IRELAND: Weather and competition hit C&C full year estimates
Poor weather and price-led competition have led C&C Group to predict a "weak" second quarter. And, whilst the Irish drinks group is still expecting strong volume growth for the full year in the UK it has reduced its sales volume expectations.
The company said that its current high level of marketing investment and other fixed costs result in a financial performance particularly sensitive to variations in sales volumes.
"While these costs will ultimately be absorbed as cider volumes grow, lower sales volume expectations are likely to result in full year operating profit for 2007/08 approximately matching last year," the company said in a statement released ahead of its AGM today (13 July).
Meanwhile it added that the weighting of marketing investment to the first half year, the phasing of costs associated with capacity expansion and the impact of the February sell-in are expected to result in a decline in operating profit in the half year ending August 2007 compared with the same period last year.
For the three months to 31 May 2007, C&C saw revenue growth of 15% compared with the same period last year. The performance primarily reflects the growth of Magners in the UK and Bulmer's continuing out-performance of the LAD market in Ireland.
Total branded cider sales volumes, in the first quarter, increased by 38% on the prior year. This primarily reflects growth of Magners in the UK of around 89% and Bulmers in Ireland of around 2%.
Performance in the three month period was negatively impacted by a pre-price increase sell-in in February which consequently affected sales shipments during the quarter, the company said. Underlying volume growth for Magners in the UK, allowing for this, is estimated at close to 130% in the quarter. The company called this "a satisfactory performance in a cider market characterised by mixed weather in the period (good in April and poor in May) and heavy price-led competition."
Performance was boosted by comparison with the same period last year when the brand was being rolled out from London to the rest of England and Wales.
Revenue for spirits & liqueurs declined by 6% in the period due to phasing of shipments while soft drinks revenue grew by 7%.
Group operating margin for the quarter was over three percentage points lower in the first quarter than in the same period last year.
"This decline reflects increased marketing expenditure and warehousing costs together with a decline in gross margin due to a combination of increased raw material costs and higher fixed manufacturing costs associated with cider capacity expansion," the statement said.
The company added that Magners market tests are continuing in Barcelona and Munich. In line with previous guidance, C&C said, it will be October 2007 before any initial conclusion can be drawn as to Magners' future prospects in these markets.
During the quarter, C&C entered into an agreement to sell its soft drinks division and related assets (Republic of Ireland wholesaling) to Britvic plc for a consideration of Euro249.2m.
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