DIRECTORS' REPORT

The Directors present the annual report and audited consolidated financial statements of the Group for the year ended 28 February 2013.

PRINCIPAL ACTIVITIES, BUSINESS REVIEW AND FUTURE DEVELOPMENTS

The Group’s principal trading activity is the production, marketing and selling of cider and beer.

The Company announced on 23 October 2012 that the Group had conditionally agreed to acquire Vermont Hard Cider Company, LLC for a gross consideration of $305.0 million (€230.9 million). The acquisition was completed on 21 December 2012. Following this acquisition, the Company allotted a total of 1,422,099 ordinary shares in the Company to two of the vendors for a subscription price of approximately $7.0 million (€5.3 million).

On 5 November 2012, the Group bought a portfolio of wine brands from Waverley TBS Limited (in administration) for a consideration of £1.0 million (€1.3 million euro equivalent at the date of payment).

The Company announced on 22 November 2012 that the Group had conditionally agreed to acquire M. & J. Gleeson (Investments) Limited and its subsidiaries, a supplier and distributor of beverages in Ireland. The acquisition was conditional upon clearance by the Irish Competition Authority, which was given on 27 February 2013. The acquisition was completed after the year-end on 7 March 2013.

During the year the Group also acquired a majority interest in The Five Lamps Dublin Beer Company Limited, a 25% minority interest in Maclay Group plc and a 50% interest in Thistle Pub Company Limited.

Subsequent to the year-end the Company announced on 22 March 2013 that the Group had acquired 50% of the ordinary share capital of Wallaces Express Limited.

There has been no other material change in the nature of the business of the Group.

The information to be included with respect to the review of the business and future developments as required by section 13 of the Companies (Amendment) Act 1986 is contained in the Operations Review on this page. Information in respect of environmental and employee matters is included in the Report on Corporate Responsibility on this page.

RESULTS

For the year ended 28 February 2013, the Group reported Revenue of €724.1 million (2012: €716.7 million) and Net revenue of €476.9 million (2012: €480.8 million).

Operating profit before exceptional items amounted to €113.9 million (2012: €111.2 million). This was in line with guidance given by the Company during the year that operating profit would be in the range of €112 million to €118 million before the benefit of acquisitions.

Profit for the year attributed to equity shareholders amounted to €88.7 million (2012: €95.7 million). On this basis, basic earnings per share amounted to 27.0c (2012: 29.4c per share) and diluted earnings per share amounted to 26.4c (2012: 28.7c per share).

Earnings excluding exceptional items amounted to €93.0 million (2012: €92.2 million). On this basis, adjusted basic earnings per share amounted to 28.3c (2012: 28.3c per share) and adjusted diluted earnings per share amounted to 27.7c (2012: 27.6c per share).

The financial statements for the year ended 28 February 2013 are set out here.

DIVIDENDS

An interim dividend of 4.0 cent per share for the year ended 28 February 2013 was paid in December 2012. Subject to approval at the Annual General Meeting, it is proposed to pay a final ordinary dividend of 4.75 cent per share for the year ended 28 February 2013 to shareholders who are registered at close of business on 24 May 2013.

BOARD OF DIRECTORS

The following changes have occurred in the composition of the Board since 16 May 2012, the date of the last Directors’ Report. Mr Joris Brams was appointed as a Director on 23 October 2012. Mr Philip Lynch resigned as a Director on 30 November 2012. Mr John Burgess resigned as a Director on 14 May 2013.

The names, functions and date of appointment of the current Directors, who give the responsibility statement on this page, are as follows:

Director

Function

Appointment

Sir Brian Stewart

Chairman

2010

Stephen Glancey

Group Chief Executive Officer

2008

Kenny Neison

Group Chief Financial Officer

2009

Joris Brams

Executive Director

2012

Stewart Gilliland

Non-executive

2012

John Hogan

Non-executive

2004

Richard Holroyd

Non-executive

2004

Breege O’Donoghue

Non-executive

2004

Anthony Smurfit

Non-executive

2012

Short biographical notes on each current Director are given on this page.

In line with the provisions of the UK Corporate Governance Code, C&C Group is adopting a policy of annual re-election for all Board Directors. Consequently, all Directors will offer themselves for election or re-election at the Company’s Annual General Meeting to be held on 3 July 2013.

