C&C, the drinks group, today said in a trading statement for the year ended Feb 28, 2009, that revenue from continuing operations, is expected to decline by approximately 13% versus FY 2007/08, and the group's overall Operating Margin is expected to decline by around 3.5 percentage points. C&C said forecasting consumer behaviour in the current trading environment is very difficult. Market conditions in both Ireland and GB are, if anything, "getting worse and increased price sensitivity by consumers plainly presents risk to our premium brand portfolio."

C&C said over the last year the rapid economic deterioration and the resulting impact on consumer confidence have been challenging. In addition, the poor summer weather of 2008 militated against recruiting cider drinkers, and, a substantial strengthening of the Euro against Sterling reduced our cost competitiveness in the critical UK market.

"Trading in our key markets of Ireland and the UK has therefore been difficult with each experiencing downward pressure on pricing and volumes, as well as the impact of the accelerated trend from the On-Trade market to the Off-Trade. For C&C these trends were exacerbated by a loss of share in both Ireland and the UK," the group said.

 Last week, C&C cut 120 jobs at its Bulmers operations in Ireland.

C&C said today, it intends to write-down the value of its Clonmel manufacturing plant in Co Tipperary by €130 million and streamline its executive structure. It said it intends to take a once-off reorganisation charge of €12 million, while cost savings are estimated to reach €5m in 2009/2010.

C&C also said that its stock holding of apple juice was excessive in light of what it will need in the future. The intended disposal of this surplus stock will result in a write-down of approximately €11 million.

C&C said the negative impact of recent currency rate exchange movements is likely to be about €16 million.

John Dunsmore, Group CEO commented: "In the course of the next twelve months, we expect to make major progress on cost competitiveness and move to make the business leaner and faster to react to market-led changes. The key task is to create a sustainable and secure platform for our Cider business in Ireland and the UK. This will ensure that we build a strong foundation for growth in future years.'

Trading statement

Goodbody analyst Liam Igoe commented today: "In what has been a much anticipated trading statement, C&C announced this morning that it expected to report an operating profit of €90m (in-line €90m) for FY09. The statement highlights the much publicised trend of sales migration from the on-trade towards the off-trade. This, coupled with a loss of market share in the UK market will see Group revenue (constant currency) decline by c.13%, and the operating margin contract by 3.5 percentage points (compared to 2.3 in our model). Cider sales are expected to be down 17% yoy (in-line with our forecasts), composed of a 14% decline in Bulmers (against the backdrop of 6% decline in Irish LAD), a 23% decline in Magners in GB and a 16% increase in Magners International. In relation to the Spirits business, operating profit is expected to be flat yoy. The pre-announced restructuring action taken in Clonmel will result in an exceptional charge of €12m in FY09, however, the cost savings from this exercise are expected to generate €5m in FY10.

Management described the high level of juice stock as excessive and hence has decided to dispose of such stock, resulting in a write down of €11m. The production facility in Clonmel has been written down, following an independent re-valuation, by €130m resulting in a €8m reduction in the depreciation charge going forward. Following concern that the dividend would be cut, the company plans the pay a final dividend of 3c (9c for FY) and has stated its intention to pay an annual dividend of 6c in the future. In terms of outlook, management is guiding that for FY10, it expects to generate an operating profit €5m below (i.e €77m) the underlying operating profit of €82m (€90m minus €15 hedging gain and plus the €8m depreciation saving) expected in FY09.

We are currently forecasting an operating profit for FY10 of €60m (22% below management guidance). However, it is unlikely we will be making any material adjustments to our forecasts, given the high level of operational gearing in the model and the deteriorating economic situation in Ireland."