C&C struggles to cope with cider demand
Shares in drinks maker C&C Group sank more than 10% today after the company warned it was facing higher costs as it struggles to cope with soaring UK demand for its flagship Magners cider.
The Irish group announced lower-than-expected profit growth figures due to increased spending as it ramps up production to quench UK drinkers’ thirst for cider with ice.
Sales of Magners soared 264% in the last year as the drink’s popularity was boosted by a high profile advertising campaign and hot summer weather.
However, C&C said UK sales had been held back in the second half of the year due to insufficient manufacturing capacity at critical periods.
Magners was launched across the UK a year ago and the roll out was accompanied by a €30m advertising campaign targeted at young professionals.
The company also warned that it would increase spending on marketing “significantly” as it attempts to capitalise on the boom in cider drinking in the UK and Ireland.
C&C said as a result of the increased spending it was expecting operating profit growth of between 15% to 25% for 2007/2008 – lower than City forecasts.
The announcement came as C&C said it was set to report a 25% increase in turnover for the year to February 28, 2007, from €817m achieved in 2006.
C&C, which also produces whiskey brand Tullamore Dew and sells cider under the Bulmers brand in Ireland, added that it expected to achieve a 6% hike in full-year profit margins.
Maurice Pratt, C&C chief executive, said: “Magners in Great Britain has delivered tremendous results for C&C in 2006/07. Our primary focus in 2007/08 will be to enhance our market position in Great Britain.”
He added that the company was also planning to carry out market testing of Magners in two other unnamed European markets.
Annual sales at the company’s cider division are set to rise by 80% while shipment volumes in C&C’s Spirits & Liqueurs division are expected grow 11%.
Melissa Earlam, analyst at UBS Investment Research, said the profit growth for 2008 would lead to operating profits of between €240m and €260m – below forecasts of €284m.
However she added: “Nothing in the statement detracts from the Magners brand.”
The growing popularity of Magners has contrasted with declining sales of traditional pint Guinness, particularly in Irish and UK markets.
C&C employs around 2,000 staff and has its main manufacturing and distributions sites in Cork, Dublin, Clonmel and Newcastle in Co Limerick. C&C shares dropped €1.05 to €10.55.