INTERESTS OF DIRECTORS AND COMPANY SECRETARY

Information in relation to the beneficial and non-beneficial interests in the share capital of Group companies held by the Directors and Company Secretary who held office at 28 February 2013 is contained within the Report of the Remuneration Committee on Directors’ Remuneration on this page.

RESEARCH AND DEVELOPMENT

Certain Group undertakings are engaged in ongoing research and development aimed at improving processes and expanding product ranges.

PRINCIPAL RISKS AND UNCERTAINTIES

Under Irish company law (Statutory Instrument 116/2005 European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005), the Group and the Company are required to give a description of the principal risks and uncertainties which they face.

The principal risks and uncertainties faced by the Group’s businesses are set out below. The Group considers that currently the most significant risks to its results and operations over the short term are (a) strategic failures, (b) economic conditions affecting consumer spending and confidence and (c) failure to attract and retain high-performing employees.

Risks and uncertainties relating to strategic goals

  • The Group’s strategy is to focus upon earnings growth through organic growth, acquisitions and joint ventures and entry into new markets. These opportunities may not materialise or deliver the benefits or synergies expected and may present new social and compliance risks. The Group seeks to mitigate these risks through due diligence, careful investment and continuing monitoring post-acquisition.

Risks and uncertainties relating to revenue and profits

  • The majority of the Group’s revenue derives from Ireland and the UK, where economic growth is slow. The Group seeks to mitigate this risk through changes to its business model, geographical diversification into higher growth markets and through acquisitions and joint ventures offering costs synergies.
  • Economic conditions in the Group’s principal markets may affect consumer spending and confidence. The Group seeks to mitigate these risks through careful forecasting and regular monitoring of market conditions and by maximising operating efficiency.
  • Customers, particularly in the on-trade where the Group has exposure through advances to customers, may experience financial difficulties. The Group monitors the level of its exposure carefully.
  • Consumer preference may change, new competing brands may be launched and competitors may increase their marketing or change their pricing policies. The Group has a programme of brand investment and innovation to maintain and enhance the market position of its products.
  • Seasonal fluctuations in demand, especially an unseasonably bad summer in Ireland or the UK, could materially affect demand for the Group’s cider products. Geographical diversification is helping to mitigate this risk.

Risks and uncertainties relating to costs and production

  • Input costs may be subject to volatility and inflation and the continuity of supply of raw materials may be affected by the weather and other factors. The Group seeks to mitigate some of these risks through long term or fixed price supply agreements. The Group does not seek to hedge its exposure to commodity prices by entering into derivative financial instruments.
  • Circumstances such as the loss of a production or storage facility or disruptions to its supply chains or critical IT systems may interrupt the supply of the Group’s products. The Group seeks to mitigate the operational impact of such an event by the availability of multiple production facilities, fire safety standards and disaster recovery protocols, and the financial impact of such an event through business interruption and other insurances.

Financial risks and uncertainties

  • There is continued concern surrounding the euro currency. The Group’s operations involve the sale and purchase of goods denominated in currencies other than the euro, principally pounds sterling and the US dollar. Fluctuations in value between the euro and these currencies may affect the Group’s revenues and costs. The Group seeks to mitigate currency and interest rate risks, where appropriate, through hedging and structured financial contracts to hedge a portion of its foreign currency transaction exposure and to fix a portion of its variable rate interest exposure. The Group has not entered into structured financial contracts to hedge its translation exposure on its foreign acquisitions.
  • The Group’s shares have a primary listing on the Irish Stock Exchange and are denominated in euro and the continued economic crisis may affect liquidity. The Group keeps its listings under review.
  • The solvency of the Group’s defined benefit pension schemes may be affected by a fall in the value of their investments, market and interest rate volatility and other economic and demographic factors. Each of these factors may require the Group to increase its contribution levels. The Group seeks to mitigate this risk by continuous monitoring, taking professional advice on the optimisation of asset returns within agreed acceptable risk tolerances and implementing liability management initiatives such as the reduction in member contractual benefits approved by the Pensions Board in February 2012.

