Final Results
Britvic plc
29 November 2007
Britvic plc Preliminary Results
--------------------------------
Britvic plc ('Britvic') today announces its Preliminary Results for the 52 weeks
ended 30 September 2007 ('the period').
52 weeks ended 52 weeks ended % change
30 September 2007 1 October 2006
---------------------------------
£m £m
Revenue 716.3 677.7 5.7
Stills Revenue 334.3 321.7 3.9
Carbonates Revenue 342.6 332.5 3.0
EBITDA* 126.3 121.0 4.4
Operating Profit 80.0 73.7 8.5
Operating Profit Margin 11.2% 10.9% 30bpts
Profit before tax 61.3 55.9 9.7
Net Debt (403.6) (282.6)
Profit after tax 44.0 39.6 11.1
Basic earnings per share 20.4p 18.4p 10.9
Full year dividend per 11.0p 10.0p 10.0
share
Free cashflow** 75.1 48.9 53.6
ROIC 20.7% 17.0% 370bpts
Note regarding all numbers in this announcement other than those included within
the Financial Statements: all numbers are disclosed before exceptional items and
other than free cashflow and ROIC include a 5 week contribution from the
recently acquired soft drinks and distribution businesses of C&C Group plc
(Britvic Ireland) which contributed revenue of £13.8m and operating profit of
£0.8m. All numbers exclude the Private Label Water business where the last
contract expired in November 2005.
* EBITDA is defined as operating profit before exceptional items, depreciation,
amortisation and any gain or loss on disposal of fixed assets
**Free cashflow is defined as net cashflow excluding movements in borrowings,
dividend payments and non cash exceptional items. Including the impact of the
Britvic Ireland acquisition free cash flow is an outflow of £92.6m.
The ongoing Britvic Group, including the five week contribution from Britvic
Ireland, grew revenues by 5.7% to £716.3m during the period.
Key highlights of the Britvic results for the period, excluding the five week
contribution from Britvic Ireland, include:
• Out-performance of the soft drinks market in all of its key categories
• Full year revenue growth of 3.7% to £702.5m
• A resilient second half performance given the extremely poor summer
weather and tough FY06 comparatives.
• Operating profit margin improvement of 40 basis points
• Driven by a sharp focus on growing average realised price (ARP) and
increasing efficiency
• Underpinned by a rapid and strong management response to the poor
summer trading conditions through further cost saving initiatives.
• Free cashflow of £75.1m, £26.2m ahead of the prior year driven by a
continued focus on working capital and capital expenditure management
• Return on Invested Capital (ROIC) of 20.7%, an increase of 370 basis
points reflecting the continued focus on costs, cash flow and the proactive
management of the Group's asset base.
The Board is proposing a final dividend per share of 7.7p bringing the full year
dividend per share to 11.0p. This reflects the Board's confidence in the future
prospects of the business and the underlying cash generative nature of its
activities.
Paul Moody, Chief Executive commented:
'We have out-performed the soft drinks market across all key categories, with a
strong performance from our brands, despite difficult trading conditions in the
second half of the year. The installation of our first aseptic line was a
significant milestone and facilitated the major innovation launches of the year,
Robinsons Smooth Juice and Fruit Shoot 100% Juice, both of which play to the
natural agenda. We have maintained our focus on managing costs and driving
efficiency, and the outsourcing of our secondary retail distribution network has
been successfully implemented. While it is only three months since the
completion of the Britvic Ireland acquisition, we are encouraged by the
performance of the business.
The combined effect of these actions has driven an 11% growth in profit after
tax, a good result in a year of poor summer weather.
The conditions in the soft drink market continued to be challenging at the
beginning of our new financial year, reflecting the normal residual impact of a
poor summer. However the fundamentals of the market remain strong and the market
has shown modest growth in recent weeks. Against this background, Britvic has
continued to grow its top line in the period since its year end, and we remain
confident that we are well positioned for the year ahead, building on the recent
acquisition of Britvic Ireland, further cost saving opportunities and a
continued focus on the innovation pipeline. '
For further information please contact:
Investors:
------------
John Gibney/ Craig Marks +44 (0)1245 504 330
Media:
--------
Tom Buchanan (Brunswick) +44 (0)207 404 5959
Emma Peacock/ Susan Turner +44 (0)1245 261 871
A presentation for analysts and investors will be held at 9.30am on 29 November
2007 in the Auditorium at Deutsche Bank, Winchester House, 1 Great Winchester
Street, EC2N 2BD. A live webcast of the presentation including Q&A will be
available on the Britvic plc website www.britvic.com
There will also be a conference call today at 2.30pm (9.30am Eastern Time)
primarily for US investors and analysts where there will be an opportunity to
ask questions. A recording of the call will be available for seven days. To
access this call please dial the access number below and use the pin number
given.
Access number +44 (0)20 8609 0205
Pin number 566466#
Recording number +44 (0)20 8609 0289
Conference reference 195579#
A separate call for private placement noteholders will be held in due course and
details will be circulated soon.
Notes to editors
-----------------
Britvic is one of the two leading branded soft drinks businesses in the UK and
the Republic of Ireland. The Company is the largest supplier of still soft
drinks, the faster growing category in the soft drinks market, and the number
two supplier of carbonates.
Britvic's broad portfolio of leading brands includes established names with high
brand recognition such as Robinsons, Tango, J20 and Fruit Shoot. Included within
the portfolio are the Pepsi and 7UP brands, which Britvic produces, markets,
sells and distributes under its exclusive appointment from PepsiCo which runs
until December 2023 in Great Britain and 2019 in Ireland. This brand and product
portfolio enables Britvic to target and satisfy a wide range of consumer demands
in all major soft drinks categories, via all available routes to market.
