In for the long haul

THE FRIDAY INTERVIEW/Maurice Pratt C&C: Clouds descend outside the London Stock Exchange, where C&C chief executive Maurice Pratt is giving investors, analysts and financial news wires his take on where it has all gone wrong this year for the cider sellers.

And gone askew it has: wet weather and copycatting competition in Britain wiped 33 per cent off C&C's operating profits in its first half of trading and, despite being well-trailed in the second of its two July profit warnings, this week's update has left a sour taste among investors.

So couldn't Pratt, who this time last year was presiding over a glorious 66 per cent rise in first-half profits thanks to the successful launch of Magners cider in Britain, have anticipated that it would be such a sobering year?

"No. As you plot through the winter and execute through your plans through the spring, we looked at the success of 2006 and the success of the brand, and our lack of capacity to meet that demand, and clearly we would have been pretty optimistic," Pratt says.

C&C's parade was rained on by two spirit-dampening irritants: "One, the weather, was unfortunately outside our control, and the other - the competition - was under our control, although still an external factor," says Pratt. "I would describe most of these things as a series of one-off events. The only factor I would say is here to stay is competition," he says.

C&C had been expecting "the competition" to join the cider-over-ice category it created in Britain through Magners but it hadn't reckoned on the force or the ingenuity with which it responded. "I think it is the amount of investment that supported their entry into the category that was in itself a surprise."

Pratt does not mention "the competition" by name, but it is Scottish & Newcastle (S&N), the brewer that owns the licence to the name Bulmers in Britain.

With S&N's "Born for Ice" campaign for Bulmers Original helping it erode C&C's share of the cider-over-ice market from 100 per cent to 76 per cent at the last count, it's easy to get the feeling that C&C is more annoyed than flattered by the imitation.

In its interim results statement, Pratt duly announced it was taking "corrective steps" that would eventually lead to a "broader series of measures to sharpen its competitive capability".

But having repeatedly said that it won't abandon its positioning at the premium end of the market and the premium pricing that goes with it, C&C can't match the "heavy price-led competition" by slashing its own prices without doing a volte-face.

Among the more humiliating setbacks for C&C are the loss of exclusive supply deals with some of the large British pub chains, and it is in this area that the company hopes to regain some ground. "Having said that, the managed trade element is just 20 per cent of volume," Pratt says.

Perhaps a more worrying sign is that the market for cider itself has proved to be quite so seasonally sensitive. In an age of extreme weather, is there any guarantee that this year's "unusually poor" summer won't be repeated next year?

"One hopes we won't see another summer like this in our lifetime," Pratt says. "Our normal planning process would factor in an average summer, taking the average for the last 10 years."

Pratt says C&C's Clonmel manufacturing plant, in which it invested €115 million to meet the demand for Magners, is now "very efficient" and able to respond to seasonal changes.

C&C's "geographic R&D" in less weather-sensitive markets like Munich and Barcelona appears to be stalled for the moment. It is not pulling out of those markets, Pratt says, but it can't afford to spend more money advertising Magners there when the British market is at such a tricky point.

The details of C&C's restructuring and cost-cutting programme won't be announced until November, but Pratt says the review will take place "right across the board". Nearly three months after the group's first summer profit warning, investors may wonder why there is still no clarity on the necessary restructuring at the group.

It also remains to be seen if it turns out to be right across the board of management as well. Last year, four C&C executives shared annual bonuses worth €1.16 million, with Pratt himself taking home a €496,000 bonus as part of a €1.4 million package.

C&C's Magners growth strategy is a three to five-year one, says Pratt, and he says he expects to still be chief executive at the end of that period.

C&C itself will remain an independent company, he insists, despite the constant rumours of interest from the likes of Scottish & Newcastle, SABMiller and any other brewer that believes consolidation is the key to survival.

The group denies that it sold its snack food and soft drinks divisions - leaving it with just cider and a much smaller spirits and liqueurs and wine distribution business - in order to shape itself into a more attractive, streamlined purchasing option for the big brewers. "It was not the reason for doing it," says Pratt.

The company's new one-trick pony status has not gone unremarked. Some analysts question whether - if British drinkers need a heatwave and a World Cup to convince them that cider-over-ice should be their tipple of choice - it is a little risky to hitch your fortunes to what could turn out to be a fad.

The sales statistics don't tell that story, according to Pratt. "For us there is a clear growth opportunity for packaged cider," he adds. As far as the long-alcoholic drinks market is concerned, it is now an intrinsic part of the repertoire.

Nevertheless, the wheels appear to have come off C&C's growth strategy as the bottle caps stayed on, and the group's share price illustrates the tale. Starting the year at a heady €13.45, it has gone steadily downhill. It still found room to sink almost 12 per cent on Wednesday, the hangover continuing for a second day yesterday with shares in the company now worth €5.06.

ON THE RECORD

Name:Maurice Pratt

Age: 51

Title: chief executive of C&C since 2002

Family:married to Pauline, they have five sons

Lives:in Dublin

Why is he in the news?:C&C this week delivered results on the first six months of its financial year - a period that saw two profit warnings in the space of just three weeks last July. Profits are down 33 per cent and the company is putting together a restructuring and cost-cutting package.

Something you might expect:the ex-Quinnsworth boss and advertising star is much in demand among Irish corporates.

He is a former president of the business lobby group Ibec and currently the chairman of Bank of Scotland Ireland.

Something you might not expect: the head of this alcoholic drinks group is teetotal.

Hobbies/Interests:An enthusiast for soccer and tennis when he finds the time