CHIEF EXECUTIVE’S REVIEW

John Dunsmore Chief Executive Officer

FOCUSED PLAYER IN LONG ALCOHOLIC DRINKS
This has been a year of unparalleled change for the Group. The integration of Tennent’s and Gaymers and the subsequent disposal of our Spirits & Liqueurs business have strengthened our business in our core domestic markets. We are now a focused player in Long Alcoholic Drinks, with both the quality of brands and the scale required to compete effectively.




During the year employees throughout the business have risen to the challenges of integrating the acquired businesses on time and with minimal customer disruption. Against a demanding consumer backdrop we have delivered on our key financial targets and the operational objectives outlined at the beginning of the financial year have all been delivered. Our Export cider business has expanded strongly as the category grows in a number of international markets. We enter the new financial year almost debt free. The Group is well positioned to pursue further growth opportunities but always in the context of the long-term maximisation of shareholder returns.

Our Key Objectives

You may recollect that at the start of the financial year we outlined to shareholders five key objectives for the year:

1. Integrate and deliver synergies from acquired businesses
2. Continue to build on momentum of Magners in GB
3. Protect Bulmers earnings position in Ireland
4. Capital structure and free cash flow to deliver forward strategic objectives
5. Lay foundation for international development of cider

We have made great progress against these objectives and this is in no small way through the efforts of our employees. I would like to join with the Chairman and the rest of the Board in paying tribute to the loyalty and commitment of all our employees for their contribution over the year.

1. Integration of acquired businesses

The scale of change brought about by the acquisition of Tennent’s and Gaymers was considerable. They were the first acquisitions by the Group outside Ireland since the flotation of the Company and we moved from having one production facility to three, the existing plant in Clonmel being augmented by the brewery in Glasgow and the cider mill at Shepton. Production volumes tripled and the number of employees increased significantly. Four sales organisations had to be integrated and the back office accounting services and systems support functions redirected from services provided by AB InBev and Constellation Brands to our own in house team. We also had an initial objective to achieve €5 million in synergy cost savings.

Following the acquisitions our systems infrastructure required upgrading and we invested in a new IT platform. To support the transition we assembled a dedicated team of over 70 people, with a mixture of internal and external capability. We saw it as critical that we used internal resource as much as possible, to ensure forward capability.

The integration process was phased with an early move to merge the sales force in Ireland, which was then followed by the merger in April of the Tennent’s Northern Ireland business with our existing cider business in Northern Ireland. The Scottish business was by then fully integrated into the Group and in September we switched over to the new IT system. We also unified our call centre operation and created an accounting services function at the Wellpark Brewery in Glasgow. These new centres support all the UK businesses, with Irish operations continuing to be supported from Clonmel. The Gaymers business was merged into Magners GB by August, with a combined sales and marketing team focused on the combined cider portfolio and located in a new central London office. Logistics were merged over the same period and we are now fully operational in our National Distribution Centre near Bristol. The last piece of integration will be the transition from the Constellation IT platform scheduled for late May.

We are pleased with progress made on anticipated synergies. The Tennent’s business has provided a robust platform for growing our cider position in Scotland and Northern Ireland. On the supply side the acquisitions have provided procurement scale, providing a degree of protection from input price inflation.

In financial terms, the synergies presented by the integration are in excess of our original estimates. They are on track to achieve €18 million, 50% of which was realised in FY2010/11, with the remaining 50% to be realised in FY2011/12. The synergies are evenly split between cost savings and revenue.

2. Building momentum in GB

The cider market in Great Britain is the world’s largest and after forty years of growth remains dynamic. New entrants are continually emerging, presenting a competitive challenge but also demonstrating the underlying attractiveness of the category. Consumers are drawn to the sweet natural taste of cider in a wide range of variants. We set ourselves the target of growing at least in line with the market during the financial year. Against the backdrop of internal business change, this was a demanding objective.

Volumes of the Magners brand overall grew 3.6% year on year against overall market growth of 3%. We are pleased with the progress of Magners Pear, now accounting for 14% of total sales volume.

The driving force for this achievement was the shift in our marketing efforts from the start of 2010. In line with the detailed strategy devised and approved by the Board, we have invested heavily to grow the brand, through media spend and through increasing our sales resource.

3. Protect Bulmers position in Ireland

Challenging conditions existed in all of the Group’s markets, and this was especially so in Ireland. Macro economic factors, notably price deflation, exacerbated an already difficult trading environment.

The shift from on-trade to off-trade continued. Our objective for FY11 was to hold earnings at 2010 levels and, despite a loss in our share of off-trade and an overall decline of 3% of cider volumes against a flat LAD market, we have achieved our objective. Brand health is at a two year high and we have seen a slight on-trade performance recovery.

We pursued a number of initiatives to deliver this goal. We continued our brand investment to deliver value and we launched Bulmers Berry. Pricing was adjusted to reflect general deflationary pressures (4% to 5%) and this resulted in a lower price being offered to the on-trade for draught cider. During the year we launched a beer portfolio which includes Becks, Stella Artois and Tennent’s, which delivered incremental profit. Finally, we rigorously examined our cost base and took further steps to reduce manufacturing and support costs. Combined, these actions have enabled us to hit our earnings target.

