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Edited Transcript of GCC.I earnings conference call or presentation 22-May-19 7:15am GMT

Full Year 2019 C&C Group PLC Earnings Call

Dublin 12 Jun 12, 2019 (Thomson StreetEvents) -- Edited Transcript of C&C Group PLC earnings conference call or presentation Wednesday, May 22, 2019 at 7:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jonathan Frederick Solesbury

C&C Group plc - Group CFO & Director

* Stephen Glancey

C&C Group plc - Group CEO & Executive Director

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Conference Call Participants

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* Alexander Piers Smith

Shore Capital Group Ltd., Research Division - Research Analyst

* Cathal Kenny

Davy, Research Division - Senior Analyst of Food and Beverage

* Ian Hunter

Investec Bank plc, Research Division - Equity Analyst

* Patrick Higgins

Goodbody Stockbrokers, Research Division - Analyst

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Presentation

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [1]

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Good morning and thank you for taking the time to join us today. I'm joined on the call by our Group CFO, Jonathan Solesbury.

Before commencing, we would refer you to the note on forward-looking statements set out in the results release and on Slide 2 of the presentation, which will apply to our discussion this morning.

I'll go through our set of slides, and then Jonathan and I will be happy to take your questions. It's a busy day for all of us, so we're keen to keep the call to 45 minutes. As many of you know, we're also hosting a Capital Markets Day this afternoon at Brewers' Hall in London commencing at 1 p.m. If you're not already attending, please do feel free to join us. It will be an opportunity to hear from the wider management team and in particular from Steve Thomson and Michael Saunders who run the Matthew Clark and Bibendum businesses, respectively.

Financial year '19 was a transformational year for the business. Despite our strong multi-beverage brand-led positions in Ireland and Scotland, access to the wider U.K. on-trade had always been a challenge. The acquisition of Matthew Clark and Bibendum fundamentally changes this dynamic for C&C. We welcome you along this afternoon to hear both Steve and Michael outline the strength and growth prospects of these businesses and what they contribute to the C&C equity story.

Turning now to Slide 3 and a summary of our FY '19 performance. Reported full year sales were EUR 1.57 billion, almost triple our sales in the prior years. This includes over EUR 1 billion of sales contributed by Matthew Clark and Bibendum. Underlying net sales on a like-for-like basis increased over 3% from EUR 547 million to EUR 564 million, reflecting a great performance from our Scottish and Irish businesses and the relevant brand portfolios.

Organic revenues were driven primarily by a strong performance in our core brands and our super-premium and craft portfolio. We experienced modest year-on-year input cost inflation, particularly from rising aluminum prices in the first half. But by the year-end, we've managed to mitigate most of these through manufacturing cost efficiencies. Together with moderate price enhancement in our branded business, operating margins on this side of the business increased by 20 basis points. Our continuing business, therefore, delivered operating profit of EUR 88.8 million, representing organic growth of 3.3%.

To this, one needs to add a full year contribution of EUR 4 million from our investment in Admiral Taverns. The recent acquisition of Matthew Clark and Bibendum generated EUR 15.7 million in the 11 months of our ownership, and this is in line with the guidance we gave at the first half. This takes our reported operating profit for the group to EUR 104.5 million, which is 21% growth on a reported basis. Adjusted diluted earnings per share of EUR 0.266 increased 20.9% year-on-year, again very much in line with our recent stated guidance.

We continued to generate strong cash flow in fiscal '19 with free cash flow, which excludes exceptionals of EUR 97 million, which was up 37% on the prior year and equates to 81% conversion of EBITDA. This is slightly above our 10-year average of 75%. Our year-end net debt position is, therefore, a little better than expected with net debt of EUR 301.6 million at the year-end, which is 2.5x EBITDA.

Turning to Slide 4 and the highlights of the year. And actually, the major milestone for us was the acquisition of Matthew Clark and Bibendum. We are now the largest final-mile distributor to the on-trade of alcohol and other drinks in the British Isles, giving us unparalleled access to what is the most attractive profit pool in the industry. In the longer term, this will provide the platform for developing our premium in speciality beers and ciders. It will also make C&C the natural partner for others seeking a gateway to the 60 million high-value consumers in these markets.

As our customers seek channel differentiation and consumers look for choice as well as local authentic product, C&C is now uniquely placed to provide them with the required market solution. Our core Bulmers, Magners and Tennent's brand delivered good revenue growth, up over 5% in aggregate, helped of course by good weather and the World Cup, but pleasingly, also increasing share across a number of their key markets.

Post the financial year-end in March saw the inaugural running of the Magners/Bulmers Cheltenham Gold Cup. This significant multiyear brand investment demonstrates the ambition we have for our Irish cider brands and will build, we believe, on the current momentum.

