Final Results

RNS Number : 9517I

Britvic plc

26 November 2008

 



Britvic plc Preliminary Results 

Britvic plc ('Britvic') today announces its Preliminary Results for the 52 weeks ended 28 September 2008 ('the period'). Numbers in the table below are all quoted before exceptional items.

	52 weeks ended  28 September 2008 £m	52 weeks ended  30 September 2007 £m	% change
Group revenue	926.5	716.3	29.3
GB revenue (including International )	725.8	692.5	4.8
Group operating profit	96.7	80.0	20.9
Group operating profit margin	10.4%	11.2%	(80)bps
GB operating profit (incl. International) GB operating profit margin (incl. International)	82.0 11.3	76.2 11.0	7.6 30bps
Group profit before tax	70.1	61.3	14.4
Group EBITDA (1)	142.9	126.3	13.1
Adjusted net group debt (2)	(388.4)	(410.0)	5.3
Basic earnings per share	24.8p	20.4p	21.6
Full year dividend per share Underlying group free cashflow (3) Group ROIC	12.6p 66.2 15.5%	11.0p 65.3 14.8%	14.5 1.4 70bps

Britvic's group revenues were £926.5m, up 29.3% compared with the same period last year, including a first full 52-week contribution from Britvic Ireland of £200.7m. GB & International revenues of £725.8m represent growth of 4.8% in the 52-week period. 

Financial Highlights:

•		Operating profit margin improvement of 30 basis points from GB & International, double the annual target of 10-15 basis points.
		•   GB revenue growth accelerating quarter-on-quarter through the year, combined with disciplined cost management.
•		Britvic Ireland delivers a robust performance and holds or gains share in key categories despite the tough trading environment. EBITA (Earnings before interest, tax and amortisation) of €21m in 2008 is a significant increase over the €19m proforma number to February 2007.
•		Free cashflow of £66.2m, £0.9m ahead of last year’s underlying number. This continued growth of free cash flow and EBITDA was driven by the ongoing focus on cash and capital expenditure management.
•		EPS growth of nearly 22%.
•		Return on Invested Capital (ROIC) of 15.5%, an increase of 70 basis points reflecting the strong management of the Group’s asset and cost base.
•		50% upgrade of Britvic Ireland synergies to €21m by 2011, with €5m delivered this year.
•		Profit after tax and exceptional items is reported as £31.8m.

Business Highlights:

•	In GB, we continued to outperform the soft drinks market in all key categories with volume and value share gains by core brands, in particular Pepsi, Robinsons and Fruit Shoot .
•	Strong execution of the GB innovation and new product launch programme, notably through seed brands such as Gatorade, Drench and Pepsi Raw.
•	Exclusive Bottling Agreements (“EBA”) in GB with PepsiCo for V Water and Gatorade, both added during 2008. Britvic and PepsiCo also intend to sign a further EBA in Great Britain for Lipton Iced Tea in due course.

The Board is proposing a final dividend per share of 8.8p bringing the full year dividend per share to 12.6p. This reflects the Board's continuing confidence in the future prospects of the business and the underlying cash generative nature of its activities.

Paul Moody, Chief Executive commented:

'This is a strong performance achieved despite very challenging trading and cost environments, delivering earnings per share growth of nearly 22%. What has set us apart this year is our winning combination of strong brands and the consistent execution of our point-of-purchase, innovation and marketing strategies. Once again, we have outperformed the soft drinks market across all key categories. It is encouraging to see the significant upgrade to the synergies in Ireland in the midst of unprecedented trading conditions.

We have broadened our relationship with PepsiCo, with the addition of V Water and Gatorade to our portfolio, and Lipton Iced Tea drinks will be added soon. This partnership compliments our own brands and means we are well placed to continue driving growth across existing and prospective territories. 

Conditions in the soft drink market continue to be tough at the beginning of our new financial year, and given the adverse macro environment, market visibility beyond the short term remains limited. However, we are reassured with our performance since the year end, anchored on our resilient brand presence, tenacious cost management and our well-developed innovation and marketing strategies.'

