C&C writes down value of US arm by €150m

Drinks group C&C has written down the value of its US operations by €150m on the back of another challenging year in the region.

In its annual results presentation covering the 12 months to the end of February the Bulmers/Magners owner said yesterday the one-off impairment charge is a reaction to its market share in the US coming under pressure from new entrants, growth in the craft beer category and “severe market disruption”.

However, it added that its US business remains well invested and a stabilisation of the market should lift volume sales and “flow through to bottom line profitability” in time.

“The decision to write-down its US intangible asset base by €150m was not unexpected in the context of recent trading.

“With a well-invested asset base and a strong balance sheet, shareholders will continue to get access to the group’s cash flow,” said Cathal Kenny of Davy Stockbrokers.

Goodbody Stockbrokers’ Liam Igoe meanwhile, suggested the US cider market as a whole has recently effectively written off twice the amount of value that C&C has.

Regarding shareholder returns, C&C reported a 15% increase in full-year dividend to 11.5c. Its current pay-out ratio — or the level of net income being paid out in dividends to shareholders — amounts to 42.3%, with management keen to raise that to 50% in the medium term.

Chief executive Stephen Glancey told reporters the board remains keen on making further acquisitions, but will also develop the business organically and continue returning cash to shareholders. The company completed a €30m share buyback in the financial year.

Yesterday’s figures were largely as expected; with revenues rising in Ireland and Scotland, but the group continuing to struggle in the US and England and Wales.

On a group-wide basis, C&C reported a 9.2% decline in annual operating profit, to €115m and net revenue growth of 10.3% to €683.9m. Underlying profits grew in Scotland and Ireland which combined represent 90% of group earnings. However, net revenue here was down by over 2%. In England and Wales where the group has rebranded as C&C Brands net revenue fell over 18% and sales were down by 20% in the US, with profitability there tanking 86%.

C&C has struggled in England and Wales and has reduced its cost base there. What savings it makes in that region will be used to reinvest in the market, with Mr Glancey yesterday saying being a profitable niche player in the English cider market with Magners as its main product is an achievable aim.

He said Magners remains a strong brand in the UK and the company wishes to maintain its position in that marketplace.

He also said management still sees its US offering as being “a unique proposition” and that the business should begin to show growth from next year onwards. He said the Tennent’s lager brand has shown strong potential in international markets.

Regarding new competition, Mr Glancey said C&C is not overly concerned about Heineken entering the Irish cider market, with its Orchard Thieves brand, saying that he believes drinkers here will remain loyal to an authentic Irish cider such as Bulmers.

C&C’s board sees the next 12 months as a period of stabilisation and investment.


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