C&C Group plc (CCR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the C&C Annual Results Presentation. My name is David Forde, I'm the CEO; and I'm joined by my colleague, Patrick McMahon, the CFO, who I'm sure many of you are familiar with. I'd like to just reference Slides 2, 3 and 4, the disclaimer. And now I'd like to move on with the presentation on Slide 5. I agreed to join C&C on the 2nd of July last year, and formally started on November 2nd. And little at the time did I realize was a horrendous year, frankly, we were in for with the continuation of the COVID-19 pandemic. We never ever forecast that it would last so long and have such a dramatic impact on our industry. But in looking at C&C, I still remain absolutely convinced, despite the pandemic, that the strong portfolio of brands, led by Bulmers, Magners and Tennent's is a formidable force in the U.K. and Irish markets, and that our distribution infrastructure calling to somewhere in the region of 34,000 outlets across the U.K. and Ireland is without doubt, the leading independent distribution system in the U.K. and Ireland. And coming out of COVID, I am convinced that we have a business model that is positioned for the future and will continue to prosper. And the reason I say that is that in this incredibly difficult last year that we've had, I had experience in C&C a remarkable resourceful bunch of colleagues who are committed to C&C and committed to agile development of the company. This is a bunch of colleagues that were willing to navigate everything that COVID threw at us over the last 14 or 15 months. And I believe with this team, we will continue to prosper into the future. Now if I reference the next slide, whilst the last year was a remarkably difficult year for us, and we did have some notable successes that I'd like to call out. It was a year where safety was of paramount importance. And I'm pleased to note that we had a 36% reduction in accidents across the group in that period. Importantly, where we could compete in the market primarily in the off-trade, we grew share. We grew share with the Bulmers brand in Ireland by 3.7 points, taking us above 50% market share in the off-trade. We grew share with the Tennent's brand in Scotland by 1.1 points, reinforcing our leading position in lager in that market, and we grew share in cider in Great Britain with the Magners brand, again, increasing share by 0.4%. So fantastic momentum in the markets where we could compete. We also worked tirelessly with our customers and our suppliers in what was a remarkably challenging year. Numerous openings, closures, reopenings, shutdowns, we collaborated with our customers and with our suppliers, and I'd like to thank them for their patience and their perseverance in what was a very difficult year. Importantly, there were 3 months, in particular, June, July and August when the business did return to profitability. And again, that for us, is very important. As the restrictions in the on-trade were eased, we demonstrated that the business could return to profitability. And In addition, we continued to streamline our business, particularly in the area of logistics and distribution. We merged our distribution business from Bibendum into Matthew Clark, and we streamlined our operations between Matthew Clark and TCB in Scotland. And as we reported quite recently, we took a lot of measures to reduce our cost base. And versus 2019, we will reduce our cost base by somewhere in the region of EUR 18 million. So again, remarkable agility by the business. And finally, importantly, we protected liquidity. We maintained a liquidity base as of reporting of somewhere in the region of EUR 254 million, again, working with many stakeholders, suppliers, authorities, governmental and tax authorities, but also with our customers to ensure that we protected liquidity and also with our banks. And finally, we didn't allow COVID to be an excuse for us not to continue to progress on our sustainability agenda. We at C&C are remarkably committed to sustainability, making huge progress in areas such as CO2 reduction and working closely on sustainability of supply and removing plastics from our operations. So again, tremendous commitment there. So a lot to be proud of. But at the end of the day, when we report here this morning, what we are going to report, and you'll hear from Paddy in a second, we're reporting a loss of close to EUR 60 million for the last financial year. And that is significant, probably a record for the group. And in that context, today, as Paddy takes you through the numbers. We've also made the decision to launch a right issue. We've made that decision having carefully considered all our options, carefully having looked at all the levers we could employ to protect the sustainability of the business through the pandemic to protect our liquidity, to increase the capital structure of the company, and importantly, to position C&C for growth when the pandemic does end. So we do believe it will end. But again, at this moment in time, we believe that a rights issue is the prudent course of action. So again, a difficult year the last financial year, a lot that we can be part of in terms of controlling what we could control a difficult financial result and the necessity to launch the rights issue. And I'm going to hand over to Paddy, our CFO, who's going to take you through the results in detail and the rationale for the rights issue. Over to you, Paddy.

