Directors’ Report

The Directors present the annual report and audited consolidated financial statements of the Group for the year ended 28 February 2011.

PRINCIPAL ACTIVITIES, BUSINESS REVIEW AND FUTURE DEVELOPMENTS
The Group’s principal trading activity is the production, marketing and selling of cider and beer.

During the year the Group disposed of its Spirits & Liqueurs business for a gross consideration of €300 million plus working capital adjustments. This disposal was approved by the Group’s shareholders at an Extraordinary General Meeting on 17 June, 2010 and completed on 1 July, 2010.

The information to be included with respect to the review of the business and future developments as required by section 13 of the Companies (Amendment) Act 1986 is contained in the Operations Review on pages 10 to 20.

RESULTS
Revenue on a continuing basis at €789.7m was 60.9% higher than 2010 (2010: €490.8m). Profit before exceptional items and finance costs amounted to €100.5m (2010: €74.8m), an increase of 34.4% on the previous year. The Group earned a profit for the year of €300.4m after accounting for exceptional items and including profit from discontinued activities, giving rise to a basic earnings per share of 93.4c compared with a basic earnings per share in 2010 of 23.2c. Diluted earnings per share from continuing operations amounted to 21.5c compared with a diluted earnings per share of 17.8c in the previous year.

The financial statements for the year ended 28 February 2011 are set out on pages 55 to 109.

DIVIDENDS
An interim dividend of 3.3c per share was paid in December 2010. Subject to approval at the Annual General Meeting, it is proposed to pay a final ordinary dividend of 3.3c per share to shareholders who are registered at close of business on 27 May 2011.

BOARD OF DIRECTORS
Sir Brian Stewart was appointed to the Board as a non-executive Director and Chairman Designate on 9 March 2010. He was elected as Chairman by shareholders at the Company’s Annual General Meeting on 5 August 2010. Mr Tony O’Brien retired as Chairman and a Director after the Annual General Meeting on 5 August 2010

In line with the provisions of the UK Corporate Governance Code published in June 2010, C&C Group is adopting a policy of annual re-election for all Board Directors. Consequently, all Directors will offer themselves for re-election at the Company’s Annual General Meeting to be held on 29 June 2011.

DIRECTORS, SECRETARY AND THEIR INTERESTS
The names of the current Directors appear on pages 32 and 33, together with a short biographical note on each Director. The Directors who served during the year are listed in the table below. Information in relation to the beneficial and non-beneficial interests in the share capital of Group companies held by the Directors and Secretary who held office at 28 February 2011 is contained within the Report of the Remuneration Committee on pages 46 to 51.

Director Status Independent / Non-Independent Appointment
Sir Brian Stewart Current Chairman 2010
John Dunsmore Current Non-Independent | Chief Executive Officer 2008
Stephen Glancey Current Non-Independent | Chief Operating Officer & Group Finance Director 2008
Kenny Neison Current Non-Independent | Strategy Director 2009
John Burgess Current Independent 2004
Liam FitzGerald Current Independent 2004
John Hogan Current Independent 2004
Richard Holroyd Current Independent 2004
Philip Lynch Current Independent 2004
Breege O’Donoghue Current Independent 2004
Tony O’Brien Retired Former Chairman 2004

RESEARCH AND DEVELOPMENT
Certain Group undertakings are engaged in ongoing research and development aimed at improving processes and expanding product ranges.

PRINCIPAL RISKS AND UNCERTAINTIES
Under Irish company law (Statutory Instrument 116.2005 European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005), the Group and Company are required to give a description of the principal risks and uncertainties which they face.

