12th Oct 2006 07:00
C&C Group Plc12 October 2006 C&C GROUP PLC INTERIM RESULTS FOR SIX MONTHS ENDED 31 AUGUST 2006 Dublin, London, 12 October 2006: C&C Group plc ('C&C' or the 'Group'), a leadingmanufacturer, marketer and distributor of branded beverages in Ireland and theUK, today announced its interim results for the six months ended 31 August,2006. Financial & Operating Highlights Financial Highlights (i) O Revenue growth of 27% O Operating profit growth of 66% O Earnings growth of 79% O Adjusted basic EPS of 28.7 cent - an increase of 77% O Interim dividend of 12.0 cent per share - an increase of 85% O Free cash flow of €81.6 million (65% of EBITDA) O Net debt reduced by €62.6 million to €320.5 million Operating Highlights O Operating profit margin increase of five percentage points to 21.3% O Volume of the Group's cider brands grew by 85% O Extended distribution of Magners nationally in Great Britain O Bulmers significantly outperformed the Irish LAD (ii) market O Volume for the Group's Irish whiskey brand, Tullamore Dew, grew by 25% O Marketing investment for the period increased by 53% (i) Comparisons exclude exceptional items. (ii) Long alcohol drinks market. (iii) Free Cash Flow (FCF)/Earning before interest tax depreciation and amortisation (EBITDA). Investors and analysts Irish Media International Media Mark Kenny or Jonathan Neilan Paddy Hughes or Ann Marie Curran Edward Orlebar K Capital Source Drury Communications M Communications Tel: +353 1 631 5500 Tel: +353 1 260 5000 Tel: +44 207 153 1523 Email :c&[email protected] Email: [email protected] Email: [email protected] Summary results for six months ended 31 August 2006 C&C is reporting operating profit before exceptional items of €113.5 million andadjusted earnings per share of 28.7 cent for the six months ended 31 August2006, increases of 66% and 77% respectively. The Group generated free cash flowof €81.6 million for the period. Maurice Pratt, Group Chief Executive Officer, commented "C&C is pleased toreport very strong earnings growth, notwithstanding significant marketinginvestment behind the Magners brand. "This financial performance reflects strong growth from the Group's ciderdivision. Magners has recorded rapid growth in the UK while Bulmers deliveredcontinued strong growth in Ireland. C&C's performance in both markets was helpedby favourable summer weather." Disposal C&C signed an agreement for the sale of its snacks subsidiary, Tayto CrispsLimited, on 5 July 2006 for a gross consideration of €62.3m. The transaction wascompleted on 21 September 2006 and will be accounted for in the results to 28February 2007. Proceeds arising from this disposal will be applied towards debtreduction. Dividends and Dividend Policy The Group will pay an interim dividend for the period of 12 cent per share, an85% increase on last year. The interim dividend will be paid on 13 December 2006to shareholders on the Group's register at the close of business on 20 October2006. A scrip dividend option will also be available. The dividend increase is broadly in line with C&C's reported earnings growth. Exceptional Items The exceptional items in the Group income statement comprise a profit of €4.6million on the disposal of surplus property in the Snacks division and agoodwill impairment of €8.3 million arising in the Distribution division. C&Cwill lose the distribution rights to the wine brands owned by the Fosters Groupin early 2007. This will reduce profits in the Distribution division and theGroup, as indicated in its first half trading statement, is writing off the €8.3million carrying value of goodwill attributed to that division at 28 February2006. Outlook C&C expects the strong market performance of its Cider division to be sustainedin the second half of the year. The Cider division is the principal driver of C&C's earnings growth and its performance should lead to an acceleration in therate of overall Group operating profit growth for the second half of the 2006/07year compared with the rate of growth in the half year to 31 August 2006. In the International Spirits & Liqueurs division