C&C Records 56.1% Decrease In Net Revenue And Operating Loss Of €59.6m For 12 Month Period That Ended On February 28, 2021

By Dave Simpson
C&C Records 56.1% Decrease In Net Revenue And Operating Loss Of €59.6m For 12 Month Period That Ended On February 28, 2021

Bulmers cider manufacturer C&C Group has published its results for the 12 month period that ended on February 28, 2021, revealing that the firm's net revenue declined by 56.1% to €736.9 million during the 12 month period, and it experienced an operating loss of €59.6 million.

Financial Figures

C&C stated, "Net revenue of €736.9 million has decreased 56.1% versus last year, delivering an operating loss of €59.6 million as a direct result of the impact of COVID-19."

The group recorded net revenue growth of 14.2% in off-trade in FY2021 versus last year and its free cash outflow was limited to €91.2 million pre-exceptionals as a result of cost control measures implemented, reduction in capital investment and marketing investment and working capital management.

Additionally, C&C recorded adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of €28.8 million for the year that ended on February 28, 2021, which was down from the €150.7 million EBITDA figure that it recorded for the previous year.

C&C stated, "Exceptional charges incurred are primarily with respect to the impact of extended COVID-19 restrictions including impairment of equity accounted investments, stock write-off costs, costs relating to covenant waivers and other costs directly relating to the pandemic. Restructuring costs were also incurred. These costs are partially offset by the profit from divestment of a non-core asset."


Liquidity Management

C&C said that it "maintained effective management of liquidity and net debt, reporting €314.6 million and €441.9 million respectively at the end of FY2021", that it "implemented various working capital initiatives, including the negotiation of temporary extensions to supplier payment terms and agreed temporary deferrals with the UK and Irish tax authorities valued at €77.4 million at the end of February 2021, of which €38.6 million is payable in H1 FY2022" and that it "completed a c.€140 million US private placement in March 2020 and subsequently extended the repayment period of a €105 million term loan."

Rights Issue

C&C said that it "has separately today announced a fully underwritten rights issue to raise approximately £151 million of gross proceeds (the “rights issue”). The proceed of the rights issue will be used to reduce the group’s leverage and provide sufficient liquidity to manage near term trading uncertainty."

C&C stated, "The rights issue also ensures that C&C will be positioned to emerge from the pandemic in a position of strength to execute its long-term strategy. This includes further strengthening our brands and optimising our distribution system as the hospitality sector emerges from the pandemic."

C&C continued, "Debt covenants waivers for FY2021 were successfully negotiated and these have been extended up to, but not including, the August 2022 test date. Conditional on the rights issue completing, covenants have been renegotiated for 31 August 2022, more detail can be found in the finance review below.

"Post the rights issue and following unrestricted trading resuming, the board believes that a long-term leverage ratio of below 2.0x is an appropriate target for the group, supported by the group’s medium-term targeted free cash flow conversion rate of 65-75% and a steady state target of mid to high single digit earnings per share growth."


Operational Highlights

Detailing operational highlights, C&C stated, "The group returned to profitability and underlying cash generation during the easing of on-trade restrictions in July, August and September 2020, demonstrating the operating leverage in the business to on-trade reopening.

"Our brand strength was reflected in off-trade volume share growth in FY2021 for Tennent's(ix), Bulmers(x) and Magners(xiv) with all three brands delivering share gains.

"Addressing the growing consumer demand for 'no and low' alcohol alternatives: launching Tennent's Zero and Tennent’s Light brand extensions and our own hard seltzer brands in Ireland and Scotland.

"Since the Brexit transition period formally ended on 31 December 2020, we have to date had minimal disruption to our operations and supply chain."

Response To The COVID-19 Pandemic

The group stated that it has taken "proactive steps to mitigate, where possible, the negative financial and operational impacts of the COVID-19 pandemic."


Strategic Developements

Detailing strategic developments, C&C stated, "The strength of our final-mile distribution continues to be reflected through new exclusive distribution deals in FY2021 which included: Budweiser in Ireland; Tito’s Handmade Vodka in the UK, the #1 selling spirit brand in the USA(xii); and Innis & Gunn, Scotland’s #1 craft beer(xiii), into the IFT ('Independent Free Trade') across the on-trade in the UK and Ireland.

