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C&C plan to draw out CEO search may lure bids – but sale now would be a cop-out

C&C chairman Ralph Findlay has taken on a dual-CEO role for up to 18 months

C&C's Bulmers cider brand has gained market share in the Republic. Photograph: Ryan Johnston

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Joe Brennan Markets Correspondent
Sat Jun 15 2024 - 06:00

Shareholders that have stuck with Bulmers owner C&C since it floated 20 years ago have had to be a hard-core bunch indeed.

They learned to deal with disappointment early on, with an explosion in popularity of the group’s Magners pint-bottle cider, rolled out across the UK in the wake of the initial public offering (IPO), quickly petering out. And notions of conquering Europe being put on ice.

Then there was a disastrous foray into the US in 2012 with the purchase of local cider group Vermont for $305 million (€285 million), which came to an end three years ago when C&C accepted $20 million to get rid of the business.

More recently, the company has been hit in quick succession by Covid lockdowns and need for a £151 million (€180 million) share sale; the spectre of inflation; and a botched implementation of a new warehousing software system at its UK wholesale unit, which cost then chief executive David Forde his job 13 months ago.

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Last Friday it was the turn of Forde’s successor, Patrick McMahon, to step down with immediate effect, after the company was forced to restate three years’ worth of accounts resulting in a net charge of €5 million.

The accounting errors – spanning inventory issues in its Clonmel facility to the accounting treatment of glassware – occurred during McMahon’s time as chief financial officer. (He remained in the chief financial officer role for his first eight months as chief executive, before drinks industry veteran Andrew Andrea took on the finance job in March.)

C&C has been fortunate in having a chairman from the drinks industry in Ralph Findlay, former chief executive of UK pubs group Marson’s, who has been able to slip temporarily into the role of chief executive.

But the unusually long 12-18 month period he has given himself to find a new permanent chief executive is something of a headscratcher. The search won’t even begin until the autumn. Inevitably, it has prompted speculation that the board is more than open to bid approaches – most likely from private equity.

It might appear a tidy solution to draw a line under a highly embarrassing episode.

But it would be a myopic cop-out – especially when the business’s underlying performance and outlook is more positive than it has been in some time. It’s also, arguably, a more focused group than at any stage since its IPO, especially after selling its stake in English pubs group Admiral Taverns two years ago.

“The accounting issues, while regrettable, have not resulted in a change to the company’s dividend policy, its balance sheet, or ability to return capital,” said a top-10 shareholder, who declined to be identified. “That has to be very important to any long-term investor and appears to have been lost in the market reaction.”

Shares in C&C have fallen by more than 9 per cent since the announcement.

The company has proposed increasing its final dividend by almost 5 per cent to 3.97 cents and reaffirmed its plan to return €150 million to shareholders over the next three years by way of regular payments and share buy-backs.

“Underneath all these headwinds, we continue to believe that a solid underlying business operation with a clear strategy remains intact and is showing signs of solid operational executioning,” said Laurence Whyatt, an analyst with Barclays in a report issued to clients this week as the dust settled. “But [we] do acknowledge that investors will likely want to see a period of stability and execution before confidence can be fully restored.”

Importantly, the badly managed roll-out of a complex new warehousing software system at C&C’s UK distribution business, Matthew Clark and Bibendum, is largely behind it, albeit after costing the business €35 million last year. The company says services levels at the UK’s largest independent supplier of beers, wines, spirits, ciders and soft drinks to the on-trade sector have returned to levels before it introduced the system.

C&C also saw its Bulmers and Tennent’s beer brands gain market share in the Republic and Scotland, respectively, in its financial year to the end of February, while sales of its premium beer brands – including Menabrea and Heverlee – jumped 27 per cent.

Management also signalled that while trading remains challenging, there are signs of improving UK consumer confidence and spending on what it calls “affordable treats” like visits to pubs and restaurants. Euro 2024, in which both England and Scotland feature, is also bound to give sales a short-term boost over the next month.

C&C has ambitions of growing sales to €2 billion by 2027 (from €1.65 billion last year), with adjusted operating profits topping €100 million (up from €60 million). It expects to generate cash equating to 75 per cent of earnings – which will support ongoing cash returns to shareholders.

“While the wait for a new CEO and the fallout from current accounting issues are likely to weigh on shares in the near term, we do take comfort from positive commentary around current trading trends, as well as strong balance sheet optionality and reiterated capital returns priorities,” said Damian McNeela, an analyst with Deutsche Numis. “But [we] do acknowledge that investors will likely want to see a period of stability and execution before confidence can be fully restored.”

Nothing to add but time? If only. Which makes pressing on more quickly to find a new chief executive essential.

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