Thanks, David, and good morning, everybody. Turning first to Slide 8 and a summary of FY '21 results. It's not possible to paint the year as anything other than very challenging, and that's evident on our financial performance as set out on this slide. Closures or restrictions impacted the entire year for us with only 54 days in H2 where the on-trade was open in our core markets, and that's open with restrictions in place. Net revenue of EUR 737 million was down 56% year-on-year. Within that, revenue, the unrestricted off-trade was up a pleasing 14.2%. Clearly, it's been our on-trade focused distribution businesses that represent the vast majority of the revenue decline. Matthew Clark and Bibendum's net revenue was down EUR 752 million. That represents about 80% of the total group revenue decline year-on-year. We previously guided that when the on-trade was fully closed, our losses will be at about EUR 10 million per month. And if we consider that September was the only full month that the on-trade was open with the restrictions, and therefore, it was the only profitable month we had in H2. We're reporting today operating losses of EUR 59.6 million for the full year. We're reporting exceptional charges of EUR 36.1 million. The main components being about half, EUR 18 million of it and relates to a reduction in our investment in Admiral Taverns; EUR 8.1 million relates to restructuring costs; a further EUR 7.9 million relates to exceptional financing costs; and then EUR 4.6 million relates to other COVID items, which mainly stock write-offs with some credits added back in relation to previously created bad debt provisions. We do have profit and loss on disposal of noncore assets fitting into the overall number as well. A key focus throughout the year has obviously been liquidity management. And at year-end, total liquidity was EUR 314.6 million. That's down from EUR 387 million communicated in October last. The proceeds of our USPP issuance, rephased term loan repayments and tight controls on spending and working capital all contribute to that year-end outcome. As of today, our liquidity is EUR 254 million, and I'll go into that in more detail in a moment. I mentioned restructuring costs make up EUR 8.1 million of our exceptional charge for the year, that's largely in relation to our cost-saving program we announced in our March update. That will see us remove EUR 18 million from our pre-COVID-19 cost base, and that's going to provide some protection to margins clearly as we reenter the recovery phase for our business. On Slide 9, we see our free cash flow for the year. And overall, there was an outflow of EUR 103.6 million, which included EUR 12.4 million for exceptional items. Working capital as ever is obviously a focus area for us. The total working capital outflow controlled to EUR 43.5 million. That's about EUR 17.8 million in the second half of the year, so that's a solid outcome for us. Within that overall working capital outflow, EUR 84 million relates to the debtor securitization facility that we've got, and that's partly offset by temporary tax deferrals that amounted to EUR 77.4 million. We contained working -- or we contained CapEx to about EUR 9 million in the year. That was very much targeted on essential maintenance and previously committed ESG investment. Our financing costs were higher than usual at EUR 19.5 million and a further EUR 8 million within exceptional items, brings total financing charges for the year to EUR 27.4 million. The cash inflow and relating to financing costs for the year were EUR 23.4 million, and that's reflective of the liquidity maximization measures that we've taken throughout the year and also costs directly attributable and associated with COVID-19. We're very grateful for the support provided by HMRC and RS revenue in relation to those tax deferrals, 90 -- sorry, EUR 69 million of which become repayable in FY '22. Turning to Slide 10 and our liquidity progression since the end of fiscal '20. The actions we've taken to maximize liquidity in the face of COVID-19 include the EUR 140 million USPP issuance in March 2020. Around that time, we also rephased EUR 105 million term loan. These actions, amongst others, delivered liquidity of EUR 415 million as at August 2020. Since August 2020, our liquidity reduced by EUR 100 million to EUR 315 million, and just at September 2021, the year-end just ended. That's as a consequence of an element of our term loan becoming repayable, outflows in relation to debtor securitization and of course, the losses impacted over the period. A further reduction since year-end of EUR 61 million to EUR 254 million as of today is reflective of trading and the unwinding of some elements of the temporary working capital preservation measures that we put in place over the last 12 months or so. During the year, we implemented a program of noncore asset disposals to divest of our Tipperary Water Cooler division during last year, and that contributed a little bit more than EUR 7 million in cash. And post year-end, we're pleased to announce the disposal of our Vermont Hard Cider Company in the U.S. for a total consideration of $20 million. During this period, our net debt position has increased relatively significantly from EUR 327 million to roughly EUR 490 million as of this week. Now debt-to-EBITDA, which was 1.8x coming into the COVID crisis, is significantly outside of our normal traditional covenant -- debt covenant levels. We further secured covenant waivers from our lending group, who I'm pleased to say remain very supportive of us, and have accommodated our request for waivers and support 3 times over the last 12 months or so. Despite the extensive actions taken with debt and liquidity and our effective management of same in the circumstances, the position is clearly not where we would like to be, and the prolonged impact of the on-trade restrictions have and I think will continue to have a material impact for us. With the impact of FY '20 clear and the short-term future for the on-trade, in particular, less so this morning, we've announced our intention to raise gross proceeds of EUR 151.2 million via a rights issue. Turning now to Slide 12 for details on that raise. We expect to complete this fully underwritten rights issue by the 23rd of June at an issue price of 186p per share, and that represents a 33.6% discounted term. We believe the rights issue structure is most appropriate, and the time is optimal now to launch this action, as the on-trade restrictions are beginning to get loosened and trade beginning to resume. This action will not only reduce leverage and improve liquidity, it protects against further uncertainty. It also positions the group to best avail of the opportunities that we believe will exist for us in this coming recovery phase. David has already and will again shortly communicate the total conviction we have in C&C. FY '20 pre-COVID provided the evidence for what our brand, distribution and manufacturing strength, along with our talented people, can deliver. We need to ensure that we're not restricted or constrained by our balance sheet as we look to what I believe will be an exciting new era for this company. We secured unconditional waiver covenants for February 22. The successful completion of this raise in addition then will mean that for August '22, debt covenant tests are relaxed, with net debt-to-EBITDA test at 4.5x and not the traditional 3.5x. And arriving at this decision, we were and are cognizant of the impact that COVID-19 disruption has already had on our group and the potential for continued restrictions on what that might mean for trading. Equally, we're cognizant of the many actions that we've taken since March 2020 to secure our liquidity position. And in instances, such as tax deferrals and term loan rephasing, we're very mindful of the temporary nature of those actions. We believe we've efficiently navigated FY '20 and protected value for stakeholders. The group is dependent though on a functioning on-trade. And right now, although there's encouraging signs of progress back towards normality in the sector, today, each region in our core markets across the U.K. and Ireland, are operating with significant restrictions in place. Moving to Slide 13. On the on-trades uncertainty is also our uncertainty, and that makes projecting forward in the short term very difficult for us. As part of this process, with the rights issue, we prepared a base and a reasonable worst-case set of assumptions. We believe it's appropriate to safeguard against that reasonable worst-case scenario. In that scenario, revenue for the group is 55% of FY '20's outcome for this year that we're in, fiscal '22, and that increases to 79% in FY '23. We've assumed that if this comes to pass, credit in the sector could be impacted and restricted, impacting supplier credit terms, credit insurance and ultimately, customer liquidity. I want to be really clear though, this is not guidance. We're not yet in a position to credibly do that. These are possible scenarios that we believe could, but we hope won't, play out over the coming months. Getting back within normal covenant range is a priority. And obviously, this action is important as it sets us back clearly on course to be within our medium-term leverage range of less than 2x net debt to EBITDA. Our objective here is to ensure that even in the reasonable worst-case scenario, the group is back within its normal traditional covenants by the end of fiscal '23. The objective is also to ensure that we have the strength to continue to invest in our strategy, and that's a compelling strategy that uses our special brand assets, exceptional route to market, well-invested manufacturing capabilities, and fantastic colleagues to deliver for our stakeholders. David is going to outline that further in a moment. Turning now to Slide 14 and current trading. As you'll know, outdoor dining has been permitted in England since the 12th of April. On the 17th of May, indoor dining has been commenced in England, too. In Scotland, outdoor dining was permitted on the 26th of April with restricted indoor from the 17th of May in some parts of the country. In the north of Ireland, outdoor dining has been permitted since the 30th of April, with restricted indoor from the 24th of May. Demand has been encouraging so far, and that's been aided by decent weather necessary for outdoor dining, with initial orders. Clearly, there'll be an element of restocking in there, it's been positive so far, modestly above our base case projections over the past few days. For the week ended the 16th of May, we were trading with about 64% of our pre-COVID on-trade customer base in the U.K. Over the past couple of days, that number has risen to 67% of our FY '20 customer base. Although volume and throughput rate of sale, unsurprisingly down given the restrictions that are in place, it's encouraging to see our customer base coming back relatively quickly. In the Republic of Ireland, on-trade remains closed, and we expect outdoor dining to recommence on the 7th of June, and no announcement has been made yet as of this morning with regard to when indoor dining can resume. Off-trade net revenue is up 16% year-on-year after 2 months of this year just gone, and that's on the back of improved margins also. If we compare that performance to FY '20, pre-COVID, after 2 months net revenue is up 26%. So that's pleasing to see that momentum continue. We expect May to be breakeven or better in terms of profit for the group, and that's aided by the cost actions that we've previously outlined. But finally, for me, our near-term priorities, hopefully, are pretty clear. We want to profitably service the demand as it returns to the on-trade channel. We want to return this group to both profit and cash generation as quickly as possible, all the while maintaining our focus on prudent fiscal management, and that's something that I hope is clear and evident where we want to see at this stage. I'll hand you back to David now. Thank you.