Cautionary note regarding forward-looking statements
----------------------------------------------------
This announcement includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Except as
required by the Listing Rules and applicable law, Britvic undertakes no
obligation to update or change any forward-looking statements to reflect events
occurring after the date such statements are published.
Operating and Financial Review
==============================
Chief executive's review
========================
In the 52 weeks ended 30 September 2007 Britvic's brands have performed well,
actively growing market share in key categories, despite the poor summer weather
which presented extremely difficult trading conditions for the soft drinks
market as a whole. The out-performance of the market has delivered strong
revenue growth of 5.7% to £716.3m including a 5 week contribution of £13.8m from
Britvic Ireland. We have continued to deliver on our strategy of improving
average realised price (ARP) as we drive effective and efficient promotional
activity, improving operating margins, and proactively managing the cost base.
As a result operating profit is up 8.5%, profit after tax (PAT) up 11.1% and
earnings per share (EPS) up 10.9% all before exceptional items, but including
the 5 week contribution from Britvic Ireland. This has been achieved against the
backdrop of the poor summer weather and challenging second half 2006
comparatives, which benefited from an above average summer and a high level of
promotional activity based around the football World Cup.
Free cashflow, before the acquisition of Britvic Ireland, was £75.1m, £26.2m
ahead of the prior year driven by a continued focus on working capital and
capital expenditure management. Return on Invested Capital (ROIC) has increased
by 370 bps to 20.7% reflecting the continued focus on costs, cashflow and the
proactive management of the group's asset base. The Board is proposing a final
dividend per share of 7.7p bringing the full year dividend per share to 11.0p,
an increase of 10% on the prior year. This reflects the Board's confidence in
the future prospects of the business and the underlying cash generative nature
of its activities.
The soft drinks market
----------------------
The soft drinks market volumes were down 2.6% over the period due entirely to
the poor summer weather and challenging second half 2006 comparatives. However
the fundamentals of the soft drinks market continue to show growth.
During the first half of 2006 there was a general move by consumers towards
healthier and better for you food and beverage which was reflected in a swing
away from full sugar carbonates to stills and non-added sugar carbonates. In
2007, as the year developed, there was some reversal to a more balanced position
across both categories. Inevitably, the poor summer weather in the second half
of the year has illustrated the market susceptibility to extreme conditions.
Importantly, the distribution of volume over the full year reflects the
historical trends with the exception of the summer period. Experience shows that
market growth tends to recover more slowly after a weak summer as consumption
trends remain lower. The market experienced this during 2007, where the weak
market during the summer has impacted the autumn market performance.
Against this general market background, Britvic has out-performed the market in
all of its key categories during the period:
• The cola market was down 0.8%, while Pepsi outperformed this with a 6.7%
volume increase resulting in a 1.6 percentage point increase in market
share.
• The squash market was down 2.5%, particularly impacted by the summer.
Robinsons squash outperformed the market with 0.7% volume growth, increasing
market share by 1.3 percentage points, led by our emphasis on our large pack
promotional programme.
During the period stills market volumes were down 3.4% against Britvic stills
volumes up 3.8%, and carbonates market volumes were down 1.6% against Britvic
carbonates volumes up 2.0%.
Britvic's strategy
------------------
Management action has focused on three main areas:
Supporting and growing our core brands
We continue to invest in our strong portfolio of brands through both innovation
and media, to ensure that they are preferred by consumers.
The Pepsi brand has continued its share gains of the cola market, an increase of
1.6 percentage points on last year. The success enjoyed by the brand in the
period reflects strong promotional execution across all key customers and a
major brand Pepsi redesign that capitalised on the trend for personal
customisation with multiple designs for each variant being available - the
designs change on a regular basis to ensure that the most contemporary themes
are reflected on the packs. The growth in market share was also achieved against
a background of continued, heavy competitor activity and with no adverse impact
on ARP despite our growing presence in the discounters sector. Our close working
relationship with the brand owner, Pepsi-Cola has been instrumental in achieving
this performance. During the year, Pepsi Max has had considerable success from a
taste campaign which has driven trial and frequency in all sales channels.
Supporting this has been the upgrade and re-launch of the Pepsi Max website.
Robinsons squash has consolidated its number one position in its category
despite the challenging environment this year for squash. This has been achieved
partly as a consequence of the new large pack production facility which has
unlocked our ability to drive large-pack performance through increased
promotional competitiveness, and has allowed us to grow our two-litre volume
share. Also during the year we have launched the re-designed 'no artificial
colours and flavours' family squash range with the 'Raise them on Robinsons'
campaign, aimed at ensuring that the brand retains its authoritative category
leading position. This year the brand will sponsor the BBC Sports Personality of
the Year event. This is the first headline sponsorship of the event and will
include the 'Robinsons Unsung Hero Award'. The sponsorship will be supported by
an on-pack promotion across everyday squash in the first quarter of the year.
Fruit Shoot, the number one kids' juice drink has once again grown its market
share and is now in more households than any other kids' juice drink. The 'no
artificial colours or flavours' radio campaign has driven penetration to its
highest levels since October 2005.
In the adult category, J20 continues to lead and drive the growth in its
category, with 7% year on year growth helped by its strongest ever Christmas.
