders | 44.8 | 39.2 | ||||
| Comprehensive income for the period attributable to equity shareholders | 44.2 | 12.0 |
Group Condensed Balance Sheetas at 31 August 2018
| Notes | As at 31 August 2018 (unaudited) €m | As at 31 August 2017 (unaudited) €m | As at 28 February 2018 (audited) €m | |||||
| ASSETS | ||||||||
| Non-current assets | ||||||||
| Property, plant & equipment | 6 | 139.2 | 136.6 | 135.2 | ||||
| Goodwill & intangible assets | 8 | 661.4 | 526.7 | 541.1 | ||||
| Equity accounted investments | 50.2 | 3.8 | 48.4 | |||||
| Retirement benefits | 12 | 5.6 | 4.4 | 4.8 | ||||
| Deferred income tax assets | 3.0 | 2.6 | 1.7 | |||||
| Trade & other receivables | 46.3 | 39.8 | 40.4 | |||||
| 905.7 | 713.9 | 771.6 | ||||||
| Current assets | ||||||||
| Asset held for resale | - | 0.3 | - | |||||
| Inventories | 175.2 | 81.7 | 88.1 | |||||
| Trade & other receivables | 281.0 | 91.7 | 79.9 | |||||
| Cash | 242.4 | 217.7 | 145.5 | |||||
| 698.6 | 391.4 | 313.5 | ||||||
| TOTAL ASSETS | 1,604.3 | 1,105.3 | 1,085.1 | |||||
| EQUITY | ||||||||
| Equity share capital | 3.2 | 3.2 | 3.2 | |||||
| Share premium | 150.7 | 142.0 | 143.4 | |||||
| Other reserves | 79.9 | 67.2 | 82.6 | |||||
| Treasury shares | (37.3) | (37.8) | (37.3) | |||||
| Retained income | 360.8 | 321.8 | 341.7 | |||||
| Total equity | 557.3 | 496.4 | 533.6 | |||||
| LIABILITIES | ||||||||
| Non-current liabilities | ||||||||
| Interest bearing loans & borrowings | 9 | 494.7 | 390.7 | 383.5 | ||||
| Retirement benefits | 12 | 1.6 | 18.1 | 3.8 | ||||
| Provisions | 7.4 | 6.6 | 7.8 | |||||
| Deferred income tax liabilities | 11.4 | 5.5 | 11.2 | |||||
| 515.1 | 420.9 | 406.3 | ||||||
| Current liabilities | ||||||||
| Derivative financial liabilities | 0.2 | - | - | |||||
| Trade & other payables | 485.1 | 174.9 | 132.7 | |||||
| Interest bearing loans & borrowings | 9 | 28.1 | - | - | ||||
| Provisions | 3.8 | 3.9 | 3.6 | |||||
| Current income tax liabilities | 14.7 | 9.2 | 8.9 | |||||
| 531.9 | 188.0 | 145.2 | ||||||
| Total liabilities | 1,047.0 | 608.9 | 551.5 | |||||
| TOTAL EQUITY & LIABILITIES | 1,604.3 | 1,105.3 | 1,085.1 |
Group Condensed Cash Flow Statementfor the six months ended 31 August 2018
| Six months ended 31 August 2018 (unaudited) €m | Six months ended 31 August 2017 (unaudited) €m | |||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Group profit for the period attributable to equity shareholders | 44.8 | 39.2 | ||
| Finance expense | 5.0 | 3.8 | ||
| Income tax expense | 8.0 | 6.8 | ||
| Profit on share of equity accounted investment | (2.5) | - | ||
| Depreciation of property, plant & equipment | 7.0 | 6.9 | ||
| Amortisation of intangible assets | 0.8 | 0.2 | ||
| Net profit on disposal of property, plant & equipment | (0.1) | - | ||
| Charge for equity settled share-based payments | 1.0 | 0.8 | ||
| Pension contributions paid plus amount credited to Income Statement | 0.4 | (1.2) | ||
| 64.4 | 56.5 | |||
| (Increase)/decrease in inventories | (28.5) | 2.4 | ||
| Decrease/(increase) in trade & other receivables | 60.0 | (8.2) | ||
| Increase in trade & other payables | 14.0 | 34.9 | ||
| Decrease in provisions | (0.2) | (3.5) | ||
| 109.7 | 82.1 | |||
| Interest and similar costs paid | (3.1) | (3.2) | ||
| Income taxes paid | (3.7) | (1.8) | ||
| Net cash inflow from operating activities | 102.9 | 77.1 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||
| Purchase of property, plant & equipment | (8.0) | (6.1) | ||
| Net proceeds on disposal of property, plant & equipment | 0.1 | 1.2 | ||
| Cash outflow re acquisition of equity accounted investments | - | (2.0) | ||
| Acquisition of subsidiaries (net of cash acquired) | - | (10.3) | ||
| Net cash outflow from investing activities | (7.9) | (17.2) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Proceeds from exercise of share options/equity Interests | - | 2.1 | ||
| Drawdown of debt | 268.1 | 35.0 | ||
| Repayment of debt | (238.6) | - | ||
| Issue costs paid | (5.0) | - | ||
| Shares purchased to satisfy share options entitlement | (0.1) | - | ||
| Shares purchased under share buyback programme | - | (30.6) | ||
| Dividends paid | (21.5) | (26.0) | ||
| Net cash inflow/(outflow) from financing activities | 2.9 | (19.5) | ||
| Net increase in cash | 97.9 | 40.4 | ||
| Reconciliation of opening to closing cash | ||||
| Cash at beginning of year | 145.5 | 187.6 | ||
| Translation adjustment | (1.0) | (10.3) | ||
| Net increase in cash | 97.9 | 40.4 | ||
| Cash at end of period | 242.4 | 217.7 |
A reconciliation of cash to net debt is presented in note 10.
Group condensed statement of changes in equityfor the six months ended 31 August 2018
| Equity share capital | Share premium | Other undenominated reserve | Capital reserve | Cash flow hedge reserve | Share-based payments reserve | Currency translation reserve | Revaluation reserve | Treasury shares | Retained income | Total | ||||||||||||
| €m | €m | €m | €m | €m | €m | €m | €m | €m | €m | €m | ||||||||||||
| At 1 March 2017 | 3.3 | 136.9 | 0.7 | 24.9 | - | 4.4 | 62.1 | 7.0 | (38.0) | 337.1 | 538.4 | |||||||||||
| Profit for the period attributable to equity shareholders | - | - | - | - | - | - | - | - | - | 39.2 | 39.2 | |||||||||||
| Other comprehensive (expense)/income | - | - | - | - | - | - | (30.0) | - | - | 2.8 | (27.2) | |||||||||||
| Total comprehensive (expense)/income | - | - | - | - | - | - | (30.0) | - | - | 42.0 | 12.0 | |||||||||||
| Dividend on ordinary shares | - | 3.0 | - | - | - | - | - | - | - | (29.0) | (26.0) | |||||||||||
| Exercised share options | - | 1.4 | - | - | - | - | - | - | - | - | 1.4 | |||||||||||
| Reclassification of share-based payments reserve | - | - | - | - | - | (2.7) | - | - | - | 2.7 | - | |||||||||||
| Joint Share Ownership Plan | - | 0.7 | - | - | - | (0.1) | - | - | 0.2 | (0.1) | 0.7 | |||||||||||
| Shares purchased under share buyback programme and subsequently cancelled | (0.1) | - | 0.1 | - | - | - | - | - | - | (30.6) | (30.6) | |||||||||||
| Transaction with equity holder | - | - | - | - | - | - | - | - | - | (0.3) | (0.3) | |||||||||||
| Equity settled share-based payments | - | - | - | - | 0.8 | - | - | - | - | 0.8 | ||||||||||||
| Total transactions with owners | (0.1) | 5.1 | 0.1 | - | - | (2.0) | - | - | 0.2 | (57.3) | (54.0) | |||||||||||
| At 31 August 2017 | 3.2 | 142.0 | 0.8 | 24.9 | - | 2.4 | 32.1 | 7.0 | (37.8) | 321.8 | 496.4 | |||||||||||
| Profit for the period attributable to equity shareholders | - | - | - | - | - | - | - | - | - | 27.1 | 27.1 | |||||||||||
| Other comprehensive income | - | - | - | - | - | - | 12.3 | 3.4 | - | 11.2 | 26.9 | |||||||||||
| Total comprehensive income | - | - | - | - | - | - | 12.3 | 3.4 | - | 38.3 | 54.0 | |||||||||||
| Dividend on ordinary shares | - | 1.4 | - | - | - | - | - | - | - | (16.0) | (14.6) | |||||||||||
| Exercised share options | - | - | - | - | - | - | - | - | - | - | - | |||||||||||
| Reclassification of share-based payments reserve | - | - | - | - | - | (0.3) | - | - | - | 0.3 | - | |||||||||||
| Joint Share Ownership Plan | - | - | - | - | - | (0.1) | - | - | 0.5 | (0.5) | (0.1) | |||||||||||
| Shares purchased under share buyback programme and subsequently cancelled | - | - | - | - | - | - | - | - | - | (2.5) | (2.5) | |||||||||||
| Transaction with equity holder | - | - | - | - | - | - | - | - | - | 0.3 | 0.3 | |||||||||||
| Equity settled share-based payments | - | - | - | - | - | 0.1 | - | - | - | 0.1 | ||||||||||||
| Total transactions with owners | - | 1.4 | - | - | - | (0.3) | - | - | 0.5 | (18.4) | (16.8) | |||||||||||
| At 28 February 2018 | 3.2 | 143.4 | 0.8 | 24.9 | - | 2.1 | 44.4 | 10.4 | (37.3) | 341.7 | 533.6 | |||||||||||
| Profit for the period attributable to equity shareholders | - | - | - | - | - | - | - | - | - | 44.8 | 44.8 | |||||||||||
| Other comprehensive (expense)/income | - | - | - | - | (0.2) | - | (3.3) | - | - | 2.9 | (0.6) | |||||||||||
| Total comprehensive (expense)/income | - | - | - | - | (0.2) | - | (3.3) | - | - | 47.7 | 44.2 | |||||||||||
| Dividend on ordinary shares | - | 7.3 | - | - | - | - | - | - | - | (28.8) | (21.5) | |||||||||||
| Reclassification of share-based payments reserve | - | - | - | - | - | (0.2) | - | - | - | 0.2 | - | |||||||||||
| Equity settled share-based payments | - | - | - | - | - | 1.0 | - | - | - | - | 1.0 | |||||||||||