Our super-premium and craft range delivered stellar growth in volume and value during the year. This portfolio now represents 7.9% of our total branded revenues. Total volume growth was 46% for the year with organic growth of 15%. We will continue to nurture and grow distribution for these authentic products which will drive long-term value. The Matthew Clark and Bibendum networks will, of course, help achieve this ambition.

Our existing wine and distribution business in Ireland and Scotland also performed strongly during the year, with revenues up 6.9% and operating margins of 3.7% for the year. In Matthew Clark and Bibendum, our stabilization program has been completed. Both businesses are functioning well with all KPIs at or much closer to where we would expect them to be. While there's still work to do, we have made significant progress in reestablishing strong relationships with customers and suppliers. And key metrics such as debtor days, creditor days and stock days are all significantly improved and close to acceptable performance levels.

Our cash performance was also encouraging with the business turning free cash flow positive in the second half. We're now entering the simplification and optimization phase and have made good progress in identifying revenue and cost synergies across the combined group. The business delivered a margin of 1.6% in the full year FY '19, up from 1.2% in the first half. However, current momentum across both businesses and our growth and synergy plans gives us confidence to announce an update to our steady-state operating margin target for the combined businesses of 3%.

Finally, Admiral Taverns continues to perform well. It is predominantly wet-led, community pubs which benefited from the good weather and the World Cup and continued investment. Its underlying EBITDA for FY '19 was up 1.8%, and it contributed nearly EUR 4 million of after-tax income to our bottom line. In line with rising valuations across the pub sector, our property revaluation at Admiral during the year increased its portfolio valuation by 3% to GBP 259 million. As at February 19, net debt within the Admiral business was down to GBP 136 million. Magners had a strong performance within the Admiral estate during the year, nearly doubling the number of tap to 633 by the end of February.

Turning to Slide 5 on Ireland where Bulmers had an excellent year, returning to volume growth of 1.6% and revenue growth of 2.9%. Bulmers increased its share of LAD by 30 basis points to 7.8% and its share of cider by 110 basis points to 60.2%. In line with the broader market, Bulmers' growth was led by a strong outperformance in the off-trade, growing both volume and share while maintaining a price premium over standard lager at 10%. In support of the critical on-trade market, we switched investment from above-the-line brand spend to enhanced in-pub activation, making good progress and winning key on-trade accounts, particularly in Dublin and Cork. Accordingly, we saw some stabilization in Bulmers share and the on-trade and margins improved.

Bulmers' positive summer performance demonstrates the inherent strength of the brand. Our brand health scores confirms Bulmers as consistently ranked the #1 cider brand in Ireland across all measures and the #3 brand in LAD. We, of course, remain active and vigilant given recent new entrants into the Irish cider market. But the resilience of the Bulmers brand is very encouraging. And our sponsorship of the Cheltenham Gold Cup is a timely investment to further strengthen Bulmers' close affinity with its Irish consumers.

Our super-premium and craft portfolio had another strong performance in Ireland. Five Lamps, our Dublin craft brewery, increased volumes by 35%. Recent innovation with Five Lamps Red Ale and Five Lamps Light further strengthens the craft portfolio and our brand proposition to the Dublin market. Our regional craft offering include Dowd's Lane, range of traditional craft Ales, Stouts and Ciders, Whitewater in the North and the new distribution partnership 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 and revenues up in double digits.

C&C Gleeson, together with our wine speciality Gilbey's, saw significant momentum during the year with wholesale volume growth of 8%. This was driven by a strengthened management team, new customer wins and the enhanced range, service and value we can now offer with Matthew Clark and Bibendum as part of the group. In Gilbey's, which we've now renamed Gilbey's with Bibendum, we have the largest independent wine business in Ireland shipping 878,000 cases annually.

Turning to Slide 6, our GB business, where we will first look at our beer brands. Tennent's had an excellent year against the backdrop of introduction of Minimum Unit Pricing. We have been very supportive of MUP from day 1, but it still represented one of the most significant and potentially disruptive legislative changes for a generation. However, we planned ahead and sourced consumer insight on likely behavioral changes. This ensured that our pack sizing and commercial strategy delivered both value and significant share gain following the introduction on the 1st of May last year. We were, therefore, able to keep our overall Tennent's volumes flat, significantly outperforming our peers. We gained over 200 basis points of share in the grocery channel as weaker brands and private label lost ground. Tennent's revenues were up 7.1% in the year, led by price and mix in the off-trade. We see further value and share opportunities ahead, particularly as consumers shift towards the convenience channel.