Thank you very much, Paddy, and now I'd like to spend a little bit of time talking about C&C and our future and how we are going to build a better business. And if I can take you to Slide 16, I just want to talk firstly about some of the trends in the markets that we believe, are really important and why these trends play into C&C's favor moving forward. And the first is that in the market with consumers, we continue to see premiumization, fragmentation and cross-category consumption increasing. And the consequence of that is more and more that decision-making by consumers is more and more happening at the point of purchase, i.e., the pub or bar. The second big trend we see is with government is the increasing regulation of alcohol marketing. We're starting to see issues like how alcohol's promotion is being restricted. How alcohol use in sponsoring being restricted. So the world of alcohol marketing is certainly becoming more and more challenged, and the consequence of that is, brand building will become more of a push rather than pull as we look at it today. Therefore for C&C, which is by -- without a doubt the strongest last-mile distribution infrastructure, calling on somewhere in the region of 34,000 outlets, the system that can get brands on the bar, on the bar counter, are the businesses that, in my view, are going to win. Of course, if it's something COVID has told us is the ever-increasing focus on health and well-being. And again, I think we should remember that in C&C, the bulk of our branded business is in beer and cider, the lower end of the alcohol spectrum. Again, we're in a very, very positive space. The fourth trend is around the adoption of technology, again, accelerated through COVID. And the adoption of technology allows us, in C&C, the opportunity to deploy more technology, which can increase the efficiency of our system moving forward. And finally, I think we've all witnessed the increasing importance of sustainability across the globe. And now more and more consumers, customers and indeed, regulators, are looking at businesses that are genuinely committed to sustainability, and they do that through their brands and throughout their business. And again, I'm going to show you a little bit later just how deeply committed we, in C&C, are. But again, major trends in the markets that will have an impact on C&C, but we believe, a positive impact in that context. And if we move to the next slide, Slide 17, and you look at the business model. There are 3 things that we need to do in C&C: we need to increase our brand strength; we need to increase the portfolio that we offer of owned and agency brands into the market that complement our existing powerful core brands like Bulmers, Magners and Tennent's. We have to continue also to build our system strength to make sure that we have the most efficient technology and sustainably driven drinks distribution system in the U.K. and Ireland. And both building our brand strength and our system strength will be underpinned by a structured and ambitious program of continuous improvement, ensuring that C&C delivers to a better world. And if I move on to Slide 18 and go into a bit more detail on building our brand strength. There are 3 areas that we are going to focus on. And the first is coming out of one of C&C's great strengths, and that's cider. Cider is an enormously attractive profit pool in the U.K. and Ireland. In Ireland, we have close to 60% market share of cider. In the U.K., it's a little bit less than 10%. So we still have potential to grow and to leverage the momentum that we have on the Magners and Bulmers brands. But in addition to that, and as the market premiumizes, we can begin to deploy some of our strong latent premium brands, brands like Orchard Pig, Chaplin & Cork's, Addlestones. We can deploy these brands, leveraging PROOF, which is our in-house data and insights department who can help us deploy the right premium brands in the right outlets across the U.K. and Ireland. And if we leverage our system, and it's fair to say even within our own system today, particularly in Matthew Clark, the majority of cider that we sell is competitor ciders rather than C&C's own brands. Again, there, we have potential for growth. And finally, we will support our brands in cider with increased, but highly targeted investment in A&P moving forward. So a big opportunity, in my view, to continue to grow our position in cider. But in addition to cider, we can also grow in premium beer, especially in Britain. Today, our position in premium beer is almost nonexistent. And when you consider the system that we have calling on somewhere in the region of 25,000 outlets in the U.K., there is no reason, in my view, why brands like Heverlee, Menabrea, Drygate or Five Lamps cannot be carefully seeded and developed in high-end premium outlets across the U.K. Of course, you are also aware that we are a partner with BBG. And again, with the BBG brands, again, there is more that we can do, not just in Britain, but also in Ireland where we recently acquired the rights for the BBG portfolio and in particular, the Budweiser brand. So a lot to be done in building premium beer within our business moving forward. And finally, we can also enhance our portfolio by attracting new brands, agency brands, into our business. Some of you may have heard of the recent deal we did with Innis & Gunn, where in exchange for growth, they offered us an 8% equity in their business. And on the basis that we deliver against predetermined growth targets, we can increase our equity in Innis & Gunn up to 20%. And it's clear with that they valued our system, they valued our manufacturing infrastructure, they valued our route to market more than our cash, and they want us to help them grow their brand, and that we can do. But we see that there are opportunities for other types of brands like Innis & Gunn where we can become a valuable partner moving forward. And in my view, post-COVID, I believe there are quite a few brands in the U.K. and Ireland that are particularly distressed and may look for an alternative business model in the U.K. moving forward. So 3 strings to our bow in terms of increasing brand strength, the portfolio that C&C offers into the market moving forward. And now if I move on to Slide 19. There is also more we can do in terms of improving the system strength of