| Total transactions with owners | - | 7.3 | - | - | - | 0.8 | - | - | - | (28.6) | (20.5) | |||||||||||
| At 31 August 2018 | 3.2 | 150.7 | 0.8 | 24.9 | (0.2) | 2.9 | 41.1 | 10.4 | (37.3) | 360.8 | 557.3 |
Notes to the Group Condensed Consolidated Interim Financial Statementsfor the six months ended 31 August 2018
1. Basis of preparation and Accounting policies
The interim financial information presented in this report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The accounting policies and methods of computation adopted in preparation of the Group Condensed Interim Financial Statements are consistent with recognition and measurement requirements of IFRSs as endorsed by the EU Commission and those set out in the Group’s consolidated financial statements for the year ended 28 February 2018 and as described in those financial statements on pages 127 to 139, except for the adoption of new standards, interpretations and standard amendments effective as of 1 March 2018.
Prior year reclassification
In FY2018, in anticipation of the implementation of IFRS 15 Revenue from Contracts with Customers from 1 March 2018, management began examining the accounting for revenue for certain arrangements. In respect of certain of the Group’s arrangements with third parties entered into in order to utilise excess capacity, management has determined that income from such arrangements, previously netted from operating costs, should more appropriately be recorded gross, as revenue. Accordingly, management have changed the classification of such income in the Income Statement for the period ended 31 August 2018. In the current year, the amount recorded that would have been netted from operating costs was €16.1m and accordingly, in the prior year Income Statement line items have been restated as follows: gross revenue has increased by €22.2m, excise duties have increase by €2.5m, and net sales revenue and operating costs have increased by €19.7m. Applicable notes have accordingly also been adjusted. The restatement has no impact on net income or net assets for the prior period.
Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) Interpretations
The following new standards, interpretations and standard amendments became effective for the Group as of 1 March 2018:
IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRIC 22 Foreign Currency Transactions and Advance Consideration Amendments to IFRS 2 Share-based Payment Amendments to IAS 28 Investments in Associates and Joint VenturesWhile the new standards, interpretations and standard amendments did not result in a material impact on the Group’s results, the nature and effect of changes required by IFRS 9 and IFRS 15 are described below.
IFRS 9
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. It addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces a new impairment model for financial assets and new rules for hedge accounting.
Financial asset classification
The vast majority of the Group’s financial assets are held as trade receivables or cash which will continue to be accounted for at amortised costs. Accordingly, the classification requirements under IFRS 9 did not impact the measurement or carrying amount of financial assets.
Hedge accounting
At the date of adoption of IFRS 9, the Group did not have any open derivative contracts. During the half-year the Group entered into derivative contracts in the form of a cash flow hedge and as such the Group accounted for the derivatives in line with IFRS 9.
Impairment of financial assets
IFRS 9 introduces a forward-looking expected credit losses model rather than the incurred loss model of IAS 39. Given historic loss rates and the significant portion of trade and other receivables that are within terms, this change has not resulted in a material adjustment to trade and other receivables.
IFRS 15
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.
Under IFRS 15, the Group recognises revenue in the amount of the price expected to be received for goods and services supplied at a point in time or over time, as contractual performance obligations are fulfilled and control of goods and services passes to the customer. Where revenue is earned over time as contractual performance obligations are satisfied, the percentage-of-completion method remains the primary method by which revenue recognition is measured.
The Group have adopted IFRS 15 by applying the modified retrospective approach and have availed of the practical expedient for contract modifications.
The Group’s transition project has the following focus areas:
Variable consideration Multiple performance obligations Principal versus Agent considerations Presentation and disclosure requirements.The assessment did not result in a material impact on the Group’s revenue recognition.
Segmental reporting section
In accordance with the requirements of IFRS 15, new disclosures outlining the disaggregation of revenue by geographic market and principal activities and products are included in note 2 to these Group Condensed Consolidated Interim Financial Statements
IFRS and IFRIC interpretations being adopted in subsequent years
IFRS 16 will replace IAS 17 Leases and related interpretations. The Group will adopt IFRS 16 from 1 March 2019 by applying the modified retrospective approach. The Group will apply the recognition exemption for both short-term leases and leases of low value assets. Certain of the Group’s key financial metrics will be impacted upon transition to IFRS 16.
The adoption of the new standard will have a material impact on the Group’s Consolidated Income Statement and Consolidated Balance Sheet, as follows:
Income Statement: Cost of sales and operating costs (excluding depreciation) will decrease, as the Group currently recognises operating lease expenses in either cost of sales or operating costs (depending on the nature of the relevant operations and of the lease). Payments for leases which meet the recognition exemption criteria and certain other lease payments which do not meet the criteria for capitalisation will continue to be recorded as an expense within cost of sales and operating costs (excluding depreciation). Depreciation and finance costs as currently reported in the Group’s Income Statement will increase, as under the new standard a right of-use asset will be capitalised and depreciated over the term of the lease with an associated finance cost applied annually to the lease liability.
Balance Sheet: At transition date, the Group will determine the minimum lease payments outstanding at that date (along with payments for renewal options which are reasonably certain to be exercised) and apply the appropriate discount rate to calculate the present value of the lease liability and right-of-use asset to be recognised on the Group’s balance sheet.
The incremental borrowing rates to be applied in arriving at the liability on transition are based on a discount rate methodology, which will be impacted by both changes in the global interest rate environment between now and 1 March 2019 and Group specific factors. The Group is continuing to assess the impact of the new standard.
Basis of preparation
The preparation of the interim financial information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of certain assets, liabilities, revenues and expenses together with disclosure of contingent assets and liabilities. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
These Group Condensed Consolidated Interim Financial Statements should be read in conjunction with the Group’s Annual Report for the year ended 28 February 2018 as they do not include all the information and disclosures required by International Financial Reporting Standards (IFRSs). The significant estimates and judgements are set out on the Group’s Annual Report for the year ended 28 February 2018 and in the Directors opinion there have been no material changes to these for the Interim Financial Statements.
The interim financial information for both the six months ended 31 August 2018 and the comparative six months ended 31 August 2017 are unaudited and have not been reviewed by the auditors. The financial information for the year ended 28 February 2018 represents an abbreviated version of the Group’s financial statements for that year. Those financial statements contained an unqualified audit report and have been filed with the Registrar of Companies.
