Weak sterling to hit C&C Group earnings

Cider maker C&C Group has warned the weakening of sterling, in the aftermath of the Brexit vote, could damage earnings and wipe out the positive start it has made to its current financial year.

Shares in the group grew by nearly 7%, yesterday, before paring back slightly, on the back of a strong first quarter trading update, covering the period up to the end of June. 

The group is chiefly known for its twin Bulmers/Magners cider brands and Tennent’s lager.

Sales volumes of its main brands saw strong year-on-year percentage growth in Ireland, Britain and export markets. 

They were boosted by an upturn in weather conditions, particularly in March and May.

While the US cider market remains in negative territory, the group is hopeful of recovering market share in the second half of its current financial year. 

Euro 2016 has also been a boon, boosting trade here in particular.

However, the Brexit vote has cast a longer-term cloud over the company and management said it remains cautious on the outlook for the year.

“The result of the referendum in the UK brings with it uncertainty, volatility and a lack of visibility,” management said.

On the one hand, C&C has a growing export business totally unaffected by the Brexit decision, but on the other nearly 50% of its profits are denominated in sterling and reported in euro, meaning the business is exposed to the translation impact of a devalued pound.

“At current levels, if sustained, currency movements have the potential to undo the earnings benefit from both cost reduction activity and the steady progress made in trading [in the] year to date,” the company said.

Goodbody Stockbrokers’ food analyst Liam Igoe said yesterday sterling remaining at current levels would see him cut his full-year earnings forecast for C&C from €106.5m to €102.2m.

“These are obviously external factors outside the company’s control and the over-riding theme of the statement is that volume trends have returned to growth, though it is a very early stage in the year and the weather remains dull in Ireland and the UK and the impact of Brexit on the UK consumer many dampen consumer sentiment in the remainder of the year,” he said.

C&C’s share price closed the day up, yesterday, but the early strong gains were eroded with the stock ending trading at €3.60, around 3.6% ahead of Wednesday’s close.

The group said Magners’ recovery in the UK has continued into the current year and the impact of new international distribution deals has aided export growth.

Export trade is on track to deliver 20% volume growth for this year.


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