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Edited Transcript of GCC.I earnings conference call or presentation 25-Oct-18 7:30am GMT

Half Year 2019 C&C Group PLC Earnings Call

Dublin 12 Dec 3, 2018 (Thomson StreetEvents) -- Edited Transcript of C&C Group PLC earnings conference call or presentation Thursday, October 25, 2018 at 7:30:00am 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

* Patrick McMahon

C&C Group plc - Group Strategy & Finance Director

* Stephen Glancey

C&C Group plc - Group CEO & Executive Director

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Conference Call Participants

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* Ian Hunter

Investec Bank plc, Research Division - Equity Analyst

* Patrick Higgins

Goodbody Stockbrokers, Research Division - Analyst

* Roland French

Davy, Research Division - Food 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, everyone, and thank you for joining our FY 2019 half year results conference call. I'm joined today by Jonathan Solesbury, our Group CFO. We also have Stewart Gilliland, the new Chairman; and Joe Thompson, who is Head of Investor Relations.

For this morning's presentation, I'll take you through the key group headlines and our usual segmental review. We'll then provide a more thorough review of the progress we've made at Matthew Clark and Bibendum before Jonathan discusses our financial performance and cash flow in greater detail.

We'll then conclude with our outlook for the second half, before doing the Qs and As. So at this point, I'll draw your attention to the disclaimer on Slide 2 of our presentation, which, of course, applies to the discussions today.

Outlined on Slide 3 are our headline numbers for the 6 months to the 31st of August 2018 and this includes the post-acquisition contribution from both Matthew Clark and Bibendum. So combined with C&C's existing businesses, we're reporting a revenue growth of 186% and earnings growth of 16%.

Our first half performance was underpinned by strong organic growth across our existing C&C-branded and wholesale businesses with revenue up 6.4% and earnings up 4%. This has helped drive a reported group EPS growth of 19.4%.

Cash generation and conversion within our C&C businesses remained strong with free cash flow conversion of 148% and net debt-to-EBITDA as of the 31st of August of 2.1x.

Now turning to Slide 4 and our strategic and operational highlights for the first half of the year. Our core brands each delivered volume, revenue and share growth in their keyhole markets. This performance was undoubtedly helped by favorable summer weather and the World Cup. But critically, we've also executed well in the early months of minimum unit pricing in Scotland. Bulmers has demonstrated its enduring appeal amongst Irish consumers and Magners continues to show momentum under our new distribution arrangement with ABI.

Through a combination of organic growth, investment and new distribution wins, our Craft and Super-Premium brand portfolio is thriving, delivering 23% organic growth volume this half. Craft and Premium now represents 7.5% of branded revenue.

We also added exclusive U.K. and Ireland distribution rights for Tsingtao, which is the U.K.'s #1 Chinese beer brand in July. Even before the acquisition of Matthew Clark and Bibendum, our existing wholesale and wine businesses in Scotland and Ireland were performing reasonably well. They grew revenues by 11% and volumes were also up strongly, particularly in the on-trade with wine. The capabilities of Matthew Clark and Bibendum will only serve to further enhance the range, service and value we can offer our wholesale and wine customers in our domestic markets.

Indeed, we're already seeing these benefits come through in some significant account wins. Since the acquisition of Matthew Clark and Bibendum, our absolute focus has been on the stabilization of those businesses.

By the end of September, we settled the GBP 129 million of monies owed to suppliers, paid taxes owed of GBP 31 million and collected GBP 146 million of monies due from customers. Financial performance and the progress made to date will be analyzed later in the presentation.

In July, we announced the sponsorship of the Cheltenham Gold Cup for Magners and Bulmers brands. This significant multiyear investment in one of the highest profile U.K. and Irish sporting and social occasions will build brand salience for both Magners and Bulmers. Admiral Taverns has traded positively through the period with its predominantly wet-led, community pubs benefiting from good weather, the World Cup and continued investments. Comparable EBITDA for the 6 months to August '18 is up 0.8% at GBP 12.6 million. Looking ahead, we have a degree of momentum in our core business, and while recognizing the criticality of Christmas trading from Matthew Clark and Bibendum, given progress [there] we are well positioned with a strong service platform for the second half.