For further information please contact:

John Gibney/ Craig Marks	[phone]
Media:
Tom Buchanan/ Giles Croot (Brunswick)	[phone]
Emma Peacock/ Susan Turner	[phone]

A presentation for analysts and investors will be held at 11.00am on 26 November 2008 at the Andaz Hotel, 40 Liverpool Street, London EC2M 7QN. 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). 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 :	[phone]
Pin number :	566466#
Recording number :	[phone]
Conference reference :	242121#

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 branded still soft drinks, and the number two supplier of branded carbonates.

Britvic's broad portfolio of leading brands includes established names with high brand recognition such as Robinsons, Tango, J2O and Fruit Shoot. Included within the portfolio are Pepsi, 7UP, Gatorade and V Water, which Britvic produces, markets, sells and distributes under exclusive appointments from PepsiCo. 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.

Definitions

(1) EBITDA is defined as operating profit before exceptional items, depreciation, amortisation and any impairment of or gain / loss on disposal of fixed assets.

(2) Adjusted net group debt is defined as net group debt, adding back the net benefit of debt hedging instruments that pass through Reserves.

(3) Free cashflow is defined as net cashflow excluding movements in borrowings, dividend payments and non cash exceptional items. The 2007 figure excludes both the impact of the acquisition of Britvic Ireland and a sale of property in the UK for £9.8m. 

The effect of the transfer of Irish trade from Britvic International to Britvic Ireland in March 2008 has been taken account of in the financial performance of both entities, and both 2007 and 2008 numbers reflect this transfer. 

All numbers in this announcement other than those included within the Financial Statements are disclosed before exceptional items. Stills and carbonates are defined as per the recategorisation described at the Britvic March 2008 investor seminar.

The auditors have reported on the 2008 and 2007 accounts. Their reports for both years were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.

Business Review  

Chief executive's review 

In the 52 weeks ended 28 September 2008, Britvic's brands have performed extremely well, growing market volume and value share in key categories, despite the tough trading conditions that have been driven by the downturn in the economy. The continued outperformance of the market has delivered strong revenue growth of 29.3% to £926.5m including a first full 52-week contribution from Britvic Ireland of £200.7m. GB & International revenues of £725.8m showed good growth of 4.8% in the 52-week period. 

We have continued to deliver on our point-of-purchase and innovation strategies, delivering healthy growth in revenue whilst proactively managing the cost base. Group operating profit is up 20.9%, while profit after tax (PAT) and earnings per share (EPS) are both up by more than 20%. These strong results showed resilience and were delivered despite repeated poor summer weather and tougher trading conditions, combined with the toughest raw material and energy cost pricing environment for many years.

Free cashflow was £66.2m, £0.9m ahead of the underlying prior year number, driven by the ongoing focus on disciplined cash and capital expenditure management. Return on Invested Capital (ROIC) including Britvic Ireland has increased by 70 basis points reflecting the strong management of the Group's asset and cost base. The Board is proposing a final dividend per share of 8.8p bringing the full year dividend per share to 12.6p, an increase of nearly 15% on the prior year. 

The soft drinks market 

The UK soft drinks market fell by 0.8% in volume over the period. This was mainly due to the impact of the consumer slowdown and a second consecutive year of adverse summer weather.  

Though relatively resilient, the soft drinks market has not been immune to the slowdown in consumer spending in 2008. In context, food and soft drinks currently account for only 9% of UK household expenditure. Within that less than 40% of dry grocery spend is on soft drinks. Consumers this year traded from premium into value soft drinks categories, such as into cola and juice drinks and away from more expensive price-point categories such as smoothies and pure juice. Squash has seen an increase in penetration, suggesting that some people are moving away from the more expensive soft drink categories and back towards more 'staple' offerings. 