This success has been partly driven by flavour and format innovation
initiatives, including the continued rollout of the PET pack; the successful
re-launch of Orange and Pomegranate as the sixth flavour addition to the core
range; and the introduction of large packs for at home entertaining. Our brand
communications including the 'If H20 were J20' campaign across TV, cinema and
digital platforms have helped to reinforce the brand's position with its core
consumers. Next year, we plan to continue to communicate with consumers in key
periods such as the run up to Christmas; to expand the brand into more sociable
occasions with new pack formats from early Summer 2008; and to introduce a new
variant 'Apple and Blueberry' in the Spring.
In water, Fruit Shoot H20 has consolidated its position as the number one kids
water brand, with an average twelve-weekly rate of sales some three times higher
than any other kids water brand. It has very strong distribution at 77%,
excellent repeat rates at 41% and its cannibalisation of other Fruit Shoot
variants is low with half of the brand's consumers being new to the Fruit Shoot
brand. Drench has been refocused on the take-home market, with a successful
re-launch in a new packaging format in the convenience and impulse channels in
the spring. This was supported by the 'your brain is 75% water' advertising
campaign which successfully grew brand awareness. Pennine Spring has been
effectively refocused on the licenced and food service sectors with volume
growth of 8.8% against last year and is now the third largest and one of the
fastest growing brands in managed licenced outlets.
Our International business has achieved improved results, with further
distribution gains for Robinsons squash in the recent launch markets of Sweden
and Denmark and impressive growth from Fruit Shoot in the Netherlands. In the
Netherlands we have developed a brand new TV campaign which made Fruit Shoot the
second most recognised kids' drink advertised this summer. The great early
success from Robinsons in Denmark and Sweden has led to the launch of Robinsons
High Juice in Finland, designed to further build the scale of our business in
the Nordic region. Distribution of 65% was achieved within the first 8 weeks of
launch and with a full launch campaign, including TV advertising and in-store
sampling, the brand achieved a 4% market share after just 12 weeks.
Innovating / Developing new products
A number of new brands, brand extensions and new packaging concepts were
launched in the year, with the aim of establishing Britvic in the growth
segments of the market. All were launched as planned and all are performing in
line with our expectation. The launches are focused around the four key themes
of naturalness, health and well-being, occasionality and indulgence.
The two major new innovation launches this year were Robinsons Smooth Juice and
Fruit Shoot 100% Juice, both playing to the natural agenda with no artificial
colours and flavours or preservatives. There is no doubt that the weak summer
had a detrimental effect on the scale and speed of consumer pick-up on these two
launches, but considering this impact, both have performed in line with
expectations.
Robinsons Smooth Juice has built its distribution rapidly, through a £2.6m
marketing investment in TV and in-store execution, followed by a £2.5m
investment in consumer sampling, radio and press in the first half of FY08.
Fruit Shoot 100% Juice has achieved the highest value share for a branded kids'
juice after just 12 weeks in the market with a rapid distribution build thanks
to a £1.5m marketing investment in TV and outdoor media. We remain confident in
the future success of these brands as they are entirely relevant to the target
consumer; they reflect the increased emphasis on natural foods and are supported
by the tenth largest grocery brand in the country, Robinsons.
Britvic mixer and juices continue to strengthen their overall position, being
the leaders in the juice category and level with our main competitor in the
mixers category. The key initiatives during this period have been the launch in
non-returnable bottles; various range extensions including the launch of
Cranberry and Pomegranate juices; and the re-launch of the not-from-concentrate
100% juice range in November 2007, which is now branded OJ and AJ with a more
modern brand image.
Managing efficiency - improving margins and free cash flow
Our Business Transformation Programme, which we described at the time of
flotation as being focused on driving improved efficiency and building
capability, is delivering against both objectives with £11m of annualised
savings having been made prior to the start of this year. Such has been the
success of the Business Transformation Programme, that we have delivered an
incremental £5m savings in FY07, being £1m ahead of the £4m originally planned
for FY07, and are on course to deliver a further £2m in FY08.
We continue to drive our Product Value Optimisation (PVO) programme and have
delivered £2m of savings in the year as a result of the introduction of in-house
large pack PET squash bottles at our Norwich factory and other vertical
integration projects.
In addition to this, as previously announced, we expect to see incremental
annualised savings of £5-6m by FY09 as a consequence of the outsourcing of the
secondary distribution network and vending and chiller re-manufacturing
operations, at a one-off exceptional cost of c.£3m incurred during the period.
This will also reduce capital expenditure requirements by £2-3m from FY08. As a
consequence of this transaction, we have disposed of our depot in Tamworth, the
only remaining freehold site within the secondary retail distribution network,
at a net cash consideration of £9m.
Expansion into Europe - acquisition of the soft drinks & related businesses of C
&C plc ('Britvic Ireland')
During the period we acquired the soft drinks and distribution businesses of C&C
Group plc for €249.2m (£169.5m) in cash. The acquisition of Britvic Ireland has
provided us with the opportunity to accelerate our growth as well as a leading
position in both the Republic of Ireland and Northern Ireland. There is
potential for annual pre-tax synergies of €14m; brand & product expansion and
innovation. It has also provided us with an experienced senior management team
and opportunities to further develop the owned brands and the Pepsi and 7UP
brands in these markets. It is only three months since the completion of the
deal and we have found nothing to dampen our enthusiasm.
The transaction included the following operational structure: two factories in
Dublin and Cork; the Ballygowan water source in Limerick; the distribution and
wholesale business which gives us the opportunity to a key route in a
dynamically different licensed market; the Logistics Centre in Dublin with
additional warehouses in Belfast and Cork; and a number of small regional depots
in the north west and south east of Ireland. The business is a good fit for
Britvic - it's a brand-based business, and also has the Pepsi franchise in
Ireland. The brands include the water brand Ballygowan - the number one water
brand in Ireland, 7UP, Club (including Club Energise and Club Mixers) as well as
the Britvic brand for mixers and juices in the Republic.
