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News of declining volumes signals a tough year for the cider company

by John Marshall

The latest trading update from cider manufacturer and distributor C&C Group (CCR) has confirmed the company is finding life very much tougher in 2008 compared with recent years, and its shares should be avoided.

Volume in the first half was down by 15%. Although this partly reflects the problems of the pub trade and the poor summer, it also underlines the fact competition is now much stronger. Magners cider – a brand carried by C&C – was briefly top of the pops two years ago as warm weather and its unique selling proposition combined to give C&C’s sales a massive boost.

Bulmer’s cider – which C&C owns in Ireland – was always a strong brand, and its quick reaction to Magner’s initial success ensured the feat was not replicated last year or this summer.

Changes in the UK drinks market are unlikely to help the group. The combination of a decline in pubs and growth in the off-trade will put pressure on margins. While these improved in the first half of this year, this merely reflects easy comparatives.

Last summer, margins suffered from the fact the group expanded its cost base as it expected sales to grow. In the event, they failed to do so and margins suffered. It beggars belief margins will continue to improve in the second half. Falling sales are a recipe for lower margins. Certainly, UBS regards the margin improvement in the first half as ‘not sustainable’.

C&C has test-marketed Magners in both Munich and Barcelona. Analysts were always sceptical about the potential of these new markets as cider consumption is low in both countries.

Shares says: The sales downturn underlines the danger of investing in a one-product company, which is vulnerable to competition from a well-established rival. Avoid