operations REVIEW TENNENT’S UK

C&C Chairman

Tennent’s UK

Constant Currency(i)

FY2013

FY2012

Change

€m

€m

%

Revenue

229.3

223.5

2.6%

Net revenue

108.9

102.0

6.8%

- Price /mix impact

12.7%

- Volume impact

(5.9%)

Operating profit

30.3

22.5

34.7%

Operating margin (Net revenue)

27.8%

22.1%

5.7ppts

Volume – (kHL)

1,294

1,375

(5.9%)

bulmers & gaymers bottles

UK beer(ii): Market data to end of February suggested a decline of 4% in beer volumes in Scotland. Volume held up better in the on-trade with a decline of 2% comparing favourably to an off-trade that was down 6% year-on-year. Value was up 1% for the market in the period. Robust market data are not available for the market in Northern Ireland.

Tennent’s UK: Tennent’s, including Caledonia Best, delivered a very robust set of financials in a challenging environment. Volume decline of 5.9% was broadly in line with the market but the substitution of low margin volumes with more profitable channels deals contributed to net revenue(i) growth of 6.8% for the year. There were a number of features behind the 12.7% positive price mix impact including reduced promotional activity in the off-trade, some moderate premiumisation of the portfolio and the re-negotiation of low margin legacy contracts. Operating margin(i) continued to expand with improved pricing and robust cost control growing margin by 5.7ppts. Marketing investment behind the brands remained highly competitive and double digit as a percentage of net sales revenue. The Tennent’s brand is in good health in all of its territories.

Tennent’s Scotland: Tennent’s Lager volume sold to the Independent Free Trade (IFT) and Local Multiple segments of the on-trade grew by 3.3% in the year, delivering market share growth. Distribution improved for the brand in these segments, supported by a net £11.5 million incremental investment in trade lending, good brand support and a sensible approach to pricing in a tough environment for retailers and consumers.

The Group invested to sustain growth in Caledonia Best during the year. Distribution now stands at around 1,400 outlets with a solid presence in the IFT. Above the line support for the brand was introduced via a TV campaign in the second half of the financial year and further support is planned for FY2014. The brand is enjoying some momentum. Share of Ale in the IFT reached 4.5% for the year and data for the last 13 weeks of the year suggest share has grown to 7.6%.

Caledonia Best is now the fastest growing beer brand in the Scottish on-trade; over the last year it has reached No.2 position in the smooth draught ale category according to CGA. The success of Caledonia Best, and the relative outperformance of Magners in Scotland compared with England & Wales, serves to highlight the attractiveness of further diversification into multi-beverage in Scotland.

Tennent’s NI: In Northern Ireland Tennent’s remains competitive within a weak on-trade market. The C&C portfolio, including third-party brands, was down 8.0% for the period in a market believed to have declined by over 10%. Net investment in trade lending increased by €0.3 million in the year. The low level of churn in pub ownership serves to highlight the difficulties facing the on-trade.

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

(ii) Per CGA/Nielsen data

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