The financial information is presented in Euro millions, rounded to one decimal place. The exchange rates used in translating Balance Sheet and Income Statement amounts were as follows:-
| Six months to 31 August 2018 | Six months to 31 August 2017 | Year ended 28 February 2018 | ||||
| Balance Sheet (Euro : Sterling closing rate) | 0.897 | 0.920 | 0.884 | |||
| Income Statement (Euro : Sterling average rate) | 0.883 | 0.875 | 0.881 | |||
| Balance Sheet (Euro : USD closing rate) | 1.165 | 1.183 | 1.221 | |||
| Income Statement (Euro : USD average rate) | 1.188 | 1.118 | 1.157 |
Going concern
The Group has considerable financial resources and a large number of customers and suppliers across different geographic areas and industries.
Having assessed the relevant business risks, the Directors believe that the Group is well placed to manage these risks successfully and they have a reasonable expectation that C&C Group plc, and the Group as a whole, has adequate resources to continue in operational existence for the foreseeable future with no material uncertainties. For this reason, the Directors continue to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements.
2. Segmental analysis
The Group’s business activity is the manufacturing, marketing and distribution of branded beer, cider, wine, spirits, soft drinks and bottled water. As a result of the acquisition of Matthew Clark and Bibendum four operating segments have been identified in the current period; Ireland, Great Britain, International and Matthew Clark and Bibendum (MCB). In the prior year, three operating segments were identified; Ireland, Great Britain and International.
The Group continually reviews and updates the manner in which it monitors and controls its financial operations resulting in changes in the manner in which information is classified and reported to the Chief Operating Decision Maker (“CODM”). The CODM, identified as the executive Directors, assesses and monitors the operating results of segments separately via internal management reports in order to effectively manage the business and allocate resources. Due to the acquisition of Matthew Clark and Bibendum on the 4th April 2018, an additional operating segment has been identified in the current period.
In the prior period, due to a consolidation in the management of the business, the Group changed its basis of segmentation. The previous segments of Scotland and C&C Brands are now managed by one Managing Director and are supported by the one management team. The Group has therefore now combined both, to form the new segment Great Britain. The previous segments of Export and North America are also now controlled by one Managing Director and the one management team and have therefore also been combined into the new International segment. The current basis of segmentation reflects the new business model and in all instances the changes were deemed necessary to better enable the CODM to evaluate the results of the business in the context of the economic environment in which the business operates, to make appropriate strategic decisions and to more accurately reflect the business model under which the Group now operates in these territories. The reclassification had no impact on revenue, net revenue or operating profit reported by the Group.
The identified business segments are as follows:-
(i) Ireland
This segment includes the financial results from sale of own branded products in the Island of Ireland, principally Bulmers, Outcider, Tennent’s, Magners, Clonmel 1650, Five Lamps, Heverlee, Roundstone Irish Ale, Dowd’s Lane traditional craft ales, Finches and Tipperary Water. It also includes the financial results from beer, wines and spirits distribution, wholesaling, following the acquisition of Gleeson, the results from sale of third party brands as permitted under the terms of a distribution agreement with AB InBev and production of third party products.
(ii) Great Britain
This segment includes the results from sale of the Group’s own branded products in Scotland, England and Wales, with Tennent’s, Magners, Heverlee, Caledonia Best, Blackthorn, Old English, Chaplin & Cork’s, Orchard pig and K Cider the principal brands. It also includes the financial results from AB InBev beer distribution in Scotland, third party brand distribution and wholesaling in Scotland following the acquisition of the Wallaces Express wholesale business, the distribution of the Italian lager Menabrea and the production and distribution of private label cider products.
(iii) International
This segment includes the results from sale of the Group’s cider and beer products, principally Magners, Gaymers, Woodchuck, Wyders, Blackthorn, Hornsby’s and Tennent’s in all territories outside of Ireland and Great Britain. It also includes the production, sale and distribution of some private label and third party brands.
(iv) Matthew Clark and Bibendum
This segment includes the results from sale of the Group’s UK leading independent distributor of alcoholic and non-alcoholic drinks to the hospitality sector.
The analysis by segment includes both items directly attributable to a segment and those, including central overheads, which are allocated on a reasonable basis in presenting information to the CODM.
Inter-segmental revenue is not material and thus not subject to separate disclosure.
(a) Analysis by reporting segment
| Six months to 31 August 2018 | Six months to 31 August 2017 | |||||||||||||||
| Revenue | Net revenue | Operating profit | Revenue as restated* | Net revenue as restated* | Operating profit | |||||||||||
| €m | €m | €m | €m | €m | €m | |||||||||||
| Ireland | 172.0 | 124.5 | 26.1 | 170.5 | 117.0 | 26.0 | ||||||||||
| Great Britain | 257.6 | 163.5 | 23.4 | 235.1 | 152.4 | 21.5 | ||||||||||
| International | 21.6 | 21.2 | 2.8 | 24.1 | 23.4 | 3.0 | ||||||||||
| Matthew Clark and Bibendum (MCB) | 529.5 | 529.5 | 6.1 | - | - | - | ||||||||||
| Total before exceptional items | 980.7 | 838.7 | 58.4 | 429.7 | 292.8 | 50.5 | ||||||||||
| Exceptional items (note 4) | - | - | (3.1) | - | - | (0.7) | ||||||||||
| Finance expense | - | - | (5.0) | - | - | (3.8) | ||||||||||
| Share of equity accounted investments’ after tax | - | - | 2.5 | - | - | - | ||||||||||
| 980.7 | 838.7 | 52.8 | 429.7 | 292.8 | 46.0 | |||||||||||
* See note 16 prior year reclassification for further details.
Of the exceptional items in the current period, €0.1m relates to Ireland, €0.8m relates to Great Britain and €2.2m relates to MCB. Of the exceptional items in the prior period, €0.5m relates to Great Britain and €0.2m does not relate to any particular segment. Of the share of equity accounted investments’ profit after tax, €2.4m relates to Great Britain segment and €0.1m relates to the International segment.
Total assets for the period ended 31 August 2018 amounted to €1,604.3m (31 August 2017: €1,105.3m).
(b) Geographical analysis of non-current assets
| Ireland | Scotland | England and Wales* | US and Canada** | Other*** | Total | |||||||
| €m | €m | €m | €m | €m | €m | |||||||
| 31 August 2018 | ||||||||||||
| Property, plant & equipment | 67.9 | 52.8 | 4.3 | 8.7 | 5.5 | 139.2 | ||||||
| Goodwill & intangible assets | 155.6 | 131.0 | 317.5 | 41.2 | 16.1 | 661.4 | ||||||
| Equity accounted investments | 0.3 | 0.3 | 46.2 | 3.4 | - | 50.2 | ||||||
| Retirement benefits | 5.6 | - | - | - | - | 5.6 | ||||||
| Deferred income tax assets | 1.2 | - | 1.8 | - | - | 3.0 | ||||||
| Trade & other receivables | 21.9 | 21.0 | - | 1.1 | 2.3 | 46.3 | ||||||
| Total | 252.5 | 205.1 | 369.8 | 54.4 | 23.9 | 905.7 |
|
| Ireland | Scotland | England and Wales* | US and Canada** | Other*** | Total | ||||||
| €m | €m | €m | €m | €m | €m | |||||||
| 31 August 2017 | ||||||||||||
| Property, plant & equipment | 69.9 | 51.8 | 0.1 | 8.9 | 5.9 | 136.6 | ||||||
| Goodwill & intangible assets | 156.0 | 118.8 | 195.0 | 40.9 | 16.0 | 526.7 | ||||||
| Equity accounted investments | 0.3 | 0.2 | - | 3.3 | - | 3.8 | ||||||
| Retirement benefits | 4.4 | - | - | - | - | 4.4 | ||||||
| Deferred income tax assets | 2.6 | - | - | - | - | 2.6 | ||||||
| Trade & other receivables | 21.0 | 18.8 | - | - | - | 39.8 | ||||||
| Total | 254.2 | 189.6 | 195.1 | 53.1 | 21.9 | 713.9 |
* England and Wales is included in the Great Britain segment.** US and Canada is included in the International segment.*** Other is included in the International segment, being all other geographical locations excluding Ireland, Great Britain, the US and Canada.
The geographical analysis of non-current assets, with the exception of Goodwill & intangible assets, is based on the geographical location of the assets. The geographical analysis of Goodwill & intangible assets is allocated based on the country of destination of sales at date of acquisition.
