C&C Down on Cider Decline

03/03/08 C&C Group plc, a leading manufacturer, marketer and distributor of branded beverages in Ireland and the U.K., has said in a trading statement that revenue from continuing operations in the year ending 29 February 2008 is expected to decline by approximately 9%, compared with 2006/07. The Group’s overall operating margin is expected to decline by under ten percentage points for the full year. Finance costs in the period are expected to benefit from a non-recurring foreign exchange gain of approximately €9m.

The expected performance, which is in line with the guidance given in the Interim Management Statement issued on 16 January 2008, reflects a decline in the Cider division, primarily as a result of the loss of market share by Magners in Great Britain; the impact of poor summer weather; and an increase in operating and marketing costs.

As a result of increased capital expenditure associated with cider capacity expansion and investment in working capital, free cash flow for 2007/08 is expected to be only slightly positive.

Revenue in the Cider division for the full year is expected to decline by approximately 10% arising from a volume decline of c. 4% for the Group’s Irish cider brand, Bulmers, and a volume decline of c. 15% for the Group’s international cider brand, Magners. 

In an overall Republic of Ireland LAD(iii) market which is estimated to have declined by one to two percentage points for the period, Bulmers was negatively impacted by the particularly poor summer weather, when volumes declined by 14% in the quarter ended 31 August 2007. Over the second half of the year, Bulmers recovered well with volumes unchanged on the same period last year.

The performance of Magners primarily reflects the impact in Great Britain of a loss of on-trade market share and the negative carry-over impact of poor summer weather on recruitment to the premium cider category. This was partially compensated by the brand’s strong off-trade volume growth of c.70% (iv). Magners’ underlying volume in Great Britain is estimated to have declined by 28% overall in the second half year, compared with the same period last year.

Shipment volumes in the Spirits & Liqueurs division are expected to show growth of 5%, driven by continuing double-digit growth for Tullamore Dew. It is expected that overall depletions growth will be about 6% for the period. However, operating profit, is expected to decline in 2007/08 partly due to increased marketing investment in Tullamore Dew.

The Distribution division is expected to show a double-digit decline in revenue as a result of the loss of the Fosters wine business at the end of the prior year.

The Group continues to implement the re-organisation and cost reduction programme, announced on 15 November 2007. The programme is on track to achieve the forecast of €10m annualised savings (which are net of underlying raw material cost inflation) and the overall cost of the re-organisation is expected to be within the Group’s estimate of €15m.

Subject to Board approval, C&C intends to maintain the final dividend at last year’s level of 15 cent per share giving a full year dividend of 27 cent per share.

C&C is committed to maintaining an efficient capital structure and recommenced its on market share buyback programme in January 2008. C&C repurchased 17.7m shares at a cost of €140m in the year ending February 2008.

C&C’s strategy is to drive growth in the premium cider category through a high level of consumer advertising in both Great Britain and Ireland. On the basis of normal summer weather, the Group expects the premium cider category to return to growth in 2008.

The combination of the Group’s re-organisation and cost reduction programme and a series of marketing initiatives together with the strengthening of C&C’s commercial presence in Great Britain are expected to contribute to an improved C&C performance in 2008/09. These initiatives include the launch in Great Britain of draught Magners in May 2008 and in this regard C&C has entered into an agreement with Coors Brewers for its kegging and distribution.

The new Managing Director for Magners Great Britain, John Holberry, will be joining C&C on 18 March 2008. John joins the Group from Coors Brewers Limited where he has been Managing Director, Coors Sales Operations since 2001.

C&C plans to continue its market tests for Magners in Barcelona and Munich in 2008/09. Execution of the tests will be modified to apply the findings from the 2007/08 tests.

The Group’s Spirits & Liqueurs division, is expected to deliver growth in 2008/09 notwithstanding the negative impact of the US Dollar/Euro exchange rate.

In summary, at this early stage, the Group expects modest overall revenue growth in 2008/09 and some improvement in operating margins. Foreign exchange hedging is expected to insulate C&C in 2008/09 from the adverse effect of the deterioration in the Sterling/Euro exchange rate. With a low level of capital expenditure, free cash flow conversion should improve significantly in 2008/09.

Maurice Pratt, C&C Group CEO, concluded “Our objective in 2008/09 is to stabilise our financial and market performance, and, through a combination of management reorganisation, cost reduction and marketing initiatives, to deliver growth.”