Turning to Slide 5. In Ireland, Bulmers had an excellent first half performance returning to volume, revenue and share growth. In line with the broader market, this growth was led by off-trade and on-trade pint bottle outperformance. These remain the largest and most robust segments of the Irish cider market and Bulmers is the standard performer in both. Competitive challenges do remain, of course, with significant new product launches by major international brewers across beer and cider, heightening competition for bar space and consumer attention. However, with the sun shining, consumers returned to Bulmers and we grew on-trade share.

Equally, our brand and sales team in Dublin has made good progress winning back key on-trade customers in high-volume marquee accounts. The performance demonstrates the enhanced strength of the Bulmers brand and its close affinity with Ireland and Irish consumers.

Our Super-Premium and Craft portfolio continues to impress with Five Lamps, the Dublin craft brewery increasing revenues by 50%. Recently launched Dowd’s Lane range of traditional craft Ales, Stouts and Ciders have been well received by customers and consumers. And we recently entered distribution partnerships with Kilcaney (sic) [Killarney] and Sullivan's Brewing Companies.

For wholesale distribution in wine, the momentum we saw last year continued in this half. Wholesale volume growth was plus 9% as a strengthened management team drove a rate of sale and new customer wins. The on-trade wine business in Ireland was up 14% in volume terms in the half driven by investment in sales and range extensions with some of our existing wine relationships.

Turning to Slide 6. Tennent’s had another good trading period sustaining the strong momentum of recent years. The introduction of Minimum Unit Pricing on alcohol on the 1st of May was one of the most significant and progressive legislative changes in alcohol for a generation. It is still early days, but Tennent’s has traded well since its introduction. The good weather and World Cup helped stimulate demand across the whole category and the anticipated off-trade volume declines did not materialize.

Tennent's off-trade volumes were plus 1% in the half and brand strength premiumization and our MUP-ready pack size and price point strategy helped us win shelf space and share in the post MUP environment.

As at the end of September 2018, Tennent's was enjoying a 5-year market share high in the off-trade. On-trade volumes were flat overall, but Tennent's continues to grow customers, distribution and value. Our super-premium and craft brands had another strong period of organic growth in Scotland and across the rest of the U.K.

Menabrea increased volumes by 50% in Great Britain, achieving solid growth in all channels while Heverlee was up 61% and Drygate, our craft joint venture, plus 16%. Orchard Pig saw new listings at the major supermarkets and on-trade distribution points were up 36%. The acquisition of Matthew Clark and Bibendum is an exciting opportunity to accelerate the momentum of our Super-Premium and Craft brands across the broader U.K. on-trade. Operational and financial performance at our Tennent's wholesale distribution and wine business in Scotland strengthened through the first half of the year.

Wholesale customer numbers were up 10% since February and volumes plus 6% year-on-year, with revenues further ahead. This growth has been driven by new customers and through range development.

Our online order platform now accounts for 31% of volume. The strong performance includes our specialist wine business in Scotland, which sold 90,000 cases in the half, which is 18% up year-on-year.

Looking at Slide 7, and our cider portfolio across the U.K., Magners has had a very good summer with volumes up 8% in the Scottish IFT and 12% across the rest of the U.K. This is well ahead of expectations and the category as a whole. Good weather and the World Cup clearly contributed, but distribution continues to expand in U.K. grocery, wholesale and through Admiral and other U.K. on-trade accounts.

Magners Dark Fruit gained national listings in both on- and- off-trades and Magners Original is now pouring at Wembley Stadium. It is fair to observe that we were not impacted by the CO2 shortages that affected some of our competitors.

Our investment in Admiral Taverns strengthens our route to market in the U.K. and it was helped by solid summer trading and an encouraging tick-up of Magners across the estate. Clearly, Matthew Clark and Bibendum offer significant opportunities in the midterm for growing our cider brands.

Turning to Slide 8, we have a relentless focus on ways to improve operating efficiency across the business. This not only delivers cost savings but fulfills our sustainability agenda and enables us to better serve our customers. On the distribution side of the business, we brought our secondary logistics in Scotland back in-house to join the existing Tennent’s distribution network. This allows us not only to save on the third-party management fee but to strengthen customer service across the on-trade channel.

In Ireland, we also completed the implementation of the JD Edwards platform. 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 ultimately bringing back office efficiencies.