Looking at our super-premium and craft brands. FY '19 was another period of strong organic growth in Scotland and increasingly across the rest of Great Britain. Our portfolio has demonstrated that it is meeting the shift in consumer desire for choice, quality and premium products, including currently a small-scale distribution through Matthew Clark, Menabrea increased volumes by 29% in GB. Heverlee was up 36%, and Drygate was up 17%. We strengthened our international beer portfolio, securing exclusive rights to distribute Tsingtao, the leading Chinese beer, across Ireland and the U.K. The acquisition of Matthew Clark and Bibendum again presents an exciting opportunity to accelerate the momentum we've already seen from this premium portfolio into the broader U.K. on-trade. Distribution points for our premium portfolio have already increased by 46% to 1,240 since acquisition.

The performance of our wholesale distribution and wine business in Scotland strengthened through the year. The combination of the Tennent's brand, excellent service, unrivaled product breadth, expertise and value following the acquisition of Matthew Clark and Bibendum are the drivers of this performance. The increased breadth of portfolio and expertise is already proving instrumental in client wins, particularly amongst premium outlets, and should underpin sustainable growth going forward.

Turning to Slide 7 and our cider portfolio in GB. Magners also had a strong FY '19, continuing the momentum of recent years. Led by strong summer, the brand finished the year with volumes up 4.4%, well ahead of the category as a whole. Performance was positively impacted by Magners Dark Fruit, which gained national listing in both the on- and off-trade and the uptake in the Admiral estate, but as mentioned earlier we doubled the number of installed tap during the year. We also have further innovation planned for this summer. We remain confident in the prospects for Magners in FY '20 and beyond. We've had a positive start to the year, supported by the inaugural running of the Magners and Bulmers Cheltenham Gold Cup, above-the-line social media on-trade activation and live events, and the activation had a total reach in terms of impressions of 4.8 million across GB, 7.4 million including Ireland. This demonstrates the latent affection for the brand amongst digital consumers and the opportunity for growth as we leverage our new route-to-market capability. Orchard Pig continued to make good progress in the on- and off-trade at premium and craft ends of the market.

Turning to Slide 8. I don't want to steal the thunder of my colleagues from this afternoon, so I'll only comment briefly on the performance of Matthew Clark and Bibendum in the current financial year. As we've seen from the financials after some very challenging trading up to and through the sale process, both businesses have stabilized well in the second half and produced a solid financial result for the first 11 months of our ownership. More importantly to the future success of these businesses within C&C, there's a huge amount of work that has gone into the store successfully the confidence of suppliers, customers and employees and to establish proper financial control.

In this agenda, we were very fortunate to secure the services of Steve Thomson, the former CEO of Matthew Clark; and Michael Saunders, the Founder of Bibendum. Each has a wealth of industry experience and huge knowledge of their respective organizations. In return, they have recruited new management tasked with leading the company forward. I think progress over the last year has been as good as we might have hoped. Service at Christmas was excellent, stock availability is at the right level and we have seen strong improvement in customer service metrics for each company. Historic audits on previous years' accounts were concluded, and rigorous management of cash flow and other financial controls reinstated.

Throughout the disruption, customers remained remarkably loyal. Matthew Clark lost some sales of low-margin product, mainly on national business, with some brand owners going direct. Otherwise, average distribution points year-on-year fell by only 3.6%. Initially, Bibendum was more exposed to customer loss driven by much greater disruption and poor stock availability. Consequently, in the first part of the year, we lost customers and linked revenue. However, in the latter period of the year, there are welcome signs of modest momentum in the high-quality customer recruitment. Our real issue for many market participants is the availability of cost of credit insurance for products sold to U.K. retail. The strength of the C&C Group balance sheet and our cash-generative capability, we believe, will give a real long-term competitor advantage.

Net revenues for the combined group since acquisition were just over EUR 1 billion, and we are reporting net operating profit for the 11 months of EUR 15.7 million. Cash performance was strong in the second half with the businesses turning free cash flow positive.

Turning to Slide 9. As you will hear from my colleagues this afternoon, my principal and some say only contribution to the program of works at Matthew Clark and Bibendum was to come up with the slogan stabilization, simplification and optimization. The slogan belies what a huge amount of work and detailed planning has gone into this project. I've been very fortunate to Chair the Steering Committee and obviously the work of a great team done from across the new enlarged C&C Group. We still have a lot of work to do. We are confident the businesses are stable and represent a robust platform from which we can now reshape, optimize and grow.

But as you'll hear from Steve, Michael and the team this afternoon, this is much more than a [challenges] story. We now service 60 million consumers in a very robust EUR 50 billion alcoholic drinks market across the British Isles. But as market is evolving and changing in a way that it's challenging more traditional drink company models, consumers today are demanding more authentic and natural products and brands with local provenance and heritage. This proliferation of drinks brands is matched by the changing face of the drink in our experience. Traditional pub models have been overtaken by food-led, casual dining, cafés and events. C&C is now uniquely placed to service this changing landscape, not just through its own portfolio of local fabric and premium brands, but also as the only drinks distributor with the service, insight and logistics network to deliver any of our 12,000 SKUs for next-day delivery across the U.K. and Ireland. But much more in the story this afternoon.