The move out of carbonates by the UK consumer experienced in the first half of 2006 was again countered in 2008 by the gradual return into carbonates by consumers taking a rational and balanced approach to their soft drinks repertoire. This was accentuated by consumers looking for value propositions, particularly in large-pack carbonates and resulted in the carbonates market increasing in volume terms by 1.4%, driven by the cola and glucose/stimulant categories.

The stills category declined by 2.7% this year. A notable sub-category in material decline was plain water, which was adversely impacted by the poor summer weather, the environmental & sustainability debate and by the downturn in consumer spending. However, there was notable growth within ambient juice and sports drinks, whilst dairy and smoothies accelerated their declines over the course of the year.

Against this general market background, Britvic has out-performed the market in its key categories during the period:

•	The cola market was up by 3.7% in volumes, while Pepsi outperformed this with an 8.1% market volume increase resulting in a 0.9 percentage point increase in market volume share and a 1.2 percentage point increase in market value share.
•	The squash market was down 3.0% in volume terms. Robinsons squash outperformed this with a 6.5% market volume increase resulting in a 3.8 percentage point increase in market volume share and a 1.5 percentage point increase in market value share.
•	The Children's On-the-Go market was up by just 0.3% in volumes terms, while core Fruit Shoot outperformed this with a 14.7% market volume increase resulting in a 3.9 percentage point increase in market volume share and a 3.2 percentage point increase in market value share.

During the period Britvic GB stills volumes were up 8.1%, and GB carbonates volumes were up 4.2%.

Britvic's strategy

Management action has focused on four main areas:

Supporting and growing our core brands

Britvic GB's six core brands are Pepsi, 7Up, Robinsons squash, Tango, Fruit Shoot and J2O. They are the key profit drivers of our current business and therefore the brands to which we allocate greatest resource. Other supporting brands help to leverage customer relationships with scale and account wins. We continue to invest in our strong total portfolio of brands through both innovation and media, to ensure that they are preferred by consumers. Examples of our successful core GB brand performances are shown below:

The Pepsi brand has continued its volume and value share gains of the cola market, an increase of 0.9 and 1.2 percentage points on last year respectively. The success enjoyed by the brand in the period reflects strong promotional execution across all key customers and the highly successful Pepsi Max Kicks campaign that, in conjunction with the successful investment in trade-ready display units has led to real sucess for the brand this year. The growth in market share was also achieved against a background of continued 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, PepsiCo, has been instrumental in achieving this performance. 

Robinsons squash has consolidated its number one position even further with volume and value share gains in the squash market, an increase of 3.8 and 1.5 percentage points on last year respectively. Robinsons' best ever Wimbledon, plus excellent brand equity programmes and in-store execution mean that the 7th most valuable grocery brand in the UK  goes from strength to strength and is very well-placed for what could be a tougher year ahead. Share gains are a continuing consequence of the large-pack production facility which has unlocked our ability to drive large-pack performance through increased promotional competitiveness. In the tail of 2007 Robinsons also 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 sponsors the BBC Sports Personality of the Year event for the second time, after a very successful first year. Again, the sponsorship is supported by an on-pack promotion across everyday squash in the first quarter of the year.

In Ireland, core brands have played a significant part in the robust performance of the business in a challenging trading environment. 7Up retains its position as the number two soft drinks brand in the market, whilst core brands such as Club, Miwadi and Ballygowan have been complimented this year by the full integration into the portfolio of Robinsons squash, Fruit Shoot and J2O. 

Our International business has again achieved high-growth results, with overall revenue growth of 21%, and an improved ARP, up 4.9%. During the year Robinsons increased its revenue by 94% in the Nordic region driven by increased distribution, a strong advertising campaign in Denmark, and Finland, heavyweight in-store sampling campaigns in all 3 markets, and the Q4 launch of Robinsons premium squash. In the Netherlands Fruit Shoot has established itself as the fastest growing kids' juice brand, and the 'Go Explore' advertising campaign received a prestigious industry EFFIE award in Q3. Beyond these successes we have continued to expand Britvic's footprint in the key tourist areas of Spain and the Mediterranean, and have achieved early success in the Middle East and India. These markets represent a strong opportunity for future development and growth.