(c) Disaggregated net revenue
In the following table, net revenue is disaggregated by primary geographic market and by principal activities and products. Geography is the primary basis on which management reviews its businesses across the Group.
| Six months ending 31 August 2018 – unaudited | ||||||||
| Primary geographic market | ||||||||
| Principal activities and products Net revenue | Ireland | Great Britain* | International | Total | ||||
| €m | €m | €m | €m | |||||
| Own brand alcohol | 51.0 | 87.2 | 19.5 | 157.7 | ||||
| Other sources** | 73.5 | 605.8 | 1.7 | 681.0 | ||||
| Total Group from continuing operations | 124.5 | 693.0 | 21.2 | 838.7 | ||||
* Included in this segment is the Group’s recently acquired Matthew Clark and Bibendum businesses. Of the amount included in other sources Matthew Clark and Bibendum amounted to €529.5m with the remaining amount of €76.3m relating to the existing C&C business.** Other sources include Wholesales, own label, contracts and NABs revenues.
| Six months ending 31 August 2017 – unaudited | ||||||||
| Primary geographic market | ||||||||
| Principal activities and products Net revenue | Ireland | Great Britain | International | Total | ||||
| €m | €m | €m | €m | |||||
| Own brand alcohol | 49.2 | 81.2 | 21.9 | 152.3 | ||||
| Other sources* | 67.8 | 71.2 | 1.5 | 140.5 | ||||
| Total Group from continuing operations | 117.0 | 152.4 | 23.4 | 292.8 | ||||
* Other sources include Wholesales, own label, contracts and NABs revenues.
Cyclicality of interim results
C&C (excluding Matthew Clark and Bibendum) certain brands within our portfolio, particularly our cider brands, tend to have higher consumption during the summer months that fall within the first half of our financial year. In addition, external forces such as weather & significant sporting events (which traditionally take place in the summer months) will have a greater impact on our first half trading. Accordingly, trading profit is usually higher in the first half than in the second.
For Matthew Clark and Bibendum, the most important trading period in terms of sales, profitability and cash flow has been the Christmas season, in which case the second half of the year will have a greater impact on our distribution business.
3. Income tax charge
Income tax charge for the period amounted to €8.0m (31 August 2017: €6.8m), comprising a €8.4m charge on profits before exceptional items and an income tax credit of €0.4m with respect to exceptional items (31 August 2017: €6.9m charge before exceptional items and a credit of €0.1m with respect to exceptional items). The interim period tax charge before exceptional items is accrued based on the estimated average annual effective income tax rate for the full financial year in respect of operating profit before exceptional items, which for the year ending 28 February 2019 is estimated at 15.0% (31 August 2017: 14.8%; year ended 28 February 2018: 14.3%).
4. Exceptional items
| Six months to 31 August 2018 | Six months to 31 August 2017 | |||
| €m | €m | |||
| Operating costs | ||||
| Acquisition & integration costs | (2.2) | (0.2) | ||
| Restructuring costs | (0.9) | (0.5) | ||
| Loss before tax | (3.1) | (0.7) | ||
| Income tax credit | 0.4 | 0.1 | ||
| Total loss after tax | (2.7) | (0.6) |
(a) Acquisition & integration costs
During the current financial period, the Group incurred €2.2m of acquisition and integration related costs, primarily with respect to professional fees associated with the acquisition and integration of Matthew Clark and Bibendum.
During the prior financial period, the Group incurred €0.2m of acquisition costs, primarily with respect to professional fees associated with the consideration of strategic opportunities by the Group.
(b) Restructuring costs
Restructuring costs, comprising severance and other initiatives primarily arising from the integration of acquired businesses in Great Britain and Matthew Clark and Bibendum resulted in an exceptional charge before tax of €0.9m in the current period.
The restructuring costs in the prior financial period of €0.5m comprised primarily of severance costs arising from a restructure of the Group following the expansion of the Group’s manufacturing and distribution partnership with AB InBev.
5. Earnings per ordinary share
|
Denominator computations | ||||
|
| 31 August 2018 Number ‘000 | 31 August 2017 Number ‘000 | ||
| Number of shares at beginning of period | 317,876 | 325,546 | ||
| Shares issued in respect of options exercised | - | 426 | ||
| Shares issued in lieu of dividend | 2,478 | 886 | ||
| Share buyback and subsequent cancellation | - | (8,618) | ||
| Number of shares at end of period | 320,354 | 318,240 | ||
| Weighted average number of ordinary shares, excluding treasury shares (basic) | 307,538 | 309,327 | ||
| Adjustment for the effect of conversion of options | 686 | 224 | ||
| Weighted average number of ordinary shares, including options (diluted) | 308,224 | 309,551 |
Profit for the period attributable to ordinary shareholders
|
| Six months to 31 August 2018 €m | Six months to 31August 2017 €m | ||
| Earnings as reported | 44.8 | 39.2 | ||
| Adjustments for exceptional items, net of tax (note 4) | 2.7 | 0.6 | ||
| Earnings as adjusted for exceptional items, net of tax | 47.5 | 39.8 | ||
| Basic earnings per share | Cent | Cent | ||
| Basic earnings per share | 14.6 | 12.7 | ||
| Adjusted basic earnings per share | 15.4 | 12.9 | ||
| Diluted earnings per share | ||||
| Diluted earnings per share | 14.5 | 12.7 | ||
| Adjusted diluted earnings per share | 15.4 | 12.9 |
Basic earnings per share is calculated by dividing the profit attributable to the ordinary shareholders by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased/issued by the Company and accounted for as treasury shares (31 August 2018: 11.0m shares; 31 August 2017: 11.2m shares).
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period of the year that the options were outstanding.
Employee share awards (excluding awards which were granted under plans where the rules stipulate that obligations must be satisfied by the purchase of existing shares), which are performance-based, are treated as contingently issuable shares because their issue is contingent upon satisfaction of specified performance conditions in addition to the passage of time and continuous employment. In accordance with IAS 33 Earnings per Share, these contingently issuable shares are excluded from the computation of diluted earnings per share where the vesting conditions would not have been satisfied at the end of the reporting period. If dilutive other contingently issuable ordinary shares are included in diluted EPS based on the number of shares that would be issuable if the end of the reporting period was the end of the contingency period. Contingently issuable shares excluded from the calculation of diluted earnings per share totalled 1,014,821 at 31 August 2018 (1,573,087: 31 August 2017).
6. Property, plant & equipment
Acquisitions and disposals
During the current financial period, the Group acquired assets of €7.6m (31 August 2017 total additions: €4.0m). Total cash outflow in the period in relation to the purchase of property, plant & equipment amounted to €8.0m (31 August 2017 total cash outflow: €6.1m) as a result of a reduction in capital accruals. Also during the year as a result of the acquisition of Matthew Clark and Bibendum the Group acquired assets amounting to €4.3m, see note 7.
The Group disposed of assets with a net book value of nil and realised a profit of €0.1m during the period (31 August 2017: €1.2m).
Impairment
The carrying value of items of land & buildings and plant & machinery are reviewed and tested for impairment at each financial year end date or more frequently if events or changes in circumstances indicate that their carrying value may not be recoverable. There was no impairment of fixed assets during the current period.
7. Business combinations
On 4 April 2018, the Group acquired the entire share capital of Matthew Clark (Holdings) Limited and Bibendum PLB (Topco) Limited and their subsidiary businesses, Catalyst, Peppermint, Elastic and Walker & Wodehouse (together “Matthew Clark and Bibendum”) for cash consideration of £1. Matthew Clark and Bibendum enhances the Group’s route to market for cider and super-premium brands across the on-trade and off-trade in the UK.
Matthew Clark and Bibendum
The identifiable net assets acquired, including adjustments to provisional fair values were as follows:
| €m | ||
| ASSETS | ||
| Non-current assets | ||
| Property, plant & equipment | 4.3 | |
| Intangible assets | 2.2 | |
| Deferred income tax assets | 2.0 | |
| Total non-current assets | 8.5 | |
| Current assets | ||
| Cash | - | |
| Inventories | 60.4 | |
| Trade & other receivables | 216.9 | |
| Current assets | 277.3 | |
| LIABILITIES | ||
| Trade & other payables | (283.7) | |
| Borrowings | (116.5) | |
| Current income tax liabilities | (1.1) | |
| Provisions | (6.6) | |
| Total liabilities | (407.9) | |
| Net identifiable assets and (liabilities) acquired | (122.1) | |
| Goodwill arising on acquisition | 122.1 | |
| Satisfied by: | ||
| Cash consideration | - |
Due to both the timing of when Matthew Clark and Bibendum acquisition was completed and the size and scale of the acquisition, the allocation of the purchase price and determination of the fair values of identifiable assets acquired and liabilities assumed as disclosed above are provisional. The fair value assigned to identifiable assets and liabilities acquired is based on estimates and assumptions made by management at the time of acquisition. The Group may revise its purchase price allocation during the subsequent reporting window as permitted under IFRS 3.