Turning to Slide 10. We constantly review our operating model and processes to identify areas where we can improve efficiencies, drive cost savings and also work towards our sustainability goals. During the year, we completed the implementation of a new IT platforms, JD Edwards, 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 online ordering capabilities as well as bringing back-office efficiencies. As mentioned earlier, we also brought back in-house certain outsourced logistics operations in Scotland and are already seeing significant volume growth and new direct customer wins as a consequence.

We opened a new visitor center at Wellpark Brewery in November. It's now the U.K.'s biggest beer attraction and tell the Tennent's story from 1556 when brewing first begin at the site to the present day, and we're targeting 50,000 visitors annually. This helps bring on our leading position in Scotland and reinforces our message of the authenticity and the heritage of our core brands.

We're also making a range of capital investments to enhance performance and meet our longer-term sustainability targets. During the year, we completed our investment in a wastewater anaerobic digester at Wellpark, and a CO2 recovery system is planned for FY '20. Both investments will reduce cost, ensure self-sufficiency of CO2 and improve our environmental footprint.

Before concluding, just to touch on our wider commitment to sustainability. Our objective at C&C is to operate as efficiently and sustainably as possible. We endeavor to maximize our use of renewable resources and conserve our use of valuable resources such as water. Our objective is to continually reduce waste and our use of single-use plastics and other nonbiodegradable materials. So during the year, our water usage reduced by 2.8%, and CO2 emissions fell by 4.3%. Our water usage per hectoliter produced is now lower than all of the major brewers. And we have a target to reduce it further by around 17% over the next 3 years.

We had 0 processed waste to landfill through our manufacturing sites in FY '19. 100% of our products are sold in containers that can be recycled, and 28% are sold in returnable units. We have an objective to continue to reduce emissions and ultimately to work towards a position as a carbon-neutral company by 2025. Our intention is all through to eliminate single-use plastic packaging from our beer and cider portfolio by March 2022 and our target to be completely plastic-free by 2025.

On our Capital Markets Day later, Pat Morrissey, our Group Operations Director, will go into more detail on our sustainability credentials and objectives. But suffice to say, we are proud of what we've achieved over the last few years and have a range of initiatives on our way to ensure we minimize our environmental footprint. This includes sponsorship of the environmental awards for the industry by Matthew Clark later this autumn.

So thank you for your attention. I'll now hand over to Jonathan who will take you through our financial performance in greater detail.

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [2]

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Thank you, Stephen. I will now take you through the financial review, initially focusing on our existing C&C businesses, before moving to the consolidated group financial performance, which includes the 11 months of Matthew Clark and Bibendum.

Turning first to revenues on Slide 12. As was the case at half year, to aid comparability, we have adjusted the numbers to reflect the changing commercial terms in the U.S. with the discontinuation of the Pabst distribution in April last year. Also, please note that this excludes Matthew Clark and Bibendum.

Organic net revenue growth in constant currency is plus 3.2% driven primarily by our core brands of Bulmers, Tennent's and Magners in their home markets combined with the continued growth in the super-premium and craft portfolio. Core brands were up 1.1% volume, led by Bulmers and Magners, and up 5.5% in revenue. I'll go into more detail on Core brand performance on the next slide.

Super-premium and craft volumes grew by 46%, helped by an additional 2 months of Orchard Pig sales and incremental Tsingtao distribution. Organic growth was 15%. Revenue growth reflects the underlying volume performance, higher price points and on-trade bias of this portfolio, and this category represented 7.9% of branded revenues.

Adverse other owned brand revenue is impacted by the phasing of the AB InBev stock buy-in in February 2018 and relates mainly to K Cider and the other shipped-in cider brands. This was done in advance of moving logistics from Ireland to England and Wales. The underlying positive growth in these brands remains intact.

Our international division has had a more challenging year. Volumes were down 21%, but a large proportion of this was across low-margin products. This positive mix actually improves the net revenue rate by 3%. In our third-party businesses, the strong performances in wholesale and wine drove the majority of the revenue growth.

Slide 13 shows the revenue performance of our 3 core brands across the home markets in GB and Ireland. Tennent's volumes were broadly flat with growth in the Scottish off-trade and on-trade key accounts offset by national chains and softness in Northern Ireland. However, the net sales rate was positive 8% as a result of MUP-related price increases and the beneficial mix as consumption shifted to higher-value small and mid-sized packs.

