Portfolio

C&C cancels final dividend as it faces Covid cash burn

By Josh White

Date: Wednesday 03 Jun 2020

C&C cancels final dividend as it faces Covid cash burn

(Sharecast News) - C&C Group reported a 7.8% improvement in net revenue in its final results on Wednesday, to €1.72bn (£1.53bn), while its operating profit rose 10.4% to €116.4m.
The FTSE 250 hard and soft drinks maker said its adjusted diluted earnings per share were up 10.5% for the year ended 29 February at 29.4 euro cents, while basic earnings per share were impacted by exceptional items, coming in at 2.8 cents.

It described its free cash flow as "strong", at €136.5m, representing 103.5% of its adjusted EBITDA, which itself was 9% higher year-on-year at €131.9m.

The firm's net debt-to-adjusted EBITDA ratio reduced to 1.77x at year-end, from 2.51x a year earlier, while exceptional items pre-tax totalled €92.5m, with €47.6m directly related to the Covid-19 coronavirus outbreak, with €34.1m relating to the write-down of the Vermont brands.

It paid an interim dividend of 5.5 cents per share, but said it would not be declaring a final distribution in a bid to conserve cash amid the current Covid-19 crisis.

On the operational front, C&C reported a "resilient" brand performance for Tennent's, Magners and Bulmers against challenging comparatives.

It said operating margins were 2.4% within its Matthew Clark and Bibendum operations, comprising 2.9% at Matthew Clark and breakeven at Bibendum, which the board said reflected "solid progress" in the execution of synergy initiatives.

C&C added that a new enterprise resource planning (ERP) system for its logistics network in Scotland would also drive operational efficiencies.

Looking at its response to the Covid-19 pandemic, the company said an "extensive" range of operational, financial and liquidity-enhancing measures had been implemented to reduce its operating costs, maximise available cash flow, and strengthen its balance sheet position.

Those measures included the full drawdown of its debt facilities, reduced capital and marketing investment and minimised discretionary spending, and active engagement with the tax authorities in both Ireland and the UK.

It had also implemented an average salary reduction of 20% across its workforce, with its executive team and board remuneration reduced by 30% and 40% respectively, for an initial three months, to be reviewed thereafter.

Around 70% of C&C's employees had been placed on furlough, the company added.

C&C said it had secured net debt-to-EBITDA and interest cover covenant waivers from its lenders until August 2021, to be replaced with a minimum liquidity covenant and monthly gross debt cap.

It had also received confirmation from the Bank of England that it was eligible to issue commercial paper under the Covid Corporate Financing Facility (CCFF) scheme, should it be required.

"Taken together, the board believes that its existing liquidity position is more than sufficient for the group's current and expected needs," the board said in its statement.

It added that its supply chain and production facilities were fully operational, with "stringent" ongoing audits to ensure social distancing and compliance with all other health and safety requirements.

Looking at its current trading, C&C noted the issue of €140m worth of US private placement notes in March to "diversify, strengthen and extend" the maturity of its capital structure and sources of debt finance.

The shutdown of the hospitality sector had materially impacted its business, with no revenue generated in the on-trade channel since March.

As a result, the company said it had reallocated and redeployed resources to meet the significant increase in demand through the off-trade channel.

It said it was maintaining liquidity of €550m, with its debtor securitisation facility currently 36% utilised, while its underlying cash burn was €7m per month as on-trade remained closed, net of furlough employee support of around €5m.

"The Covid-19 pandemic presents a challenge of unprecedented scale and uncertainty for our industry and supply partners," said interim executive chairman Stewart Gilliland.

"From the outset of the virus, our priority has been protecting the health and wellbeing of our people, customers, suppliers, business partners and community.

"We are continuously monitoring the advice provided by the health authorities and in line with that guidance, the group has implemented an extensive range of measures to provide the safest environment we can for our stakeholders."

Gilliland said the progress of the firm in the 2020 financial year strengthened the board's belief in its long-term strategy.

"As the largest alcohol distributor in the UK and Ireland, we have secured a unique platform and our results for the 2020 financial year reflect the strength of this position.

"In the short-term, execution of our strategy will be impacted by Covid-19, which has necessitated the temporary withdrawal of our future guidance.

"Trading since the lockdown measures were announced has clearly been challenging, however, our business is structurally integral to the markets we serve and, together with our local, fabric brands, puts us in a strong position to re-engage with customers and consumers once restrictions across pubs, bars and restaurants, are lifted."

At 0829 BST, shares in C&C Group were up 4.94% at 208p.

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