Post-acquisition impact
The post-acquisition impact of acquisitions completed during the current period on the Group’s results for the financial period was as follows:
| 31 August 2018 | ||
| €m | ||
| Revenue | 529.5 | |
| Operating profit before exceptionals | 6.1 | |
| Profit before tax for the financial period | 4.7 |
The revenue and profit of the Group for the financial period determined in accordance with IFRS as though the acquisition effected during the period has been at the beginning of the period would have been as follows:
| H1’19 acquisitions | C&C Group excluding H1’19 acquisitions | Pro-forma consolidated Group | ||||
| €m | €m | €m | ||||
| Net revenue | 660.1 | 309.2 | 969.3 |
Admiral Taverns
The initial assignment of fair value to identifiable net assets (most significantly property) acquired has been performed on a provisional basis in respect of Admiral Taverns; any amendments to these fair values made during the measurement period permitted by IFRS 3 Business Combinations will be subject to subsequent disclosure.
8. Goodwill & intangible assets
| Goodwill | Brands | Other intangible assets | Total | |||||
| €m | €m | €m | €m | |||||
| Cost | ||||||||
| At 1 March 2017 | 480.4 | 303.3 | 4.6 | 788.3 | ||||
| Additions | 5.5 | 4.9 | - | 10.4 | ||||
| Translation adjustment | (3.2) | (10.5) | (0.1) | (13.8) | ||||
| At 31 August 2017 | 482.7 | 297.7 | 4.5 | 784.9 | ||||
| Additions | 1.4 | - | - | 1.4 | ||||
| Adjustment for previous business combination | 9.0 | - | - | 9.0 | ||||
| Translation adjustment | 1.6 | 2.5 | - | 4.1 | ||||
| At 28 February 2018 | 494.7 | 300.2 | 4.5 | 799.4 | ||||
| Acquisition of Matthew Clark and Bibendum | 122.1 | - | 2.2 | 124.3 | ||||
| Additions | - | - | 0.3 | 0.3 | ||||
| Translation adjustment | (3.5) | - | - | (3.5) | ||||
| At 31 August 2018 | 613.3 | 300.2 | 7.0 | 920.5 | ||||
| Amortisation and impairment | ||||||||
| At 1 March 2017 | (76.2) | (180.4) | (1.4) | (258.0) | ||||
| Charge for the period ended 31 August 2017 | - | - | (0.2) | (0.2) | ||||
| At 31 August 2017 | (76.2) | (180.4) | (1.6) | (258.2) | ||||
| Charge for the period ended 28 February 2018 | - | - | (0.1) | (0.1) | ||||
| At 28 February 2018 | (76.2) | (180.4) | (1.7) | (258.3) | ||||
| Charge for the period ended 31 August 2018 | - | - | (0.8) | (0.8) | ||||
| At 31 August 2018 | (76.2) | (180.4) | (2.5) | (259.1) | ||||
| Net Book Value at 31 August 2018 | 537.1 | 119.8 | 4.5 | 661.4 | ||||
| Net Book Value at 28 February 2018 | 418.5 | 119.8 | 2.8 | 541.1 | ||||
| Net Book Value at 31 August 2017 | 406.5 | 117.3 | 2.9 | 526.7 |
On 4 April 2018, the Group acquired the entire share capital of Matthew Clark (Holdings) Limited and Bibendum PLB (Topco) Limited and their subsidiary businesses, Catalyst, Peppermint, Elastic and Walker & Wodehouse (together “Matthew Clark and Bibendum”). Matthew Clark and Bibendum enhances the Group’s route to market for cider and super-premium brands across the on-trade and off-trade in the UK. This resulted in the recognition of provisional goodwill of €122.1m and other intangible assets of €2.2m at date of acquisition.
During FY2018, the Group acquired Orchard Pig, a fast-growing craft cider based in Somerset which has built both a strong consumer franchise and an impressive distribution footprint across the on and off-trade, particularly in London and the Southeast of England. This resulted in the recognition of Goodwill of €6.2m at date of acquisition and the recognition of the Orchard Pig brand of €4.9m. Also during the prior year, the Group acquired Badaboom, a marketing entity based in Glasgow, Scotland resulting in the recognition of goodwill of €0.7m at date of acquisition. During 2018, the Group re-assessed the basis of calculating the deferred income tax arising on fair valued historic business combinations, and specifically the expected manner of recovery of the acquired land & buildings. This reassessment has increased goodwill by €9.0m.
Goodwill consists both of goodwill capitalised under Irish GAAP which at the transition date to IFRS was treated as deemed cost and goodwill that arose on the acquisition of businesses since that date which was capitalised at cost and subsequently at fair value and represents the synergies arising from cost savings and the opportunity to utilise the extended distribution network of the Group to leverage the marketing of acquired products. All goodwill is regarded as having an indefinite life and is not subject to amortisation under IFRS but is subject to annual impairment testing.
Capitalised brands are regarded as having indefinite useful economic lives and therefore have not been amortised. The brands are protected by trademarks, which are renewable indefinitely in all major markets where they are sold and it is the Group’s policy to support them with the appropriate level of brand advertising. In addition, there are not believed to be any legal, regulatory or contractual provisions that limit the useful lives of these brands. Accordingly, the Directors believe that it is appropriate that the brands be treated as having indefinite lives for accounting purposes.
Trade relationships, acquired as part of the acquisition of Wallaces Express in FY2015, the Gleeson trade relationships acquired in FY2014 and 20 year distribution rights for third party beer products acquired as part of the acquisition of the Tennent’s business during FY2010. These were valued at fair value on the date of acquisition in accordance with the requirements of IFRS 3 (2004) Business Combinations by independent professional valuers. The intangible assets have a finite life and are subject to amortisation on a straight line basis. During the year, as a result of the acquisition of Matthew Clark and Bibendum the Group acquired intangible assets amounting to €2.2m, see note 7. The amortisation charge for the period ended 31 August 2018 with respect to intangible assets was €0.8m (31 August 2017: €0.2m).
Brands, goodwill and other intangible assets considered to have an indefinite life, are reviewed for indicators of impairment regularly and are subject to impairment testing on an annual basis unless events or changes in circumstances indicated that the carrying values may not be recoverable and impairment testing is required earlier. The value of brands, goodwill and other intangible assets considered to have an indefinite life were assessed for impairment at 28 February 2018, and, given no changes in circumstances since that date, they will be formally assessed again at 28 February 2019.
9. Interest bearing loans & borrowings
| 31 August 2018 | 31August2017 | 28February2018 | ||||
| €m | €m | €m | ||||
| Current assets | ||||||
| Unamortised issue costs | (1.5) | (0.4) | (0.4) | |||
| Non-current liabilities | ||||||
| Unsecured interest bearing loans and borrowings | 494.7 | 390.7 | 383.5 | |||
| Current liabilities | ||||||
| Unsecured interest bearing loans and borrowings | 28.1 | - | - | |||
| Total borrowings | 521.3 | 390.3 | 383.1 |
Outstanding non-current unsecured interest bearing loans and borrowings are net of unamortised issue costs which are being amortised to the Income Statement over the remaining life of the Group’s multi-currency facility. During the year the Group prepaid issue costs of €5.0m on the amended loan facility. The value of unamortised issue costs at 31 August 2018 was €5.4m (28 February 2018: €0.7m, 31 August 2017: €0.9m) of which €3.9m was netted against non-current unsecured liabilities (28 February 2018: €0.3m, 31 August 2017: €0.5m) and €1.5m (28 February 2018: €0.4m, 31 August 2017: €0.4m) is included within current assets, in trade & other receivables, on the Balance Sheet.
In July 2018, the Group amended and updated its committed €450m multi-currency five year syndicated revolving loan facility and executed a three year €150m term loan with eight banks, namely Allied Irish Bank, Bank of Ireland, Bank of Scotland, Barclays Bank, HSBC, Rabobank, Ulster Bank and ABN Amro Bank. The former facility is repayable in a single instalment on 12 July 2023 and the latter term loan is repayable in annual instalments to 12 July 2021. The facility agreement provides for a further €100m in the form of an uncommitted accordion facility and permits the Group to avail of further financial indebtedness, excluding working capital and guarantee facilities, to a maximum value of €200m, subject to agreeing the terms and conditions with the lenders. Consequently the Group is permitted under the terms of the agreement, to have debt capacity of €900m of which €526.7m was drawn at 31 August 2018 (28 February 2018: €383.8m, 31 August 2017: €391.2m was drawn under the Group’s 2012 multi-currency facility).
Under the terms of the agreement, the Group must pay a commitment fee based on 35% of the applicable margin on undrawn committed amounts and variable interest on drawn amounts based on variable Euribor/Libor interest rates plus a margin, the level of which is dependent on the net debt:EBITDA ratio, plus a utilisation fee, the level of which is dependent on percentage utilisation. The Group may select an interest period of one, two, three or six months.
