Notes
Forming part of the financial statements

1. PRIOR YEAR RECLASSIFICATION
To enhance the transparency and understanding of the underlying net revenue performance of the Group and to mirror reporting practice within the drinks industry, the Directors considered it appropriate to highlight separately the value of Revenue net of excise duties (Net revenue) and consequently amended the classification of excise duty in the income statement. Excise duties 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. On this basis, the Directors consider that the disclosure of Net revenue provides a more meaningful analysis of underlying performance. In the previous financial years, the Group classified excise duty costs within operating costs.

This classification amendment has no impact on the profit for the financial year or the previous financial year or on the financial position (net assets) of the Group as reported. The impact of the classification change on operating costs for continuing operations in both years is shown below:

         2011        2010
  Operating
costs
€m
Operating
profit
€m
Operating
costs
€m
Operating
profit
€m
         
Previous classification 701.2 88.5 419.5 71.3
Impact of change (260.1) - (128.1) -
         
Current classification 441.1 88.5 291.4 71.3

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2. SEGMENTAL REPORTING
The Group’s business activity is the manufacturing, marketing and distribution of Alcoholic Drinks and seven operating segments have been identified; Cider Republic of Ireland (‘ROI’), Cider Great Britain (‘GB’), Cider Northern Ireland (‘NI’), Cider Export (previously Cider Rest of World (‘ROW’)), Tennent’s Great Britain (‘GB’), Tennent’s Ireland and Third Party Brands (previously Distribution). The basis of segmentation differs from that presented in the prior year in that Cider Northern Ireland and Tennent’s Ireland are now considered separate reportable segments. This basis corresponds with the Group’s organisation structure, the current year nature of reporting lines to the Chief Operating Decision-Maker (as defined in IFRS 8 Operating Segments) and the Group’s current year internal reporting for the purposes of managing the business, assessing performance and allocating resources. All comparative amounts have been restated to reflect the new basis of segmentation.

The Chief Operating Decision-Maker, identified as the executive committee comprising John Dunsmore, Stephen Glancey and Kenny Neison, assesses and monitors the operating results of segments separately via internal management reports in order to effectively manage the business. Segment performance is predominantly evaluated based on Revenue, Net revenue and Operating profit before exceptional items and therefore these are the most relevant indicators in evaluating the result of the Group’s operating segments. Given that net finance costs and income tax are managed on a centralised basis, these items are not allocated between operating segments for the purposes of the information presented to the Chief Operating Decision-Maker and are accordingly omitted from the detailed segmental analysis below.

The identified business segments are as follows:-

(i) Cider ROI
This segment includes the results from sale of the Group’s cider products in the Republic of Ireland, principally Bulmers.

(ii) Cider GB
This segment includes the results from sale of the Group’s cider products in Great Britain, with Magners, Blackthorn and Gaymers the principal brands.

(iii) Cider NI
This segment includes the results from sale of the Group’s cider products in Northern Ireland, with Magners the principal brand.

(iv) Cider Export (previously Cider – ROW)
This segment includes the results from sale of the Group’s cider products, principally Magners, in all territories outside of the Republic of Ireland, Northern Ireland and Great Britain.

(v) Tennent’s GB
This segment includes the results from sale of the Group’s ‘owned’ beer brand - Tennent’s in Great Britain. This operating segment, together with Tennent’s Ireland below, were reported as Tennent’s Beer in the financial statements for the year ended 28 February 2010.

(vi) Tennent’s Ireland
This segment includes the results from sale of the Group’s ‘owned’ beer brand - Tennent’s in the Republic of Ireland and Northern Ireland.

(vii) Third Party Brands (previously Distribution)
This segment relates to wholesaling to the licensed trade in Northern Ireland and the distribution of agency products, including AB InBev brands in the Republic of Ireland, Northern Ireland and Scotland.

Information regarding the results of each reportable segment is disclosed below for the Group’s continuing business while the relevant information in relation to the Group’s discontinued Spirits & Liqueurs business is set out in note 9.

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 Chief Operating Decision-Maker.

Inter-segment revenue is not material and thus not subject to separate disclosure.

Segment capital expenditure is the total amount incurred during the period to acquire segment assets, excluding those assets acquired in business combinations that are expected to be used for more than one accounting period.