C&C. Many people believe that the system is one of the most efficient in the U.K. and Ireland. And indeed, that is true. But there is more that can be done. And again, in 3 areas. Firstly, we need to simplify further our business model in the U.K. We have 3 business units in Matthew Clark, Bibendum and Tennent's, and there are still further opportunities to strip out unnecessary duplication across those businesses. In principle, we would like to get to a position where we have one customer with one contact getting one delivery as our default. Of course, the other thing that we can do is we can start to deploy technology consistently across our business. Again, as an example today, we have 4 distinct ERP systems in our company. Over time, we can migrate that to one. Purchasing is another area of opportunity. In many cases, we have a number of our business units dealing with the same supplier. Again, we're on a journey of consolidating that into one centralized purchasing function for the group moving forward. And of course, nobody assured, and Paddy has indicated exactly how the on-trade will return. But again, we will be flexible in ensuring that we will adjust the size of our model, both in Ireland and the U.K. to the post-COVID on-trade reality. Moving on to the second block, building a lean distribution machine. We are making a lot of progress on the integration of our logistics in the U.K. Again, a lot done, but still further work to do. And moving forward, not alone do we want to increase the number of customers that we service in the U.K. and Ireland, but we also want to increase the share of the customer that we have. We want to grab more of the wallet of on-trade outlets in the U.K. and Ireland moving forward. And in doing that, scaling online ordering will be an important part of our business. Today, our business units are capturing anywhere between 20% and 60% of orders online. We would like to bring that up over the next couple of years because in doing so, we see when customers order online, the basket size increases. In -- we can also use technology to help us sell more efficiently. Today, we can deploy technology in helping us to sell and to conduct category management with our customers moving forward. So again, a lot that we can do to further strengthen our distribution system moving forward. To do that, we're going to invest, in particular, in 4 capabilities. That's virtual sales and category management, data and insight management. We've just recently started selling data and insights to our suppliers. They started to value the insights that PROOF is producing. And again, it's a part of our business that we think we can grow and increase as a revenue stream moving forward. And finally, the 2 capabilities, one around premium brand building and secondly, around logistics and warehouse management. These are areas that we're going to further invest in. So the idea is that we want to really build our last-mile distribution into without a doubt, the strongest independent system in the U.K. and Ireland moving forward. And then if I move on to Slide 20. Underpinning that will be a genuine commitment to delivering to a better world, driving a compelling sustainability program across the 3 pillars of environmental, social and governance. And here again, we have called out 6 pillars that we believe are really important for C&C. The first is in reducing our carbon footprint. And again, you'll see on the slide a number of initiatives that we've called out there. Secondly, we want to continue to focus on sustainably sourcing our products and services. In the social area, we want to play our part in ensuring that alcohol is consumed responsibly. And in parallel, we also want to ensure that we create an environment where the health, well-being and capability of our colleagues is developed and protected. And then on the governance side, we want to continue to build a more inclusive and diverse and engaged C&C. And finally, we want to be a very, very credible corporate citizen and continue to collaborate with government, NGOs and charities on the delivery of their important agendas. And in particular, I'd like to call out the delivery of the deposit return scheme system in Scotland, where we're a lead partner. Of course, the implementation of minimum unit pricing in the Republic of Ireland, which is expected to take place next January, followed by Northern Ireland and then possibly will we see MUP introduced in England at some stage. So again, a pretty comprehensive program of sustainability, combined with strengthening our brands, strengthening our system that we believe can help C&C emerge from a post-COVID world into a world of growth into the future. And if I try to summarize then and sum up on Slide 21, I think -- what I hope you've heard today is that during FY '21, we did our best to control the controllable, and we took effective and decisive actions to protect the value for all stakeholders. Inevitably, and after a lot of consideration, we believe we've taken the prudent decision to launch the rights issue, and that will enable C&C to realize its medium- to longer-term growth potential. And we will grow because we are building a uniquely balanced business in the U.K. and Ireland, which combines brand strength, system strength and a commitment to ESG that differentiates C&C from most of our competitors in the market. As we return to growth, we also want to return to a set of medium-term steady-state targets. We expect to grow our EPS mid- to high single digits, and we want to return to a business that generates a free cash flow in the region of 65% to 75%. And ultimately, as Paddy indicated, we want to get to a position where our long-term leverage ratio is less than 2x. Of course, for our shareholders, the dividend has always been important from C&C. And again, it is our intention to reinstate the dividend when conditions allow. And finally, as we launched the rights issue today and we ask our shareholders to support us again, I think it is only fair that later in the year that we create an opportunity, as part of our Capital Markets Day, to take our stakeholders through our plans in even greater detail than we've been able to do in this short 35-minute presentation or so. So with that said, I want to wrap up. I want to thank you for your attention. And now I'm going to open it up for Q&A.