In our operations, as with most major brewers and food manufacturers, we experienced significant disruptions to supplies of CO2 over the busy summer period. However, our recovery plant in Clonmel ensured that we were able to maintain full production of our brands through this difficult period. We intend to install a recovery plant in Glasgow next year.

In addition, we have put an anaerobic digester into Wellpark to reduce wastewater charges and improve our environmental footprint.

Turning now to Slide 9, and an update on Matthew Clark and Bibendum. As you all know, Matthew Clark is the largest independent distributor to the U.K. on-trade directly accessing 19,000 customers. We completed the acquisition on the 4th of April 2018. The business has been operating under severe financial and operational stress for an extended period and stock availability, customer service levels, supplier relations and financial controls were significantly below acceptable norms. Since then we have made excellent progress in stabilizing and restoring the appropriate levels of service and operational control. When we acquired the business, we said we would honor all outstanding amounts to suppliers, HMRC and banks, secure continued employments for approximately 2,000 employees and provide short-term working capital support to restart the business and restore customer service levels.

We are pleased to report that we have made substantial progress on these objectives. As at the 30th of September, all overdue balances owing to HMRC have been settled and GBP 129 million has been repaid to suppliers. We have recovered GBP 146 million of the opening balance sheet owed by customers. Stock levels are high both at Matthew Clark and at Bibendum. And we're also working with our auditors, Ernst & Young, to establish the opening balance sheet, which, while still provisional, remains substantially as we first shared with you at our May results.

A summary of the specific actions since acquisition are set out on Slide 10. Within weeks of the acquisition, we appointed high-quality and experienced management teams to both Matthew Clark and Bibendum. At Matthew Clark, Steve Thompson and David Phillips have returned to the business as Chairman and Chief Executive, respectively, having being CEO and Finance Director to the business prior to the acquisition by Conviviality. At Bibendum, Michael Saunders, the founder and former CEO of the business, returned as CEO in May together with James Kowszun, resuming his role as COO and Finance Director.

We have augmented these teams by seconding Paddy McMahon, who is the C&C Group Finance and Strategy Director to oversee financial activity and support the stabilization of the finance function. We've also promoted internally to the role of Finance Director for the division.

At Bibendum, a [fourth] integration with Matthew Clark has led to a prolonged period of disruption and customer attrition. However, recovery is progressing and the first steps of reversing the Matthew Clark integration have been taken. We have completed a huge amount of work to establish strong and robust financial controls and an appropriate reporting framework. In this, we were assisted by AlixPartners and appointed Ernst & Young as auditors and they are completing a substantive audit for the year ended the 31st (sic) [30th] of April '18.

A rigorous new system of daily, weekly and quarterly cash flow forecasting and monitoring has been implemented. And we are also substantially through a program of purchase ledger, sales ledger, supplier income, duty and bank reconciliations. And planning for the simplification and optimization stages of our recovery program have commenced. An early analysis confirms our original view that there are significant opportunities to be addressed next year and beyond.

Turning then to Slide 11, you can see the progress we've made in restoring the operational performance of Matthew Clark. These are the key operational KPIs for the business. Stock availability of the top 400 SKUs is currently running at 96%, having being down at 42% in April. The stock value we inherited at GBP 52.9 million was actually better than expected, but there were significant out of stocks in many important SKUs, particularly in wine. This caused quite a lot of disruption to customer service, volumes, and ultimately, profitability in April, May.

The stock position has substantially normalized. Indeed, we're currently overstocked to ensure we optimize customer service. On Time in Full deliveries, OTIF as of at the end of September, was only at 95%, which, again, is satisfactory for this type of competent national distributor. OTIF was 64% in April and service issues over the summer were impacted by CO2 shortages, which affected many of the brewers and soft drink manufacturers. This made the summer recovery story even more challenging.

Customer retention has been encouraging with distribution points down 4% on last year. Total volumes are down 10% in the 5 months to 31st of August. And this is mainly driven by high volume low-margin wine going direct to national accounts. We are working hard to bring back, where appropriate, the share of wallet.

As previously mentioned, the [activity] at Bibendum is [probably follow] behind Matthew Clark. It's had disruptions since last September driven by the field integration. The business is now stabilizing and we are looking towards next fiscal year to restore financial performance.

