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Revenues fell 11% to €273.1m at Magners owner C&C Group (CCR) in the first half as its cider volumes slumped under a new distribution arrangement with brewing giant AB InBev.
C&C outsourced the distribution of its cider brands in Great Britain to AB InBev in December in a bid to drive volume growth in the long-term.
However, volumes declined by 5% in the first six months of the agreement, with Magners down 6%. The fall also squeezed margins in the period to 31 August at the Irish group.
Operating profits across the group were down 8.3% to €50.5m and pre-tax profits fell 9.1% to €46.7m.
C&C was also hit by the loss of own-label volumes and revenues in the UK following the closure of the Shepton Mallet cider mill in 2016.
Total branded cider volumes in Great Britian were flat, including the contribution from fast-growing craft brand Orchard Pig, which C&C acquired in April.
Craft was a bright area for C&C in the half as volumes in the area, including super-premium, jumped 24% across the portfolio. Super-premium and craft portfolio now contributes revenues of €7.8m to group sales.
Tennent’s lager also had a “strong” half, with volumes up marginally and outperforming the total beer market that was down 2%. Net sales revenues for the brand were up 5% in the period.
“During the first six months, we have continued to drive performance in Scotland, invest behind the strength of our core brands in Ireland and evolve our model in GB through our agreement with AB InBev and our planned investment in Admiral Taverns,” CEO Stephen Glancey said.
“Our continuous focus on cost, efficiency initiatives and effective working capital management have also delivered an improved operating margin and strong cash generation.”
Shares in C&C are up 0.8% since markets opened this morning to €2.96.
“Trading patterns over the first half have been rather less predictable than we would normally anticipate,” Glancey added.
“Currency and the revised commercial terms of our AB InBev arrangements have negatively impacted reported revenues and profits in the short-term. However, much of our underlying performance has been resilient.”
He said the first six months of the new distribution arrangement with AB InBev had gone “smoothly” with minimal customer disruption.
“In the longer term, we believe that the route to market capability of AB InBev will provide a strong platform for growth.”
He warned that volatile market conditions remained across the industry, but added the GB businesses had made “a solid start” to the second half of the financial year.
“Looking further ahead we are increasingly confident that our brands, market positions, operational investments and now enhanced route-to-market infrastructure in GB will return the business to growth and deliver enhanced shareholder value over the medium term.”
Morning update
Profits surged at AB InBev (ABI) in the third quarter despite a decline in volumes as the brewing behemoth sold less beer for a higher price.
Total volumes fell 1.2% in the three months to the end of September, primarily the result of the hurricanes that affected the US and the Americas.
However, revenues increased 3.6% to $14.7bn, with revenue per hectolitre growth of 5%.
Combined revenues of the three global brands – Budweiser, Stella and Corona – grew by 1.6% in the quarter.
The sales hike helped earnings leap 17.6% to $4.7bn in the period.
AB InBev reported synergies and cost savings of $336m for the three months following its ‘megabrew’ merger with SAB Miller a year ago. The brewer also upgraded once again the amount it expects the deal to save from $2.8bn to $3.2bn by October 2020.
“Our business continued to deliver solid results this quarter,” a statement said. “Revenue grew by 3.6%, driven by revenue management and premiumisation initiatives enhanced by our three global brands’ performances, especially outside of their home markets.”
It added: “As we enter the final months of the year, we will continue to push ourselves toward a strong finish. We have plenty of opportunities ahead of us, and look forward with excitement to further building on our dream of bringing people together for a better world.”
Yesterday in the City
Shares in soft drinks bottler Refresco (RFRG) jumped 2.6% to €19.80 after it was announced it had accepted a €1.6bn (£1.4bn) offer from French private equity firm PAI Partners with Canadian institutional investor British Columbia Investment Management Corporation. The consortium will pay €20 a share for the Dutch listed group.
Heineken (HEIA) fell 3.4% to €82.10 despite the brewer revealing a 2.5% organic rise in beer sales in the third quarter, with growth in Asia Pacific, Americas and Africa, Middle East and Eastern Europe. However, sales declined in Western Europe.
British American Tobacco (BAT) increased 0.4% to 4,843p after its capital markets day during which it outlined its strategy and objectives for growth, including generating NGP (next generation products) revenue of over £500m this year, and for this to double in 2018 to over £1bn, rising to more than £5bn in 2022.
Ocado (OCDO), Dairy Crest (DCG), Booker (BOK), Associated British Foods (ABF) and Diageo (DGE) all fell yesterday, down 2% to 286.8p, 1.6% to 602p, 1.1% to 204.1p, 1.1% to 3,326p and 1% to 2,539.5p respectively.
The FTSE 100 fell 1.1% yesterday to 7,447.21 points after the pound jumped against the dollar and euro as stronger-than-expected GDP figures lifted interest rate hike hopes.
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