Bulmers looks for buyer as bad turns to worse

No matter what the management of UK cider maker HP Bulmer try to do to alleviate the company's growing financial woes, it rarely seems to make matters better.

The company has been paring back its business for some months in a bid to concentrate on its core UK operations, but even that has proved more costly than expected, deepening Bulmers already perilous situation and prompting the company to finally seek a buyer.

In a trading statement issued late last week, Bulmers said that market conditions were worse than had been expected, and that they were likely to continue well into 2003, having a major impact on the company's results for the year to April.

October and November were difficult months in the on-trade, the company said, with the number of pub visitors falling, especially among younger drinkers. This decline is also expected to continue in 2003, Bulmers said. In the take home sector, sales continued to grow, but margins came under increasing pressure.

Even the decision to sell a number of non-core operations failed to lighten Bulmers' load. The company has withdrawn from its innovation operations, and has sold all its international units including, most recently, its Australian and New Zealand operations to a unit of Foster's, but the company said that these operations had entailed higher-than-expected one-off costs.

Finally, the withdrawal of third party contract packing volume from Bulmers' Belgian plant hit the company severely, creating a £0.8 million shortfall in contribution from that business.

As if this were not bad enough, the company added that it believed that the market would deteriorate further, particularly in Europe and North America.

This uncertain future now means that Bulmers runs a serious risk of defaulting on its loan repayments, barely three months after it agreed new financing with its creditors. It is currently working with the banks to negotiate new financing agreements, but it is likely that the company will not have sufficient working capital for the next 12 months, even once the sale of the Australian business is completed.

With this in mind, Bulmers new chief executive Miles Templeman has announced plans to look for a potential buyer for The Beer Seller, the company's beer distribution business, as well as a possible equity issue to help reduce debts and strengthen its negotiating position with its creditors.

While this is the favoured option for the company, it will also consider offers from potential buyers, although this may also prove difficult as it is hard to imagine many companies queueing up to acquire the company as a whole. There may be buyers for certain assets, such as the main UK brand, Strongbow, which continues to perform relatively well, but even a newly restructured Bulmer is unlikely to be a major draw.