C&C sees Brexit silver lining even as sterling weakness hits profits

Drinks maker C&C, which generates almost half its profits in the UK, has found silver linings in Brexit. Sterling’s weakness has lowered the cost of takeover targets and the group may win new brewing contracts.

"With the exchange rate the way it is, everything in the UK has become a lot cheaper all of a sudden," Stephen Glancey, C&C's chief executive said after the company's agm in Dublin yesterday. "It does offer the option of buying stuff there, but pricing has to be right and it has to be sustainable."

In addition, the group behind the Tennents beer facility in Glasgow, which also brews for supermarkets’ private labels and brands such as Stella and San Miguel, has received “a number” of approaches in the last few weeks from parties looking to contract work out to C&C.

‘Huge currency move’ Some companies that have been importing beer into the UK are likely to look at having beer manufactured in the country if the “huge currency move [post-Brexit] stays like that for a long time,” he said. “We’d try to pick up some of that work.”

However, C&C warned in a trading update before the agm that a plunge by the pound against the euro since the UK referendum to quit the EU, if sustained, has “the potential to undo the earnings benefit from both cost-reduction activity and the steady progress made in trading.” Sterling has fallen by as much as 12 per cent since the vote, to as low as €1.159.

Still, shares in the C&C, which have been heavily beaten since Brexit, surged as much as 5.5 per cent on Wednesday as investors focused on the company’s generally positive trading update.

Volumes of Bulmers and Magners cider brands increased 9 per cent and 24 per cent, respectively, in the first quarter, benefitting from decent weather and the Euros.

"These headline numbers, though reported as shipments [out of factory] rather than sales, are higher than our full-year expectations," said Liam Igoe, an analyst with Goodbody Stockbrokers.

Earnings However, he said that if foreign exchange remain as they are, C&C’s full year earnings before interest, tax and amortisation would likely come to €102.2 million, down from the analyst’s current €106.5 million forecast and the group’s €103.2 million profit last year.

Meanwhile, Mr Neison said Orange Capital, an activist shareholder that emerged on the company's shareholder register last year with an almost 5 per cent stake made about 10 per cent on its holding before the US fund was wound up this year.

Orange Capital had called on C&C to raise more debt to fund further share buybacks and row back on international expansion by exiting the US and downsizing further in the UK.

In the past two financial years the company has bought back almost €130 million of shares, though C&C has said that the recent buying was not down to pressure from Orange.