Trading in cider leaves sour taste

Investors in C&C must have been tempted to hit the bottle on Tuesday after the cider maker issued its second profit warning in three weeks.

Their hangover will have been compounded by the realisation that C&C has spent €115 million since June 18th buying back its own shares at prices almost double what the stock is worth now.

C&C is spending €300 million on a share buyback scheme as a way to use up its surplus cash and boost its ratings with analysts.

The buyback kicked off on June 18th with 300,000 shares bought at €11.92 each. The shares are now worth an anaemic €6.40 apiece.

The first profit warning came on July 13th, with the company warning that profits for the six months to the end of August would only tread water. The bad weather throughout Britain was blamed for affecting sales of their Magners brand.

The second one landed on Tuesday when C&C said its profits would actually be 35 per cent behind last year's outcome. The share price collapsed by 27 per cent to close at €6 in Dublin.

Just 24 hours earlier, when chief executive Maurice Pratt must have been poring over final drafts of Tuesday's trading update, C&C was in the market buying 600,000 shares at €7.958 each. Happy days for those who cashed in their chips.

C&C is now battening down the hatches to trim its cost base. Up to 70 staff are being laid off in Clonmel. Other costs are also being looked at, although it's not clear if this will include bonus payments to the four executive directors, who earned a handsome €1.16 million from this source in 2006.

The share buying has been put on ice for the time being, but will resume shortly, we're told.

Pratt and his fellow directors can't be blamed for the poor weather. Shareholders might question, however, why management was merrily buying shares at hefty prices when they must have known that sales of Magners were under pressure.

They might also ask why Pratt didn't use the €300 million to pay a special, one-off dividend, a move that would have benefited every shareholder and provided a small measure of compensation for the recent share price collapse.