The transition process is progressing well. As we said when we announced the
deal our plans for integration centred on the retention of the experienced
senior management team in Ireland. This has been achieved with the business set
up to run as a commercially autonomous unit but with natural support from GB.
Transitional service agreements were put in place for IT, Finance and C&C in
Northern Ireland. We have now completed separation of the Finance operation with
IT separation on target to be completed in late November. The Irish business
that has historically been included within Britvic International, predominantly
Robinsons and Fruit Shoot is in the process of being integrated into the Britvic
Ireland infrastructure and we are on target for full integration by 31 January
2008. Finally the group function previously carried out by C&C Group has been
successfully filled.
We remain confident in the previously announced annual pre-tax synergies of €14m
and the following progress has been made:
• On procurement we have identified cost savings, and have started to
align certain contracts - for example our PET and can procurement where Britvic
GB terms are superior; and sugar where Britvic Ireland's terms are superior.
• Production harmonisation project is underway.
• Overhead and Logistics synergies have also been identified on the
integration of Britvic International (Ireland).
Summary
-------
We have grown market share across all of our key categories with a strong
performance from our brands despite difficult trading conditions in the second
half of the year. The installation of our first aseptic line facilitated the
major innovation launches of the year, namely Robinsons Smooth Juice and Fruit
Shoot 100% Juice and all innovation was delivered on time and as planned.
Our focus on managing costs and driving efficiency has been relentless, and in
addition to the positive contributions from our business transformation and
product value optimisation programmes, the outsourcing of our secondary retail
distribution network has been implemented in line with our plan and
expectations. Consequently, after adjusting for the five week contribution from
Britvic Ireland, we have delivered a 40 basis point increase in operating profit
margin, some way ahead of our ten to fifteen basis point ambition. While it is
only three months since the completion of the Britvic Ireland acquisition we are
most encouraged by the performance of the team and the business and energised by
the opportunities that lie ahead.
Current trading and outlook
===========================
The conditions in the soft drink market continued to be challenging at the
beginning of our new financial year, reflecting the normal residual impact of a
poor summer. However the fundamentals of the market remain strong and the market
has shown modest growth in recent weeks. Against this background, Britvic has
continued to grow its top line in the period since its year end, and we remain
confident that we are well positioned for the year ahead, building on the recent
acquisition of Britvic Ireland, further cost saving opportunities and a
continued focus on the innovation pipeline.
Financial and business review
=============================
The following discussion is based on Britvic's results for the 52 weeks ended 30
September 2007 ('the period') compared with the same period last year.
Key performance indicators
--------------------------
The principal key performance indicators that Management uses to assess the
performance of the Group in addition to income statement measures of performance
are as follows:
•Volume growth - increase in number of litres sold by the Group relative
to prior period.
•Average Realised Price (ARP) - average revenue per litre sold.
•Revenue growth - increase in sales achieved by the Group relative to
prior period.
•Brand contribution margin - revenue less material costs and all other
marginal costs that Management considers to be directly attributable to the
sale of a given product, divided by revenue. Such costs include brand
specific advertising and promotion costs, raw materials, and marginal
production and distribution costs. Management uses the brand contribution
margin to analyse Britvic's financial performance, because it provides a
measure of contribution at brand level.
•Operating profit margin - operating profit before exceptional items and
before the deduction of interest and taxation divided by revenue.
•Free cash flow - net cash flow excluding movements in borrowings,
dividend payments and non cash exceptional items.
•Return on invested capital (ROIC) - ROIC is a performance indicator used
by Management and defined as operating profit after tax before exceptional
items as a percentage of invested capital. Invested capital is defined as
non-current assets plus current assets less current liabilities, excluding
all balances relating to interest bearing liabilities and all other assets
or liabilities associated with the financing and capital structure of the
Group and excluding any deferred tax balances.
Overview
--------
In the period Britvic out-performed the soft drinks market in all of its key
categories with strong revenue growth up 5.7% to £716.3m, including the 5 week
contribution from Britvic Ireland. Adjusting for the £13.8m contribution from
Britvic Ireland revenue growth was 3.7% to £702.5m with total volumes up 2.7%.
Operating profit before exceptional items for the period was up 8.5% to £80.0m
with operating profit margin also showing improvement at 11.2% up 30 basis
points. Excluding the £0.8m contribution from Britvic Ireland operating profit
was up 7.5% at £79.2m with operating profit margin up strongly by 40 basis
points to 11.3%. PAT for the period was £44.0m up 11.1% on the prior period,
with EPS up 10.9%. The following narrative on Stills, Carbonates and our
International business does not include the 5 week contribution from Britvic
Ireland.
Stills 52 weeks 52 weeks
--------- ended 30 ended 1
Sep 2007 Oct 2006
£m £m % change
-------- -------- -------
Volume (millions
litres) 463.4 446.5 3.8
ARP per litre 72.1p 72.1p 0.0
Revenue 334.3 321.7 3.9
Brand contribution 154.7 152.0 1.8
Brand contribution 46.3% 47.2% (0.9)%pts
margin
In stills we have seen a continued solid out-performance against the market
across all key categories during the period with revenue growth of 3.9% to
£334.3m. Volumes were up 3.8% against a market which was down 3.4%, having been
severely impacted by the exceptionally poor weather in the second half.
This strong performance was driven by:
• J20, core Fruit Shoot and Robinsons squash consolidating their positions
as market leading brands, with Robinsons large pack performing particularly
well;
• H20, our kids' water brand continuing to grow strongly;
• the relaunch of Drench as our take home water brand showing promising
signs; and
• Pennine Spring displaying good growth, now being the third largest on
premise water brand.