depletions growth is expectedto continue. However, the expected reversal of the stock build up in the firsthalf year is likely to impact negatively on the results in the second half. The combined Soft Drinks & Snacks and Distribution divisions are expected toperform in line with prior year on a comparable basis, (adjusting for thedisposal of Snacks and the loss of the distribution of Danone and Allied Domecqbrands). Beyond 2006/07, the Group's primary objective is to deliver continued earningsgrowth through the further development of Magners in the UK and Bulmers inIreland and Tullamore Dew internationally. C&C has commenced an expansion of itscider manufacturing capacity in Clonmel at an approximate cost of €200 million,to support sustained growth. The resulting investment in both fixed and working capital will reduce theGroup's FCF/EBITDA (iii) expectation to a 30%-40% range in each of 2006/07 and2007/08 fiscal years. The decline in the FCF/EBITDA(iii) ratio, however, willnot affect the Group's dividend policy. OPERATIONS REVIEW Summary Revenue and operating profit increased by 27% and 66% respectively in the sixmonths ended 31 August 2006 compared with the same period last year. This principally reflects growth in the Cider division arising from thecontinued growth of the Magners and Bulmers brands. The Group's operating profitmargin increased by 5 percentage points which reflects an increase in Cidermargins and the mix benefit of the strong growth in the higher margin Ciderdivision. Operating margins increased in all divisions other than Distribution. Summary Group income statement (before exceptional items) Six months ended Six months ended 31 August 2006 31 August 2005 •m •m Revenue 532.1 419.5 Growth 27% Operating Profit 113.5 68.4 Growth 66% Operating Profit Margin 21.3% 16.3% Net Finance Charges (7.8) (10.3) Taxation (12.2) (6.0) Profit attributable to 93.5 52.1Ordinary shareholders Growth 79% Profit attributable to ordinary shareholders increased by 79% in the period. Inaddition to operating profit growth, this increase reflects a decline ininterest charges arising from a reduction in the level and cost of debt over theperiod and an increase in the effective tax charge from 10.3% to 11.5% due to ahigher proportion of net income subject to UK taxation. Divisional Review: Cider Six months ended Six months ended Growth 31 August 2006 31 August 2005 Year-on-Year •m •m Revenue 269.5 144.5 86.6% Operating Profit 90.0 45.1 99.6% Operating margin 33.4% 31.2% Revenue for the Cider division of €269.5 million represents an 86.6% increase on2005 and reflects an 85% increase in sales volume. Operating profit doubled to€90.0 million against €45.1 million in 2005. Operating margin, at 33.4%,increased by 2.2 percentage points year-on-year. The Group's international cider brand, Magners, having been previously launchedin Scotland and Greater London, was successfully rolled out nationally in GreatBritain at the start of the fiscal year. The rollout was helped by the excellentsummer weather in Great Britain. In addition to growth as a result of therollout, Magners' more established regions of Scotland, Greater London andNorthern Ireland have continued to show good volume gains in the period. Theoverall volume growth for the brand was 264% in the half year. It is estimated that the overall LAD market in the Republic of Ireland was flatin terms of volume in the six months ended August 2006 and that, within this,the on-trade showed modest decline and the off-trade strong growth. Bulmersoutperformed the LAD market and grew in volume terms by 7% in the period. Thisstrong performance reflected good summer weather and strong brand fundamentals. The increase in operating margin derives from the scale of growth in revenue.Marketing investment, although up by more than 100% year-on-year, only increasedas a percentage of revenue by just over one point. Divisional Review: International Spirits & Liqueurs Six months ended Six months ended Growth 31 August 2006 31 August 2005 Year-on-Year •m •m Revenue 36.1 28.9 24.9% Operating Profit 9.8 7.6 28.9% Operating margin 