Fiscal, regulatory and liability-related risks and uncertainties

  • The Group may be adversely affected by changes in excise duty or taxation on cider and beer in Ireland, the UK, the US and other territories.
  • The Group may be adversely affected by changes in government regulations affecting alcohol pricing, sponsorship or advertising. Within the context of supporting responsible drinking initiatives, the Group supports the work of its trade associations to present the industry’s case to government.
  • The Group’s operations are subject to extensive regulation, including stringent environmental, health and safety and food safety laws and regulations and competition law. Legislative non-compliance or adverse ethical practices could lead to prosecutions and damage to the reputation of the Group and its brands. The Group has in place a permanent legal and compliance monitoring and training function and an extensive programme of corporate responsibility.
  • The Group is vulnerable to contamination of its products or base raw materials, whether accidental, natural or malicious. Contamination could result in a recall of the Group’s products, damage to brand image and civil or criminal liability. The Group has established protocols and procedures for incident management and product recall and mitigates the financial impact by appropriate insurance cover.
  • Fraud, corruption and theft against the Group whether by employees, business partners or third parties are risks, particularly as the Group develops internationally. The Group maintains appropriate internal controls and procedures to guard against economic crime and imposes appropriate monitoring and controls on subsidiary management.

Employment-related risks and uncertainties

  • The Group’s continued success is dependent on the skills and experience of its executive Directors and other high-performing personnel, including those in newly acquired businesses, and could be affected by their loss or the inability to recruit or retain them. The Group seeks to mitigate this risk through appropriate remuneration policies and succession planning.
  • Whilst relations with employees are generally good, work stoppages or other industrial action could have a material adverse effect on the Group. The Group seeks to ensure good employee relations through engagement and dialogue.

FINANCIAL RISK MANAGEMENT

As required by Irish company law (Statutory Instrument 765.2004), the financial risk management objectives and policies of the Company and the Group, including hedging activities and the exposure of the Company and the Group to financial risk, are set out in the Group Chief Financial Officer’s Review on this page and note 23 to the financial statements.

ACCOUNTING RECORDS

The measures taken by the Directors to secure compliance with the requirements of Section 202 of the Companies Act, 1990 with regard to the keeping of proper books of account are to employ accounting personnel with appropriate expertise and to provide adequate resources to the finance function. The books of account of the Company are maintained at Group offices in Annerville, Clonmel, Co. Tipperary.

POLITICAL DONATIONS

No political donations were made by the Group during the year that require disclosure in accordance with the Electoral Acts, 1997 to 2002.

CORPORATE GOVERNANCE

The corporate governance statement of the Company for the year, including the main features of the internal control and risk management systems of the Group, is contained in the Directors’ Statement on Corporate Governance on this page.

DIRECTORS’ REMUNERATION

The Report of the Remuneration Committee on Directors’ Remuneration is set out on this page . The Board will present this report to shareholders at the Annual General Meeting for the purposes of a non-binding advisory vote.

SUBSTANTIAL HOLDINGS

As the table below shows all notified shareholdings in excess of 3% of the issued ordinary share capital of the Company as at
28 February 2013 and 15 May 2013.


No. of ordinary shares held at
28 February 2013
% held as at
28 February 2013
No. of ordinary Shares held at
15 May 2013
% held as at 15 May 2013

Standard Life Investments Limited

19,053,987 5.53% 20,862,149 6.06%

Franklin Templeton Institutional, LLC

17,236,551 5.01% 20,702,251 6.01%

Oppenheimer Funds, Inc. and OFI Institutional Asset Management, Inc.

20,391,331 5.92% 20,391,331 5.92%

Invesco Limited

15,543,674 4.51% 15,543,674 4.51%

Prudential plc Group of Companies

13,803,563 4.01% 13,803,563 4.01%

Independent Franchise Partners, LLP

13,422,336 3.90% 13,422,336 3.90%

F&C Asset Management plc

13,185,114 3.83% 13,185,114 3.83%

Fidelity Management and Research

- - 10,632,053 3.09%

As far as the Company is aware, other than as stated above, no other person or company had at 28 February 2013 or 15 May 2013 an interest in 3% or more of the share capital of the Company.

SHARE PRICE

The price of the Company’s ordinary shares as quoted on the Irish Stock Exchange at the close of business on 28 February 2013 was €4.895 (29 February 2012: €3.665). The price of the Company’s ordinary shares ranged between €3.17 and €4.94 during the year.