(a) Operating segment disclosures

                2011               2010
  Revenue
€m
Net
revenue
€m
Operating
profit
€m
Revenue
€m
Net
revenue
€m
Operating
profit
€m
             
Cider – ROI 136.4 100.0 43.7 153.0 107.6 44.3
Cider – GB 284.6 195.2 27.0 149.0 122.8 19.7
Cider – NI 15.7 12.6 3.1 18.5 15.1 2.9
Cider – Export 21.5 21.5 2.7 15.7 15.7 1.5
Tennent’s GB 198.8 85.7 13.4 70.7 31.1 2.2
Tennent’s Ireland 28.4 17.8 5.1 10.3 6.3 1.5
Third party brands 104.3 96.8 5.5 73.6 64.1 2.7
             
Continuing operations 789.7 529.6 100.5 490.8 362.7 74.8
Discontinued operations 20.9 20.9 4.5 78.0 78.0 14.7
             
Total before unallocated items 810.6 550.5 105.0 568.8 440.7 89.5
             
Unallocated items:            
Exceptional items (note 6) - - (11.1)* - - (0.8)**
             
Total 810.6 550.5 93.9 568.8 440.7 88.7

* The unallocated exceptional items exclude the profit on disposal of discontinued activities of €224.7m (note 9). Of the exceptional items in the current year, €0.9m relates to Cider ROI, €6.8m to Cider GB, €0.4m to Cider NI, €0.2m to Cider Export, €3.7m to Tennent’s GB, and exceptional income of €0.9m relating to discontinued operations.
** Of the exceptional items in the prior year, €0.1m relates to Cider ROI, €0.4m to Cider GB, €0.4m to Cider Export, €0.2m to Third party brands, €2.4m to Tennent’s GB, and exceptional income of €2.7m relating to discontinued operations.

(b) Other operating segment information

          2011         2010
  Capital
expenditure
€m
Depreciation
€m
Capital
expenditure
€m
Depreciation
€m
         
Cider – ROI 1.7 4.6 1.0 5.2
Cider – GB 5.2 8.9 3.0 7.4
Cider – NI 0.1 0.3 0.3 0.6
Cider – Export - 0.4 0.3 0.3
Tennent’s GB 10.9 5.6 0.3 2.1
Tennent’s Ireland 1.3 1.2 0.7 0.5
Third party brands - 0.1 - 0.1
Total – continuing operations 19.2 21.1 5.6 16.2
         
Discontinued operations - 0.1 0.1 0.6
         
Total 19.2 21.2 5.7 16.8

(c) Geographical analysis of revenue, net revenue and non-current assets

                 Revenue                 Net revenue                  Non-current assets
  2011
€m
2010
€m
2011
€m
2010
€m
2011
€m
2010
€m
             
Republic of Ireland 151.4 156.7 109.8 109.9 73.3 85.2
UK 616.8 318.4 398.3 237.1 133.9 121.8
Rest of Europe 6.5 5.7 6.5 5.7 - -
North America 8.5 5.6 8.5 5.6 - -
Rest of world 6.5 4.4 6.5 4.4 - -
             
Total 789.7 490.8 529.6 362.7 207.2 207.0

The geographical analysis of revenue is based on the location of the third party customers. The geographical analysis of non-current assets is based on the geographical location of the assets. Non-current assets comprise property, plant & equipment and advances to customers repayable beyond one year. Intangible assets, goodwill and deferred tax assets are not allocated.

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3. OPERATING COSTS

                2011          2010 (restated)
  Before
exceptional
items
€m
Exceptional
items
(note 6)
€m
Total
€m
Before
exceptional
items
€m
Exceptional
items
(note 6)
€m
Total
€m
             
Raw material cost of goods sold 229.8 - 229.8 171.4 - 171.4
Inventory write-down (note 16) 1.1 (0.2) 0.9 0.9 - 0.9
Employee remuneration (note 4) 62.4 2.9 65.3 50.2 0.7 50.9
Direct brand marketing 59.0 - 59.0 61.6 - 61.6
Other operating, selling and administration costs 65.6 8.4 74.0 45.9 0.1 46.0
Depreciation 21.2 - 21.2 16.8 - 16.8
Amortisation 0.1 - 0.1 - - -
Research and development costs 0.9 - 0.9 1.3 - 1.3
Auditor remuneration (a):            
- audit services 0.4 - 0.4 0.4 - 0.4
- non audit services 0.6 - 0.6 0.5 - 0.5
Operating lease rentals:            
- land & buildings 3.0 - 3.0 - - -
- plant & machinery 0.8 - 0.8 1.3 - 1.3
- other 0.6 - 0.6 0.9 - 0.9
             
Total 445.5 11.1 456.6 351.2 0.8 352.0
Relating to discontinued operations (16.4) 0.9 (15.5) (63.3) 2.7 (60.6)
             
Relating to continuing operations 429.1 12.0 441.1 287.9 3.5 291.4

(a) Auditor remuneration The remuneration of the Group’s statutory auditor, being the Irish firm of the principal auditor of the Group, KPMG, Chartered Accountants is as follows:

  2011
€m
2010
€m
     
Audit of the Group financial statements 0.3 0.3
Other assurance services 0.1 0.1
Tax advisory services 0.3 0.3
Other non audit services 0.2 0.2
     
Total 0.9 0.9

The audit fee for the audit of the financial statements of the Company was less than €0.1m in the current and prior financial year.