Innovating / Developing new products

A number of new brands, brand extensions and new packaging concepts were launched in the year in Britain, with the aim of establishing Britvic in the growth segments of the GB market. All were launched as planned and all are performing in line with our high expectations. 

The two major new innovation launches this year were Gatorade and Drench, and both have performed extremely well.

In the 12 weeks to 8th October 2008, Gatorade achieved distribution levels of:

•	79% in Take Home including all major multiples
•	45% distribution in Convenience and Impulse
•	Availability in over 2,400 'points of sweat' (gyms, leisure centres, sports clubs) including Esporta & Total Fitness

Continued investment in high profile platforms and the introduction of a new blackcurrant flavour are set to further entrench Gatorade's position in the market in 2009.

Drench also had a strong start as it moved into the Take Home grocery sector: 

•	Awareness from 8% to 35% in 4 weeks
•	Huge internet interest (2.5m YouTube hits)
•	Distribution steadily building in both Take Home grocery and convenience & impulse

There were a number of other smaller supporting launches during the year, such as Pepsi Raw and Limegrove. Again these successful launches helped build both momentum and Britvic's record of great innovation.

Britvic has agreed to sign a further Exclusive Bottling Agreement ('EBA') in Great Britain with PepsiCo for the Lipton Iced Tea brand, which will follow similar business model dynamics to other EBAs.

Managing efficiency - improving margins and free cash flow  

Despite the tough cost environment in 2008, we continued to drive costs out of the business.

We continue to drive our Product Value Optimisation (PVO) programme and have delivered a further £2m of savings in the year in GB, in additon to the £2m delivered in each of 2006 and 2007.

Added to this we realised initial incremental annualised savings of £3m as a consequence of the outsourcing of the secondary distribution network and vending and chiller re-manufacturing operations. We anticipate a total saving of £5-6m by the end of financial year 2009. We have also realised the early planned cost savings programme in Ireland. This includes the closure of the Cork factory in early 2009 and the production of Robinsons squash for the Irish market in Dublin from the same time.

We also continued to underpin our group performance by an effective management response to the difficult trading conditions by flexing our operations and spend.

Expansion into Europe - the first full year of Britvic Ireland

Britvic Ireland was acquired in August 2007 on the rationale of strong potential top-line growth and an exceptional synergies case. 

During 2008 the sharp downturn in the Irish economy has adversely impacted on revenue growth. Though Britvic Ireland continues to hold or maintain share in key categories, the effect of the Irish recession has had adverse impacts on both the Take-Home and Licensed On-Premise markets, and therefore on Britvic Ireland's performance. However, with the strong management team, refined infrastructure and exceptional brands, Britvic Ireland produced a robust performance and is well placed to capture future growth in the market. In Euro terms, this business made EBITA of €19m in 2007. Despite the very difficult trading conditions in Ireland, this business has contributed EBITA of €21m in 2008, a growth very much facilitated by the synergy benefits now available to Britvic Ireland as part of the larger group.

We recently upgraded the synergies case to €15m by the end of financial year 2009, with a new target of €21m by the end of financial year 2011. These additional synergies were based largely off the implementation of SAP in Ireland from the second quarter of financial year 2009.

Despite the unprecedented economic conditions in Ireland, the business fundamentals remain strong: 

•	Enhanced post-acquisition market share (value): No. 1 in the Licensed Trade and No. 2 in Grocery
•	Enhanced PepsiCo relationship - successful pilot launch of H2OH
•	Successfully leveraging cross territory brands:
	•   Robinsons takes Britvic Ireland squash share to over 70%
	•   Successful full launch of Fruit Shoot and J2O
•	Alignment of business model and systems with Britvic GB
•	€7.6m investment completed at the Kylemore production facility in Dublin

Summary

We have grown market share across all of our key categories with a strong performance from our core and seed brands despite difficult trading conditions throughout the year. 

