operations REVIEW INTERNATIONAL

C&C Chairman

International

Constant Currency(i)

FY2013

FY2012

Change

Including VHCC

€m

€m

%

Revenue

48.5

31.9

52.0%

Net revenue

47.8

31.8

50.3%

- Price /mix impact

(4.9%)

- Volume impact

55.2%

Operating profit

9.1

6.8

33.8%

Operating margin (Net revenue)

19.0%

21.4%

(2.4ppts)

Volume – (kHL)

326

210

55.2%

Excluding VHCC

€m

€m

%

Net Revenue

41.4

31.8

30.2%

Operating profit

7.3

6.8

7.4%

Operating margin (Net revenue)

17.6%

21.4%

(3.8ppts)

Volume – (kHL)

283

210

34.8%

bulmers & gaymers bottles

International: Strategically, FY2013 should prove to be a significant year for the development of an international business within C&C. The acquisition of the Vermont Hard Cider Company, LLC (VHCC) in December was an exciting move. VHCC owns a leading US cider brand in Woodchuck, a well-invested cidery in Vermont and has a national distribution network. The US cider category is currently enjoying strong growth and VHCC provides a great platform to tap into the longer term potential of this emerging market. In doing so, it reduces the exposure of C&C to the more challenging cider category in the UK. FY2014 should also prove to be a significant year for the export of Tennent’s. A number of new markets for the brand were opened during the year, including Italy, and the potential opportunity is reasonable in scale.

Operationally, the international business unit enjoyed good volume growth of 55.2% in the period as Hornsby’s, Tennent’s and Woodchuck contributed alongside Magners. Excluding the two months worth of contribution from Woodchuck, volume was up 34.8% and revenue(i) increased 30.2%. International volume accounted for 9.6% of total C&C branded volume and 14.5% of cider. A full year contribution from Woodchuck in FY2014 will, for the first time, give the International LAD business unit meaningful scale within C&C.

Excluding VHCC, operating margin reduced 3.8 ppts in the year. We expect this margin to expand as we progress through FY2014 for a number of reasons. First, the sourcing of Hornsby’s for the US market is expensive but the arrangements are temporary in nature. Secondly, the FY2013 investment in US sales infrastructure to support the Magners brand was made in anticipation of future growth, temporarily increasing fixed cost ratios in FY2013. Planned capacity expansion in Vermont will provide a permanent lower cost solution, once completed. Operating margin on Tennent’s export volume is in line with cider exports and the addition of Woodchuck to the portfolio should further improve margin in FY2014.

Cider: Magners volume in FY2013 was up 3.9% on the prior year. This was some way below the trend line of the previous few years, albeit there were specific issues affecting the performance of the brand in the US and Australia. In the US, the extraction of the Hornsby’s brand from the E&J Gallo business and integration into the Magners infrastructure and distribution network proved to be a resource hungry project. For much of the year, this served as a considerable distraction to the focus of the front line sales team. Following the acquisition of VHCC in December, an accelerated integration of commercial resource is now complete and the enlarged business will be better placed to capitalise on the opportunity presented by a stronger sales team with a broader cider portfolio in FY2014.

In Australia, the brand suffered owing to issues with its route to market in FY2013. The cider category remains in good growth and the Magners brand continues to enjoy good consumer appeal but volume dropped 24% in the year. Work continues on resolving the route to market issue and the performance of the brand has improved in recent weeks with a return to more stable volume year-on-year. Excluding Australia, the volume of Magners sold outside of Ireland and the UK grew 10% in FY2013. In North America, growth of Magners was 10%.

Other international markets enjoyed solid growth with some European markets, including France and Spain, benefitting from new distribution arrangements. Volumes were up 13% and 11% in each market respectively.

Tennent’s: The launch of premium variants of the Tennent’s brand into a number of different markets is proving to be an attractive ‘support act’ sitting alongside the development of cider. In year one, 20 kHL of Tennent’s Lager was shipped into Italy and the growth of the brand in Canada impressed. There are also encouraging signs from some states in the US. International volume of Tennent’s is around 32 kHL, some 10% of total international volume. The Scottish heritage and authenticity of the brand is a marketable attribute that resonates in a range of international markets, suggesting that there could be reasonable growth potential for the next few years.

(i) On a constant currency basis, constant currency calculation is set out on this page

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