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The City

Published:  18 January, 2007

There has been much speculation about the impact of the forthcoming smoking ban in UK pubs.

Prophecies range from Armageddon to no change. But if the trade in Britain follows a similar path to that in the Irish Republic, which banned smoking in pubs a year ago, suppliers will have to face up to change.

C&C Group (formerly known as Cantrell and Cochrane Group) recently published its first results since floating on the stock market in May 2004. Operating profit for the year to 28 February, before goodwill and exceptional items, fell from €119.9 million to €115.1 million. Pre-tax profit more than halved from €125.5 million in the same period in 2003/04 to just €54.4 million. The company formally stated that its performance had been hit by the strength of the euro, which reduced dollar-denominated earnings by €6.7 million, and, yes, by the impact of the Irish smoking ban.

C&C said that the ban on smoking in pubs and restaurants cut its on-trade sales of cider and other long drinks by 7%, yet the group as a whole enjoyed a 7.3% advance in alcohol sales during the year as well as a 9.8% increase in cider sales in all markets. In fact, C&C is staking much on the growth of Magners Cider, which it is rolling out in London and the South-East. The brand (which is sold as Bulmers in Ireland) is positioned at the premium end of the market, competing with high-priced lagers, and is enjoying notable success. In five years it has grown to take 5.4% of the on-trade long-drinks sector in Northern Ireland, while after just a year it has grabbed 1% of the Scottish market. Brokers estimate that if Magners were to capture 2% of the market in England and Wales, it would add €45 million to C&C's operating profit, which would radically improve C&C's profile with investors.

That would be welcome, as C&C is being tagged as an unlucky company by some commentators - for instance, the initial float date was postponed because of difficult market conditions and then, as soon as the company went public, the Irish smoking ban was introduced.

Now it might find another problem hanging over it: the potential need to find a new international distributor for 70% of its spirits and liqueurs portfolio. At present it goes through Allied Domecq's network, so if Pernod Ricard's takeover bid for Allied succeeds, then C&C will suffer what it calls a short-term disruptive impact', because it is unlikely that the French group would wish to handle directly competing brands. That will not be resolved for some weeks, possibly months, but brokers have discounted the potential problem in their forecasts of full-year earnings of €115 million this year.