The principal risks and uncertainties faced by the Group’s businesses are set out below:

Demand for the Group’s products and the pricing of products are influenced by economic conditions in the Group’s principal markets. Prolonged economic weakness in these markets, inflation and government austerity measures may affect consumer spending and confidence, which could have an adverse impact on Group sales volumes, revenue and profits. The Group seeks to mitigate these risks through careful forecasting and regular monitoring of market conditions and their impact on the Group’s profitability and by maximising operating efficiency.
The decline in the number of, and revenue from, on-trade premises in Ireland and the United Kingdom, and the increase in the size of the off-trade relative to the on-trade, may adversely impact revenue and profits. Financial difficulties within the customer base, particularly in the on-trade where the Group has exposure through trade loans and advances of discounts, may adversely impact revenue and profits. The Group monitors the level of its exposure carefully.
An increase in the buying and negotiating strength of the Group’s customers through gains in market share or consolidation could force the Group to lower its prices, with an adverse effect on the Group’s revenue and profits. The Group seeks to offset this risk by developing new markets and customers for its products and through product innovation.
The entry of new competitors into the Group’s markets, a change in the level of marketing undertaken by competitors or in their pricing policies, consolidation of the Group’s competitors and/or the introduction of new competing products or brands could have a material adverse effect on the Group’s market share, sales volumes, revenue and profits. The Group has a programme of brand investment to maintain and enhance the market position of its products.
Consumer preferences may change and demand for existing products may decline or be replaced by other products affecting sales volumes, revenue and profitability. The Group seeks to respond to changes in consumer preferences through a programme of product innovation and the renovation of established brands, to retain existing customers and to recruit new ones.
The Group’s cider divisions are impacted by seasonal fluctuations in demand, with demand highest during the summer months. An unseasonably bad summer, particularly in Ireland and the UK, could have an adverse impact on the Group’s sales volumes, revenue and profits.
The Group’s operations involve the sale and purchase of goods denominated in currencies other than the euro, principally pounds sterling and the US dollar. As a result, fluctuations between the value of the euro and these currencies could have an adverse effect on the value of the reported revenue and profits of the Group. Increases in interest rates may also impact profitability. The Group seeks to mitigate these risks through currency and interest rate hedging and structured financial contracts to hedge a portion of the Group’s foreign currency transaction exposure and to fix a portion of the Group’s variable rate interest exposure.
Volatility and continued inflationary effects linked to input costs could have an adverse impact on profitability or continuity of supply of raw materials and ingredients to the Group. The weather and other factors may affect the availability of raw materials. The Group seeks to mitigate some of these risks through trade relationships with suppliers and by entering into fixed price supply agreements. The Group does not seek to hedge its exposure to commodity prices by entering into derivative financial instruments.
The Group may not be able to fulfil the demand for its products due to circumstances such as the loss of a production or storage facility or disruptions to its supply chains. This would adversely affect sales volumes, revenue and profits. The Group seeks to mitigate the financial impact of such an event through business interruption and other insurances and the operational impact of such an event by the availability of multiple production facilities, and through fire safety standards and disaster recovery protocols.
The Group may be adversely affected by changes in government regulations including changes in excise duty or taxation on cider and beer in the UK, Ireland and other territories, or restrictions on alcohol pricing or advertising. Within the context of supporting responsible drinking initiatives, the Group supports the work of its trade associations to present the industry’s case to government.
The Group’s operations are subject to extensive regulation. The Group is subject to stringent environmental, health and safety and food safety laws and regulations which could result in increased compliance or remediation costs which would adversely affect profitability. For the purposes of competition law certain of the market segments in the principal jurisdictions in which the Group is active could be considered concentrated, restricting the ability of the Group to take advantage of acquisition and other opportunities. Additionally, failures to comply with all legislation could lead to prosecutions and damage to the Group’s brands and reputation. The Group has in place a permanent compliance monitoring function addressing these issues and provides training to its employees.
The Group is vulnerable to contamination of its products or base raw materials, whether accidental, natural or malicious. Contamination could result in a recall of the Group’s products, the Group being unable to sell its products, damage to brand image, negative consumer perception or civil or criminal liability, which could have a material adverse effect on the Group’s reputation, sales volumes, revenue and profits. The Group has established protocols and procedures for incident management and product recall and mitigates the financial impact by appropriate insurance cover.
The Group’s continued success is dependent on the ongoing services of its executive Directors and senior employees and on its continued ability to attract highly qualified personnel. The loss of, or the inability to recruit, senior personnel could have an adverse effect on the Group’s ability to run its business and, accordingly, its revenues and profits. The Group seeks to adequately reward, motivate and retain its senior personnel through appropriate remuneration policies. The Remuneration Committee’s terms of reference require it to make recommendations on remuneration to the Board.
Whilst relations with employees are generally good, work stoppages or other industrial action may have a material adverse effect on the Group’s ability to manufacture its products and, accordingly, on the Group’s revenue and profits. The Group seeks to ensure good employee relations through engagement and dialogue.
The solvency of the Group’s defined benefit pension schemes may be affected by a fall in the value of their investments. The liability structure of the pension obligations will be subject to market and interest rate volatility and other economic and demographic factors. Each of these factors may require the Group to increase its contribution levels. The Group is consulting with members and trustees of the schemes to achieve a reform of these obligations.