If you can turn now to Slide 12. The performance of Matthew Clark and Bibendum in the 5 months to the 31st of August was clearly severely impacted by the business disruption linked to the Conviviality Group's collapse. Having been heavily disrupted in April and May, Matthew Clark's wholesale business recovered to generate EBIT of EUR 6.8 million for the whole 5-month period. The EBIT margin was 1.7%. Bibendum was loss-making in the 5-month period but should stabilize in the second half.

Our initial assessment is that the combined Matthew Clark and Bibendum businesses have the capability to generate normalized EBIT margins in the range of 2% to 2.5% once the current stabilization period is complete. I'll now hand over to Jonathan, who will take you through the financial performance of the rest of the group 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'll now take you through the finance review initially focusing on our existing C&C businesses before moving to the consolidated group financial performance, which includes the recently acquired Matthew Clark and Bibendum.

Stephen has already talked about the strong volume performance from our core brands and the Super-Premium and Craft portfolio across GB and Ireland.

Core brands were up 4% in volume led by Bulmers and Magners. Our Craft/Super-Premium portfolio grew organically by 23%, in addition, benefiting from the full 6 months of Orchard Pig and 2 months of Tsingtao volumes having secured the distribution rights for the U.K. and Ireland in July this year.

Our international division has had a more challenging 6 months from a volume perspective. In the U.S., a transition of our brands back from Pabst has gone smoothly and a smaller team is Vermont now focused on driving the performance of core brands in key target states.

Accordingly, branded volumes still declined as some of our national accounts listings unwound but operating profits and cash as we will see, remained relatively stable.

Volume performance in our other export territories suffered from distributor changes in Italy and reduced tourism numbers in some of our other European markets. However, reduced cost infrastructure in our export division helped to mitigate much of the volume declines.

As Stephen has outlined, our drinks wholesaling businesses in Ireland and Scotland had a good first half with on-trade wine performing particularly strongly. Volumes in this segment also benefited from a number of new own label contract wins and double-digit growth in our soft drinks business in Ireland.

Turning to net revenues on Slide 15. We have adjusted last year's reported number in respect of certain of our contract manufacturing activities. As we explained in our FY '18 accounts, this change was in anticipation of the implementation of IFRS 15. To further aid comparability, we've also adjusted for movements in exchange rates and the changing commercial terms in the U.S., with the discontinuation of the pubs distribution agreement in the period.

Core brand revenue growth was driven by volume in our Irish cider brands and price mix in Tennent's. I'll go into more detail on core brand performance on the next slide. Craft/Super-premium revenue growth reflects a strong volume performance, higher price points and the on-trade bias of this portfolio. International branded revenues were down in line with volumes. In our third-party businesses, the strong performances in wholesale and wine drove the majority of the revenue growth.

Slide 16 shows the revenue performance of our 3 core brands across their 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 6% as a result of MUP-related price increases and beneficial mix as consumption shifted to the higher-value small- and- mid-sized packs.

Bulmers volumes were 5% driven by -- primarily by strong weather-related off-trade performance and stabilization in on-trade, particularly with the iconic Bulmers pint bottle. The net sales rate was down 1.3% driven by mix, with an increasing proportion in off-trade volumes, where competitor discounting activity was intense.

Magners volumes were 12% ahead on the back of strong off-trade sales. Price mix was slightly negative due to the continued shifting consumption from glass to can in line with the broader market trend.

Turning now to operating margins on Slide 17. We outline the key drivers of the 40 basis point decline in existing C&C operating margins. In our branded business, strong volume and price performance helped drive operational leverage in our Scottish and Irish businesses. In addition, the reduced marketing spend in Ireland improved margins in H1 with modest further benefit to come in the second half. However, 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.

To illustrate the point, we provide the broad ranges of trading margins we see across the 2 parts of our business. Within our own brand businesses, trading margins vary from 15% in predominantly off-trade brands to over 50% on premium on-trade-focused brands. In our third-party brands business, trading margins can range from 2% to 12%.

Clearly, with the addition of Matthew Clark and Bibendum, our group margins will move significantly as the relative contributions of revenue and profits shift towards these lower-margin business lines.

I will now move on to the wider consolidated group. In looking at operating profit on Slide 18, we can see the strong underlying trading performance in Ireland and Scotland. As previously noted, this performance was primarily driven by volume and price mix in core and premium brands. In the analysis, we've also split out separately the EUR 1.1 million of input cost inflation in the half. This principally relates to aluminum and energy price increases. We anticipate similar levels of input price inflation of circa 2.5% in the second half and into next year. This will come from further increases in energy costs and higher cereal prices.

