C&C may downsize in UK if takeover bid fails

C&C could significantly downsize its English and Welsh operations if it fails in its bid to buy British bar owner, Spirit Pub Company.

C&C may downsize in UK if takeover bid fails

Speaking on the back of what it called a “solid” set of first-half results — despite showing a near 3% annualised drop in operating profit and pulling its share price down by nearly 9% — the group’s management yesterday side-stepped rumours that they are looking for a partner to launch an all-cash bid for Spirit.

Chief executive, Stephen Glancey said that the resilience of C&C’s Irish and Scottish operation, which cover the Bulmers/Magners cider brands and the Tennent’s lager brand, in particular, provides the basis for sustainable profitability, a strong balance sheet and free cash flow; adding that the board is confident in its ability to finance such deals.

Last week, Spirit, which is also being sized up by UK brewer, Greene King, rejected an initial takeover proposal from C&C, believed to be worth around €900m. The Irish group now has three weeks to enter a firm bid or walk away.

Management sees such a deal as being the key to enhancing its fortunes in England and Wales. Yesterday’s first-half results showed a 9.3% year-on-year rise in net revenue (for the six months to the end of August) to €368.1m, but a 2.7% drop in operating profit to €69.2m. Disappointing performances in big markets like the US as well as England and Wales are proving a drag, with 86% of operating profit now coming from Ireland and Scotland.

Chief financial officer, Kenny Neison said other options would still exist for C&C in England and Wales, should a Spirit approach fail. He said that the company favours the vertical integration model and is “very interested” in the pub sector. However, he also didn’t rule out distribution partnerships with other brand owners and downsizing the group’s English operations in order to reposition it as a niche premium/export-orientated player.

In Ireland, C&C saw first half revenue rise by 1% and operating profits increase by nearly 12% to €36.7m, with a near 37% revenue rise and 14.3% increase in profits seen in Scotland. However, revenue in England and Wales, combined, fell by 12.4%, while operating profit came in at nearly 37% below the same period last year at €7.2m. In the US, C&C’s revenue was down 22.6% at €20.5m, with operating profit falling almost 90%.

C&C’s share price fell by nearly 9% yesterday to €3.40 (down 20% in the past month) on the back of the results, with Goodbody Stockbrokers saying it anticipates lowering its full-year earnings forecasts, for the group, by around 7%. Due to takeover rules, C&C, itself, cannot offer any earnings guidance due to its link with a bid for Spirit, but it did increase its interim dividend by nearly 5% to 4.5c per share.

Mr Glancey also downplayed speculation that C&C could sell its underperforming US assets, saying the company was in that market for “the long haul”.

The US market remains “both attractive and dynamic”.

“We are confident in the long-term prospects for the category generally and specifically our US cider business. In time, we expect to participate meaningfully in category growth,” he added.

Export performance to mainland Europe, Canada and Asia was “encouraging” during the first half, C&C said.

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