C&C Group PLC · LSE:CCR
C&C — Corporate Update (March 2009)
46 slides from C&C's corporate update, Mar 3, 2009
Slide 1: C&C Group plc
Cac group plc
Slide 2: Business Update – LSE Tuesday March 3 2009
Business Update – LSE Tuesday March 3 2009 2
Slide 3: Introduction and Overview – Stephen Glancey
Stephen Glancey Introduction and Overview 3
Slide 4: The Team
The Team JOHN DUNSMORE Chief Executive STEPHEN GLANCEY Chief Operating Officer KENNY NEISON Strategy and Investor Relations JOHN HOLBERRY Magner’s UK MICHAEL MERRINS Bulmer’s Ireland AIDAN MURPHY Supply MICHAEL McARDLE C&C International and Magner’s ROW PAUL BARTLETT Marketing Director 4
Slide 5: The Attraction of C&C
The Attraction of C&C • the brands • the cider category potential • the balance sheet strength & cash flow 5
Slide 6: What we would like to explain
What we would like to explain 6
Slide 7: Our Performance has disappointed
Our Performance has disappointed • Revenue decline (13%) Cider (17%) o Bulmers (14%) o Magners GB (23%) • Operating Margins decline 3.5ppt • Operating Profit (Continuing) €90m • Spirits & Liqueurs flat operating profit Unaudited and estimated FY09 results 7
Slide 8: Adjusting for a new reality
Adjusting for a new reality 8
Slide 9: Clonmel is over invested
Clonmel is over invested • Large scale investment (€170m) over the last few years • Site capacity is 5.5m hl • Three new packaging lines and supporting infrastructure • Demand is 1.5m hl - the same level as 2005 • Domestic demand is 0.7m hl • Plan to revalue the asset at €70m writing down €130m • Re
Slide 10: More liquid stock than we need
More liquid stock than we need • One off charge in FY09 of €11m • Represents around 20% of stock value 10
Slide 11: We will be more cost competitive
We will be more cost competitive Company wide Operationally • One Dublin office • Rationalisation at Clonmel • Delayering management • 12 month wage • Re-alignment of sales freeze force in Ireland • Changes in T&Cs • 120 headcount reduction • 20% of employee base 11
Slide 12: Thorns in the hedge
Thorns in the hedge • Policy : cover 75% of annual currency exposure • Current contracts set up in 2006/2007 • Demand forecast 2 years ago significantly overstated • Surplus contracts create non-recurring profits in FY09 of €15m (of which circa €10m is within EBIT and €5m in financing costs) • FY10
Slide 13: Addressing the pension deficit
Addressing the pension deficit Funding The Past Securing The Future • Payment of €20m in FY09 • All new entrants on defined • Remaining IAS 19 deficit contribution scheme estimated at €30m (€40m • Executive scheme closed actuarial) • Risk containment measures • Anticipate 10 year deficit now being d
Slide 14: A robust capital structure
A robust capital structure * FY09 forecast and excludes impact of non-recurring hedging gain 14
Slide 15: Outlook for FY10
Outlook for FY10 Negative Trading Factors • Consumer confidence in key markets • Channel shifts to off trade • Premium positioning • Some brand erosion Positive Trading Factors • Innovation eg Pear • Draught rollout in UK • Advertising price deflation • Input costs less challenging • Investment in R
Slide 16: Target for profits in FY10
Target for profits in FY10 EBIT FY08 EBIT FY09 FOREX Depreciation Underlying Base FY09 Giving guidance is challenging challenging…… • Ambition to stabilise Cider volumes in FY10 €5m below • FY10 target to be within €5m underlying profit base 16
Slide 17: Strong & growing cash conversion in FY10
Strong & growing cash conversion in FY10 Normalising cash flow conversion • Capex - targeting €10m - investment for return policy • Working Capital - review initiated • A&P - investment at 10% lower than FY09 • Dividends - a sustainable level Further deleveraging expected - Net Debt/EBITDA to fall b
Slide 18: Establishing a sustainable dividend
Establishing a sustainable dividend 18
Slide 19: Aligning remuneration structure
Aligning remuneration structure • Remuneration structure misaligned in the past – fixed salaries and bonuses • Introducing equity based reward • FY10 management bonus only on financial performance • Incoming share scheme members to waive bonus in FY10 to fund employee based incentivisation 19
Slide 20: Summing up
Summing up • Rewards matched to performance • Assets rightsized for the future • Stabilisation is immediate focus • Capital structure can withstand a recession • Sustainable dividend established …..prepared for a challenging FY10 macro environment 20
Slide 21: C&C Markets and Brand Strategy – John Dunsmore
John Dunsmore C&C Markets and Brand Strategy 21
Slide 22: Our core cider brands have lost market share
Our core cider brands have lost market share GB -17% ROI -15% ROW +16% NI -2% 22 FIGURES QUOTED IN VOLUMES
Slide 23: Cider remains an attractive category
Cider remains an attractive category GB Cider vs other beverages ROI Cider vs other beverages 5% -3% -3% -4% -5% -5% -5% -5% -6% -8% -11% -12% CIDER ALE LAGER STOUT FABS TOTAL LAD CIDER ALE LAGER STOUT FABS TOTAL LAD Source: Nielsen On&Off Trade MAT Nov ’08, Volume Source: Nielsen On&Off Trade MAT D
Slide 24: Cider has been in long term growth
Cider has been in long term growth CAGR ’95‐’08 5% Volume Index 1995 = 100 3% Source: Revenue clearances Cider fits international trends in consumer taste preferences: • Sweeter taste profile appeals to younger adults and women • Naturalness fits the consumer desire for authenticity 24
Slide 25: Cider has been in long term growth
Cider has been in long term growth CAGR ’95-’08 900 3% 800 700 600 M ltrs 500 400 300 200 100 5% 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 UK ROI Source: Revenue clearances Cider fits international trends in consumer taste preferences • Sweeter taste profile appeals to
Slide 26: The challenges we face are different in our two core markets
