Profits at Bulmers maker C&C hit by Brexit currency winds

Drinks company C&C is expecting to report a further drop in operating profits when it posts results for the year to end-February 2017, due to the devaluation of sterling since the Brexit vote.

Last year, the company results showed operating profit fell to €103.2 million from €115 million for the previous financial year.

In a trading update for the 12 months to February 28th, C&C said operating profit was expected to be about €94 million-€96 million. Second-half profit was broadly level year on year, despite the adverse impact of currency movements.

C&C shares fell 7.6 per cent in early trading, but had clawed back most of the losses to trade 2.5 per cent lower late on Friday. Preliminary results for the period will be announced on May 17th.

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Volume performance in its three principal brands, Bulmers, Magners and Tennent’s, was “resilient and a significant improvement” on the year before.

Bulmers is expected to post volume growth of 3 per cent for the full year, while Magners grew 7 per cent. Tennent’s volumes will be flat year on year.

Niche products including Heverlee, Menabrea and Chaplin & Cork’s will be up 50 per cent in the year and now constitute 2 per cent of the company’s own-brand volume.

Sterling devaluation

The “major factor” in the decline of operating profit was the devaluation of sterling. The cost reduction plans announced in October 2015 were completed as planned in the second half of the year.

C&C said the benefits were outweighed by incremental brand investment and price deflation attributable to changes in channel and pack mix across the group. “Our wholesale business stabilised in the second half of the year but did not recover the margin losses,” it said.

In terms of the market, it said cider in Ireland continued to grow its share of long alcohol drinks as a generation of younger drinkers entered the category.

On exports, overall volumes are likely to be up in the low single digits for the full year with Tennent’s in double-digit growth. In the US, the cider category remains in double-digit decline.

The company said next year it would continue to invest in its core brands to deliver long-term growth, remain disciplined on costs and look to strengthen its route to market where possible.

“Given market dynamics and consumer concerns we remain cautious on the outlook for our domestic markets and are not anticipating improved trading conditions in the short term,” it said.

In a note, an analyst at Davy’s said the company’s operating profit “implies a flattish EBIT out-turn” for the second half of the year. “Currency translation remained a material headwind to reported profit growth throughout the period.”