27.1% 26.3% Revenue for the International Spirits & Liqueurs division of €36.1 millionrepresents a 24.9% increase on 2005 levels. Operating profit increased 28.9% to€9.8 million against €7.6 million in 2005. Operating margin, at 27.1%, increasedby 0.8 percentage points year-on-year. Overall volume shipments increased 20% in the period and this was, in part, dueto stock building by distributors. It is estimated that depletions growth in theperiod was approximately 5%. Within this overall depletions performanceTullamore Dew continued to show good growth while Carolans has shown strongrecovery in its principal market, North America. Divisional Review: Soft Drinks & Snacks Six months ended Six months ended Growth 31 August 2006 31 August 2005 Year-on-Year •m •m Revenue 125.3 129.3 (3.1%) Operating Profit 13.5 13.3 1.5% Operating margin 10.8% 10.3% Revenue for the Soft Drinks & Snacks division of €125.3 million represents a3.1% decline on 2005 levels. Operating profit increased to €13.5 million against€13.3 million in 2005. Operating margin, at 10.8%, was 0.5 percentage pointsahead of last year. The overall soft drinks market volume grew by an estimated 2-3% in the periodreflecting, in part, the favourable summer weather. A modest decline incarbonated soft drinks was offset by strong growth in bottled water. The snacksmarket showed modest decline in the period. The revenue decrease in the period reflected the loss of the distribution rightsfor the Danone water brands. On a comparable basis, revenue grew by 2%comprising 3% growth for soft drinks and a decline of 3% for snacks. The improvement in operating margin is a result of production outsourcing ofsnacks and reduced marketing investment in soft drinks brands. Divisional Review: Distribution Six months ended Six months ended Growth 31 August 2006 31 August 2005 Year-on-Year •m •m Revenue 101.2 116.8 (13.4%) Operating Profit 0.2 2.4 (92%) Operating margin 0.2% 2.1% Revenue for the Distribution division of €101.2 million represents a 13.4%decline on 2005 levels. Operating profit declined by 92% to €0.2 millioncompared to €2.4 million in 2005. Operating margin at 0.2% fell by 1.9 percentage points year-on-year. The decline in revenue and operating profit was due to the loss of the formerAllied Domecq brands; weaker demand for premium wines; and reduced margin on LADagency brands. FINANCE REVIEW Cash Flow Free cash flow, for the six months ended 31 August 2006, amounted to €81.6million. This represented 65% of EBITDA compared to 79% in the correspondingprior period. The reduced percentage is due to increased investment in fixedassets and working capital. Working capital investment was €17.2 million higherthan the corresponding prior period as a result of the increase in the level ofactivity. Capital expenditure in the period amounted to €31.9 million compared to €6.2million in the corresponding prior period. The main component of expenditure inthe period related to the expansion of cider production facilities. Disposals,which amounted to €14 million, arose principally from the sale of the snacksplant in Dublin following the outsourcing of manufacturing in October 2005. Finance Costs Finance costs for the half year at €7.8 million were €2.5 million lower than in2005, reflecting the impact of reduced debt levels and lower interest margins. The Group has hedged over 70% of its projected net debt for the next four yearsat base rates ranging from 3.1% to 3.5% and net interest costs were covered 16times by EBITDA before exceptional items. Net Debt Net debt at 31 August 2006 amounted to €320.5 million which is €62.6 millionlower than at 28 February 2006. Movement in net debt was as follows: •m Net debt at 1 March 2006 383.1 Free cash flow in period (81.6) Dividends Paid 19.8 Other (0.8) Net debt at 31 August 2006 320.5 At 31 August 2006 EV gearing (net debt/market capitalisation plus net debt) was10%. Comparative reporting Profits for each division in the Operations Review are shown at actual exchangerates. Revenue and profit figures for each division for the period ended 31August 2005 have not been