ARP was flat on the year with the second half impacted by the growth in water
volumes and Robinsons large pack. The ARP for water is more in line with the
company average which is lower than the stills ARP. Although Robinsons large
pack ARP is lower than the one-litre packs the brand contribution margin is now
very similar following our investment in this area earlier in the year.
Brand contribution margin is down 0.9%pts at 46.3%. Stills have been affected by
increasing input costs such as juice, although this has been mitigated to some
extent by our PVO programme. The margin decline also reflects the focus of an
increasing proportion of our Advertising & Promotional (A&P) spend on our stills
brands.
Carbonates 52 weeks 52 weeks
------------ ended 30 ended 1
Sep 2007 Oct 2006 %
£m £m change
-------- -------- -------
Volume (millions
litres) 865.3 848.3 2.0
ARP per litre 39.6p 39.2p 1.0
Revenue 342.6 332.5 3.0
Brand contribution 136.4 130.1 4.8
Brand contribution
margin 39.8% 39.1% 0.7%pts
Carbonates have delivered a solid performance over the period with revenue
growth of 3.0% to £342.6m. This performance has been driven by further market
share gains by Pepsi and a strong performance from 7UP. Revenue also benefited
from the distribution gains in the increasingly important discounters sector
made in the period which shows a similar ARP and margin profile to the rest of
the business.
A continued focus on promotional effectiveness, especially over the poor summer
where we backed away from chasing volumes that weren't there, combined with
improved price mix led to ARP being up 1.0% over the period.
Direct product costs are slightly up over the year although this is more about
first half FY06 costs being low due to pack mix than an actual price increase in
the products themselves. Costs were in fact fairly constant at 22.8 pence per
litre throughout this year.
Brand contribution margin increased by 0.7%pts due to less A&P spend, as spend
has been redirected to the stills brands which has more than offset any
increases in direct product costs and hence margin continues to trend upwards.
International
-------------
52 weeks 52 weeks
ended 30 ended 1
Sep 2007 Oct 2006
£m £m % change
-------- -------- -------
Volume (millions
litres) 37.7 35.8 5.3
ARP per litre 68.0p 65.6p 3.7
Revenue 25.7 23.5 9.4
Brand contribution 8.3 7.0 18.6
Brand contribution
margin 32.3% 29.8% 2.5%pts
Our International business continues to deliver a strong performance with
revenue growth of 9.4% to £25.7m. This has been driven by the consolidation of
our strong market position in the Netherlands, Denmark and Sweden, as well as
our entry into the Finnish market with Robinsons dilutes.
The increase in brand contribution margin of 2.5%pts can be explained by the
growing contribution from major country launches in FY06 which attracted high
launch costs that year.
Direct product cost increases of 4.9% are a direct result of juice cost
increases which were not mitigated here with PVO savings (as there are few large
PET sales compared to GB) and also the cost of exporting growing volumes to the
new Scandinavian markets.
Costs and overheads
-------------------
52 weeks 52 weeks
ended 30 ended 1
Sep 2007 Oct 2006
£m £m % change
-------- -------- -------
Non brand A&P (7.0) (6.1) (14.8)
Fixed supply
chain (66.2) (68.0) 2.6
Selling costs (85.7) (86.0) 0.3
Overheads and
other (61.3) (55.3) (10.8)
Total (220.2) (215.4) (2.2)
Total A&P spend (46.7) (44.6) (4.7)
A&P as a % of net
revenue 6.6% 6.6% 0.0
Overall, we have maintained our investment in total A&P in line with FY06 to
continue our long term brand building programme. However spend continues to be
below our stated aim of c.7% as we modified our A&P programme in the second half
of the year in response to the poor summer market conditions.
Fixed supply chain costs are down by c.£2m due to the benefit of our business
transformation cost savings programme.
The slight decrease in selling costs despite increased revenue can be explained
by strong management action to reduce costs in response to the poor summer
weather. Some of these costs will clearly need to be reinstated in FY08.
The increase in overheads and other of c.£6m is due to a £8m short term bonus
provision reflecting the strong revenue and profit performance over the period
and a £2m decrease in costs due to a sharp focus on costs again in response to
the poor summer trading conditions.
Exceptional items
-----------------
During the period, Britvic incurred exceptional operating costs and profits
which net to £5.7m in total. The main elements of this comprised:
• Re-structuring costs of £8.1m:
• c.£2m resulting from the £5m Business Transformation Programme
overhead cost savings achieved during FY07 and relating principally to
redundancy costs and advisor fees.
• c.£3m relates to the outsourcing of the distribution network
announced during the year. This was initially identified as an
exceptional cost for FY08 but the acceleration of the project has
brought it forward into FY07.
• c.£3m relates to the costs associated with the sale of our Tamworth
Depot.
• A £1.2m cost relates to the acquisition of Britvic Ireland and represents
those items involved in getting the sale and purchase agreement signed that
cannot be capitalised onto the balance sheet.
• A £3.1m cost relates to transitional award shares vesting under the
Performance Share Plan (PSP).
• A £2.1m returnable bottle impairment.
. £3.4m relates to the profit on disposal from the sale of our Tamworth
Depot.
. £5.6m relates to a pension curtailment gain relating to employees who
transferred to KN Drinks Logistics due to the outsourcing of our secondary
distribution network.
Interest
--------
The net finance charge before exceptional items for the period for the group was
£18.7m compared with £17.8m in the same period in the prior year. Adjusting for
the impact of Britvic Ireland of approximately £0.8m, interest is broadly in
line with last year at £17.9m.
