C&C Group, the drinks firm behind Magners and Tennents, has reported a 2.2% decline in EBITDA to Eu81m (£63.9m) for the six months to 31 August 2014 and reiterated the reasoning behind its approach for Spirit Pub Company.
The company, which gave no update on whether it is set to return with an improved offer for Spirit, said revenue for the half year climbed 9.3% to Eu368.1m, while operating profit fell 2.7% to Eu69.2m.
It said that the “outcome represents a solid performance given tough prior year comparisons in Ireland, the early stage in our US marketing investment programme, and, an intensively competitive trading environment in England & Wales”. Magners declined 10.3% in volume and 17.4% in net revenue in the period.
Chief executive Stephen Glancey said: “The cider category in England & Wales remains highly competitive. While earnings in this area represent a small component of our operating profit, we remain committed to ensuring both a profitable and sustainable presence for our brands.”
In terms of Spirit, the company said that its route-to-market capability in Ireland & Scotland is not matched in England and Wales and the concept of vertical integration in the sector is well established.
It said: “Against this backdrop the group are of the view that our commercial interests could be materially enhanced through direct participation in the management of high quality retail assets. Such models are well established in the UK and over time the combination of cash flow from branded alcohol together with excellent retail outlets have provided sustainable returns for shareholders.
“Such a combination would provide the group with the enhanced position in an important consumer market while offering a range of commercial options across all our domestic markets.”
“Heightened competition in the category has reduced the economic contribution from our cider portfolio in England & Wales but the market remains strategically important for the group. A strategic review of our operating model is underway with a view to improving contribution and strengthening the brand position in FY2016. The preliminary approach to Spirit has to be seen in this context.”
Glancy said: “We know the assets from a long time ago because they used to be under S&N and I did due diligence on these assets in the 90s. Part of the attraction is that they have a very well managed estate because they have a great group of managers. The thinking is that with this you would get excellent management.”
In England & Wales operating profit for the six month period to 31 August 2014 was down 36.8% on the prior period. Operating margin reduced by 3.9ppts. The company said that the volume decline within a relatively fixed cost structure, coupled with price deflation and adverse product mix had a negative impact on margin.
During the period, beer volumes in Scotland increased by 2%. The on-trade was flat while the off-trade increased by 3%.
The company said: “While Magners share decline slowed relative to last year, this was at the expense of price. In the off-trade, mainstream grocers are under huge pressure as they strive to compete with discounters, leading to price deflation and rationalisation. Over supply in the category is also having a negative impact on pricing. In the on-trade, our route to market is weakened as a consequence of new entrants into the category. The group expects a volatile market for the medium term.”
It said that its performance in the US has been disappointing and that its Woodchuck brandwas impacted by new market entrants. However, it said that it had a high quality and stable distributor network in place, a new state of the art cidery, new packaging and a new marketing plan, which will support Woodchuck in the second half.
The group reported that results for its Shepton Mallet Cider Mill (“SMCM”) portfolio were mixed in the period. It said: “There were positive underlying trends across the portfolio, particularly in the on-trade. However, a poor performance in K cider offset these gains in the period.”
It said: “Heightened competition in the category has reduced the economic contribution from our cider portfolio in England & Wales but the market remains strategically important for the group. A strategic review of our operating model is underway with a view to improving contribution and strengthening the brand position in FY2016.”