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4. EMPLOYEE NUMBERS & REMUNERATION COSTS
The average number of persons employed by the Group (including executive Directors) during the year, analysed by category, was as follows:-

  2011
Number
2010
Number
     
Production 442 248
Sales & marketing 312 219
Distribution 107 99
Administration 145 116
     
Total 1,006 682

The actual number of persons employed by the Group as at 28 February 2011 was 972 (28 February 2010: 1,077).

The aggregate remuneration costs of these employees can be analysed as follows:-

  2011
€m
2010
€m
     
Wages, salaries and other short term employee benefits 45.1 37.9
Severance costs (note 6) 4.9 3.8
Social welfare costs 5.4 3.9
Retirement benefit obligations – defined benefit schemes (note 23) 0.8 0.2
Retirement benefit obligations – defined contribution schemes 5.1 2.6
Equity settled share-based payments (note 5) 4.0 2.5
     
Charged to the income statement 65.3 50.9
     
Actuarial gain on retirement benefit obligations recognised in other comprehensive income (note 23) (0.2) (16.7)
     
Total employee benefits 65.1 34.2

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5. SHARE-BASED PAYMENTS
In May 2004, the Group established an equity settled Executive Share Option Scheme (ESOS) under which options to purchase shares in C&C Group plc are granted to certain executive Directors and members of management. Under the terms of the scheme, the options are exercisable at the market price prevailing at the date of the grant of the option. The maximum grant that can normally be made to any individual in any one year is an award of 150% of basic salary in that year. Options were granted under this scheme in May 2004, in June of each year from 2005 through to 2008, in May 2009 and in May, June and July 2010.

Under this scheme, options will not normally be exercisable until three years after the date of grant and are subject to meeting a specific performance target. This performance target requires the Group’s earnings per share (before exceptional items) to increase by 5% in excess of the Irish Consumer Price Index over three years on a compound basis, in order for options to vest. If after the relevant three-year period (i.e. 3 years from date of grant) the performance target is not met the options lapse.

In January 2006, the Group established a Long Term Incentive Plan (LTIP) under the terms of which options to purchase shares in C&C Group plc are granted at nil cost to certain key executive employees. Options under this scheme were granted in January 2006 and in June of each year from 2006 through to 2008.

Under this plan, awards of up to 100% of basic salary may be granted. For the shares to vest fully, total shareholder return (TSR) must be in the top quartile of a comparator group over a three-year period. None of the award vests for below median performance. 30% of the award vests for median performance with straight-line pro-rating between the median and upper quartile. In addition to the total shareholder return condition, earnings per share growth (before exceptional items) must increase by 5% in excess of the Irish Consumer Price Index on a compound basis over the same three-year period or the Committee is otherwise satisfied that the improvement in the underlying financial performance of the Company over the Performance Period warrants the degree of vesting as calculated under the TSR condition. If at the end of the relevant period both these conditions are not met the options lapse.

In December 2008, shareholders at an Extraordinary General Meeting approved the establishment of a Joint Share Ownership Plan (JSOP) where certain employees of the Company and its subsidiaries are eligible to participate in the Plan at the discretion of the Remuneration Committee. Under this plan, Interests in the form of a restricted interest in ordinary shares in the Company are awarded to certain key executives on payment upfront to the Company of an amount equal to 10% of the initial issue price of the shares on the acquisition of the Interest. The executives are also required to pay a further amount if the tax value of their interest exceeds the price paid. When the further amount is paid, the Company compensates the executive for the obligation to pay this further amount by paying him an equivalent amount, which is, however, subject to income tax in the hands of the participant.

The vesting of Interests granted is subject to the following conditions. All of the Interests are subject to a time vesting condition with one-third of the Interest in the shares vesting on the first anniversary of acquisition, one-third on the second anniversary and the final one-third on the third anniversary. In addition, half of the Interests in the shares are subject to a pre-vesting share price target. In order to benefit from those Interests the Company’s share price must be greater than €2.50 for 13,800,000 of the Interests awarded, and €4.00 for 2,200,000 of the Interests awarded, for at least 20 days out of 40 consecutive dealing days during the five-year period commencing on the date of acquisition of the Interest.