4. Capital structure

The strategic repositioning of the Group through the acquisition of Tennent’s and Gaymers left us with high levels of debt. The subsequent disposal of our Spirits & Liqueurs business and the underlying strength of our cash flow has taken debt down to €6.3 million.

Our business is well invested and cash flows remain robust. The Board has recognised the underlying balance sheet strength with a proposed 10% increase in the final dividend. In challenging economic conditions, we remain well placed to support both continued business investment and exploit any strategic opportunities that emerge.

5. International development

The Magners brand is sold in over 30 principal countries worldwide. We experienced a strong performance in FY2010/11, with year-on-year volume growth of 34% in our export markets outside Ireland and the UK. The importance of international sales to the Magners brand is growing and currently they account for 13% of total Magners volume. Two of the key markets that we are targeting are North America and Australia, where sales volumes have increased by 36% and by 74% respectively this year.

Cider as a category continues to expand globally. Magners and its Irish provenance have credibility with consumers internationally and our ambition in the medium term is to achieve double-digit brand growth. As one of the world’s top three cider producers we are well positioned to participate fully in category development. Our brand assets, technical knowledge and portfolio coverage provide an excellent platform for delivering on this ambition.

Spirits and Liqueurs

During the financial year, we disposed of the Spirits & Liqueurs business to William Grant & Sons Holdings Ltd, for a gross consideration of €300 million. The sale of this division, which was approved by shareholders on 17 June 2010, has provided us with the opportunity to focus on our core business.

New Launches

Innovation is vital to invigorate consumer interest and to drive revenue growth. In FY2010/11 we launched two new products.

In Ireland we launched Bulmers Berry, which was designed to stretch the brand footprint to younger and female consumers. Together with Bulmers Pear, it has helped broaden the Bulmers brand’s consumer appeal and become more relevant to a younger audience.

Magners Golden Draught was launched in Scotland in June 2010. It has achieved a 12% share of the draught cider market, helped by Tennent’s reach in over 11,000 on-trade premises and a dedicated marketing campaign. Its success will see a further roll-out across England and Wales in the coming year.

Innovation is vital to invigorate consumer interest and to drive revenue growth and we have put in place a comprehensive infrastructure to support a long -term innovation pipeline.

Marketing

We continue with our view that consumers are drawn to strong authentic brands with genuine heritage and quality. Accordingly, we pursue relevant brand strategies tailored for local consumers and we invest for the long term in our key brand assets. ‘There’s method in the Magners’ was our biggest marketing investment of the year involving a large television, digital and poster campaign. The campaign introduces a message that is specific to Magners. Light-hearted advertisements take viewers to Clonmel, the home of Magners, and present a storyline illustrating the authentic Irish craft and provenance of the brand. The campaign has proved successful in raising brand awareness, providing a clear differentiation between Magners and other cider brands.

The marketing focus in Ireland was on the launch of Bulmers Berry, described above.

In Scotland, Tennent’s returned to TV advertising for the first time in five years, with the ‘Hugh Tennent’ campaign. Tennent’s is a brand that has needed investment. The campaign, which reminds consumers of the brand’s heritage, has resulted in increased distribution in the on-trade. We have also continued our sponsorship of Scotland’s largest music festival ‘T in the Park’ and we began a significant sponsorship of Glasgow Rangers and Celtic, the two top Scottish football teams. As a result Tennent’s is building awareness with core drinkers and appealing to a new younger audience.

An innovative scheme was set up at our Wellpark brewery in Scotland. The Tennent’s Training Academy provides vocational training to employees in the retail trade. Supported by funding from the Scottish Government, its courses cover all aspects of hospitality training from health and safety through to catering. This is a significant investment by the Group in our customer base and community and has been widely welcomed.

Chairman

I am delighted to welcome Sir Brian Stewart to the Group. This is his first year with C&C, following his appointment as Chairman at the Annual General Meeting on 5 August 2010. He brings with him a wealth of experience as former chairman of Standard Life plc and chief executive and chairman of Scottish & Newcastle plc. He joins us at a time of considerable change and his experience will undoubtedly be of great value to the Group.

On behalf of the Board, I would like to thank Tony O’Brien, the former Chairman, for his contribution to the Group over many years and wish him well in his retirement.

Outlook

We are pleased with the progress made over the past financial year against a challenging economic and indeed operational backdrop. I believe the Group has demonstrated management depth and strength in absorbing the transformational acquisitions while remaining focused on day-to-day operations.

The world cider markets are in healthy growth. C&C is a scale player in markets that represent over half of world cider and it has a portfolio of strong well invested brands. This is an enviable position. Our scale and the quality of our brand assets together with our low debt level, strong cash flow generation and balance sheet strength, give us a strong base to support the future development of C&C.


John Dunsmore
Chief Executive Officer


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Tennent’s and Gaymers were the first acquisitions for the Group outside Ireland since flotation and in terms of scale and timing presented significant operational challengeS. The integration has, however, been completed on time and we now have a strong platform for future growth.

Sponsorship of Glasgow Rangers and Celtic

We began a significant sponsorship of Glasgow Rangers and Celtic, the two top Scottish football teams. As a result Tennent’s is building awareness with core drinkers and appealing to a new younger audience.

An Underground Movement

Magners Golden Draught

Magners Golden Draught was launched in Scotland in June 2010. It has achieved a 12% share of the draught cider market.