Bulmers volumes were up 1.6% with a strong weather-related off-trade performance and stabilization in the on-trade. The net sales rate was up 2% as a result of the competitor-led price increase, partly offset by adverse mix with an increase proportion of volumes in off-trade.

Magners volumes were up 4.2% on the back of strong off-trade sales. Price/mix was positive due to the annual contractual price increases, partly offset by the continued shift in consumption from glass to can, in line with the broader market trend.

I will now move on to the wider consolidated group and our operating profit performance. We can see here the strong underlying trading performance in Ireland and Scotland coming through. As previously noted, this performance was primarily driven by volume and price/mix in core and premium brands. It's worth noting that there was approximately EUR 2.5 million of input cost inflation in the year, principally relating to aluminum and energy price increases. This has largely been mitigated through value engineering initiatives and improved efficiencies.

We anticipate similar levels of input price inflation of circa 2.6% into FY '20. This will come from further increases in energy costs and higher cereal and glass prices. This trading performance is partly offset by an increase in defined benefit pension charges in Ireland due to credits in the prior year arising from pension levies. Pension charges are now at normalized level, and we don't expect any further material movements in the next financial year. Other than pension, central overheads are marginally lower year-on-year.

International profits were down EUR 0.1 million in the period with the adverse volume impact offset by a smaller, more focused sales and marketing infrastructure across both the U.S. and the export businesses. As noted by Stephen earlier, operating profit generated from Matthew Clark and Bibendum in the 11-month period was EUR 15.7 million, broadly in line with the guidance given at half year.

Moving on to group free cash flow on Slide 15. Clearly, there's been a lot going on with regard to cash flow in the year, both with the acquisition of Matthew Clark and the bank debt refinancing incorporated an increase in our receivables purchase facility. The graph illustrates the continued underlying robust cash generation with free cash flow reaching 81% of EBITDA, ahead of our medium-term guidance range of 60% to 70%. In core C&C, net working capital showed an inflow of EUR 1 million, this, after the negative impact of the Brexit stock build of approximately EUR 3.5 million.

We increased the size of the receivables purchase program to bring the Matthew Clark and Bibendum debtor ledgers into the C&C's existing facility. The newly acquired businesses had the benefit of EUR 94 million of funding from this facility, and it has helped finance the rebuilding of stock levels during the year and the normalization of debtor and creditor balances. In addition, Matthew Clark repaid EUR 35 million of overdue tax liabilities owing on acquisition. Now that the Matthew Clark and Bibendum businesses have been stabilized, we are increasingly confident that there will be further opportunities to recover working capital investment going forward. I will pick up on finance costs, tax and capital expenditure a little later.

The EUR 91 million cash inflow noted on the previous slide feeds into our net debt position on Slide 16. We ended the period with net debt of EUR 302 million, having paid our final FY '18 and interim FY '19 dividends and absorbed the EUR 116.5 million of short-term debt that came with the Matthew Clark acquisition. Debt was refinanced in July which, to remind you, comprised of a EUR 450 million RCF and a EUR 150 million 3-year term loan.

Share buybacks were undertaken to nullify the dilution of the interim scrip dividend. Net debt/EBITDA at the year-end was 2.51x, underpinned by rigorous working capital and cash management together with the funding inflow from our receivables purchase program, as noted on the previous slide.

Slide 17 depicts the revenue and profit pools across our branded and distribution businesses. The branded business delivered operating margins of 21%, broadly in line with the prior year. Volume growth and positive price/mix across our core brands, together with the higher share of Craft/Super-Premium, helped drive operational leverage in our Irish and Scottish businesses. In our distribution businesses, volume in GB and Ireland were up 6% and 8%, respectively, helping to improve operating margins year-on-year from 3.4% to 3.7%.

As noted previously, business mix is the most significant driver of group margins in our business. This comprises mix within our branded business between brands, markets and channels; and also mix between our branded business and our third-party brand activities, which include wholesale, wine, own label and distribution contracts. Clearly, with the addition of Matthew Clark and Bibendum, our group margins will move significantly as the relative contributions of revenues and profits shift towards these lower-margin business lines.

In closing, I want to share with you the financial metrics and future targets for the key items below operating profit. Finance are costs up on prior year given the higher level of borrowings in the business. However, also included here are the cost of the enlarged receivables, purchase facility, amortization costs, guarantee fees as well as utilization and commitment fees. These items aside, our cost of borrowing going forward at current EURIBOR and LIBOR rates should be below 200 basis points.

The effective tax rate in F '19 of 12.1% is below the normalized rate due to a provision release following the successful defense of a tax inquiry. In the medium-term, the ETR should be in the range of 14.5% to 16.5%, largely dependent on the availability of tax losses in Matthew Clark.