[Operator Instructions] Our first question comes from Damian McNeela from Numis.

Damian here. First question for you, Paddy. I know there's the sort of the base case and the reasonable worst case around guidance, but I was wondering if you could give us a little bit more color about what thinking is in the sort of the base case and that reasonable worst-case scenario that you set out, please. And then perhaps for you, David, just on the sort of the aspirations on brand strength and the performance in sort of cider and premium beer. Have you got any specific targets you'd like to share with us? Or whether that's sort of something late for the Capital Markets Day? And then just on the system strength as well. How do you think we're going to be best able to manage or measure your progress in improving the sort of system spend? What are the sort of the metrics we should be looking for there, please?

Damian, I'll kick off. And on the base and reasonable worst case, on the assumptions, I don't want to get too deep into them. But it started off as an extrapolation of the trends that we witnessed last summer as the restrictions in the on-trade were eased. So that was the base assumption that we deployed here. Again, we don't know exactly what throughput is going to be like. We have a bit of a road map now across most of the territories that we're in as to when restrictions will be eased. But the behaviors and the throughput, again, we lead into last year's experience from that point of view. I would say, these are a prudent set of numbers, both the reasonable worst case, clearly. But even the base case, they're designed to be prudent. The objective here is even in the reasonable worst case, that post this raise, we're comfortably back within our normal covenants, and that will be the first time in 3 years. If this comes to pass, it will be the first time that we're compliant since February 20, and that's really important for us because we don't want to be restricted or contained, as I said. We don't want leverage on our balance sheet to impair or inhibit us executing against our strategy over the coming few years.

And Damian, maybe from my side, just again, today, we won't get into specific targets. But I think importantly, when we share growth is the key -- one of the key metrics that we will look at, and we've demonstrated even this year with the Bulmers and Magners that we've been able to drive share growth. So that's the way we're going to look at in the areas of cider and premium beer whether we're ultimately making progress or not. And on the system, I think there's a series of metrics. I mean you're -- what we want to try and do is make sure that our system is operating at the most efficient standards, that we're capturing orders efficiently, that we're managing our warehouses efficiently, that our trucks are running around the U.K. and Ireland, and they're as efficient as possible. And that every single element that -- when it comes to inventory management, working capital management, that this is the slickest machine in the market. And again, when we come to the Capital Markets Day, we will go through that in a lot more detail. But what I would say is, it is efficient, but there are still lots of opportunities for further progress. And particularly, if we collaborate with our customers, we still think that there's further cost to be taken out of the -- particularly the logistics infrastructure in the U.K. moving forward.

Our next question comes from Patrick Higgins from Goodbody.

