ii view: home drinkers aid cider maker C&C Group

Shares of this beverage maker have nearly halved in 2020. Should investors now take a tipple? 

Full-year results to 29 February 2020

• Revenue up 8% to €1.72 billion
• Operating profit up 10% to €116 million
• Previously cancelled the final dividend payment

Interim executive chairman Stewart Gilliland said:

“The Covid-19 pandemic presents a challenge of unprecedented scale and uncertainty for our industry and supply partners. The ongoing closure of the hospitality sector has material implications for our business and earnings potential, with approximately 80% of our revenue derived from the on-trade channel. An emerging trend from this shutdown however has been an immediate shift in consumption dynamics, resulting in increased demand in the off-trade channel. To capitalise on this behavioural shift, we have reallocated resources behind our Take-Home proposition and seek to optimise our business model in this channel.

"We entered this crisis with a robust balance sheet and have further strengthened that position with additional liquidity enhancing actions. The progress of the group in FY2020 further strengthens our belief in the long-term strategy for the business."

ii round-up:

Magners, Bulmers and Tennent’s maker C&C Group (LSE:CCR) today highlighted its refocusing on the off-trade, or shop brought, products as Covid-19 closed pubs and hospitality outlets from late March.

April and May off-trade volumes for Bulmers, Magners and Tennent’s under UK lockdown rose by 62%, 25% and 41% respectively as its pub customers visited stores instead. 

C&C Group shares rose by more than 8% in early UK trading, although remain down by more than 45% year-to-date. Guinness and spirits maker Diageo (LSE:DGE) shares are down just over 10% in 2020, while Britvic (LSE:BVIC) shares have fallen by 17%. 

Unlike Diageo, C&C generates most of its sales in the UK and Ireland. It has manufacturing operations in County Tipperary, Ireland; Glasgow, Scotland; and Vermont in the US. Operating under the Matthew Clark, Bibendum, Tennent’s and C&C Gleeson brands, it supplies over 35,000 pubs, bars, restaurants and hotels across the UK and Ireland and also distributes for other major beverage companies such as AB InBev (EURONEXT:ABI) – owner of the Budweiser brand. 

During the pandemic, around 70% of its staff have been furloughed, salaries cut by an average of 20%, while both capital and marketing spending have both been reduced. The drinks maker has also tapped the Bank of England’s Covid Corporate Financing Facility (CCFF). It currently has cash liquidity of €550 million, with underlying cash burn of €7 million per month while on-trade or pub business is closed.

In late April, and given its use of CCFF and job furloughing, it took the decision to scrap the final dividend payment for the year to the end of February. Given the degree of uncertainty in the outlook, if is offering no financial estimates for the current full financial year.  

For the full-year ended prior to the pandemic lockdown, it achieved a second consecutive year of double-digit earnings per share growth. Group net debt was reduced by nearly a third leaving it with a net debt to adjusted profit ratio of 1.77 times, down from a previous 2.51 times. 

Its AGM is now scheduled for 23 July. 

ii view:

Headquartered in Dublin, other group brands include Heverlee, Menabrea, Five Lamps and Orchard Pig. C&C exports its Magners and Tennent’s brands to over 60 countries worldwide. It also owns a minority investment in the Admiral Taverns tenanted pub group, which owns over 1,000 pubs across England and Wales. 

For investors, factors outside of its control such as the weather and the timing of sporting events can impact performance. Health issues and Irish plans to introduce minimum unit pricing, as in Scotland, also need to be considered. 

The corona crisis has hit the company hard. The scrapping of its dividend is a blow. Plans regarding the reopening of UK pubs, bars and hotels remain vague. For now, and while its premium brands should not be overlooked, given the degree of uncertainty in the outlook, investors may demand greater clarity before adding to any existing investments.  

Positives: 

• Strong brands
• Exclusive distribution of Budweiser and Bud Light in Ireland from 1 July 2020

Negatives:

• Around 80% of its revenue is derived from pubs, bars & hotels etc
• Cancelled its latest dividend payment

The average rating of stock market analysts:

Strong hold