Capital expenditure of EUR 22.1 million in the year was ahead of our run rate of below EUR 15 million due to some specific projects completed in the year. These included the system upgrades across the group of circa EUR 3.4 million; the water treatment plant at Wellpark, approximately EUR 2.3 million; and the Visitor Center in Glasgow, approximately EUR 1.9 million. All 3 manufacturing sites are well-funded and have available capacity. And as such, looking forward, capital expenditure should be around EUR 15 million annually.

Finally, the share of earnings from equity accounted investments primarily relates to the earnings from our investment in Admiral Taverns, which is trading in line with our investment case.

Thank you. I will now hand you back to Stephen to conclude on our outlook.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [3]

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Thanks, Jonathan. Looking at Slide 20 and our outlook, F '19 was a good year for the business where we implemented changes to our commercial strategy and continued to invest behind our core brands, all of which had a positive impact on performance. The weather, the World Cup is not something that we can necessarily hope to repeat in the current year. That said, we've had a positive start to F '20, continue to benefit from the investments we made last year. I know with our unrivaled market access through Matthew Clark and Bibendum, this we believe underpins a target of double-digit earnings growth for this fiscal.

In acquired businesses, our plan is to steadily rebuild and capture the long-term value we know they can deliver. It will take time, but we're confident that we have the right management team in place and platform to deliver a strong return to our investment over time and also the platform to support growth of our wider portfolio.

In terms of steady-state performance, our target is to drive the business to a 3%-plus operating margin. In terms of capital allocation and strategy, we are a cash-generative business and we expect to generate cash flow of between 60% and 70% of EBITDA annually for the medium term. This ensures we will have a broad range of strategic and financial options open to us to drive value, including the potential for further investment in business, bolt-on acquisitions in our core markets and, of course, the ability to return cash to shareholders.

We are, therefore, confident that the business is capable of delivering mid- to high-single-digit earning growth as it enters a more steady-state positioning once the program at Matthew Clark and Bibendum is complete.

So thank you for your attention. Before we take your questions, just to remind you that we have our Capital Markets Day commencing at 1 p.m. today in the Brewers' Hall. We'll provide a detailed perspective on the U.K. and Ireland alcohol drinks market together with a presentation on the progress we've made since the acquisition of Matthew Clark and Bibendum. Even if you had not registered yet, you're welcome to attend, and we do hope to see you there.

Thank you very much. Back to the operator to do questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first is over to the line of Ian Hunter at Investec.

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Ian Hunter, Investec Bank plc, Research Division - Equity Analyst [2]

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With the caveat that I won't ask a question about Matthew Clark and Bibendum until this afternoon, maybe, Stephen, could you give us an idea of the current competitive environment in Ireland and Scotland and how you are positioned to address any changes in that environment going forward? I'm doing this particularly I've seen that you've flagged that you've increased your share of market in cider in Ireland against what is probably fairly strong competitive pressures.

And maybe a more specific question for Jonathan plus your Matthew Clark / Bibendum receivables purchase of EUR 94 million, and you mentioned that you'll be looking to recover working capital investments going forward, are we to take it that you're looking to wind that facility down?

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [3]

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Ian, I'll let Jonathan handle that very technical accounting.

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [4]

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Okay. Yes, receivables, there's a EUR 94 million inflow, which is largely coming from the extension of our existing facility across the Matthew Clark debtors book. That's obviously in this year. Going forward, that will fluctuate based on the working capital seasonality within the business. But certainly, yes, to the extent that we can get further working capital benefits, particularly from DPO, we may look to reduce that over time, yes.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [5]

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Ian, on your first question, if I do it in reverse order, in Scotland, I mean Minimum Unit Pricing clearly was good for this last year, and we'd flagged that up on a multiyear basis. So Tennent's grew share in grocery, and it's kind of getting more share in convenience as price-led competition has kind of drifted away a bit. So the consumer faced with kind of a Tennent's versus a kind of something else, has gone from the kind of Tennent's. So we've grown share in grocery. And clearly, because of MUP, we've taken such a strong brand, we've taken a decent share of the value pool there.

Going forward in Scotland in that channel, we've -- we're starting to get into convenience. So we've got some warehousing, we've got some trucks and we've got people selling now into shops. So we're going direct to convenience. So we see some growth coming through that, which we're pretty positive about. And obviously, in Scotland, Matthew Clark was a composite wholesaler dealer in the people's products, not really Tennent's. There's so much Tennent's. And so we've got Matthew Clark now selling our brands. So I think it puts us actually in a stronger position. Scotland going forward in the next 12 months, the intensive competition will decline. Premium is still important. We're a bit light there. So the premium beer portfolio is going to be strengthened. But on standard or classic, as now called, I think we're quite content.