AUDITOR

In accordance with Section 160(2) of the Companies Act, 1963, the auditor, KPMG, Chartered Accountants, Statutory Audit Firm, will continue in office.

ISSUE OF SHARES AND PURCHASE OF OWN SHARES

At the Annual General Meeting held on 27 June 2012, the Directors received a general authority to allot shares. A limited authority was also granted to Directors to allot shares for cash otherwise than in accordance with statutory pre-emption rights. Resolutions will be proposed at the Annual General Meeting to be held on 3 July 2013 to allot shares to a nominal amount which is equal to approximately one-third of the issued ordinary share capital of the Company. In addition, a resolution will also be proposed to allow the Directors allot shares for cash otherwise than in accordance with statutory pre-emption rights up to an aggregate nominal value which is equal to approximately 5% of the nominal value of the issued share capital of the Company, and in the event of a rights issue. If granted, these authorities will expire at the conclusion of next year’s Annual General Meeting or 3 October 2014, whichever is the earlier. The Directors have currently no intention to issue shares pursuant to these authorities except for issues of ordinary shares under the Company’s share option plans and the Company’s scrip dividend scheme.

At the Annual General Meeting held on 27 June 2012 authority was granted to purchase up to 10% of the Company’s Ordinary Shares. No shares were purchased by the Company in the year under review.

Special resolutions will be proposed at the Annual General Meeting to be held on 3 July 2013 to renew the authority of the Company, or any of its subsidiaries, to purchase up to 10% of the Company’s Ordinary Shares in issue at the date of the Annual General Meeting and in relation to the maximum and minimum prices at which treasury shares (effectively shares purchased and not cancelled) may be re-issued off-market by the Company. If granted, the authorities will expire on the earlier of the date of the Annual General Meeting in 2014 and the date 18 months after the passing of the resolution. The minimum price which may be paid for shares purchased by the Company shall not be less than the nominal value of the shares and the maximum price will be 105% of the average market price of such shares over the preceding five days. The Directors will only exercise the power to purchase shares if they consider it to be in the best interests of the Company and its shareholders.

Options to subscribe for a total of 5,564,563 Ordinary Shares are outstanding, representing 1.62% of the issued ordinary share capital. If the authority to purchase Ordinary Shares were used in full, the options would represent 1.80% of the issued ordinary share capital.

The European Communities (Takeover Bids (Directive 2004/25/EC))Regulations 2006

Structure of the Company’s share capital

At 15 May 2013 the Company has an issued share capital of 344,331,716 ordinary shares of €0.01 each and an authorised share capital of 800,000,000 ordinary shares of €0.01 each.

Shares held by the trustee of the C&C Employee Trust, including shares held jointly by it under the terms of the C&C Joint Share Ownership Plan (further information on which is contained in the Report of the Remuneration Committee on Directors’ Remuneration on this page ), are accounted for as treasury shares. At 28 February 2013 and at the date of this report the C&C Employee Trust held 8,310,416 ordinary shares of €0.01 each in the capital of the Company. These shares are, however, included in the calculation of Total Voting Rights for the purposes of Regulation 20 of the Transparency (Directive 2004/109/EC) Regulations 2007.

Details of employee share schemes, and the rights attaching to shares held in these schemes, can be found in note 4 to the Financial Statements and the Report of the Remuneration Committee on Directors’ Remuneration on this page . Details of the rights attaching to shares issued under the Joint Share Ownership Plan are set out in the Report of the Remuneration Committee on Directors’ Remuneration on this page.

The Company has no securities in issue conferring special rights with regard to control of the Company.

Details of persons with a significant holding of securities in the Company are set out on on this page.

Rights and obligations attaching to the Ordinary Shares

All Ordinary Shares rank pari passu, and the rights attaching to the Ordinary Shares (including as to voting and transfer) are as set out in the Company’s articles of association (“Articles”). A copy of the Articles may be obtained on request to the Company Secretary.

Holders of Ordinary Shares are entitled to receive duly declared dividends in cash or, when offered, additional Ordinary Shares. In the event of any surplus arising on the occasion of the liquidation of the Company, shareholders would be entitled to a share in that surplus pro rata to their holdings of Ordinary Shares.