The Group’s multi-currency facility is guaranteed by a number of the Group’s subsidiary undertakings. The facility agreement allows the early repayment of debt without incurring additional charges or penalties and the facility is repayable in full on change of control of the Group.
The Group’s borrowings incorporates two financial covenants:
Interest cover: The ratio of EBITDA to net interest for a period of 12 months ending on each half-year date will not be less than 3.5:1 Net debt/EBITDA: The ratio of net debt to EBITDA for each 12 month period ending as of the half-year date falling in August 2018 and February 2019 will not exceed 3.75:1; and Net debt/EBITDA: The ratio of net debt to EBITDA for each 12 month period ending as of the half-year date falling in August 2019 and thereafter will not exceed 3.50:1The Group complied with both covenants throughout the current and prior financial periods.
10. Analysis of net debt
| 1 March 2018 €m | Translation adjustment €m | Debt arising on acquisition €m | Cash flow, net €m | Non-cash changes €m | 31 August 2018 €m | |||||||
| Interest bearing loans & borrowings | 383.1 | (3.1) | 116.5 | 24.5 | 0.3 | 521.3* | ||||||
| Cash | (145.5) | 1.0 | - | (97.9) | - | (242.4) | ||||||
| 237.6 | (2.1) | 116.5 | (73.4) | 0.3 | 278.9 |
* Interest bearing loans & borrowings at 31 August 2018 are net of unamortised issue costs of €5.4m of which €1.5m is classified on the balance sheet as a current asset
| 1 September2017 €m | Translationadjustment €m | Debt arisingon acquisition€m | Cashflow, net €m | Non-cashchanges€m | 28 February2018 €m | |||||||
| Interest bearing loans & borrowings | 390.3 | 2.0 | - | (9.4) | 0.2 | 383.1* | ||||||
| Cash | (217.7) | (2.8) | - | 75.0 | - | (145.5) | ||||||
| 172.6 | (0.8) | - | 65.6 | 0.2 | 237.6 |
*Interest bearing loans & borrowings at 28 February 2018 are net of unamortised issue costs of €0.7m of which €0.4m is classified on the balance sheet as a current asset
| 1 March 2017 €m | Translationadjustment €m | Debt arisingon acquisition€m | Cashflow, net €m | Non-cashchanges€m | 31 August2017 €m | |||||||
| Interest bearing loans & borrowings | 358.2 | (3.1) | - | 35.0 | 0.2 | 390.3* | ||||||
| Cash | (187.6) | 10.3 | - | (40.4) | - | (217.7) | ||||||
| 170.6 | 7.2 | - | (5.4) | 0.2 | 172.6 |
* Interest bearing loans & borrowings at 31 August 2017 are net of unamortised issue costs of €0.9m of which €0.4m is classified on the balance sheet as a current asset
The non-cash changes in the current and prior periods relate to the amortisation of issue costs.
11. Financial assets and liabilities
The carrying and fair values of financial assets and liabilities at 31 August 2018 and 31 August 2017 were as follows:
| Derivative | Other | Other | |||||||||
| 31 August 2018 | financial | financial | financial | Carrying | Fair | ||||||
| instruments | assets | liabilities | value | value | |||||||
| €m | €m | €m | €m | €m | |||||||
| Financial assets: | |||||||||||
| Cash | - | 242.4 | - | 242.4 | 242.4 | ||||||
| Trade receivables | - | 249.5 | - | 249.5 | 249.5 | ||||||
| Advances to customers | - | 50.0 | - | 50.0 | 50.0 | ||||||
| Financial liabilities: | |||||||||||
| Interest bearing loans & borrowings | - | - | (521.3) | (521.3) | (526.7) | ||||||
| Derivative contracts | (0.2) | - | - | (0.2) | (0.2) | ||||||
| Trade & other payables | - | - | (485.1) | (485.1) | (485.1) | ||||||
| Provisions | - | - | (11.2) | (11.2) | (11.2) | ||||||
| (0.2) | 541.9 | (1,017.6) | (475.9) | (481.3) | |||||||
| 31 August 2017 | Derivative | Other | Other | ||||||||
| financial | financial | financial | Carrying | Fair | |||||||
| instruments | assets | liabilities | value | value | |||||||
| €m | €m | €m | €m | €m | |||||||
| Financial assets: | |||||||||||
| Cash | - | 217.7 | - | 217.7 | 217.7 | ||||||
| Trade receivables | - | 51.8 | - | 51.8 | 51.8 | ||||||
| Advances to customers | - | 49.7 | - | 49.7 | 49.7 | ||||||
| Financial liabilities: | |||||||||||
| Interest bearing loans & borrowings | - | - | (390.3) | (390.3) | (391.2) | ||||||
| Trade & other payables | - | - | (174.9) | (174.9) | (174.9) | ||||||
| Provisions | - | - | (10.5) | (10.5) | (10.5) | ||||||
| - | 319.2 | (575.7) | (256.5) | (257.4) |
Determination of fair value
The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Condensed Consolidated Interim Financial Statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s annual financial statement as at 28 February 2018.
Short term bank deposits and cash
The nominal amount of all short-term bank deposits and cash is deemed to reflect fair value at the balance sheet date.
Trade receivables/payables & other payables
The nominal amount of all trade receivables/payables after provision for impairment is deemed to reflect fair value at the balance sheet date with the exception of provisions which are discounted to fair value.
Advances to customers
The nominal amount of advances to customers, after provision for impairment, is considered to reflect fair value.
Interest bearing loans & borrowings
The fair value of all interest bearing loans & borrowings has been calculated by discounting all future cash flows to their present value using a market rate reflecting the Group’s cost of borrowing at the balance sheet date. All loans bear interest at floating rates.
Derivatives (forward currency contracts)
The fair value of forward currency contracts are based on market price calculations using financial models.
The Group has adopted the following fair value measurement hierarchy for financial instruments that are measured in the balance sheet at fair value:
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).The carrying values of all forward currency contracts held by the Group at 31 August 2018 were based on fair values arrived at using Level 2 inputs. These forward foreign exchange contracts have been fair valued using forward exchange rates that are quoted in an active market.
12. Retirement benefits
As disclosed in the Annual Report for the year ended 28 February 2018, the Group operates a number of defined benefit pension schemes for certain employees, past and present, in the Republic of Ireland (ROI) and in Northern Ireland (NI), all of which provide pension benefits based on final salary and the assets of which are held in separate trustee administered funds. The Group closed its defined benefit pension schemes to new members in March 2006 and provides only defined contribution pension schemes for employees joining the Group since that date. The Group provides permanent health insurance cover for the benefit of certain employees and separately charges this to the Income Statement. There are no active members remaining in the Group’s executive defined benefit pension scheme (2018: no active members) while there are 57 active members (2018: 57 active members), representing less than 10% of total membership, in the ROI Staff defined benefit pension scheme and 3 active members in the NI defined benefit pension scheme (2018: 4 active members).
Independent actuarial valuations of the defined benefit pension schemes are carried out on a triennial basis using the attained age method. The most recent 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. The actuarial valuations are not available for public inspection; however the results of the valuations are advised to members of the various schemes.
The funding requirements in relation to the Group’s ROI defined benefit pension schemes are assessed at each valuation date and are implemented in accordance with the advice of the actuaries. Arising from the formal actuarial valuations of the main schemes the Group has committed to contributions of 27% of pensionable salaries. In the short term deficit contributions are not required for the Group’s staff defined benefit scheme. There is no funding requirement with respect to the Group’s executive defined benefit pension scheme in 2018. The funding requirement will be reviewed again as part of the next triennial valuation in January 2021. The 2018 actuarial valuation of the NI defined benefit pension scheme confirmed it was in surplus and the scheme remains in surplus.
The Balance Sheet valuation of the Group’s defined benefit pension schemes’ assets and liabilities have been marked-to-market as at 31 August 2018 to reflect movements in the fair value of assets and changes in the assumptions used by the schemes’ actuaries to value the liabilities.