The Group considers that currently the most significant risks to its results and operations over the short term are (a) the decline in the size of the on-trade and the switch in consumer purchasing to the off-trade and (b) the entry of new competitors and new competing products in the Group’s principal markets.

FINANCIAL RISK MANAGEMENT
As required by Irish company law, (Statutory Instrument 765.2004) the financial risk management objectives and policies of the Company and the Group, including hedging activities and the exposure of the Company and the Group to financial risk, are set out in the Finance Review on pages 21 to 25 and note 24 to the financial statements on pages 96 to 103.

ACCOUNTING RECORDS
The Directors believe that they have complied with the requirements of Section 202 of the Companies Act, 1990 with regard to books of account by employing accounting personnel with appropriate expertise and by providing adequate resources to the finance function. The books of account of the Company are maintained at Group offices in Clonmel, Co. Tipperary

POLITICAL DONATIONS
No political donations were made by the Group during the year which require disclosure in accordance with the Electoral Acts, 1997 to 2002.

CORPORATE GOVERNANCE
Under Irish company law (Statutory Instrument 450.2009 European Communities (Directive 2006/46/EC) Regulations 2009), the Company is required to present a corporate governance statement. This statement is contained in the Directors’ Statement on Corporate Governance on pages 38 to 45.

DIRECTORS’ REMUNERATION
The Report of the Remuneration Committee on Directors’ Remuneration is set out on pages 46 to 51. In line with international best practice, the Board will present this report to shareholders at the Annual General Meeting for the purposes of a non-binding advisory vote. The Board believes that the resolution provides shareholders with the opportunity to express their views on Directors’ remuneration

SUBSTANTIAL HOLDINGS
As at 17 May 2011, the following shareholders have notified the Company as to their interest in 3% or more of the share capital of the Company.

Institution %
Invesco Limited 7.29
Southeastern Asset Management, Inc. 5.36
Independent Franchise Partners, LLP 5.18
Oppenheimer Funds, Inc. 4.68
Franklin Resources, Inc. 4.15
Deutsche Bank AG 3.21

As far as the Company is aware, other than as stated above, no other person or company has an interest in 3% or more of the share capital of the Company.

SHARE PRICE
The share price at 28 February 2011 was €3.54 (2010: €2.71). The price of the Company’s ordinary shares ranged between €2.75 and €3.60 during the year.

AUDITOR
In accordance with Section 160(2) of the Companies Act, 1963, the auditor, KPMG, Chartered Accountants, will continue in office

ISSUE OF SHARES AND PURCHASE OF OWN SHARES
At the Annual General Meeting held on 5 August 2010, the Directors received a general authority to allot shares. Authority was also granted to Directors to allot shares for cash otherwise than in accordance with statutory pre-emption rights. Resolutions will be proposed at the Annual General Meeting to be held on 29 June 2011 to allot shares to a nominal amount which is equal to approximately one-third of the issued ordinary share capital of the Company. In addition, a resolution will also be proposed to allow the Directors allot shares for cash otherwise than in accordance with statutory pre-emption rights up to an aggregate nominal value which is equal to approximately 5% of the nominal value of the issued share capital of the Company, and in the event of a rights issue. If granted, these authorities will expire at the conclusion of next year’s Annual General Meeting or 29 September, 2012, whichever is the earlier. The Directors have currently no intention to issue shares pursuant to these authorities except for issues of ordinary shares under the Company’s share option plans and the Company’s scrip dividend scheme.

