Divisional Review
– Acquired Businesses (i)


FY2010/11 Tennent’s
Brand
€m
Third party
brands
€m
Total
Tennent’s
Business
€m
Gaymers
€m
Total
acquired
businesses
€m
           
Revenue 227.2 82.3 309.5 152.7 462.2
Net revenue 103.5 75.0 178.5 88.0 266.5
Operating profit (1) 21.0 6.5 27.5 6.6 34.1
Operating margin (1) 20.3% 8.7% 15.4% 7.5% 12.8%
Volumes – khl 1,560 389 1,949 1,623  

(1) Operating profit and operating margin have been calculated on a contribution basis and as such there is no allocation of central overheads netted against these numbers. The segmental operating profits as reported in note 2 to these financial statements are net of an allocation of central overheads.

Tennent's
The Tennent’s business which includes both Scotland and Northern Ireland made a solid contribution in FY2010/11. Investment levels in the brand increased to over 11% of net revenue through sponsorship of both Glasgow Celtic and Rangers football clubs, the ‘T in The Park’ music festival and the return of Tennent’s advertising to television. Early returns from the investment are evident in the performance of the brand in the on trade. In Scotland, retail volumes expanded through distribution and were up 1% year on year. This was in line with the beer market and 2 percentage points ahead of the lager category. In the off trade, retail volumes were down 7% in the year to March with unit pricing improving by 5%. In Northern Ireland, on trade distribution gains helped lift the Tennent’s brand back to market leadership by volume of lager sold. In the off trade channel, the focus remains on rebuilding value and a price position that is commensurate with the strength of the brand. Operating margins on Tennent’s of 20.3% are trending up from 17.4% at the half year.

Operating margins for third party brands of 8.7% are understandably lower than the Tennent’s brand margin. As part of the Tennent’s portfolio offering, however, the third party brands have enjoyed the benefit of outlet gains and the volume performance was robust during the year.

In ROI, there are encouraging signs for the new beer portfolio. The focus in FY2010/11 was building distribution for Tennent’s and the rest of the portfolio. Most of the profits generated were re-invested in the brands. It is anticipated that in FY2011/12 the beer portfolio will begin to contribute more meaningfully to earnings in ROI.

The contribution from the Tennent’s acquisition is pleasing and there are early indications that the route to market strength in Scotland will prove to be positive for the development of Magners. Market share for Magners in the on trade in Scotland increased to 21.6% on annual growth of 13%. This compares very favourably to the overall GB position, where Magners on trade market share is 13.4%. The Scottish on trade cider category also grew ahead of the GB Market.

The contribution from the Gaymers business is slightly below that expected at the time of acquisition. The growth and relative weighting of the Gaymers brand within the portfolio improved margins slightly from the half year. However, the scale of high volume, low margin activity and the linked sensitivity to pricing weighs heavily on the overall economics of the business at this point in time. The separation of the Gaymers business from Constellation was a challenge to commercial focus during the year but the successful integration with the Magners business should provide the right platform for exploiting the extended portfolio to the benefit of Magners.

(i) the acquired businesses relate to the Tennent’s and Gaymers businesses which were acquired from AB InBev and Constellation Brands respectively during the year ended 28 February 2010

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Tennent’s

Tennent’s

Gaymers

Gaymers