When an Interest vests, the trustees may, at the request of the participant and on payment of the further amount, transfer shares to the participant of equal value to the participant’s Interest or the Shares may be sold by the trustees, who will account to the participant for the difference between the sale proceeds (less expenses) and the Hurdle Value (balancing 90% of the acquisition price on the acquisition of the Interest).

In February 2010, the Group established a Restricted Share Award Scheme under the terms of which options to purchase shares in C&C Group plc are granted at nil cost to certain key executive employees.

The vesting conditions for these awards are similar to those for the JSOP award in that half of the awards will vest one-third on each anniversary of date of grant subject to continued employment only and half will vest on the later of the achievement of the performance condition of meeting a €4.00 share price target and the third anniversary of the award date subject to continued employment. The Board approved the award of 429,148 options under this plan in February 2010.

In June 2010, the Group established a Recruitment and Retention Plan under the terms of which options to purchase shares in C&C Group plc are granted at nil cost to certain key executive employees.

The performance conditions and/or other terms and conditions for awards granted under this plan are specifically approved by the Board of Directors at the time of each individual award, following a recommendation by the Remuneration Committee. The Board approved the award of 81,000 options under this plan in June 2010. This award is subject to time vesting conditions only and will normally vest and become exercisable in three equal tranches, one-third on the first anniversary of acquisition, one-third on the second anniversary and the final one-third on the third anniversary.

Obligations arising under the Restricted Share Award Scheme and the Recruitment and Retention Plan will be honoured by the purchase of existing shares on the open market. On settlement any difference between the amount included in the Share-based payment reserve account and the cash paid to purchase the shares is recognised in retained income via the statement of changes in equity.

In 2001, the Group entered into an agreement with trade unions representing the majority of its employees, which provided for the establishment of an approved save as you earn scheme and of an approved profit sharing scheme. A discretionary scheme was put in place for the year ended 28 February 2007. Under this scheme, due to exceptional earnings per share growth in that year, the Remuneration Committee and the Board approved and granted to employees shares to the value of between 3% and 4% of basic salary remuneration subject to a minimum allocation of €1,000 per employee. The cost, which was reflected in the income statement in the year ended 28 February 2007, was €2.5m. The Group purchased 189,061 shares and placed these shares in Irish/UK Revenue approved employee trusts where they are held in trust on behalf of each employee and where each employee has full voting rights and dividend entitlements. Tax penalties apply should the employees sell the shares before the vesting period expires. The vesting period for shares awarded to Republic of Ireland resident employees expired in June 2010 and all remaining shares were transferred out of the Trust and into the Participants’ individual names while the vesting period for shares awarded to UK resident employees will expire in June 2012.

The fair values assigned to the ESOS options granted were computed in accordance with a trinomial valuation methodology, the fair value of options awarded under the LTIP were computed in accordance with a stochastic model, the fair value of options awarded under the Recruitment and Retention Plan were computed in accordance with a binomial model and the fair value of the Interests awarded under the Joint Share Ownership Plan and the Restricted Share Award Plan were computed using a Monte Carlo simulation. As per IFRS 2 Share-based Payment, market based vesting conditions, such as the LTIP TSR condition and the share price target conditions in the Joint Share Ownership Plan and the Restricted Share Award Plan, have been taken into account in establishing the fair value of equity instruments granted. Other non-market or performance related conditions were not taken into account in establishing the fair value of equity instruments granted, instead these non-market vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately the amount recognised for services received as consideration for the equity instruments granted is based on the number of equity instruments that eventually vest.

The main assumptions used in the valuations were as follows:-

  Executive
options
granted
July 2010
Recruitment
& retention
plan
June 2010
Executive
options
granted
June 2010
Executive
options
granted
May 2010
Restricted
shares
granted
February 2010

JSOP
granted
December
2009
JSOP
granted
June
2009
Executive
options
granted
May 2009
                 
Exercise price €3.32 €0.00 €3.21 €3.21 €0.00 €2.47 €1.15 €1.94
Risk free interest rate 1.47% 1.4%-1.8% 1.36% 1.58% 2.29% 0.7% – 1.7% 0.9% - 2.0% 3.8%
Expected volatility 50.8% 50.8% 50.8% 50.8% 50.8% 44.7% - 52.9% 43.3% - 48.4% 43.5%
Expected life 7 years 1-3 years 7 years 7 years 3-5 years 1 - 3 years 1 - 3 years 7 years
Dividend yield 2.0% 1.6% 2.04% 1.99% 2.22% 2.2% 2.6% 3.09%

Details of the shares and share options granted under these schemes together with the share option expense are as follows:

Grant date Vesting
period
Number of
options/
equity
Interests
granted
Outstanding
at 28
February 11
Grant
price
Market
value at
date of
grant
Fair value
at date
of grant

                Expense in
                 Income Statement
2011
€m
2010
€m
                 
13 May 2004 3 years 4,914,900 62,400 2.26 2.26 0.49 - -
20 June 2005 3 years 1,708,200 82,100 3.56 3.56 0.72 - -
12 Jan 2006 (LTIP) 3 years 44,365 - - 5.53 4.63 - -
15 June 2006 3 years 846,900 104,100 6.52 6.52 1.24 - -
15 June 2006 (LTIP) 3 years 127,600 - - 6.52 4.48 - -
13 June 2007 3 years 318,500 - 11.53 11.53 2.76 - -
13 June 2007 (LTIP) 3 years 82,100 - - 11.53 5.26 - -
13 June 2008 3 years 1,013,700 217,200 5.11 5.11 0.98 - -
13 June 2008 (LTIP) 3 years 59,600 - - 5.11 3.38 - -
18 December 2008 (JSOP) 1-3 years 12,800,000 9,386,668 1.15 1.315 0.16 - 0.21 0.9 1.1
13 May 2009 3 years 4,336,300 3,768,400 1.94 1.94 0.72 1.2 0.8
03 June 2009 (JSOP) 1-3 years 1,000,000 1,000,000 1.15 2.32 1.01–1.09 0.4 0.5
17 December 2009 (JSOP) 1-3 years 2,200,000 1,550,000 2.47 2.76 0.11–0.16 0.1 0.1
26 February 2010                
(Restricted share plan) 1-3 years 429,148 232,455 - 2.70 2.26 0.3 -
26 May 2010 3 years 803,900 803,900 3.21 3.21 1.21 0.3 -
2 June 2010 3 years 127,200 127,200 3.21 3.21 1.14 - -
29 June 2010                
(Recruitment & retention plan) 1-3 years 81,000 81,000 - 3.20 2.94 - -
21 July 2010 3 years 2,944,400 2,926,600 3.32 3.32 1.16 0.8 -
                 
    33,837,813 20,342,023       4.0 2.5
APSS Scheme   189,061 - 11.39 11.39 11.39 - -
    34,026,874 20,342,023       4.0 2.5

The amount charged to the income statement in respect of the above award grants assumes that all outstanding options granted during 2010 will vest and all qualifying conditions will be achieved. Options granted during 2007 did not achieve the related performance condition and consequently all outstanding options lapsed. Given that, in order for options to vest, the non-market performance target requires the Group’s earnings per share (before exceptional items) to increase by 5% in excess of the Irish Consumer Price Index over three years on a compound basis, and that adjusted basic EPS for the year ended 28 February 2009 fell by 21% and fell a further 9% for the year ended 28 February 2010, the Directors consider the likelihood of achieving the non-market vesting conditions for the 2008 ESOS and LTIP share option awards as remote and therefore it is currently assumed that no options granted during 2008 will vest, with the exception of the JSOP awards issued in December 2008 as these are not subject to earnings per share growth targets.

The amount charged to the income statement includes an accelerated charge of €0.9m (2010: €0.1m) in relation to employees leaving the Group as part of a restructuring programme for share option grants where the underlying conditions were deemed to have been met at the date of departure. These employees were deemed ‘good leavers’ under the terms of the scheme, with all share options granted deemed to have vested and the exercise period reduced from 4 years to 6 months.

A summary of activity under the Group’s share option schemes and Joint Share Ownership Plan together with the weighted average exercise price of the share options is as follows:

         2011        2010
  Number of
options/
equity
Interests
Weighted
average
exercise
price
€m
Number of
options/
equity
Interests
Weighted
average
exercise
price
€m
         
Outstanding at beginning of year 21,736,448 1.60 15,263,000 1.72
         
Granted 3,956,500 3.23 7,965,448 1.99
Exercised (4,003,232) 1.18 (432,800) 2.26
Forfeited/lapsed (1,347,693) 3.18 (1,059,200) 5.22
         
Outstanding at end of year 20,342,023 1.79 21,736,448 1.60

The number of share options/equity Interests exercisable at 28 February 2011 was 6,545,377 (2010: 4,726,167).

The unvested options/equity Interests outstanding at 28 February 2011 have a weighted average vesting period outstanding of 1.4 years. The weighted average contractual life of vested and unvested share options/equity Interests is 5.2 years.

The weighted average share price at date of exercise of all options/equity Interests exercised during the period was €3.28 (2010: €2.59), the average share price for the year was €3.26 (2010: €2.31) and the share price as at 28 February 2011 was €3.54 (28 February 2010: €2.71).

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