Firstly, just touching on the rights issue again. I guess what's prompted to do this now, and I guess changed your view on needing to do it at any stage during the last year? Is it simply a case of the prolonged lockdowns and the impact that has on tax? Are you thinking differently about the potential time line on the recovery? Or is it you're seeing opportunities to deploy capital now, and you want to have the balance sheet right to do that? And secondly, just on the U.K. distribution side and clearly early days since reopening, but any guys -- any sign of you guys taking share? I know when the on-trade opened last time around in July, et cetera, you saw quite strong sign-ups in terms of new customers. Any kind of signs of that this time around? And then finally, just a question on input cost and inflation, labor availability. Is that an issue for you this year? Or how is that kind of impacting you at all?

Maybe, Patrick, I'll take the first one and the last one. The first one, look, why now? Look, clearly the last 6 months haven't panned out as I think most people had hoped tail end of last year. I think we entered into early December in the run up to Christmas thinking that restrictions will be eased, and they would stay eased. So I think the action at the tail end of December into January, February, March, I think was a bit of a catalyst for changing in our thinking, very mindful of all of the levers that we did pull last year to kind of get us to this position where we protected liquidity pretty successfully. But some of those levers are temporary in their nature. And the tax deferrals as we sat at the end of February with EUR 77 million of tax deferrals, and that has to be repaid at some point, and EUR 69 million is repayable this year. Similarly, we've got a lot of support from our lenders. But the term loan can only be rephased out so much and EUR 45 million becomes repayable again in the next 12 months. And I think that's all fed in to our thinking. Again, if we take a more sort of optimistic lens on it -- I mean we do see opportunities, and recent trading has been encouraging, as I said. It's probable to think, and we believe that we've navigated through this, probably better than most. Certainly better than some of our competitive set, and we just don't want to be impaired. So there is an element of, we want to be in a position to capitalize on opportunities as and when they present themselves. There are green shoots on the horizon, more visibly, I think, in London and England because they're further along the reopening journey. Doesn't always feel like that in Dublin, where pubs have been closed -- wet pubs have been closed since March last year, and they're still not open. So again, we need to get that balance right. Protecting against the downside, mindful of the temporary actions that we've taken to maintain our liquidity position, but also have us in the driving seat and to capitalize on opportunities as they present themselves. And I think it would be wrong as we enter into that phase to do so with heightened levels of leverage. And your last point on input costs and how we think about it. Look, I'm probably thinking 1% to 2% sort of range. There is a bit of pressure in the system, both on labor and to some extent, on raw material, and we do have protection on raw materials. We have a lot of long-term supply contracts that are fixed-price mechanisms in there that are controllable for us. So I don't think we're probably exposed as some of our maybe international peer set, if you like. And clearly, on the third-party brands piece, we always have the ability to push pricing through, and that's beneficial for us. And ultimately, we can use that as a mechanism to expand our margins. But in summary, input costs, I think 1% to 2% is sort of the range that we're thinking about.

And Patrick, maybe coming on your second question. My sense is that the new customer prospect book, I would say, is seems pretty full. And to give you a couple of examples of recent wins that we've had in the U.K., we've recently taken the managed pub business of Ei Group that was acquired by Stonegate, I think it was about 412 pubs. We've won that business, sole supply from -- it was originally through KNDL. But also, most recently, we've won the exclusive wine distribution business for the St Austell pub company down in Devon and Cornwall. And just recently, we've also won the exclusive wine distribution into the Robinsons pub company business, which is in the northwest of England to get in excess of another 200 pubs. I'd also like to call out in Ireland. What just happened recently is that Britvic decided to exit distribution wholesale in the on-trade in the Irish market. I mean I think we've seen them off. Frankly, there were 3 national distributors in the Irish market, and it's now down to 2. And of course, in that context, we're now selectively acquiring quite a number of those former counterpoint customers that were in the market. So my sense is -- and again it's -- we're in reopening mode, but there's clear evidence that in reopening that we are winning some customers, winning some pub groups, and I'm reasonably optimistic that, that could continue into the future.

Our next question comes from Cathal Kenny from Davy.

A couple of questions from my side. Firstly, on the base case scenario, question relating to market share. I'm just wondering, is there a continuation of market share gains from a distribution perspective implied in the base case? That's my first question. Secondly, on digital and insights. Just interested to know, is there an investment requirement to move along in terms of that digital journey. And interested to know a little bit more on PROOF as well, David, in terms of that's new to us. And my final question then is just on the general market for credit insurance in the U.K., perhaps a comment on that, Paddy?