In addition, defined benefit pension charges in Ireland in the period increased by EUR 0.7 million year-on-year due to pension credits in the prior year arising from pension levies and transfers. Pension charges are now at a normalized level. And while we can expect a similar increase in H2, there should be no further material increases in the next financial year. Other than pension, central overheads are flat year-on-year. International profits were down EUR 0.2 million in the period reflecting the smaller, more focused sales and marketing infrastructure across both the U.S. and export businesses. We have also included the operating profit for the 5 months for Matthew Clark and Bibendum as discussed by Stephen earlier.

Moving on to group free cash flow on Slide 19. Clearly, there has been a lot going on with regard to cash flow in the half, with the acquisition of Matthew Clark, the bank debt refinancing incorporating the increase in our receivables purchase facility. The analysis illustrates the continuing underlying robust cash generation in existing C&C businesses. The first half is our stronger period for cash generation and the underlying cash conversion where we have a 90% of EBITDA is a good performance and positions us to meet our medium-term guidance of 60% to 70% for the full year.

We increased the size of the receivables purchase program ostensibly to bring the Matthew Clark and Bibendum debtors ledgers within the facility. It did have a EUR 45 million positive impact on C&C cash flows as certain concentration limits were eased by the increased size of the book in addition to the usual seasonal funding increase in line with our heightened debtor levels over the peak summer trading period. Matthew Clark and Bibendum had the benefit of EUR 60 million of funding from this facility and it has helped finance the rebuilding of stock levels in the half, and the normalization of debtor and creditor balances. In addition, Matthew Clark repaid EUR 35 million of overdue tax liabilities owing on acquisition.

While there will be further investment in Matthew Clark working capital in the second half as we complete our creditor repayment plans and trade through the Christmas peak, we are increasingly confident that once the business is stabilized, there will be opportunities to recover much of this working capital investment over time. The EUR 95 million cash inflow noted in the previous slide feeds into our net debt position on Slide 20. We ended the period with net debt of EUR 279 million, having paid our final FY '18 dividend and absorbed the EUR 116 million of short-term debt that came with the Matthew Clark acquisition. This debt was refinanced in July, which to remind you, comprised (sic) [consisted] of a EUR 450 million 5-year RCF with a 1-year extension option and a EUR 150 million 3-year term loan.

Net debt-to-EBITDA was 2.1x at 31st of August as we benefited from the seasonal cash peak for the existing C&C business and the funding inflow from our receivables purchase program as noted on the previous slide. In closing, we can expect that net debt/EBITDA ratio to rise again in the second half as Matthew Clark completes the supply repayment plans and invest in working capital ahead of the Christmas peak.

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. Turning to Slide 22 and current trading and outlook. We have a good degree of momentum in our core business and have made a solid start to the second half with trading in line. For Matthew Clark and Bibendum, Christmas is critical, but we're pleased with the way the businesses have responded following a very difficult trading period early in the year with operational KPIs now trending well. That said, it will only be once the business has proven itself through the important Christmas trading cycle, that we can be confident that the business has been restored to health. We'll provide an update on Christmas trading and our first time guidance for Matthew Clark and Bibendum in our trading update in January. However, we expect that it will contribute no more than EUR 16 million of EBIT to the group results for the year ended February '19.

Both are unique businesses with fantastic market access and long-established reputations and represent excellent acquisitions for the group. With experienced management in place, we are confident that in time, these businesses will materially enhance shareholder value for C&C. Looking to the medium term, we expect the combined businesses to deliver normalized EBIT margins of 2% to 2.5% when through the period of disruption.

There is much economic and political uncertainty, and, of course, Brexit. We have detailed contingency plans in place to manage the various scenarios in Brexit that may emerge. Our modeling doesn't suggest material customer or financial disruption. C&C's core business is in good health and underpinned by incredibly strong brands and unparalleled market access. This is combined with the strength of our balance sheet, excellent cash flow and continued focus on shareholder value. Management are very confident in the medium term that Matthew Clark and Bibendum will unlock significant value and opportunities for all shareholders and other stakeholders.