Taxation
--------
The tax charge of £17.3m before exceptional items represents an effective tax
charge of 28.2%. The effective tax rate as reported in the accounts for the
previous year was 29.2%. Including the effect of exceptional items, the
effective tax rate was 23.6%, which is lower than last year's rate of 33.7% due
to the non taxable profits made on the sale of our Tamworth depot and a
reduction in the UK corporation tax rate for FY08 affecting the deferred tax.
Earnings per share
------------------
Basic EPS for the period, excluding exceptional items, was 20.4p, up 10.9% on
EPS for the same period last year of 18.4p. Basic EPS (after exceptional items)
for the period was 19.7p compared with 11.2p for the same period last year.
Dividends
---------
The Board is recommending a final dividend for 2007 of 7.7 pence per share.
Together with the interim dividend of 3.3 pence per share paid on 29 June 2007,
this gives a total dividend for the year of 11.0 pence per share an increase of
10.0% on the dividend paid last year. Subject to approval at the AGM, the total
cost of the dividend for the year will be £22.2m and the final dividend will be
paid on 15 February 2008 to shareholders on record as at 7 December 2007.
Cash flow and net debt
----------------------
Free cash flow was £75.1m, before adjusting for Britvic Ireland, £26.2m ahead of
the prior year driven by a continued focus on working capital and capital
expenditure management. Including Britvic Ireland, there was a cash out flow of
£92.6m compared to a cash in flow of £48.9m in the prior year, driven by the
purchase itself.
Additional contributions were made to the defined benefit pension scheme of £10m
in the year (2006: £30m ). At the 1 October 2007, the Group's net debt was
£403.6m compared to £282.6m at 1 October 2006. The increase in borrowings of
£121.0m was principally due to the acquisition of Britvic Ireland.
Capital employed
----------------
Non current assets increased in the year from £316.0m to £487.3m due in the main
to the acquisition of Britvic Ireland.
Depreciation decreased in the year by £1.5m to £36.8m. The reduction on the
prior year reflects the level of disposals made in the year, the sale of the
Tamworth depot being the primary contributor.
Current assets also increased from £151.1m to £202.5m, again reflecting the
acquisition of Britvic Ireland. Comparing prior year like for like numbers,
inventories have remained at the same level and receivables have reduced
slightly.
At the same time current liabilities increased from £171.4m to £223.2m driven
principally by an increase in trade and other payables. The acquisition of
Britvic Ireland has contributed to this increase.
ROIC, excluding Britvic Ireland, has improved to 20.7% from 17.0% in FY06
reflecting the continued focus on costs, cash flow and the proactive management
of the Group's asset base.
Share price and market capitalisation
-------------------------------------
At 30 September 2007 the closing share price for Britvic plc was 323p. The Group
is a member of the FTSE 250 index with a market capitalisation of approximately
£843m at the period end.
Treasury management
--------------------
The financial risks faced by the Group are identified and managed by a central
Treasury department. The activities of the Treasury department are carried out
in accordance with Board approved policies and are subject to regular audit and
Treasury Committee scrutiny. The department does not operate as a profit centre.
Key financial risks faced by the group include exposures to movement in:
•Interest rates
•Foreign exchange
•Commodity prices.
The Treasury department is also responsible for the management of the group's
debt liquidity, currency requirements and cash. A key activity in the period was
to replace around £229m of bank-based borrowings with the proceeds of a private
placement. The issue of the placement, largely in the US, had the following
features:
•a maturity ranging from 7 to 12 years;
•sterling and US dollar proceeds (the latter swapped to sterling);
•all proceeds on an effective fixed-interest rate basis after taking into
account the effects of the interest rate swap arrangements.
At 30 September 2007, the Group's net debt of £403.6m consisted of £195.3m drawn
under the group's committed bank facility, £13.1m of drawings under uncommitted
bank facilities and £223.7m of private placement notes. This was netted off with
£27.3m of surplus cash and £1.2m of issue costs of loans.
Pensions
--------
The group operates a pension scheme, which has both a defined benefit fund and a
defined contribution fund. The defined benefit section of the scheme was closed
on 1 August 2002, and since this date new employees have been eligible to join
the defined contribution section of the scheme. As a result of the full
actuarial valuation carried out as at 31 March 2004, further contributions of
£30m were made in March and December 2005 and an additional £10m in December
2006. Additional contributions of £10m per annum will be made in December 2007
to 2010 (total of £40m) in order to further reduce the funding deficit in the
scheme.
The Group IAS 19 deficit at the full year was£5.6m. Excluding Britvic Ireland
there is an IAS 19 surplus at the full year of £9.1m (£65.8m deficit at 1
October 2006). The change from a deficit to a surplus is mainly due to changes
in actuarial assumptions applied as at 30 September 2007. It should be noted
that this is an accounting valuation and is subject to high volatility.
Business Resources
==================
Britvic is one of the two leading branded soft drinks businesses in Great
Britain and Ireland. It is one of the top two soft drinks businesses in the GB
take-home channel, is the leading soft drinks supplier to the GB licensed
on-trade and is a significant player with a growing presence in the leisure and
catering channel.
