C&C posts 66% rise in operating profits

The summer heatwave helped drinks group C&C to a 66 per cent increase in operating profits in the first half of its financial year, as pub drinkers in Britain knocked back its Magners cider brand and helped boost operating profits to €113.5 million.

It was harvest time yesterday for the company's shareholders as it increased its interim dividend by 85 per cent, giving an interim dividend of 12 cent per share. Operating margins at C&C increased by five percentage points year-on-year to 21.3 per cent, which was ahead of expectations, while the adjusted earnings per share (eps) increased 77 per cent to 28.7 cent.

Cider sales increased 85 per cent, with rapid growth in the UK market helping to double the cider division's profits to €90 million. Over the six months to the end of August, C&C successfully extended the distribution of Magners in the UK, backed by a €30 million investment in the marketing of the brand. Magners is now stocked by 59 per cent of UK pubs, compared to 22 per cent in February.

C&C chief executive Maurice Pratt said the group's performance in both the British and Irish markets had been helped by favourable weather. As part of a 53 per cent increase in marketing spend, the group's "put everything on ice" advertisement campaign for Magners sought to promote cider as a drink to be poured from bottles into ice-filled pint glasses on a summer's day rather than a cheap beverage to be swigged from cans in parks.

Davy Stockbrokers yesterday increased its full-year eps forecast from 49.5 cent to 55 cent as a result of the momentum behind Magners. C&C said the performance of the cider brand should lead to an acceleration in the rate of overall group operating profit growth for the second half of the 2006-07 year.

On-trade distribution of Magners has increased from 44 per cent to 62 per cent in London and from 70 per cent to 75 per cent in Scotland over the six months. In Northern Ireland, distribution increased by six points to 93 per cent over the period, which Mr Pratt said showed there was still opportunity for further growth in the cider division.

In the Republic, the Bulmers cider brand outperformed the Irish market for long alcoholic drinks (LAD), and Bulmers now has a 10.2 per cent share of the Irish LAD market. In C&C's international spirits and liqueurs division, the Tullamore Dew whiskey brand was the main driver for growth over the six months, achieving 25 per cent growth in volumes.

Mr Pratt said a recovery in the cream liqueur market in the US was helping its Carolans brand, which had been a concern. He added that the division was a part of the business where C&C was keen to make acquisitions.

In the soft drinks and snacks division, a fall in sales of carbonated soft drinks was offset by strong growth in bottled water.

"The outlook for soft drinks remains very, very challenging, so for us the focus is all about reducing our cost base," Mr Pratt said. Over the period, C&C sold snacks subsidiary Tayto Crisps for €62.3 million. Proceeds arising from the disposal will be used to reduce the company's debt. C&C's share price fell 2.5 per cent on the Iseq yesterday, closing at €11.15.