The key factors influencing the change in valuation of the Group’s defined benefit pension scheme obligations are as outlined below:-
| Period ended 31 August 2018 €m | Period ended 31August 2017 €m | Year ended 28February 2018 €m | ||||
| Retirement benefit deficit at beginning of period (ROI schemes) | 3.8 | 22.3 | 22.3 | |||
| Retirement benefit asset at beginning of period (NI scheme) | (4.8) | (4.5) | (4.5) | |||
| Current service cost | 0.5 | 0.6 | 1.3 | |||
| Past service gain | (0.1) | (1.3) | (2.6) | |||
| Net finance cost | - | 0.2 | 0.3 | |||
| Experience variations | 0.2 | 1.4 | (2.0) | |||
| Actuarial loss/(gain) from changes in financial assumptions | 1.8 | (5.2) | (6.3) | |||
| Actuarial gain from changes in demographic assumptions | (0.2) | - | (7.6) | |||
| Return on scheme assets excluding interest income | (5.2) | 0.6 | (0.9) | |||
| Company contributions | - | (0.7) | (1.2) | |||
| Translation adjustment | - | 0.3 | 0.2 | |||
| Retirement benefit deficit at end of period (ROI schemes) | 1.6 | 18.1 | 3.8 | |||
| Retirement benefit asset at end of period (NI scheme) | (5.6) | (4.4) | (4.8) |
The increase in the surplus of the Group’s defined benefit pension schemes, since 28 February 2018, as computed in accordance with IAS 19(R) Employee Benefits is primarily as a result of the higher than anticipated investment return on the pension schemes’ assets. The gain due to assets was slightly offset by the change in financial assumptions resulting from lower discount rates as set by corporate bond yields. The defined benefit surplus is recoverable as at 31 August 2018.
All other significant assumptions applied in the measurement of the Group’s pension obligations at 31 August 2018 are materially consistent with those as applied at 28 February 2018 as set out in the Group’s Annual Report at that date.
13. Other reserves
Share premium
In July 2018, 2,478,035 ordinary shares were issued to the holders of ordinary shares who elect to receive additional ordinary shares at a price of €2.9486 per share, instead of part or all of the cash element of their final dividend entitlement for the year ended 28 February 2018.
The movement in FY2018 relates to the exercise of share options, and the issuance of a scrip dividend to those who elected to receive additional ordinary shares in place of a cash dividend.
Other undenominated reserve and capital reserve
These reserves initially arose on the conversion of preference shares into share capital of the Company and other changes and reorganisations of the Group’s capital structure. The movements in the prior financial period relate to the on-market share buyback programme undertaken by the Group.
Cash flow hedging reserve
The hedging reserve includes the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedging transactions that have not yet occurred.
Share-based payment reserve
The reserve relates to amounts expensed in the Income Statement in connection with share option grants falling within the scope of IFRS 2 Share-based Payment, plus amounts received from participants on award of Interests under the Group’s Joint Share Ownership Plan, less reclassifications to retained income following exercise/forfeit post vesting or lapse of such share options and Interests.
Currency translation reserve
The translation reserve comprises all foreign exchange differences from 1 March 2004, arising from the translation of the Group’s net investment in its non-Euro denominated operations, including the translation of the profits of such operations from the average exchange rate for the year to the exchange rate at the Balance Sheet date, as adjusted for the translation of foreign currency borrowings designated as net investment hedges and long-term intra group loans for which settlement is neither planned nor likely to happen in the foreseeable future, and as a consequence are deemed quasi equity in nature and are therefore part of the Group’s net investment in foreign operations.
Revaluation reserve
Since 2009 the Group has completed a number of external valuations on its property, plant and equipment. Gains arising from such revaluations are posted to the Group’s revaluation reserve. Any decreases in the value of the Group’s property, plant and equipment as a result of external or internal valuations are recognised in the Income Statement except where there had been a previously recognised gain in the revaluation reserve as a result of the same asset, in which case, the gain is eliminated from the revaluation reserve to offset the loss in the first instance.
The movement in FY2018 is due to the external valuation of the Group’s land and buildings and plant and machinery.
Treasury shares
Included in this reserve is where the Company issues equity share capital under its Joint Share Ownership Plan, which is held in trust by the Group’s Employee Trust. The consideration paid, 90% by a Group company and 10% by the participants, in respect of these shares is deducted from total shareholders’ equity and classified as treasury shares on consolidation until such time as the Interests vest and the participant acquires the shares from the Trust or the Interests lapse and the shares are cancelled or disposed of by the Trust. Also included in the reserve is the purchase of 9,025,000 of the Company’s own shares in the financial year ended 28 February 2015 at an average price of €3.29 per share under the Group’s share buyback programme.
The movement in FY2018 relates to Interests under the Joint Share Ownership Plan being acquired by participants from the Trust and the sale of excess shares by the Trust to satisfy other share entitlements.
14. Dividend
A final dividend of 9.37 cent per ordinary share (2017: 9.37 cent) was paid to shareholders on 13 July 2018 equating to a distribution of €28.8m, of which €21.5m was paid in cash and €7.3m as a scrip alternative.
An interim dividend of 5.33 cent per share for payment on 14 December 2018 is proposed to be paid to shareholders registered at the close of business on 2 November 2018. Using the number of shares in issue at 31 August 2018 and excluding those shares for which it is assumed that the right to dividend will be waived this would equate to a distribution of €16.5m.
Dividends declared but unpaid at the date of approval of the financial statements are not recognised as a liability at the balance sheet date.
15. Related parties
The principal related party relationships requiring disclosure under IAS 24 Related Party Transactions pertain to the existence of subsidiary undertakings and equity accounted investments, transactions entered into by the Group with these subsidiary undertakings and equity accounted investments and the identification and compensation of, and transactions with, key management personnel.
Key management personnel
For the purposes of the disclosure requirements of IAS 24 Related Party Disclosures, the Group has defined the term “key management personnel”, as its executive and non-executive Directors. Executive Directors participate in the Group’s equity share award schemes, permanent health insurance (or reimbursement of premiums paid into a personal policy) and death in service insurance programme. Executive Directors may also benefit from medical insurance under a Group policy (or the Group will reimburse premiums). No other non-cash benefits are provided. Non-executive Directors do not receive share-based payments or post employment benefits.
Key management personnel received total compensation, including Income Statement net charge for share-based payments, of €2.3m for the six months ended 31 August 2018 (31 August 2017: €1.5m) of which €1.8m pertains to non share-based payment compensation, and €0.5m to share-based payment compensation (31 August 2017: €1.3m pertains to non share-based payment compensation and €0.2m to share-based compensation).
Also during the period and pursuant to a contract for services effective as of 1 April 2014 between C&C IP Sàrl (‘CCIP’) and Joris Brams BVBA (‘JBB’), (a company wholly owned by Joris Brams and family), CCIP paid fees of less than €0.1m to JBB in respect of brand development services provided by JBB to CCIP in relation to Belgian products.
Equity accounted investments
Admiral Taverns
On 6 December 2017, the Group entered into a joint venture arrangement for 49.9% share in Brady P&C Limited, a UK incorporate entity with Proprium Capital Partners (50.1%). Brady P&C Limited subsequently incorporated a UK company, Brady Midco Limited where Admiral management acquired 6.5% of the shares. Brady Midco Limited incorporated Brady Bidco Limited which acted as the acquisition vehicle to acquire the entire share capital of AT Brit Holdings Limited (trading as Admiral Taverns) on the 6 December 2017. The equity investment by the Group is £37.4m (€42.4m euro equivalent on date of investment) representing 46.65% of the issued share capital of Admiral Taverns. Admiral Taverns currently own and operate circa 800 pubs, mainly in England and Wales, with a broad geographic distribution.
Canadian Investment
In the prior financial period, the Group increased its investment in a Canadian Company by $2.5m (€1.8m euro equivalent on date of investment). This followed a similar investment of $2.5m in FY2017. The Group now owns 24.7% of the equity share capital of this entity.
Whitewater Brewing Co. Limited
In FY2017 the Group acquired 25% of the equity share capital of Whitewater Brewing Company Limited (“Whitewater”), an Irish Craft brewer for £0.3m (€0.3m).
Drygate Brewing Company Limited
During FY2015, the Group entered into a joint venture arrangement with Heather Ale Limited, run by the Williams brothers who are recognised as leading family craft brewers in Scotland, to form a new entity Drygate Brewing Company Limited. The joint venture, which is run independently of the joint venture partners existing businesses, operates a craft brewing and retail facility adjacent to Wellpark brewery.
Shanter Inns Limited
A subsidiary of the Group holds a 33% investment in Shanter Inns Limited with which the Group trades.
Beck & Scott (Services) Limited
The Group also holds a 50% investment in Beck & Scott (Services) Limited (Northern Ireland) and a 45.61% investment in The Irish Brewing Company Limited (Ireland) following its acquisition of Gleeson.
Loans extended by the Group to equity accounted investments are considered trading in nature and are included within advances to customers in Trade & other receivables.
