C&C eyes expansion amid investor concern

Drinks group C&C will continue to look at acquisitions as a way of growing internationally, despite calls from an activist investor to focus on its core markets of Ireland and Scotland.

US hedge fund operator Orange Capital recently emerged as an activist investor in C&C, holding a near 5% stake.

It has called for the group to raise more debt to fund further share buybacks and row back on international expansion by exiting the US and downsizing further in the UK.

C&C management yesterday said that Orange Capital is treated with the same fairness as all investors and while the parties agree on some things, the group sees merit in continuing with its stated investment case of internationalising the business.

The group, chiefly known for the Bulmers/Magners cider and Tennent’s lager brands, has been focused on alleviating the burden on its core Irish and Scottish operations and improving performance at its US and England/Wales units. Costs have been cut in the latter, and modest earnings growth has been evident of late.

However, the group has failed in a number of high-profile acquisition plays in the past year, notably in an attempt to buy the UK-based Spirit Pub Company and, more recently, the prospect of buying Carlsberg’s British operations.

C&C yesterday reported first-half net revenue of €358.6m for the six months to the end of August, down 2.6% on the same period last year.

Earnings were even more depressed. Ebitda fell 10.4%, year on year, to €72.6m and operating profit was down 9.5% to €62.6m.

However, strong cash generation was noted, with management raising the interim dividend for shareholders by over 5% to 4.73c; and saying it is planning to restart its share buyback programme, aimed at returning up to €100m to investors by July 2016.

Chief executive Stephen Glancey said management will continue to “review” acquisition opportunities.

However, he added that the share buyback plan effectively parks any solid acquisition plans for the foreseeable future and that no takeovers are likely until an improvement is seen in the US.

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Mr Glancey also poured cold water on speculation linking C&C to any potential asset disposals needed to clear a merger of AB InBev and SABMiller, saying it could look at opportunities if anything were to become available in two years.

Management suggested now would not be the right time to sell out of the US, even if that was the plan, adding that there is no “emotional attachment” to any one brand and disposals would be considered if and when necessary.

Double-digit revenue and profit declines were evident in most geographies in the first half, although profits rose by nearly 3% in England/Wales. Weather was a big issue in the period.

While C&C sees market conditions remaining tough, it said consumer sentiment and an improving economy has led it to expect improved operational performance in Ireland.

That said, current market headwinds are set to wipe around €10m off full-year profits.

“We are assuming that market conditions will continue to be testing, particularly in our core markets, in the coming months, but we are confident that we are taking the right actions to build durable long-term value for all shareholders,” the company said.