Manufacturing & Supply Chain

C&C shareholders are pushing for a strategic overhaul of the company following a sequence of earnings downgrades, a profit warning and a massive writedown in the value of its US business.
The company behind the Bulmers and Magners cider brands has been under pressure to hold its market share in Ireland and Britain in the face of increased competition from new entrants and the growth in craft beer.
US activist investor Orange Capital, which holds a 4.9 per cent stake in the company, has now openly challenged management over the performance, claiming its share price is under-performing sector rivals.

There are reports other large shareholders have also contacted management to express their disquiet at the strategy.

In a presentation to management, seen by The Irish Times, the New York-based hedge fund demanded a root-and-branch review of C&C’s growth strategy and the immediate disposal of its under-performing US arm.

C&C acquired Vermont Hard Cider Company in the US for €235 million in 2012, a move which saw its share price shoot up to €5.20.

However, distribution problems and competition from rival US brewers have eaten into its market share and dented prospects for the business.

In May, C&C wrote down the value of its North American arm by €150 million, while its shares are now trading at €3.66.

Strategic alternatives

Orange Capital, which is managed by ex-Citi trader Daniel Lewis, also called on the company to take on more debt to fund a share-buyback scheme and consider a review of its “strategic alternatives”, including a sale of the entire company.

The fund claimed its failed move for the UK’s Spirit Pub Company had “led to an overhang on share price due to uncertainty regarding future capital allocation and subpar investment returns”.

C&C said in a statement: “We have an ongoing dialogue with all of our major shareholders and the issues they raise are closely considered by the board. With Orange Capital we agree in some areas but our responsibility is to run the business in the long term interests of all shareholders.”

Acquisition

C&C recently held talks with Carlsberg about a possible acquisition of the Danish brewer’s UK business. However, the talks ended without agreement near the end of August.

Goodbody analyst Liam Igoe said about 85 per cent of C&C’s profits are generated in its core markets of Ireland and Scotland. He said Irish sales are expected to fall by 5 per cent due to poor summer weather and increased competition from Heineken’s new Orchard Thieves brand.

Scotland’s tougher drink- driving laws are also expected to negatively impact sales there by about 3 per cent, reducing overall earnings by 4 per cent in 2016.

The US cider business remains under competitive pressure with sales falling by up to 20 per cent in the four weeks to September 27th. However, the impact on C&C profits remains limited since US sales account for only 7 per cent of the group.