Perfect. So again, I'll do maybe the first on the last question. On the base case, is there a market share assumption. Well, look, there isn't an assumption that we would lose market share, put it that way. We're very confident in the system that we have, and as David's outlined, the plans to improve that even further should see us growing market share. So there certainly isn't a share loss assumption based into the base case. And so yes, from that point of view, you could read it as market-driven. I think on the credit insurance side in the U.K. Clearly, look, it's pretty rapidly evolving in truth as it relates to the on-trade. We talk a lot to the big credit insurers in the sector. And it does feel like they've derisked to a large extent, in line with, I think, the level of business that they've seen impacting the on-trade. I think for us now, the challenge will be to continuously educate and work with those credit insurers to make sure that there's enough credit in the system as trade returns. And if trade returns quicker, that it doesn't become a pinch point. Now clearly, the action we're taking today is, even if there is a bit of a time lag with some of those big credit insurers raising credit, that we will be able to continue to do business with good customers. We have, I think, an excellent track record with creditors, and I know it can get a little bit lost in this presentation a little bit. But we wrote back EUR 6.1 million of previously created bad debt provisions, and I think that's a testament to the quality, I think, of our customer base and also, I think, some of the disciplines we have in terms of credit. So I think to answer the question, Cathal, yes, it is tightening up. I couldn't really put a number on it because it's -- I know what the credit insurers are trying to do is trying to match it with what they see in the market. So at one point, it was probably down as low as 60%, but it's building back up. I have no reason to think that we're being disadvantaged. Quite the opposite, I think we're getting more than our fair share on average of credit because we continue to be seen as very good customers, and that's absolutely right. And that will be even more applicable when we complete this rights issue.

And maybe if I come to your second question, Cathal, regarding PROOF. Yes, Proof is an in-house team that we have currently 9 people. And what we are trying to do with that team is we're leveraging the sales data that we have on about 34,000 outlets across the U.K. and Ireland to really understand what's happening in the market, what's happening with categories, what trends are hot, what outlet typologies are working in. If you think about dunnhumby in the off-trade, why can't we have something very, very similar for the on-trade? So leveraging the insights that we have and the data and making that available to our suppliers is part of the journey, but also using it ourselves. I think now with PROOF, we probably have the most comprehensive and compelling outlet typology for the U.K. and Ireland in the market. And just recently, we've begun selling these insights to customers. To give you a sense, 40 suppliers bought data and insight from us in the last financial year. Nine suppliers collaborated with us in terms of working to understand how we could help them execute their brand launches in the U.K. on-trade. So it's still quite small. What it has demonstrated to us in this -- in the last financial year, that there is a viable model for us in selling data and insight to our suppliers, but also potentially to other people interested in the on-trade sector in the U.K., and whether that's private equity looking to come in and buy pubs in this space, whether it's pub Cos looking to enlarge their existing footprint, we see PROOF as being a very, very interesting source of fact and trend on the on-trade that can help, as I said, a number of stakeholders in the decision-making moving forward.

That's very good. Just a follow-up on that. Is there an investment required to effectively accomplish your ambitions on that digital piece?

I think -- as I said in the area of capability and insight and data management, there will be an investment, I think in people. The systems that we have in place already are pretty robust. And therefore, our sense is that PROOF is scalable without absolutely massive investments moving forward. We've got led by a guy called James Scott. We've just got some tremendous talent in that little team. These guys are already now working and partnering with the likes of Google to really connect the digital world in a way that we think can offer real value, as I said, to ourselves first and foremost internally in helping build our business in helping build our brands. But as I said, secondarily, it is something that can become a new revenue stream for the company moving forward.

[Operator Instructions] Our next question comes from Alicia Forry from Investec.

Just 2 questions from me. The first one on the exit of some of your distribution competitors, you mentioned Ireland. I was wondering if you could comment at all on what you're seeing in the U.K. where you face a number of much smaller competitors in distribution. And as you have helped with the customers during reopenings, can you share any insights on kind of what new trends, if any, you're seeing? Changes in how customers are ordering or the types of brands that they're focused on. That would be quite interesting to understand more about. And then finally, just -- sorry if I missed this, I was cut off at one point. Has the IT issue that you experienced had any financial impact that we should be aware of when modeling for FY '22?

Very good. Thank you, Alicia. Well, maybe if I take the distribution issue first. I mean what you've seen effectively in Ireland and is possibly what we would have -- I would have experienced in my previous life in terms of distribution is consolidation. And we're now down to -- after many, many years, down to 2 national distributors in the Irish market. And that would mirror what I would have experienced in my previous life, particularly in Continental Europe that eventually in what is a very, very tough business that if you don't run really well, you can hemorrhage a lot of cash. Ultimately, you see that type of consolidation. I think that, that is happening also in the U.K. Maybe it's a bit more slowly. But you've seen in the last number of years, a lot of regional distribution has been consolidated. The likes of Marston's consolidated, the Twake's distribution, the Wells distribution, the Brains distribution into their own system. And now you've seen with the Carlsberg Marston's merger, effectively 2 systems now come into one. Of course, there's a lot of work still to be done in terms of the logistics. Carlsberg is outsourced to trade team. Marston's is in-house. So I imagine there's a bit of work for the guys in that part of the -- in that organization to deal with. But I would say that the structure of consolidation of the industry is continuing, Alicia. I think it's pretty well known that some of the 3PLs are finding distribution in the U.K. very, very difficult. So my sense is that, that journey is going to continue. And at some stage in the future, I don't know exactly when, we will probably have fewer but national distributors in the market. In terms of reopening. I think what's interesting is to see still a lot of ordering is taking place at a table. People don't have the ability to go into bars to the same extent. Yes. So people are ordering at the table. And of course, that suits big brands. When you walk up to a bar counter, consumers tend to scan the beer taps, scan the back bar and make their choice. When you're sitting outside the pub on a bench and you're just asked, "What would you like?" Of course, that plays into the hands of big brands, and that's why I think we've seen the likes of Bulmers and Tennent's grow share also when we saw reopening during last year. I think what you are seeing, as people go out, that they're looking to enjoy themselves. I think, again, that's underpinning the premiumization trend and maybe accelerating it. And finally, what you are seeing is that our customers are deploying digital technology for ordering in pubs, and that has accelerated as well. And again, with PROOF, we have a product there that we can help our customers to deploy to facilitate them and their customers ordering online. So I would say, more online, more premiumization as 2 of the very important trends that we're seeing.

