From bad to worse for Bulmer

Shares in Britain's biggest cider maker HP Bulmer hit their lowest level for a decade yesterday after the company announced that it had discovered "previously unidentified promotional costs"​ of around £3.3 million (€5.25m).

The company, which produces Strongbow, Scrumpy Jack and Woodpecker ciders, has been ailing for some time now, and has already issued a number of profit warnings. The latest revelation of previously undiscovered costs has simply led to a further deterioration in the City's confidence in the company, already at a very low level.

The company said that the effect of the additional costs would mean either a restatement of its profits for the year to April 2002 or an exceptional charge included in the current financial year's results. The company has already seen a sharp decline in its share price as a result of lower profits for the 2001/2002 fiscal year (down £7 million to £21.1 million).

Although the full details of the additional costs will not be known for a few weeks, the company said that they had been uncovered as a result of a change in the management team for the UK take-home business, according to the Financial Times​ newspaper. That division - which sells to the UK supermarket and cash & carry sector - accounts for around half the company's business in its home market.

As if this were not bad enough, the company has also announced that trading since the end of the financial year in April has been poor, with the age-old problem of poor summer weather in the UK the main culprit. The situation was not much better in the rest of Europe, with poor weather and lower tourist numbers blamed for a disappointing June and July.

Bulmers business has been affected at every turn. The UK market for cider has been in terminal decline for many years, and even Strongbow's market leading position has not been enough to protect it. Bulmer has tried to offset that by pushing its business into international markets, but these efforts too have been thwarted by external factors.

Both the US and China were seen as potential growth markets for cider, but the American business has, ironically, been impacted by one of the same reasons for the decline in the UK market - the launch of ready-to-drink premixed drinks such as Smirnoff Ice- while China continues to be a difficult place for western companies to do business.

Cider simply is not a global product, with tastes in those few countries where cider is a traditional drink differing greatly. This makes it virtually impossible for companies such as Bulmer to achieve any economies of scale, as there is little or no market for international cider brands alongside local drinks. In markets such as Scandinavia, where cider sales are booming, the local producers are too strong and well entrenched for companies such as Bulmer to make any inroads there.

While it is inconceivable that a brand as large as Strongbow would disappear entirely in the UK, the future of the brand in the hands of Bulmer seems uncertain, to say the least. With no end in sight to the company's financial concerns, a sale of the business as a whole seems unlikely, although the strength of the Strongbow brand may make it a more interesting prospect.

Even so, there are few, if any, companies which spring to mind as potential buyers, given the uncertainty of the UK market. Scottish & Newcastle has a successful cider business in Finland thanks to its acquisition of Hartwall there, but whether it would want to go down the same route in the UK is unlikely.