Sunday 19 August 2018

Bitter apples for C&C as challenging market sours outlook

The Bulmers maker faces challenges from Brexit and intense competition, with the shares trading at levels last seen in 2011

A carpet of fallen apples at the Bulmers factory orchard in Clonmel — Storm Ophelia blew the apples off the trees and flooding from Storm Brian swept them into a corner of the field. Picture by Jonathan Ryan
A carpet of fallen apples at the Bulmers factory orchard in Clonmel — Storm Ophelia blew the apples off the trees and flooding from Storm Brian swept them into a corner of the field. Picture by Jonathan Ryan
Gavin McLoughlin

Gavin McLoughlin

The author PG Wodehouse famously wrote that it was never difficult to distinguish between a Scotsman with a grievance and a ray of sunshine.

C&C chief executive Stephen Glancey is a Scotsman for whom rays of sunshine lessen the likelihood of grievances.

C&C is traditionally buoyed by a warm summer, when cider becomes a drink of choice for many. Conversely, bad weather of the kind Ireland has been experiencing makes life more difficult.

The Association of Irish Apple Growers tweeted a startling picture of an orchard during the week. Storm Ophelia had blown the apples off the trees and flooding from Storm Brian had swept them into a corner of the field.

It's resulted in an apple glut that's having an impact on operations at Bulmers maker C&C.

"We're getting our apples all at once. There's a bit of pressure in the system in terms of getting them through," Glancey told the Sunday Independent.

The company brings apples to its plant at Clonmel and crushes them, with the juice being taken away and put in a tank to ferment. As a rule it tends to stage the arrivals at intervals but at the moment staff at Clonmel have to work very hard to get through this windfall.

It's not ideal for C&C but a much bigger storm has come in the form of Orchard Thieves.

Heineken, owner of this new challenger, has been pushing the product hard and that's contributed to C&C losing tap space in Irish pubs.

The company's half-year results revealed that Bulmers had underperformed in the Irish cider market - which itself was down overall. Bulmers volumes declined by 5pc, compared to the wider Irish cider market that declined 1pc.

"The big impact has been on draught cider where we've lost a lot of taps on bars to the competition. So that's been the drag," Glancey said. Asked what the strategy for winning the space back was, he was brutally candid.

"In all honesty, it's very difficult to have one because we're a small Irish company with a 9pc share. When you're taken off the bar by a big competitor it's quite difficult to buy yourself back on to the bar because you're competing against Heineken who have got a range, and we've got a single brand."

These comments sum up the difficulty facing C&C as it seeks to generate some positive momentum. The company has been investing in brand marketing and has launched a cider targeted at young drinkers called Outcider which has performed quite well in the off trade. But ultimately, as Glancey himself says, the company faces a structural issue in the market which it has been unable to change.

The fall in sterling after the Brexit vote has hit its bottom line (the company reports in euro), while intense competition has also posed challenges in Britain and Ireland.

In the US its performance has been an unmitigated disaster, with more than €200m written off the value of its US assets since the €235m purchase of the Vermont Hard Cider company - owner of the Woodchuck craft cider brand - five years ago.

With it's core cider products being squeezed, the share price has also been under pressure and is down 21pc this year.

In response, C&C has been seeking new avenues for growth, which led to its acquisition of a 47pc stake in Admiral Taverns.

Admiral's model is well-used in the UK but non-existent in Ireland. Individual entrepreneurs rent pubs from Admiral, which assists them in buying stock.

For C&C, the deal gets it into English pubs. "The investment will provide our brands with improved distribution in some of the best community pubs across the UK, with an opportunity to enhance on-trade penetration further over time," Glancey said when the deal was announced.

The company tried something similar but on a far larger scale some years ago when it unsuccessfully tried to hijack Greene King's move for the Spirit group of pubs.

The £37m (€41.6m) C&C will pay is a tiny fraction of the near €1bn it offered for Spirit - and Glancey doesn't see a necessity for further support from C&C.

"We like the business (Admiral). It has funding in place for it to grow. We've got equity and there's bank funding so it's capable of growing on its own without any further investment from us over the next two or three years," Glancey said.

C&C has also put in place a new distribution deal with the world's largest brewer AB InBev for the UK and Ireland.

It hopes this will provide greater market access, though in the short term this has had a negative impact on revenues as AB InBev took back the rights to some of its brands which C&C had been selling.

A brighter spot for the company has been the performance of its Tennent's lager in Scotland, which has outperformed the market in volume terms - growing marginally where others have been falling.

Cathal Kenny and Roland French, analysts from Davy (one of C&C's house brokers), who have an "outperform" rating on the stock, said the results were characterised by "good margin and free-cash delivery in a challenging long alcoholic drink segment".

However, it looks like the sector is going to remain challenging for a while.

Goodbody has a 'sell' rating on the stock - which is trading at levels last seen in 2011.

"Overall, we retain our cautious stance on the stock which is predicated on continued market share losses in the higher margin on-trade in Ireland; and the likely impact of falling consumer confidence and disposable income in the UK," Goodbody analyst Patrick Higgins said in a note circulated during the week.

Glancey joined the company in 2008 when a team of executives who helped sell brewer Scottish & Newcastle to Heineken and Carlsberg were brought in to replace well-known Irish executive Maurice Pratt - the former face of Quinnsworth supermarkets.

He was chief operations officer behind chief executive John Dunsmore, and ascended to the top job at the beginning of 2012, the year of the disastrous Vermont acquisition.

When Glancey and his team joined the company, there was a widespread expectation that the then vibrant brand would be snapped up by a larger industry player. Instead, those would-be suitors are beating C&C at its own game.

Meanwhile, cost cuts are being made at C&C to cope with falling revenues with the company's plant in Borrisoleigh a high-profile recent casualty.

More cuts will follow. Interim chief financial officer Jonathan Solesbury said the company is "constantly looking for new opportunities" to chip away at costs.

There is a sense that the firm is now in a state of managed decline - with little to indicate what might get juices flowing once again at C&C.

Sunday Indo Business

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