Okay. And maybe I'll take the one on the cyber issue, Alicia. Look, no, the financial impacts, we don't believe it's going to be material. It happened at the very beginning, I suppose, of reopening in the U.K. for Matthew Clark. It was restricted to the Matthew Clark and Bibendum platforms. So that kind of put the issue off, I guess. And if we're fortunate at all, and I didn't feel like we were fortunate. But if we were, it was at -- it was the timing of it before we kind of fully kicked into high gear. So that allowed us to implement manual workarounds. So look, we don't believe the impact is significant from a financial point of view. But look, I say we were fortunate. I don't want to underplay the level of disruption and that the massive effort from all of our colleagues, and I think it's a testament to them that we tried not to let any customers down. It did happen right at the beginning of the recovery phase, as I say, with outdoor dining commencing. And you can imagine processing that amount of orders manually is no mean feat. So there's a lot of late nights, a lot of early mornings for our colleagues. But again, it goes to the very heart of what we do in Matthew Clark and Bibendum. We want to put service right at the center and our customers right at the center of what we do. So no, no -- short answer, no material financial impact for your model.

Our next question comes from Chris Wickham from Equity Development.

Just 2 things. One, I think the whole issue about MUP in England, which you're talking about, we covered all of that off in quite some detail, I think, back in 2017 with a trip to Merry Hill and Well Park. So I'm assuming, given the nature of your business to companies from Matthew Clark, Bibendum, MUP in England wouldn't be a problem from your side? And then secondly, I was just really thinking your comment about in Q&A about opportunities in the rights issue. I mean are we right -- correct to think that the rights issue is really effectively split part restorative and then part effectively a SPAC where you might be seeking to use some of that money for those opportunities which might arise? And I was wondering, there's 2 things on that. One is what would you be looking for? Would there be any new verticals involved? And two, what would the split between the sort of the restorative part of the rights issue and the SPAC?

No. Very good, Chris. Well, yes firstly on MUP. I mean I think it's -- MUP did have a positive impact on our business whenever it was introduced in Scotland. We imagine that when it's slated for introduction in the Irish market, in the Republic of Ireland in January of 2022, slightly more complex in Ireland in that it may not be introduced at the same time in north of the border. That was the original intention. And therefore, in terms of modeling us, what you can never understand is consumer behavior, the price differential between the Republic and the north could be significant enough to entice consumers across the border, at least for that period until the north would introduce it as well. But on the basis that at some stage, in the next couple of years, MUP will be fully introduced across the island of Ireland, and that probably will have a positive impact on C&C. And you're right that within England and Wales and in the Matthew Clark strength, there's not a significant downside. Our Bibendum wine business is pretty strong into the off-trade and again, MUP and the off-trade in England or Wales, if we're -- in England were it to be introduce, could be positive for the company. So that -- in terms of the rights issue, I think you're right. I mean there's an element that is about the balance sheet and then there's more importantly, we're looking to the future. I think our focus is on organic growth and investing behind organic growth. And that's simply because we have space to grow. We have space to grow share with our existing brands. We have space to grow our premium brands, and that's very much something that we can control. It's within our own destiny. We also, I believe, organically have the space to win more customers in the on-trade. And I don't believe that we need to acquire certainly vertically. We don't need to acquire more wholesalers to win. I think we can just outcompete them in the market as has been the case with the counterpoint in Ireland. But opportunistically, will there be bolt-on acquisitions that if they can help strengthen our brand portfolio, if they can help strengthen our system, of course, that is what we're going to be looking for. And I do expect that post-COVID that those opportunities are going to present themselves to us in the next year, 18 months.

There appears to be no further registered questions. So I'll hand over back to speakers for any final words.

So well, look, just in summary, firstly, thank you for taking the time to join the call. What I hope -- and I hope we all believe is that the worst is behind us. Certainly, the worst is behind for society in terms of the COVID pandemic, but also for C&C, I do believe that the worst is behind us. I think what you'll have seen is that as a management, we've chosen to be prudent, and we believe that this fully underwritten rights issue was the appropriate course of action at this moment in time that will delever the company. It will get our balance sheet in good order, and that sets us up for the really important thing, which is our story around the future. A story around building our brand strength, building our system strength and continuing to deliver on our sustainability agenda. And if we, in C&C, can continue to do that in the context of our markets where I believe some of our competitors will have been significantly weakened post-COVID, I'm still convinced that the future for C&C Group is quite optimistic. So with that, again, I'll thank you. I look forward to seeing some of you, hopefully, later in the year for our Capital Markets Day where we'll put a lot more flesh on the bone in terms of our forward thinking and forward-looking plans, and we may get to talk to some of you one-on-one over the coming days. But again, thank you for your time and your support today.