I'll now hand back to the operator and open the call to any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We now go 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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My first question is obviously on Matthew Clark/Bibendum. You've shown us there good progress on Slide 11. You've got the distribution point, no sorry, volume as of last year about 90%. I was just wondering, how easy you think it is going to be to get from the 90% up to perhaps to 100% and then start to grow on that? What the time line would be and whether it's certain key clients that you have to get back on board? And further, what the mix of that volume, I think, you alluded to it there, Stephen, is Bibendum versus Matthew Clark, is the first. Secondly, on operating margin for it, it was maybe about half of what you've said is your expected normalized range. And I'm just wondering what the time line might be? Or if you have an idea at the moment what the time line might be to get into that normalized range? Are we talking 6 months or a year, et cetera, as the business restabilizes? And also, maybe, if you can give us an idea of the seasonality. When you say Christmas is an important part of the business, so what level of business goes through on Christmas relative to the rest of the year? And if I'm allowed another -- am I allowed another question?

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

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You can keep going, Ian.

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Ian Hunter, Investec Bank plc, Research Division - Equity Analyst [4]

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It's just a general one. I'm sorry for everyone else on the line who are probably going to ask this as well. Volumes up, revenue up, operating profit up, all looking great. I'm just saying, can you break out or is it possible to break out how much is underlying just the strength of the underlying business? And I know the core brands have done extremely well. The strength in the underlying business versus good weather versus the World Cup?

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

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Hi, Ian. We've probably lost about a 1/3 of the other people that are participating because you've asked all the questions.

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

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And that's a very American kind of analyst who will do that, Stephen.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [7]

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In fact, I'll do the first one. So distribution volume, yes, I mean, the volume is down 10%. And -- I mean, there's probably a couple of elements there. One is wine into big national customers. So when -- before when the business was getting a bit wobbly, 1 or 2 of the big national guys went direct to the wine coolers, so that's taken a lot of volume out We're quite relaxed about that, to be perfectly honest. I mean, it's -- it was low-margin but high volume. So there's not a lot of profitability in it for us. So that's not something we're going to necessarily chase. And, also, there is a big slug of soft drinks in there. We've got -- we deliver quite a lot of soft drinks and don't need to name the names, and again, that's pretty low margin. So I'm not anticipating that we absolutely chase that back. We're the Matthew Clark guys who focuses on the independent free trade in England and Wales. I mean, that's where we make money. And where we make money is in wines and champagnes and spirits, the kind of high-margin stuff. So the focus of the business going forward next year will be around those areas. Similarly, with Bibendum, chasing low-margin national business isn't what we want to do, so we will focus that on the high-end London scene. So that's why the volume numbers are -- will wash through, but I don't think we're going to -- we're flagging out next year as a big turnaround in volume. On the distribution points, we're at 3% distribution losses. So we've lost in total 3% of the customer contacts, which actually, all in all, is a pretty good story. But clearly, we've lost yield with those customers. And part of that is because of wine. If you're off the wine list, it takes a while to get back on. And we anticipate that come January, as people redo their wine list, now we've got all the stock in place, then we're well positioned to get back in there. And so that's where we would head with that. On the operating margins and seasonality, Paddy McMahon's here. So Paddy has been working pretty much night and day now for the last 6 months at Matthew Clark and Bibendum with the finance team there. So he is well positioned, I think, to answer the questions there.

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Patrick McMahon, C&C Group plc - Group Strategy & Finance Director [8]

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Yes, I'll answer the seasonality one first and Christmas is massively important, as Stephen said. Historically, it's been about 35% of the business for the full year, will go through Christmas. And the question on the margins, it was -- was what, could you remind me on that one?

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Ian Hunter, Investec Bank plc, Research Division - Equity Analyst [9]

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The recovery -- well, the expansion of the margin from where it is now to your guided range. I mean, what the time line might be for that? And what the drivers would be that you are confident that you're going to see that expansion?

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Patrick McMahon, C&C Group plc - Group Strategy & Finance Director [10]

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Sure. Sure. Well, we're still very much in the stabilization phase. As I said, Christmas is massively important. We would expect into next year that we would be through that and we'd be back to a normalized performance.