re-translated at 2006 exchange rates as the impact isnot material. The impact of re-translating the results for the six months ended 31 August 2005to 2006 average exchange rates would increase Group revenue by €1.0 million andGroup operating profit by €0.3 million for the period. Special note regarding forward-looking information Some statements in this Announcement are forward-looking. They represent ourexpectations for our business, and involve risks and uncertainties. We havebased these forward-looking statements on our current expectations andprojections about future events. We believe that our expectations andassumptions with respect to these forward-looking statements are reasonable.However, because they involve known and unknown risks, uncertainties and otherfactors, which are in some cases beyond our control, our actual results orperformance may differ materially from those expressed or implied by suchforward-looking statements. Group income statementfor the six months ended 31 August 2006 Six months ended 31 August 2006 Six months ended 31 August 2005 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total •m •m •m •m •m •m Revenue 532.1 - 532.1 419.5 - 419.5 Operating costs (418.6) (3.7) (422.3) (351.1) (8.3) (359.4) -Operating profit 113.5 (3.7) 109.8 68.4 (8.3) 60.1 Finance income 0.8 - 0.8 0.4 - 0.4 Finance costs (8.6) - (8.6) (10.7) - (10.7) Profit before tax 105.7 (3.7) 102.0 58.1 (8.3) 49.8 Income tax expense (12.2) (0.5) (12.7) (6.0) 0.9 (5.1) Profit attributable to ordinaryshareholders 93.5 (4.2) 89.3 52.1 (7.4) 44.7 Basic earnings per share (cent) 27.4 13.9 Diluted earnings per share (cent) 27.1 13.8 Group statement of recognised income and expensefor the six months ended 31 August 2006 •m •m Income and expense recognised directly in equity: Exchange difference arising on the net liabilities of foreign operations 0.2 0.1Exchange difference arising on the net investment in foreign operations 0.2 0.2Movement in cashflow hedging reserve 0.8 (3.0)Deferred tax liability on cashflow hedging reserve (0.1) 0.4Actuarial gain on defined benefit pension schemes 1.8 4.6Deferred tax on defined benefit pension schemes 0.3 (0.4)Total income and expense recognised directly in equity 3.2 1.9 Profit attributable to ordinary shareholders 89.3 44.7 Total recognised income and expense for the period 92.5 46.6 Group Balance Sheetas at 31 August 2006 31-Aug-06 31-Aug-05 28-Feb-06 Notes (audited) •m •m •mAssetsNon-current assetsGoodwill 453.6 461.9 461.9Property, plant & equipment 152.1 128.0 134.1Derivative financial assets - - 1.0Deferred tax 8.9 7.8 9.1 614.6 597.7 606.1 Current assetsInventories 56.2 53.5 55.1Trade & other receivables 191.6 146.9 114.0Cash & cash equivalents 97.3 62.7 44.5Assets held for sale - 4.8 6.8 345.1 267.9 220.4 Total assets 959.7 865.6 826.5 EquityShare capital 6 3.3 3.2 3.3Share premium 6 27.5 12.8 18.6Reserves 6 27.7 19.8 26.0Retained income 6 235.1 150.3 171.2Total equity 293.6 186.1 219.1 LiabilitiesNon-current liabilitiesInterest bearing loans and borrowings 4 392.8 437.0 407.6Derivative financial liabilities 0.1 2.9 0.7Retirement benefit obligations 55.2 49.9 58.9Provisions 1.7 1.7 1.9Deferred tax 5.3 5.5 5.7 455.1 497.0 474.8 Current liabilitiesInterest bearing loans and borrowings 4 25.0 20.0 20.0Derivative financial liabilities 1.7 4.6 2.5Trade & other payables 163.7 146.9 102.7Current tax liabilities 20.6 11.0 7.4 211.0 182.5 132.6Total liabilities 666.1 679.5 607.4 Total equity and liabilities 959.7 865.6 826.5 Group cash flow statementfor the six months ended 31 August 2006 6 months ended 6 months ended 31 August 2006 31 August 2005 •m •m Cash flows from operating activitiesProfit attributable to ordinary shareholders 89.3 44.7 Adjustments for:Finance income (0.8) (0.4)Finance costs 8.6 10.7Income tax expense 12.7 5.1Depreciation of property, plant & equipment 11.1 10.1Impairment of plant & equipment - 2.6Impairment of goodwill 8.3 -Profit on disposal of property, plant & equipment (4.6) (2.8)Charge for share-based employee benefits 0.8 0.5Pensions charged to operating profit less contributions paid (2.0) 1.6Provision movement - IPO costs - (0.1)Provision movement - re-organisation costs - 6.5 123.4 78.5Increase in inventories (1.1) (4.4)Increase in trade & other receivables (79.9) (47.4)Increase in trade & other payables 64.4 51.2 106.8 77.9 Interest received 0.8 0.4Interest paid (8.3) (9.9)Income tax refunded / (paid) 0.2 (1.0)Net cash inflow from operating activities 99.5 67.4 Cash flows from investing activitiesPurchase of property, plant & equipment (31.9) (6.2)Sale of property, plant & equipment 14.0 0.7Net cash outflow from investing activities (17.9) (5.5) Cash flows from financing activitiesNet issue / redemption of ordinary share capital 1.0 -Bank loans repaid (10.0) (10.0)New bank loans drawn down / issue costs paid - (0.5)Dividends paid (19.8) (14.7)Net cash outflow from financing activities (28.8) (25.2) Net increase in cash & cash equivalents 52.8 36.7 Cash & cash equivalents at beginning of period 44.5 26.0Cash & cash equivalents at end of period 97.3 62.7 Notes to the interim results for the six months ended 31 August 2006 1. Basis of preparation The interim accounts, which are abridged and unaudited, have been prepared onthe basis of the accounting policies expected to apply for the financial year to28 February 2007. The accounting policies have been applied on a basisconsistent with those applied in the consolidated financial statements for theyear ended 28 February 2006. The income tax expense for the six month period is calculated by applying thedirectors' best estimate of the annual effective tax rate to the profit for theperiod. The interim results were approved by the Board on 12 October 2006. 2. Segmental analysis Six months ended 31 August Six months ended 31 August 2006 2005Class of business analysis Revenue *Net result Revenue *Net result •m •m •m •m Cider 269.5 90.0 144.5 45.1International Spirits & Liqueurs 36.1 9.8 28.9 7.6Soft Drinks & Snacks 125.3 13.5 129.3 13.3Distribution 101.2 0.2 116.8 2.4 532.1 113.5 419.5 68.4 *Net result represents profit before finance costs and exceptional items 3. Earnings per ordinary share Six months ended 31 Six months ended 31 August 2006 August 2005 •m •m Earnings as reported 89.3 44.7Adjustments for exceptional items net of tax 4.2 7.4Earnings adjusted for exceptional items 93.5 52.1 '000 '000 Number of shares at beginning of period 325,204 321,130Shares issued in lieu of dividend 1,236 2,923Options exercised 380 - Number of shares at end of period 326,820 324,053 Weighted average number of ordinary shares 325,841 321,940Weighted average number of ordinary shares including shareoptions 329,637 323,302 Basic earnings per share - cent 27.4 13.9Diluted earnings per share - cent 27.1 13.8Adjusted basic earnings per share - cent 28.7 16.2 4. Details of Borrowing 2006 2005 •m •m Maturity analysis Current0-1 year 25.0 20.0 25.0 20.0 Non-current 1-2 years 30.0 25.02-3 years 15.0 30.03-4 years - 15.04-5 years 347.8 367.0 392.8 437.0 Unamortised issue costs of €2.2m have been netted against outstanding bank loansrepayable between 2 and 5 years. 5. Analysis of net debt Cash & cash Bank loans due Bank loans due Net debt equivalents within one year after one year •m •m •m •m At 1 March 2006 (44.5) 20.0 407.6 383.1At 31 August 2006 (97.3) 25.0 392.8 320.5 6. Reserves Reserves Share Share Capital Cashflow Shares to be Currency Retained 2006 2005 capital premium reserve* Hedging issued translation Income Total Total reserve reserve •m •m •m •m •m •m •m •m •m Group At 28 February 3.3 18.6 25.2 (1.5) 1.7 0.6 171.2 219.1 153.72006Total recognisedIncome and expensefor the period - 0.7 - 0.4 91.4 92.5 46.6Dividend on ordinary shares - 7.9 - - - - (27.7) (19.8) (14.7)Exercise of share options - 1.0 - - (0.2) - 0.2 1.0 -Equity settled share based payments - - - - 0.8 - - 0.8 0.5At 31 August 3.3 27.5 25.2 (0.8) 2.3 1.0 235.1 293.6 186.12006 *the opening and closing capital reserve includes a capital redemption reserve of €0.3m. 7. Dividend An interim dividend of 12 cent per share is proposed on 326,820,046 ordinaryshares amounting to €39.2m. 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