C&C warns of lower first half profits

Wet weather and aggressive price competition from rival cider producers has prompted C&C Group to warn investors its first half operating profits will be below last year's.

Addressing shareholders at its AGM last week, the manufacturer of Magners cider said these factors meant it was reducing its sales volume expectations for its UK operations.

C&C said that underlying cider volume growth in the three months to May 31 2007 was "broadly in line with the group's full year guidance re the UK".

Total branded cider sales volumes rose 38 per cent on last year, with Magners up 89 per cent in the UK and Bulmer's up two per cent in Ireland. The same period last year saw Magners being rolled out across England and Wales after a successful launch in London.

However, operating margins were three percentage points down compared with the same period last year, thanks to "increased marketing expenditure and warehousing costs, together with a decline in gross margin due to a combination of increased raw material costs and higher fixed manufacturing costs associated with cider capacity expansion".

It said that the "current high level of marketing investment and other fixed costs result in financial performance being particularly sensitive to variations in sales volumes.

"While these costs will ultimately be absorbed as cider volumes grow, lower sales volume expectations are likely to result in full year operating profit for 2007/08 approximately matching last year."

However it warned that the "weighting of marketing investment to the first half year, the phasing of costs associated with capacity expansion and the impact of the February sell-in are expected to result in a decline in operating profit in the half year ending August 2007 compared with the same period last year".