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Stephen Glancey, C&C Group plc - Group CEO & Executive Director [11]

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So I think on your -- you final question was around the underlying business and how can we pull out the World Cup and the warm weather? And the answer to that, Ian, it is very difficult to [manus] because the -- I mean, there was also the CO2 shortage. So if I look at the Magners performance in the U.K., our competitors were short of CO2 and we weren't, because we got the recovery system in Clonmel. So that probably got a bit of a boost. And I think the key one in terms of translation down to operating profit is actually Tennent’s. So the reality is even today, the Tennent’s brand is still growing share. We're up at 26%, the latest Nielsen data. And so we're growing share and our volume is up, it's up 30% year-on-year. So the year-on-year impact of minimum unit pricing for Tennent’s is probably EUR 2 million to EUR 2.5 million of an upside, of a pro forma upside and that's the kind of key point. I'm looking forward to Ireland and potentially MUP there. You can kind of get the -- you get the read across. So I think -- and Ireland and Bulmers, we had a really good summer. And the big point there is the inherent strength of the Bulmers brand, which resonates with Irish consumers, came back. And you know from history that when you get warm weather and people go back to drinking Bulmers, they kind of stick with it during the summer and you get a little hangover into the autumn and then next year it's front of mind, and then next year with the Gold Cup in March, it's an early big bang for the brand. And so we would be hopeful that next summer in Ireland, if it rains all summer, clearly, we're not going to go forward as much, but the fact that we've got the Cheltenham Festival right at the start gives us optionality that we probably didn't have before.

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Operator [12]

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Next question is over to the line of Roland French at Davy.

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Roland French, Davy, Research Division - Food Analyst [13]

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I just have a couple of questions, actually. Just following on MCB. I note there isn't any mention of the brand agency or the events business, so just saying, is there a strategic hint there? Or was there any profit contribution in the 5 months? And then just still on MCB, as you go into the next phase or call it the synergy phase, is there any risk, I guess, of kind of stepping on suppliers' toes that kind of independency point as you push more of your core brands through the channel? That's on MCB. And then just on kind of more broadly, the U.K., I note there's been a commentary around Brexit that the preamble of the risks and uncertainties with the conclusion that there won't be any material impact to the annual profitability of the group. I'm wondering if you can give a little bit of color around the Brexit mitigation strategy? And then finally just on Ireland, maybe a little -- a couple of comments on the Irish alcohol bill in context of your preparations in Scotland and the approach that you might take in advance of that introduction?

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

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So obviously a day for asking lots of questions. We'll work backwards. The Irish alcohol bill, we've been supportive of as a company since Taoiseach decided that he was going to do it. And so we broadly welcome it. I mean, there's parts of it that we would say, look, can you listen to the small Irish producers? So particularly, on the sponsorship of sporting events. When you're competing against the big international guys who can sponsor the World Cup or they can do the European championship, that's like beyond us. And so we would like to kind of retain the ability to sponsor local sports. But broadly in everything else, we've been supportive. In terms of what it means economically, then, I mean, it's pretty similar to MUP in Scotland for Bulmers. And Bulmers is the strongest cider brand in Ireland and it's proven its scalability again this year. And we have, I think, elasticity in price of about 10%, 11% just actually above the standard lagers, so Bulmers in the grocery channel tracks standard lager role and any other cider competitor. And so, if you take that whole space up, if you take the standard lager price up, then, clearly, Bulmers is in a great position to benefit. And so economically, we think it will be as good, if not better for us, than the maths of Scotland given the strength of Bulmers, given the share we have in the cider and in the relatively city beer. So we're pretty positive about it. So the Irish alcohol bill we support and we will do the labeling changes too. There is no issue with that, if that's what the government want. On Brexit, we are -- I mean, our preparations, it's difficult to predict where it's going to go as you can imagine one. And so the way we've looked at it is very simplistically, we have manufacturing there and then we've got manufacturing in the U.K. We've got warehousing in the U.K. We've got warehousing in Ireland. The way we make Magners is like wine, so you've got at least 6 months' fermentation. So we carry a couple of years' stock. And so if there's going to be a hard Brexit, we'll -- for cider, we'll manufacture that, we'll package it in Ireland and ship it over to the U.K., which could be just up to Northern Ireland because we've got warehouse in [Kulkevey] or it could be over to the mainland. And so we'll bring as much stock in as possible as quickly as possible to make sure we're optimally supplied during the summer. And we've got similar arrangements in place with all the suppliers in things like glass and cans. So we mitigate that. On the wines and spirits side, we've conversations -- we've had conversations and we'll have more conversations with suppliers to get wines into the U.K. But clearly, a lot of it is coming from Chile and Australia and South Africa, and places that can be easily imported into the U.K. So we don't see significant risk there. The opportunities we think will be around manufacturing in the U.K. So every crisis brings opportunity, if you're Chinese. And we can package and brew stuff in Wellpark that other people might not be able to do. So we're looking at some arrangements around that for the next year or 2. So that's probably Brexit.