Holders of Ordinary Shares are entitled to receive notice of and to attend, speak and vote in person or by proxy, at general meetings having, on a show of hands, one vote, and, on a poll, one vote for each Ordinary Share held. Procedures and deadlines for entitlement to exercise, and exercise of, voting rights are specified in the notice convening the general meeting in question. There are no restrictions on voting rights except in the circumstances where a “Specified Event” (as defined in the Articles) shall have occurred and the Directors have served a Restriction Notice on the shareholder. Upon the service of such Restriction Notice, no holder of the shares specified in the notice shall, for so long as such notice shall remain in force, be entitled to attend or vote at any general meeting, either personally or by proxy.

Holding and transfer of Ordinary Shares

The Ordinary Shares may be held in either certificated or uncertificated form (through CREST). Save as set out below, there is no requirement to obtain the approval of the Company, or of other shareholders, for a transfer of Ordinary Shares. The Directors may decline to register (a) any transfer of a partly-paid share to a person of whom they do not approve, (b) any transfer of a share to more than four joint holders, and (c) any transfer of a certificated share unless accompanied by the share certificate and such other evidence of title as may reasonably be required. The registration of transfers of shares may be suspended at such times and for such periods (not exceeding 30 days in each year) as the Directors may determine.

Transfer instruments for certificated shares are executed by or on behalf of the transferor and, in cases where the share is not fully paid, by or on behalf of the transferee. Transfers of uncertificated shares may be effected by means of a relevant system in the manner provided for in the Companies Act, 1990 (Uncertificated Securities) Regulations, 1996 (the “CREST Regulations”) and the rules of the relevant system. The Directors may refuse to register a transfer of uncertificated shares only in such circumstances as may be permitted or required by the CREST Regulations.

Rules concerning the appointment and replacement of the Directors and amendment of the Company’s Articles

Unless otherwise determined by ordinary resolution of the Company, the number of Directors shall not be less than two or more than 14. Subject to that limit, the shareholders in general meeting may appoint any person to be a Director either to fill a vacancy or as an additional Director. The Directors also have the power to co-opt additional persons as Directors, but any Director so co-opted is under the Articles required to be submitted to shareholders for re-election at the first annual general meeting following his or her co-option.

The Articles require that at each annual general meeting of the Company one-third of the Directors retire by rotation. However, in accordance with the recommendations of the UK Corporate Governance Code, the Directors have resolved they will all retire and submit themselves for re-election by the shareholders at the Annual General Meeting to be held this year.

The Company’s Articles may be amended by special resolution (75% majority of votes cast) passed at general meeting.

Powers of Directors

Under its Articles, the business of the Company shall be managed by the Directors, who exercise all powers of the Company as are not, by the Companies Acts or the Articles, required to be exercised by the Company in general meeting.

The powers of Directors in relation to issuing or buying back by the Company of its shares are set out above under “Issue of Shares and Purchase of Own Shares”.

Miscellaneous

Pursuant to the terms of subscription agreements entered into with Bret Williams and Dan Rowell for the subscription of a total of 1,422,099 ordinary shares in the Company following the acquisition by the Company of Vermont Hard Cider Company, LLC, each subscriber undertook not to dispose of the subscribed shares until 7 July 2013. Save as aforesaid, there are no agreements between shareholders that are known to the Company which may result in restrictions on the transfer of securities or voting rights.

Certain of the Group’s borrowing facilities include provisions that, in the event of a change of control of the Company, could oblige the Group to repay the facilities. Certain of the Company’s customer and supplier contracts and joint venture arrangements also contain provisions that would allow the counterparty to terminate the agreement in the event of a change of control of the Company, but none of these are considered to be significant in terms of their potential impact on the business of the Group as a whole. The Company’s Executive Share Option Scheme and Long Term Incentive Plan each contain change of control provisions which allow for the acceleration of the exercise of share options/awards in the event of a change of control of the Company.

There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid.

ANNUAL GENERAL MEETING

Your attention is drawn to the letter to shareholders and the notice of meeting accompanying this report which set out details of the matters which will be considered at the Annual General Meeting.

On behalf of the Board



 

Sir B Stewart

S Glancey

Chairman

Group Chief Executive Officer

15 May 2013

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