The main resources the Group uses to achieve its results are:
•an extensive and balanced portfolio of stills and carbonates brands,
including Robinsons, Pepsi, 7UP, Tango, J2O, Britvic, Fruit Shoot, R Whites
and Pennine Spring. The breadth and depth of Britvic's portfolio enables it
to target consumer demand across a wide range of consumption occasions, in
all the major soft drinks categories and across all relevant routes to
market. The strength of Britvic's brand portfolio is underpinned by its
consumer insight and product development capability which has consistently
enabled it to produce innovative products, packaging formats and promotional
activity designed to meet evolving consumer tastes and preferences. During
the period we acquired the soft drinks and distribution businesses of C&C
Group plc for €249.2m (£169.5m) in cash ('Britvic Ireland'). Britvic Ireland
owns a number of leading brands in the Republic of Ireland and Northern
Ireland, including Club, Ballygowan water, Britvic, Cidona, MiWadi, and
Energise Sport, as well as the rights to the Pepsi and 7Up brands.
•a successful long-standing relationship with PepsiCo that resulted in the
Exclusive Bottling Agreement (EBA) being renewed in Great Britain in 2004
for a further 15 years, with an extension to 2023 on Admission to the London
Stock Exchange. The acquisition of Britvic Ireland has further strengthened
this relationship with the EBA for Ireland lasting until 2019. This
relationship gives Britvic the exclusive right to distribute the Pepsi and
7UP brands in Great Britain and Ireland, access to all new carbonated drinks
developed by PepsiCo for distribution in Great Britain and Ireland and, to
support the development of its carbonates offering, access to PepsiCo's
consumer and customer insight, competitor intelligence, marketing best
practice, brand and product development expertise and technological
know-how.
•a strong customer base. In take-home, Britvic's customers include the
'Big 4' supermarkets (Tesco, J Sainsbury, Asda and Wm Morrison) together
with a number of other important grocery retailers. The Group has
significant supply arrangements with a number of key players in the GB pub
sector and leisure and catering channels. Through Britvic International, the
Group has built on the success of the Robinsons and Fruit Shoot brands by
introducing these products into markets outside Great Britain.
•Britvic also has a well-invested and flexible production capability and a
recently outsourced distribution network that, according to AC Nielsen,
enabled its soft drinks to be made available to consumers at over 96% of the
points of sale (on a sterling-weighted value basis) in the GB take-home and
over 94% of the points of sale of the licensed on-trade channels in 2007.
Risks and Uncertainties
=======================
The Group's results of operations could be materially adversely affected by:
Risks relating to the Group
---------------------------
•a decline in certain key brands;
•a termination or variation of its bottling and distribution arrangements
with PepsiCo or an adverse development in the PepsiCo relationship;
•a further consolidation in its customer base;
•any interruption in, or change in the terms of, the Group's supply of
packaging and raw materials;
•any failure in the processes or the IT systems implemented as part of the
Business Transformation Programme;
•any inability to protect the intellectual property rights associated with
its current and future brands;
•contamination of its raw materials or finished products;
•litigation, complaints or adverse publicity in relation to its products;
•loss of key employees;
•any increase in the Group's funding needs or obligations in respect of
its pension scheme;
•any failure or unavailability of the Group's operational infrastructure;
and
•changes in accounting principles or standards.
Risks relating to the market
----------------------------
•a change in consumer preferences, perception and/or spending;
•poor economic conditions and weather;
•potential impact of the smoking ban or other regulatory developments;
•actions taken by competition authorities or private actions in respect of
supply or customer arrangements; and
•actions by the Group's competitors.
Risks relating to the Ordinary Shares
--------------------------------------
There are risks arising out of an investment in Ordinary Shares because of:
•US Holders potentially not being able to exercise pre-emptive rights;
•potential share price volatility;
•sterling dividend payments giving rise to currency exposure for investors
whose principal currency is not sterling; and
•PepsiCo's right to terminate the EBAs on a change of control which may
affect the ability of a third party to make a general offer for the Ordinary
Shares.
Consolidated income statement
=============================
For the 52 weeks ended 30 September 2007
52 Weeks 52 Weeks
Ended 30 September 2007 Ended 1 October 2006
------------------ ------------------
Before Exceptional Total Before Exceptional Total
Exceptional Items Exceptional Items
Items Items
Note £m £m £m £m £m £m
----------------- ----- -------- -------- ------- ------- ------- -------
Revenue 716.3 - 716.3 677.9 - 677.9
Cost of Sales (286.0) - (286.0) (263.5) - (263.5)
----------------- ----- -------- -------- ------- ------- ------- -------
Gross Profit 430.3 - 430.3 414.4 - 414.4
Selling and Distribution
Costs (241.4) - (241.4) (231.0) - (231.0)
Administration
Expenses 5 (108.9) (5.7) (114.6) (109.7) (19.1) (128.8)
----------------- ----- -------- -------- ------- ------- ------- -------
Operating Profit 6 80.0 (5.7) 74.3 73.7 (19.1) 54.6
----------------- ----- -------- -------- ------- ------- ------- -------
Finance Income 9 0.9 - 0.9 0.2 - 0.2
Finance Costs 5,9 (19.6) - (19.6) (18.0) (0.3) (18.3)
----------------- ----- -------- -------- ------- ------- ------- -------
Profit/(loss)
before Tax 61.3 (5.7) 55.6 55.9 (19.4) 36.5
Taxation 10 (17.3) 4.2 (13.1) (16.3) 4.0 (12.3)