All outstanding trading balances with equity accounted investments, which arose from arm’s length transactions, are to be settled in cash within one month of the reporting date.
Details of transactions with equity accounted investments during the period and related outstanding balances at the period end are as follows:-
| Net revenue | Balance outstanding | |||||||||
| Six months to August 2018 | Six monthsto August2017 | August 2018 | August2017 | |||||||
| €m | €m | €m | €m | |||||||
| Sale of goods to equity accounted investments: | ||||||||||
| Beck & Scott (Services) Limited (Northern Ireland) | - | 0.1 | - | - | ||||||
| Drygate Brewing Company Limited | 0.1 | 0.1 | - | - | ||||||
| Shanter Inns Limited | 0.3 | 0.1 | 0.1 | 0.1 | ||||||
| Admiral Taverns | 0.1 | - | - | - | ||||||
| 0.5 | 0.3 | 0.1 | 0.1 | |||||||
|
| Balance outstanding | |||||||||
| August 2018 | August2017 | |||||||||
| €m | €m | |||||||||
| Loans to equity accounted investments: | ||||||||||
| Drygate Brewing Company Limited | 1.6 | 1.7 | ||||||||
| Whitewater Brewing Company Limited | 0.6 | 0.6 | ||||||||
| Canadian Investment | 2.0 | 2.0 | ||||||||
| Shanter Inns Limited | 0.7 | 0.2 | ||||||||
| 4.9 | 4.5 | |||||||||
|
| Purchases | Balance outstanding | ||||||||
| Six months to August 2018 | Six monthsto August2017 | August 2018 | August2017 | |||||||
| €m | €m | €m | €m | |||||||
| Purchase of goods from equity accounted investments: | ||||||||||
| Whitewater Brewing Company Limited | 0.1 | 0.1 | - | - | ||||||
| Drygate Brewing Company Limited | 0.3 | 0.5 | 0.3 | 0.3 | ||||||
| 0.4 | 0.6 | 0.3 | 0.3 | |||||||
There have been no other related party transactions that could have a material impact on the financial position or performance of the Group for the first six months of the financial year ending 28 February 2019.
16. Prior year reclassification
| H1’18 | Restatement | Restated H1’18 | ||||
| Revenue | 407.5 | 22.2 | 429.7 | |||
| Excise duties | (134.4) | (2.5) | (136.9) | |||
| Operating costs before exceptional items | (222.6) | (19.7) | (242.3) | |||
| Operating costs after exceptional items | (223.3) | (19.7) | (243.0) |
In FY2018, in anticipation of the implementation of IFRS 15 Revenue from Contracts with Customers from 1 March 2018, management began examining the accounting for revenue for certain arrangements. In respect of certain of the Group’s arrangements with third parties entered into in order to utilise excess capacity, management has determined that income from such arrangements, previously netted from operating costs, should more appropriately be recorded gross, as revenue. Accordingly, management have changed the classification of such income in the Income Statement for the period ended 31 August 2018. In the current year, the amount recorded that would have been netted from operating costs was €16.1m and accordingly, in the prior year Income Statement line items have been restated as follows: gross revenue has increased by €22.2m, excise duties have increase by €2.5m, and net sales revenue and operating costs have increased by €19.7m. Applicable notes have accordingly also been adjusted. The restatement has no impact on net income or net assets for the prior period.
17. Events after the balance sheet date
On 17 October 2018, the Group signed an agreement to sell all of its shares in its Canadian equity accounted investment (comprising 24.7% of the entity’s total share capital) for a purchase price of €6.1m (CAD$9.1m). Completion date is due to take place by 31 December 2018, the counterparty has an option to extend this by 6 months subject to payment of an extension fee.
There were no further material events subsequent to the balance sheet date of 31 August 2018 which would require disclosure in this report.
18. Board approval
The Board approved the financial report for the six months ended 31 August 2018 on 25 October 2018.
19. Distribution of interim report
This report and further information on C&C is available on the Group’s website (www.candcgroupplc.com). Details of the Scrip Dividend Offer in respect of the interim dividend for the financial year 28 February 2019 will be posted to shareholders on 12 November 2018.
Supplementary financial information
Alternative performance measures
The Directors have adopted various alternative performance measures (“APMs”) to provide additional useful information on the underlying trends, performance and position of the Group. These measures are used for performance analysis. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies’ alternative performance measures. These measures are not intended to be a substitute for, or superior to, IFRS measurements. The key Alternative Performance Measures (“APMs”) of the Group are set out below:
Adjusted earnings or operating profit before exceptional items: Profit for the period attributable to equity shareholders as adjusted for exceptional items. Adjusted EBITDA or EBITDA: EBITDA is earnings before exceptional items, finance income, finance expense, share of equity accounted investments’ profit after tax, tax, depreciation, and, amortisation charges. Constant currency: Prior period revenue, net revenue and operating profit for each of the Group’s reporting segments as restated to constant exchange rates for transactions by subsidiary undertakings in currencies other than their functional currency and for translation in relation to the Group’s non-Euro denominated subsidiaries. Refer to page 17 for constant currency table. Exceptional items: Significant items of income and expense within the Group results for the period which by virtue of their scale and nature are disclosed in the income statement and related notes as exceptional items. Free Cash flow: Free Cash Flow (‘FCF’) is a non GAAP measure that comprises cash flow from operating activities net of capital investment cash outflows/(inflows) which form part of investing activities. FCF highlights the underlying cash generating performance of the on-going business and does include net cash flows resulting from the Group’s purchase receivables programme, which amounted to an €106m inflow in the period. A reconciliation of FCF to Net Movement in Cash per the Group’s Cash Flow Statement is set out on page 15. Net debt: Net debt comprises borrowings (net of unamortised issue costs) less cash. Net debt/EBITDA: A measurement of leverage, calculated as the Group’s net debt, divided by its adjusted EBITDA. Net revenue: Net Revenue is defined by the Group as Revenue less Excise duties. Net revenue excludes duty relating to the brewing and packaging of certain products. Excise duties, which represent a significant proportion of Revenue, are set by external regulators over which the Group has no control and are generally passed on to the consumer, consequently the Directors consider that the disclosure of Net Revenue enhances the transparency and provides a more meaningful analysis of underlying sales performance. Operating margin: Operating margin is based on operating profit before exceptional items and is calculated as a percentage of net revenue. Refer to segmental review for operating margin calculations.| Reconciliation of profit to EBITDA | H1’19 €m | H1’18 €m | Adjusted profit before tax | H1’19 €m | H1’18 €m | ||||||
| Profit after tax | 44.8 | 39.2 | |||||||||
| Income tax expense | 8.0 | 6.8 | Profit before tax | 52.8 | 46.0 | ||||||
| Net finance expense | 5.0 | 3.8 | Exceptional items before tax | 3.1 | 0.7 | ||||||
| Share of equity accounted investments’ profit after tax | (2.5) | - | Adjusted profit before tax | 55.9 | 46.7 | ||||||
| Intangible asset amortisation | 0.8 | 0.2 | |||||||||
| Depreciation | 7.0 | 6.9 | |||||||||
| EBITDA | 63.1 | 56.9 | |||||||||
| Adjusted EBITDA | H1’19 €m | H1’18 €m | Adjusted profit after tax | H1’19 €m | H1’18 €m | ||||||
| EBITDA | 63.1 | 56.9 | Profit after tax | 44.8 | 39.2 | ||||||
| Exceptional items before tax | 3.1 | 0.7 | Exceptional items after tax | 2.7 | 0.6 | ||||||
| Adjusted EBITDA | 66.2 | 57.6 | Adjusted profit after tax | 47.5 | 39.8 | ||||||
| Net revenue | H1’19 €m | H1’18 as restated €m | Net debt | H1’19 €m | H1’18 €m | ||||||
| Revenue | 980.7 | 429.7 | Interest bearing loans & borrowings | 521.3 | 390.3 | ||||||
| Excise duties | (142.0) | (136.9) | Cash | (242.4) | (217.7) | ||||||
| Net revenue | 838.7 | 292.8 | Net debt | 278.9 | 172.6 | ||||||
| Adjusted EBITDA (trailing)* | 132.7 | 104.9 | |||||||||
| Net debt to EBITDA** | 2.10x | 1.65x |
* Adjusted EBITDA (trailing) includes EBITDA from our recently acquired businesses Matthew Clark and Bibendum from 1 September 2017 – 3rd April 2018.** Net debt to EBITDA at 31 August 2018 is calculated based on adjusted trailing EBITDA, excluding guarantee facilities, net of unamortised issue costs of €5.4m of which €1.5m is classified on the balance sheet as a current asset.
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