TENNENT’S Lager owner C&C Group said it is well on the road to recovery following a botched IT upgrade in its UK wine wholesaling business earlier this year as it unveiled net revenue of €872.5 million for the six months to August 31 – down 1.2% on the same period last year – although operating conditions remain challenging.

As previously indicated, operating profit of €30.5m was down €22.8m, principally driven by a one-off €22m impact of the complex enterprise resource planning (ERP) system upgrade in its Matthew Clark and Bibendum (MCB) businesses in Great Britain. It booked an operating profit of €54.9m for the first half of last year.

Thousands of bars, restaurants and hotels across the UK which depend on Matthew Clark and Bibendum for supplies of wine and spirits saw service levels deteriorate amid the software chaos in the spring. However, the Dublin-based group, which owns brands including Magners and Bulmers Irish ciders, Heverlee, Caledonia Best and Addlestones cider, said service levels had now been now restored to pre-ERP implementation levels.

Tennent's owner highlights progress following €25m IT snag

While the botched IT upgrade had a direct impact on the GB distribution business, with net revenue down 4.4% compared to the previous period and operating profit down €24.2m, the distributor and producer pointed to a strong performance in its branded business which was up 4.6% to €25.2m.

Branded margins were solid at 14.5%, it added, as pricing actions offset most of the inflationary impacts on the group’s cost base. Net sales revenue in the branded business was up 6.6% for the six months ended August 31, with operating profit up 3.9% to €10.7m, delivering an operating margin of 9.6%.

London-listed C&C Group noted that a “robust performance” in Scotland and Ireland from Tennent’s and Magners delivered revenue growth of 9.1%, maintaining “clear market-leading positions” for the brands.

It also revealed that it wrote off a balance of €0.5m associated with the deposit return scheme in Scotland, following the announcement by the Scottish Government in June that the scheme would be delayed until at least October 2025.

Patrick McMahon, C&C Group chief executive Officer, said: “Set against a difficult market backdrop we are pleased with the strength of the performance of our branded businesses in Ireland and Scotland in the period. We have made significant progress in restoring customer service levels following the ERP system implementation issues in our GB distribution business within our planned timeframe.”

Noting that “delivering outstanding service, winning customers, continued business simplification and improved operating efficiency” remain top priorities for the second half, Mr McMahon, who replaced former chief executive David Forde and was previously the firm’s financial officer, confirmed that it was the group’s intention to “distribute up to €150m to shareholders over the next three fiscal years through dividends and capital returns”.

C&C Group parted company with Mr Forde in May after he told the board he wished to step down “having navigated C&C through the challenges of the Covid-19 pandemic” – although C&C did not say that his departure was linked to the software issues. It noted that the search for a new CFO is at an “advanced stage”.

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The company will be relieved that its fortunes are taking an upward trajectory after seeing its share price fall sharply in January after issuing a profit warning as it revised down its earnings expectations for the full year 2023, highlighted continuing cost of living pressures and the impact of rail strikes on footfall in urban areas during the crucial festive period last year.

At that time, shares fell by 9% as C&C cited data compiled by hospitality analyst CGA UK, which measured booking cancellations across the sector at around 30% over the festive period, and “walk-ins” down 28% on 2019.

Greg Johnson, a research analyst at Shore Capital, said: “This results statement highlights that service levels have recovered and although cost pressures persist, these are expected to ease during FY25F. We keep our FY24F operating profit estimate of circa €60m, which would be broadly flat adjusted for the additional ERP with a marked rebound in profitability expected next year.”