In Ireland, there's been 3 cider launches in 3, 4 years now between Heineken and Diageo. And what last summer showed is that when the sun shines the Irish consumer goes back to the brand they love and know, which was Bulmers, so we grew share. We grew share in grocery. And the market grew in grocery. The on-trade market was down a little bit. So pretty confident there. I mean I think we're continuing to take a little bit of share from one of the competitors who came in recently. And the Rockshore cider launched by Diageo will be regular in 500 or 600 pubs, but it's mainly in rural Ireland rather than in Dublin. And we'll see how it pans out. But Bulmers had a good year. We've got innovation this summer. We've got a thing called [Rosy], which we just launched. And we're doing alcohol-free Bulmers because of the -- that's the trend, but also obviously the drink-driving. So it's -- we're not going to be complacent in competition, but I'm pretty confident on Bulmers.

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Ian Hunter, Investec Bank plc, Research Division - Equity Analyst [6]

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Excellent. Maybe just one last niggly question for Jonathan. Am I right when you're saying that the pension cost that was charged in Ireland this last year is just a one-off and you won't be seeing that any kind of continuation through into FY '20?

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [7]

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Yes. We had pension credits actually in F '17 as well in F '18, and those are one-offs. And this pension charge going forward has been normalized, so it's a one-off here.

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Operator [8]

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So next question is over the line of Cathal Kenny at Davy.

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Cathal Kenny, Davy, Research Division - Senior Analyst of Food and Beverage [9]

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Cathal here from Davy. Just 2 questions from my side. Firstly, interesting in terms of the added disclosure on the wholesale activities in the legacy business. Stephen, I know you've caught up margins there of 3.7%. Would it be possible to get some context around that 3.7%, maybe just in the last number of years where that has landed?

And second question is for Jonathan. Perhaps if you could just help us bridge, I guess, the '19 EPS outturn relative to your double-digit EPS growth assumption for this year, maybe cover the building blocks, Matthew Clark relative to the core and maybe something in terms of tax and interest.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [10]

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Do you want to go first?

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [11]

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Yes. Okay. So in terms of -- sorry, Cathal, it was F '19 to F '20, yes?

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Cathal Kenny, Davy, Research Division - Senior Analyst of Food and Beverage [12]

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Just the bridge in terms of getting to that double digit, the core kind of Tennent's in terms of the building blocks.

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [13]

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Yes. I mean, obviously, there's underlying profit improvement both across the core business and incremental coming from Matthew Clark. So operating profit is up, but that is also partly assisted by a lower finance cost going forward, slightly lower, with the deleveraging coming through on the balance sheet. So it's a combination really of operating profit primarily and then also assisted by the finance cost line. Tax line will go up slightly. As I said, we had a one-off this year in terms of a provision release in that regard, and depreciation with a lower CapEx program going forward will also come up somewhat.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [14]

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Cathal, on the wholesale margins, I mean they've improved moderately last year, so they were up 3.4%; the year before, up to 3.7%. So we're getting obviously some benefit from scale procurement through Matthew Clark and Bibendum because we're buying much case or quantities of some of the stuff. But equally, to be fair, there's a whole fragmentation point that we'll be making this afternoon in the Capital Markets Day. You're dealing with a lot of smaller suppliers, particularly in beer who have tax advantage, so they kind of make a little bit more.

So both in Ireland and Scotland, we've increased margins. And that's kind of where it should be, [3.7%, 3.4%] for the scale of business. We've got in those markets, the concentration of business. We also have a -- we've got pretty efficient logistics systems in Scotland, but we brought that in-house last year. We've made an investment this year on systems. So there may be some marginal improvement coming through that through next year.

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Operator [15]

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So we now go to the line of Patrick Higgins at Goodbody.

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Patrick Higgins, Goodbody Stockbrokers, Research Division - Analyst [16]

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Just a couple, and I'm conscious you obviously have the Capital Markets Day, which you'll probably touch on this in more detail. But on Matthew Clark and Bibendum, should we anticipate any kind of volume recovery? I know you've called out the focus on value over volume. But should we anticipate any -- I know winning some customers back, particularly in Bibendum, or improving the penetration rate with your existing customers in that -- in those 2 businesses.

And then secondly, just on the Irish market. It looks like overall, the LAD market was down last year. Could you just kind of highlight how -- what drove that, particularly given the good summer weather that we had last year? And then finally, just sticking with Ireland, any update on Minimum Unit Pricing being introduced in that market?

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [17]

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Patrick, Minimum Unit Pricing in Ireland, I mean it won't happen until you've got a devolved government back in the North. I think we want to do it in tandem, so the political side has to be done together. And recent events where I said bring that forward a bit, but it sounded like they're going to be the indication over the next 12 to 24 months.

