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C and C hit by Summer that never was

Tuesday, October 23 10:38:45

Ireland's C and C is to buy U.S. cider firm Vermont Hard Cider for $305 million to tap into a fast-growing market and offset weakness in its core Irish and UK business, where sales of its flagship Bulmers/Magners brand slumped during a wet summer.

Sales of Magners in the United States leapt 16 percent in the six months to August, compared with a 17 percent fall in the United Kingdom, where the brand faces growing competition.

The acquisition of Vermont, which produces Woodchuck, the largest domestic cider brand in the United States, is due to be completed by February, subject to regulatory approval.

"This is a deal ... about capitalising on the growth that is coming through in the U.S. market and that will be the focus of the business and the portfolio going forward," chief financial officer Kenny Neison told journalists.

The U.S. cider market has been growing at close to 60 percent per year, with much of the growth coming from domestic brands rather than imported brands like Magners.

C and C, which also sells Tennants lager and cider under the Bulmers and Gaymers brands, said on Tuesday operating profit for the year to February 2013 would be at the lower end of its previously stated guidance of 112 million to 118 million euros.

The business was dragged down by poor summer sales in Ireland and the UK, but Neison said there were no signs that cider would suddenly stop outperforming growth in lager.

"The summer just hasn't happened in terms of barbecues, parties, etc," said Neison. "But it's no more than that ... there are no long term messages to be read into the cider category."

Growth in the UK cider market was around 3-4 percent last year and there is no reason to think it won't return to that level, Neison said.

"The acquisition of Vermont is a strong move by C and C to capture the leading position in the fledgling U.S. cider market at a time when most of the large brewers are positioning themselves to participate in the sector," said Goodbody analyst Liam Igoe.

"The acquisition, assuming it will get formal approval from the anti-trust authorities, will likely overshadow the negative news within the interim results themselves."

Operating profit for the six months ended August was 65.6 million euros, 2.7 percent lower than the same period last year. The average forecast of four analysts polled by Reuters was 65 million euros. Group revenues fell 2 percent year-on-year to 263 million euros.

C and C said the Vermont business expected to generate $15 million in earnings before interest, tax, depreciation and amortisation (EBITDA) in the 12 months to end-2012.