"As part of the Innis & Gunn deal, C&C secured a long-term production contract for our Wellpark Brewery and received an 8% equity stake along with a long-term incentive scheme which will make a number of shares available to the group based on performance targets.

"Optimisation of the Great Britain, Matthew Clark and Bibendum on-trade distribution networks to drive ongoing efficiencies and enhanced future margins.

"The pandemic has accelerated the adoption of technology and the Group has responded to this by continuing the development of our ecommerce platforms, creating new features to further enhance our customers’ journey.

"Ongoing non-core asset disposal programme, including the Tipperary Water Cooler business in October 2020 for an initial consideration of €7.4 million and the Vermont Hard Cider Company in April 2021 for a total consideration of $20 million."


Current Trading Environment

Detailing the current trading environment, C&C stated, “With outdoor as well as restricted indoor hospitality once again reopened in the UK, C&C has been able to respond quickly to rapidly evolving demand with outlets traded with for the week ending 16 May 2021 at 65% of the same week in 2019. In addition, Irish hospitality is due to reopen from early June 2021.

"The group has completed the consolidation of the on-trade distribution network, moving all of our English distribution in house. In addition, a new 50,000 square foot Edinburgh depot was opened in May 2021 and has resulted in the subsequent closure of 4 depots in the existing Scotland network.

"The group communicated an IT security incident on 19 April 2021 which was isolated within our Matthew Clark and Bibendum business. The incident has emphasised the need for continued focus on information security and the group has commenced a detailed review of its information security and cyber preparedness policies and processes."

C&C Group CEO Statement

C&C Group CEO David Forde stated, "FY2021 has presented an extraordinary set of circumstances which have challenged our business, and our industry, at every level. With approximately 80% of C&C's pre COVID-19 net revenue derived from the hospitality sector, the pandemic has had an unprecedented impact on the Group. Thanks to the prompt and decisive action of our team and our resilient business model, we have successfully navigated these challenges to date. We implemented responses to the near-term challenges to maximise liquidity, support customers, reduce costs and fulfil off-trade demand from the immediate change in consumption dynamics. Our top priority continues to be protecting all our stakeholders. Their health and wellbeing are of paramount importance to the success of C&C. As the hospitality sector recovers from COVID-19, we will continue to be flexible in our approach and work with our customers who will face challenges as trade reopens and support them through collaboration with our suppliers and partners.

"Our business model was proven during FY2021 as, during the periods of on-trade restrictions easing, we returned to profit and cash generation. C&C;s brand strength was demonstrated by our core brands growing off-trade share, reflecting their special relationship to the consumers they serve. We will build on this as the hospitality sector reopens, targeting cider share growth and building our share in premium beer which we continue to see as a significant market opportunity. Development and evolution of our branded portfolio will remain key for growth and we will enhance our wider portfolio with new agencies or equity for growth brands. We will continue to optimise our system strength through cost streamlining and infrastructure consolidation, in addition to accelerating the adoption of technology and the efficiencies therein. We believe our brand and system strength will position us to grow market share, which will be delivered by engaged and inspired colleagues, committed to our sustainability agenda.

"We are confident in our business model and strategy for growth, the group continues to face uncertainty with the ongoing impact of COVID-19 across the hospitality sector. Today we have also announced a Rights Issue to raise gross proceeds of approximately £151 million which will strengthen the balance sheet and ensure C&C is in a stronger position to achieve sustained growth and pursue its strategy as the hospitality sector emerges from the pandemic.

"We look to FY2022 with optimism and C&C continuing to play an integral role in the UK and Ireland drinks market with our brand and distribution assets appreciated by consumers, customers and brand owners alike. We are confident C&C will emerge from the pandemic stronger, more streamlined, and primed to deliver on our ambition to be the preeminent brand-led, final-mile, drinks distributor across our core markets which will ensure long term value for our shareholders."

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