I think in the -- going to your first question, which was around the -- sorry, the volume revenue recovery. I mean we are not going to chase volume. I would be careful about volume in Matthew Clark/Bibendum because you can do a lot of soft drinks, which cost you a lot to deliver and you make no margin on it. So the real price in Matthew Clark is going to be getting independent free-trade customers back around the big national stuff, which is really just case rate. So I think the focus for me will be on our IFT distribution number going forward.

Bibendum is picking up a lot of business just now. There's certainly a lot of tenders. They won the Oscars last night of wine supplier of the year, 2 prizes yesterday. And so there's momentum in the Bibendum business, but Matthew Clark is the IFT England and Wales the big nationals. So I wouldn't be -- we have fixed cost obviously in the warehousing, but one of the projects we're doing this year around simplification is to try and actually de-clutter a little bit, and that's a bigger prize than chasing volume.

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Patrick Higgins, Goodbody Stockbrokers, Research Division - Analyst [18]

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And then finally just on the Irish LAD market, the kind of driver of that decline?

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [19]

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Well, the summer was great for us, but it wasn't great for everybody else. I mean so if you think of a dark beer that's got way ahead on it, they had a pretty tough year. The on-trade was down 2.2%, the off-trade was up 4.6%, 4.7%. The World Cup, the summer barbecues, people drinking outside, so that was the drivers. But the lager brands had a decent year. Heineken had quite a good year. So it's mainly the dark beer that pulled it down.

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Operator [20]

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So before going on to the next question, which is Alex Smith at Shore Capital (Operator Instructions) Alex, over to you.

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Alexander Piers Smith, Shore Capital Group Ltd., Research Division - Research Analyst [21]

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Just a couple of follow-ups, please. One, I guess going back to the outlook a little bit in terms of mix, I'm just wondering how you -- how we should think about mix playing out through the course of the year? It's obviously a very big dynamic for you as you rightly highlight. You have a number of businesses on a very broad spectrum of margins. So maybe you could help us understand some of the mix headwinds or tailwinds as we go through the course of the year.

And then a follow-up on MUP in Ireland, still 12, 24 months, as you say. But I think in the release, you talked about it being equally relevant to Bulmers as the Tennent's in Scotland. So I was wondering maybe you could talk about some of the dynamics behind that in terms of brand price positioning, how we should think about that and financially as well perhaps.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [22]

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I mean I'll do the second question, Alex. I mean Bulmers is well above MUP levels, so it's a brand that's not going to be impacted. But it's also, in terms of elasticity, we tend to try and keep it 10% above standard lager. So the consumer in grocery is between standard beer and Bulmers in terms of buying opportunity. So if we have 10% and all the 75% of standard lager in Ireland is sold on deal, which is kind of below MUP, so you lift that whole thing up and we sit above it.

Equally, in Ireland, it's very rural. There's less concentration of big supermarkets, pretty more into convenience. So I think it's some of the lessons at Scotland that we've learned is with pack sizes, give it the slap packs, into more convenient packs, going to more convenient channels. It will impact private label, certainly impact high strength and it will stop deals on Budweiser and Carlsberg, et cetera, which is good for us.

And I don't think we're not going to put a quantum on that just we've got a view. But you can probably work out the math if you'd like to. If you could say we're always going to be at 10% with the MUP prices and you say, well, there's a private label cider, there's a private label beer, and it only has to go one way. So we're not going put our knees out just there. Jonathan, do you want to do the...

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [23]

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Your question, Alex, on mix. Yes, so I mean it is really, if you look at the core branded businesses, you have margin of 21%, and then your wholesale and core at 3.7%, and then you go to Matthew Clark which, just for the year, was 1.6%; Matthew Clark business being twice as large in revenue terms as the core business. So the point I made in my presentation around mix is quite difficult because of all the various components within that. But certainly you're going to see, within the core branded business, you should see growth in margin there, super-premium growth supporting that as well.

And then in wholesale, as we've seen, we've seen a 3.4% to 3.7% increase in margin over the last year in the core business. And certainly, within Matthew Clark, 2% to 2.5%, up to 3% steady-state. So you should see margin improvement across all components of the business. But obviously, there's an impact on aggregate margin through the year as well the size.

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Operator [24]

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As that was the final question we have on today's session, Mr. Glancey, may I please pass it back to you for any closing comment at this stage.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [25]

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As usual, it's a pleasure to listen to those at once. Thanks for that. No, I think as we've got the Capital Markets session this afternoon, lunch starts at 12:00, 12:30. The presentations will start at 1:00. Anybody that wants to come along is more than welcome even at this late stage. And we'll give a fuller brief during the 2 or 3 hours that we've got you in the Brewers' Hall.

So thanks for your attention this morning, and we'll hopefully see some of you this afternoon. Take care.

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Operator [26]

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This now concludes the call. So thank you all very much for attending, and you can now disconnect your lines.