The challenges we face are different in our two core markets Our marketing was driven by the desire to have a single, overarching brand strategy, including communication, media and NPD But ROI and GB are different ROI GB Similar? Market Share 86% 10% No Brand life stage Established Developing No On:
Slide 27: Our Cider Marketing approach going forward
Our Cider Marketing approach going forward Consumer + Customer needs by market ROI GB Rest of world Growing share Establish the Growing the of growing Premium cider cider category category category • Locally relevant brand strategy and execution re-aligned accordingly • Marketing team re-aligned 27
Slide 28: Magners needs more news and vibrancy in GB
Magners needs more news and vibrancy in GB Challenges • Strong performance from Heineken ‐ Strongbow, Bulmer’s, Jacques, Pear, customers • Brand message losing impact Responses • Move beyond over‐ice • Portfolio: Pear and more • New proposition for the brand • Achieving the right role for draught 28
Slide 29: Innovation needed to recover momentum in Ireland
Innovation needed to recover momentum in Ireland Challenges • Competitor 1 offering: Guinness,Carlsberg, Budweiser, Smithwicks • Competitor 2 offering: Heineken, Murphy’s, Coors Fine Light • Consumer proposition flagging • On trade shift from packaged to draught • Pricing relativity Responses Invigo
Slide 30: We are positioned with the consumer and trade to deliver NPD
We are positioned with the consumer and trade to deliver NPD Recent innovation not sufficiently focused on big ideas Light, mid strength, bottle size, ice dispense Focus for F10 Draught GB Pear GB and Ireland • 70% of on trade cider is • Pear cider market in draught growth (GB 300%. ROI • We are pre
Slide 31: We need to optimise our UK A&P spend
We need to optimise our UK A&P spend Magners has been spending heavily in GB, without delivering proportionate impact Spend Spontaneous Spontaneous FY08 advertising brand Media awareness awareness Magners €20m 19% 34% Strongbow €8m 16% 40% Index M vs. S 250% 119% 85% Sources: C&C estimates based on
Slide 32: Redirecting our marketing investment
Redirecting our marketing investment Reducing Increasing 32
Slide 33: Marketing Summary
Marketing Summary • Cider is a long term growth category • The future strategy will see local consumer and customer needs driving our plans • Stabilisation of volumes is the objective for FY09 / 10 • Innovation is key to a successful future 33
Slide 34: Forward Plans
Forward Plans 34
Slide 35: Key strategic initiatives
Key strategic initiatives Short Term Medium Term 1. Create a business structure 4. Develop new routes to (5 units) to allow quick, profit market with strategic focused decision making alliances. Both in markets we currently operate and 2. Strengthen the brand new ones proposition to meet local consu
Slide 36: Operate as five business units
Operate as five business units Business Insight CLONMEL OPERATIONS CAPACITY CANNOT BE ABSORBED BY EXISTING CIDER BUSINESS DEMAND BULMER’S IRELAND CATEGORY DOMINANCE BUT NO INNOVATION MAGNER’S UK MANAGED AS A SUB‐SET OF IRISH BUSINESS C&C INTERNATIONAL ORPHAN ASSET FAILING TO CAPTURE SHARE OF INVESTM
Slide 37: Spirits business is building value for us
Spirits business is building value for us • Compact portfolio of attractive niche brands • A simple business model that is asset and resource light • Generating strong cash flow • Creating economic value • No obvious linkage to cider business 37
Slide 38: Spirits provide manageable geographic diversification
Spirits provide manageable geographic diversification ANALYSIS OF VOLUME IN 9 LITRE CASES 4 brands, 10 territories, 60% of volume 38
Slide 39: Rest of World cider development has disappointed so far
Rest of World cider development has disappointed so far • Ineffective investments in Spain and Germany • Route to market planning the major shortcoming • FY10 overall investment scaled back • Short term focus on established cider market opportunities • Medium term strategy review underway 39
Slide 40: There is long term International potential for cider
There is long term International potential for cider Source: Rabobank Food & Agri Research Department, Euromonitor and other Industry sources • Established in many markets • Attraction in Australia, North America, Scandinavia and Baltics • Route to Market solutions are key 40
Slide 41: System Strength is not essential for expansion
System Strength is not essential for expansion • Our brand is compatible with the portfolios of most major operators in most major markets ie more like the Guinness model than the international lager model • We will develop a strong brand proposition and low cost sourcing • Cider has strong appeal t
Slide 42: Our vision
Our vision TO BECOME A SUCCESSFUL MANAGER OF PREMIUM AND NICHE DRINKS BRANDS IN INTERNATIONAL MARKETS….that doesn’t rely on scale for success • Product authenticity • Innovation • Excellent brand management • Competitive and agile operation • Strategic alliances • Long-term in perspective 42
Slide 43: Conclusions
Conclusions 43
Slide 44: Our conclusions so far
Our conclusions so far • Main macro markets are very challenging • C&C is in good financial health • Business is rightsized for the future • Major cost saving activity underway • Plan established to deliver in FY10 This is the first step… 44
Slide 45: But we have to walk before we can run
But we have to walk before we can run • Get UK & Ireland Cider back to a dynamic momentum • Deliver the results in FY10 • Become a faster, more innovative organisation • Build the platform for long term international growth 45
Slide 46: A really good small company, not a second rate big company
A really good small company, not a second rate big company 46