C&C Group has posted declines in Ireland

C&C Group has posted declines in Ireland

Asked yesterday what disappointed him the most about C&C Group's first-half results, CEO Stephen Glancey turned the question around and told just-drinks he preferred to look at the positives.

Looking solely at the balance sheet, however, there seems little for Glancey to cheer. C&C Group's two main markets, Scotland and Ireland, were both down. The US, meanwhile, continued to confound, as it has since C&C bought Vermont Hard Cider and struggled to find growth for the Woodchuck brand.

When pushed, Glancey did admit that the Ireland and Scotland declines were the most disappointing - bad weather took a bite out of summer sales and new Scottish drink-driving laws keep consumers out of the pubs. Analysts appeared to agree with that outlook, as it is only through a recovery in these two markets (Scotland accounts for 34% of EBIT and Ireland 51%) that C&C is likely to find short-term share price relief. 

In a note today, Nomura analyst Ian Shackleton said the results mean he is waiting for more evidence that C&C Group's multi-beverage model is working. He is also worried that a new entrant into the Irish cider category, in which C&C's Bulmers accounts for 92%, could challenge that domination. Heineken launched Orchard Thieves exclusively into Ireland in April, causing a bit of disruption. Shackleton said it could threaten C&C Group's margins in Ireland, which at 21% are vastly more profitable than England and Wales' 13%.

There are bright spots, however. C&C Group's troubles this year will mean easier comparisons next year. Also, many headwinds in yesterday's results were one-offs. Most companies don't like to blame weather for declines as it is seen as something that balances over the long-term. However, with C&C estimating that rain in Ireland accounted for half of its volumes losses, this is one of those times that management is allowed to play the weather card. 

Meanwhile, the stricter drink-driving limits in Scotland have impacted the whole industry by an estimated 10%, so it is not just C&C Group that is missing out. In fact, according to Glancey, C&C may be less affected by November's legislation because its brands are more “urban”.  Belhaven, whose brands are more of the village pub and rural sports hall variety, is “probably suffering more than we are,” Glancey told just-drinks.

With its core markets in the doldrums, it would be easy to conclude that C&C Group is watching Anheuser-Busch InBev's bid for SABMiller with interest. According to Shackleton, the company has an estimated EUR300m war chest and could be in line to snap up any spare cuts that emerge from a takeover.

Asked about it yesterday, Glancey kept his cards close to his chest. “It's an interesting time in the industry,” he said. “We're economically and intellectually poised to see what happens and exploit anything that comes up.”

Shackleton is less coy. The analyst believes C&C could make a bid for Miller Brands, SABMiller’s UK import business. “Whilst largely a premium import distribution opportunity, it would add a valuable growth dynamic for C&C and we would highlight that the company already has existing distribution arrangements for certain Anheuser-Busch InBev brands in Scotland and the Republic of Ireland.”

The SABMiller/A-B InBev deal is still on the boardroom table. If it passes, C&C Group's management may have some more positives to focus on.