At the Annual General Meeting held on 5 August 2010 authority was granted to purchase up to 10% of the Company’s Ordinary Shares. No shares were purchased by the Company in the year under review.

Special resolutions will be proposed at the Annual General Meeting to be held on 29 June 2011 to renew the authority of the Company, or any of its subsidiaries, to purchase up to 10% of the Company’s Ordinary Shares in issue at the date of the Annual General Meeting and in relation to the maximum and minimum prices at which Treasury Shares (effectively shares purchased and not cancelled) may be re-issued off-market by the Company. If granted, the authorities will expire on the earlier of the date of the Annual General Meeting in 2012 and the date 18 months after the passing of the resolution. The minimum price which may be paid for shares purchased by the Company shall not be less than the nominal value of the shares and the maximum price will be 105% of the average market price of such shares over the preceding five days. The Directors will only exercise the power to purchase shares if they consider it to be in the best interests of the Company and its shareholders.

Options to subscribe for a total of 8,071,400 Ordinary Shares are outstanding, representing 2.39% of the issued ordinary share capital. If the authority to purchase Ordinary Shares was used in full, the options would represent 2.66% of the issued ordinary share capital. At 18 May 2011 the Company has an issued share capital of 337,216,628 ordinary shares of €0.01 each and an authorised share capital of 800,000,000 ordinary shares of €0.01 each.

Under the terms of the C&C Joint Share Ownership Plan (further information is contained in the Report of the Remuneration Committee on Directors’ Remuneration on pages 46 to 51 the Company issued 16,000,000 ordinary shares which are held jointly by an Employee Benefit Trust and the individual executives (save for certain holdings which have been sold or transferred to the Employee Benefit Trust), and the shares currently so held are accounted for as Treasury Shares. These shares are however included in the calculation of Total Voting Rights for the purposes of Regulation 20 of the Transparency (Directive 2004/109/EC) Regulations 2007.

TAKEOVER BIDS DIRECTIVE (STATUTORY INSTRUMENT 255.2006 EUROPEAN COMMUNITIES
(TAKEOVER BIDS (DIRECTIVE 2004/25/EC)) REGULATIONS 2006)
Details of the Company’s capital structure can be found in note 25 to the financial statements on pages 104 to 105. Details of the rights attaching to shares, and the deadlines for exercising voting rights, are set out in the Report on Corporate Governance on pages 38 to 45 as is a description of the powers of the Board of Directors. There are no restrictions on the transfer of any class of shares, subject to restrictions that may be imposed by the Board under the Articles in limited circumstances, and no limitations on the holding of any class of shares. There are no known arrangements between shareholders restricting transfers of shares or relating to voting rights. Details of Employee Share Schemes, and the rights attaching to shares held in these schemes, can be found in note 5 to the Financial Statements on pages 75 to 77 and the Report of the Remuneration Committee on Directors’ Remuneration on pages 46 to 51. Details of the rights attaching to shares issued under the Joint Share Ownership Plan are set out in the of the Report of the Remuneration Committee on Directors’ Remuneration on pages 46 to 51. Details of the powers of directors to issue and buy back shares are set out in the previous paragraph. Details of agreements to which the Company is party to, and which contain change of control provisions, are contained in note 20 on pages 89 and 90. Change of control provisions relating to the Executive Share Option Scheme and the Joint Share Ownership Plan are set out in the Report of the Remuneration Committee on Directors remuneration on pages 46 to 51. All of the above details are deemed to be incorporated into this part of the Directors’ Report.

ANNUAL GENERAL MEETING
Your attention is drawn to the letter to shareholders and the notice of meeting accompanying this report which set out details of the matters which will be considered at the Annual General Meeting.

On behalf of the Board

Sir Brian Stewart         John Dunsmore
Directors

18 May 2011

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