On the wholesale bit with Matthew Clark, I'll just do that. I mean, we're keeping Matthew Clark as a national wholesaler. So the reality is that the Matthew Clark business needs to provide its customers through the U.K. with a whole suite of products. And you've got to be mindful of where they are, it's wines and spirits and soft drinks more than beer. Their main beer partner is AB InBev. They distribute virtually all of AB InBev's on-trade beer in the U.K. and the other brewers are lesser -- have lesser importance. And so we don't see in terms of what we do, which is niche specialty products like Menabrea and Heverlee and Orchard Pig. Those are high value, high premium products, we don't see any kind of conflict. And Magners itself, yes, I mean, there is a little bit of conflict, but in terms of what they sell, we don't see a huge risk. And do remember, Matthew Clark was previously owned by Gaymers. So they've got pedigree at selling cider. And so we're quite comfortable that we can maintain the intrinsic kind of legacy of being a wholesaler without impinging too much on competitors and we've had superb support from people at Diageo, and Heineken en route to market. So we've no issue, we've no early issues, and everybody's being paid their money. And so currently, the relationships are strong.

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Roland French, Davy, Research Division - Food Analyst [15]

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And just on the brand agency and the events businesses within MCB?

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Patrick McMahon, C&C Group plc - Group Strategy & Finance Director [16]

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Yes, I'll take that one. Yes, they're very much stand-alone businesses actually. They've got their own management teams. They're well run. In terms of contribution to the first half, it's somewhere between EUR 200,000 and EUR 300,000, would be the net contribution. So relatively minor in the overall scheme of things.

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Operator [17]

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Before going to the next question, which is Patrick Higgins at Goodbody, (Operator Instructions). So Patrick, over to you.

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

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And a lot of questions already followed me, but I just have 1 or 2. And firstly, on input cost inflation, and you cite 2.5%. Could you just remind me, again? I missed it. Where is that -- you're seeing the majority of that? And in terms of margins and the impact that will have, how should we think about your ability to recover some of that through pricing? And then, sticking on the margin point, just on Ireland and margins down 100 bps or so. And could you just maybe give us a bit of an idea of what the drivers of that fall was? I know you've called out input cost inflation, but was there an element of mix? And what was the various moving parts of it?

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

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Patrick, I'll give -- Jonathan can give you the answers to the questions. I mean, the one point on Ireland I'll make is that we had a price increase this year in the on-trade for the first time for a few years. So there's an uptick on pricing, which is long overdue and quite welcome. And we are followers in Ireland, so Diageo and Heineken put price increases through and we've come in behind them. So Jonathan will explain that, but it's more of a channel mix and some year-on-year stuff. Do you want to do that, Jonathan?

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Jonathan Frederick Solesbury, C&C Group plc - Group CFO & Director [20]

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Yes. Hi, Patrick. In terms of input cost inflation, as I mentioned in the presentation, we had just over 2% in this year, which was principally on the back of aluminum and more recently energy. Going forward, we've largely locked in aluminum for next year. So the anticipated increases are going to come from cereals, mostly malt. We're looking at about a 2% to 2.5% increase, which I think is substantially lower than some of our peers have been talking to. And in terms of passing it on, yes, we will look to potentially pass it on in the form of pricing, but it's not significant in the context. In terms of Ireland margin, yes, as Stephen mentioned, and I spoke to in my presentation, the biggest driver of margin in our business is really the mix across channels, but also across the different segments of the business and you can see that in the relative margins. We'll endeavor for Ireland going forward to at least keep the margins at the current levels, certainly on the branded side of the business.

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Operator [21]

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Okay. As there are no [further] questions at this stage, gentlemen, can I please pass it back to you for any closing comments.

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

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Well, I think, thanks, [Stu]. I mean, the summary of the results is well covered. We're doing the reception today for the analysts so we should see you there. And so we just thank you for dialing in and wish you a good day. Cheers.