----------------- ----- -------- -------- ------- ------- ------- -------
Profit/(loss)for the period
attributable to the equity
shareholders 44.0 (1.5) 42.5 39.6 (15.4) 24.2
----------------- ----- -------- -------- ------- ------- ------- -------
Earnings Per Share 11
Basic earnings per share 20.4p (0.7p) 19.7p 18.4p (7.2p) 11.2p
-------- -------- ------- ------- ------- -------
Diluted earnings per
share 20.2p (0.7p) 19.5p 18.3p (7.1p) 11.2p
-------- -------- ------- ------- ------- -------
Consolidated balance sheet
==========================
At 30 September 2007
Note 2007 2006
---------------------------- ------- -------- --------
£m £m
Assets
Non-current Assets
Property, plant and equipment 13 225.2 218.2
Intangible assets 14 247.4 95.4
Operating lease premiums 17 2.4 2.4
Pension surplus 25 9.1 -
Deferred tax assets 10d 3.2 -
----------------------------- ------- -------- --------
487.3 316.0
----------------------------- ------- -------- --------
Current Assets
Inventories 18 45.3 31.7
Trade and other receivables 19 129.8 99.6
Other financial assets 27 0.1 0.6
Cash and cash equivalents 20 27.3 19.2
----------------------------- ------- -------- --------
202.5 151.1
----------------------------- ------- -------- --------
Assets held for sale 21 4.8 -
----------------------------- ------- -------- --------
Total Assets 694.6 467.1
----------------------------- ------- -------- --------
Equity and Liabilities
Issued capital 22 (43.2) (43.2)
Share premium 23 (2.5) (2.5)
Own shares 23 10.3 0.5
Share scheme reserve 23 (5.3) (4.5)
Hedging reserve 23 (1.9) 0.4
Translation reserve 23 (2.9) -
Retained earnings 23 41.2 107.0
----------------------------- ------- -------- --------
Total Equity (4.3) 57.7
----------------------------- ------- -------- --------
Non-current Liabilities
Interest bearing loans and borrowings 24 (417.8) (284.3)
Deferred tax liabilities 10d (30.0) (3.3)
Pension liability 25 (14.7) (65.8)
Other financial liabilities 27 (3.4) -
Other non-current liabilities 28 (1.2) -
----------------------------- ------- -------- --------
(467.1) (353.4)
----------------------------- ------- -------- --------
Current Liabilities
Trade and other payables 26 (203.2) (147.7)
Interest bearing loans and borrowings 24 (13.1) (17.5)
Other financial liabilities 27 (0.3) (1.0)
Income tax payable (6.6) (5.2)
----------------------------- ------- -------- --------
(223.2) (171.4)
----------------------------- ------- -------- --------
Total Liabilities (690.3) (524.8)
----------------------------- ------- -------- --------
Total Equity and Liabilities (694.6) (467.1)
----------------------------- ------- -------- --------
The financial statements were approved by the Board of Directors and authorised
for issue on 28 November 2007. They were signed on its behalf by:
Consolidated statement of cash flows
====================================
For the 52 weeks ended 30 September 2007
2007 2006
Note £m £m
--------------------------------- ------ ------- -------
Cash flows from operating activities
Profit from continuing operations before tax 55.6 36.5
Net finance charge 18.7 18.1
Depreciation 36.8 38.3
Amortisation 5.7 4.7
Share based compensation less cash paid 4.7 7.8
Net pension charge less contributions (14.9) (29.6)
Decrease in inventory 0.6 6.2
Decrease in debtors 1.3 2.2
Increase in creditors 9.1 3.8
Loss on disposal of tangible assets 0.4 4.0
Loss on disposal of intangible assets - 0.4
Income tax paid (11.8) (3.8)
--------------------------------- ------ ------- -------
Net cash flows from operating activities 106.2 88.6
--------------------------------- ------ ------- -------
Cash flows from investing activities
Proceeds from sale of property, plant and 9.9 0.2
equipment
Interest received 0.9 0.2
Purchases of property, plant and equipment (20.7) (29.4)
Purchases of intangible assets (5.5) (3.8)
Acquisition of subsidiary net of cash acquired (160.6) -
--------------------------------- ------ ------- -------
Net cash flows used in investing activities (176.0) (32.8)
--------------------------------- ------ ------- -------
Cash flows from financing activities
Finance costs (0.7) (0.2)
Interest paid (21.2) (16.4)
Interest bearing loans received 551.6 667.0
Interest bearing loans repaid (419.4) (598.4)
Repayment of non-interest bearing borrowings - (2.8)
Purchase of own shares (10.2) (0.5)
Increase in share capital - 0.3
Dividends paid to equity shareholders (22.2) (53.3)
Dividends paid to previous shareholders - (51.7)
--------------------------------- ------ ------- -------
Net cash flows used in financing activities 77.9 (56.0)
--------------------------------- ------ ------- -------
Net increase/(decrease) in cash and cash 8.1 (0.2)
equivalents
Cash and cash equivalents at beginning of period 19.2 19.4
--------------------------------- ------ ------- -------
Cash and cash equivalents at the end of the period 20 27.3 19.2
--------------------------------- ------ ------- -------
Consolidated statement of recognised income and expense
=======================================================
For the 52 weeks ended 30 September 2007
2007 2006
Note £m £m
--------------------------------- ------ ------- -------
Actuarial gains / (losses) on defined benefit 25 61.3 (10.8)
pension scheme
Current tax on additional pension contributions 3.0 9.0
Deferred tax on pension liabilities (21.4) (5.7)
Net movement in cash flow hedges 2.3 0.6
Deferred tax on share options granted to employees 1.1 0.1
Current tax on share options exercised 1.6 1.1
Exchange differences on translation of foreign 2.9 -
operations ------ ------- -------
---------------------------------
Net income / (expense) recognised directly in
equity attributable to equity shareholders 50.8 (5.7)
Profit for the period 42.5 24.2
--------------------------------- ------ ------- -------
Total recognised income for the period 93.3 18.5
--------------------------------- ------ ------- -------
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