C&C writedown of €150m in US leaves results flat

Despite disappointing venture in US, operating profits in Ireland and Scotland rose

Dividends at C&C, which produces Bulmers cider, rose by 22.8% to 7 cent.  Photograph: Bryan O’Brien

Dividends at C&C, which produces Bulmers cider, rose by 22.8% to 7 cent. Photograph: Bryan O’Brien

 

C&C put its best foot forward yesterday, highlighting what it termed a strong performance in Ireland and Scotland where operating profit grew by 1.5 per cent and 1.8 per cent respectively.

But this welcome news – and the increase in the final dividend by 22.8 per cent to 7 cent – is hardly going to blind shareholders to the fact that the company has written down the value of its US business by €150 million.

Leaving aside the banks, C&C’s entry into the North American cider market must rank as one of the most costly corporate blunders of recent years by a listed Irish company.

C&C spent €235 million in October 2012 when it bought the Vermont Hard Cider Company which it trumpeted had the potential to to transform its business in the US and internationally.

The deal would generate Ebitda (earnings before interest, tax, depreciation and amortisation) of $15 million in the year to the end of December 2012 and be “immediately earnings-accretive”, shareholders were told.

Things did not quite work out as planned. The group has seen the operating margin of its US business squeezed from 24.3 per cent in the first half of 2014 – the first six months post-the acquisition of VHCC – to 3.3 per cent yesterday, with revenues down by about a half.

The explanation is the aggressive entry of big American brewers into the cider market, something C&C management either did not anticipate or underestimated when they bough Vermont.

Yesterday’s writedown indicates that the cider market has changed fundamentally and the US brewers are here to stay. So, it seems, are the management team at C&C who got things so badly wrong.

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