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 we have delivered a 30 basis point increase in GB & International operating profit margin, more than double that of our annual ambition. 

Financial and business review

The following discussion is based on Britvic's results for the 52 weeks ended 28 September 2008 ('the period') compared with the same period last year, and all numbers exclude exceptional items. 

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 outperformed the soft drinks market in all of its key categories with strong revenue growth up 29.3% to £926.5m, including the 52-week contribution from Britvic Ireland. GB & International revenue growth was 4.8% to £725.8m with total volumes up 5.7%.

Operating profit before exceptional items for the period was up 20.9% to £96.7m with group operating profit margin down 0.8% due to the diluting effect of the full 52-week contribution of Britvic Ireland. However GB & International operating profit was up 7.6% at £82.0m with operating profit margin up to 11.3%, increasing strongly by 30 basis points on the prior year. Pre-exceptional Profit After Tax for the period was £53.0m, up 20.5% on the prior period, with EPS up 21.6%. 

Note: Numbers shown reflect the transfer of trade through Britvic Ireland and the reclassification of carbonates and stills (see March 2008 investor seminar). 

GB Stills	52 weeks ended  28 Sep 2008 £m	52 weeks ended 30 Sep 2007 £m	% change
Volume (millions litres)	479.6	443.5	8.1
ARP per litre	69.1p	71.3p	(3.1)
Revenue	331.4	316.3	4.8
Brand contribution	146.7	145.7	0.7
Brand contribution margin	44.3%	46.1%	(1.8)%pts

In stills we have seen an outstanding outperformance against the market across all key categories during the period with revenue growth of 4.8% to £331.4m. Volumes were up 8.1% against a market which was down 2.7%, having been impacted by the downturns in consumer spending and the plain water category.

This strong performance in Britvic's stills portfolio was driven by:

•	The core brands of Fruit Shoot and Robinsons squash consolidating their positions as market leading brands.
•	H2O, our kids water brand continuing to grow strongly with a 9.9% market volume growth.
•	The major launches of the seed brands Drench and Gatorade.

ARP was down 3.1% to 69.1p. The decline has been primarily driven by an unfavourable channel mix with a decline in volumes in the Licensed On-Premise market reflecting the market dynamics. Our sales in this channel are predominantly 'single serve' where the ARP is therefore inherently higher. The growth of our water volumes, where ARP is lower, also causes a diluting effect on stills ARP.  

Brand contribution margin is down 1.8% pts to 44.3% due to :

-	the shift of fixed costs into marginal costs as part of the outsourcing of secondary retail distribution;
-	the continued strategic decision to focus an increasing proportion of Advertising & Promotional spend on stills in the year, e.g. Gatorade and Drench; and
-	the increase in raw material costs.

However, we continue to minimise costs using a variety of tools including the PVO programme where product cost is reduced with no detriment to the brand quality or equity. PVO saved around £1.0m in 2008 stills, on top of the previous cumulative total across carbonates and stills over 2006 and 2007 of £4m.

GB Carbonates	52 weeks ended 28 Sep 2008 £m	52 weeks ended 30 Sep 2007 £m	% change
Volume (millions litres)	922.8	885.2	4.2
ARP per litre	40.7p	40.7p	0.0
Revenue	375.5	360.6	4.1
Brand contribution	143.6	145.4	(1.2)
Brand contribution margin	38.2%	40.3%	(2.1)%pts

Carbonates have delivered another strong performance over the period with revenue growth of 4.1% to £375.5m. This performance has been driven by further market share gains by brand Pepsi. Revenue also benefited from the further 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.

ARP was flat, although we continued to focus on promotional effectiveness, especially with well-executed in-store point of sale delivery.

Brand contribution margin decreased by 2.1%pts due to the effects of:

-	the shift of fixed costs into marginal costs as part of the outsourcing of secondary retail distribution; and
-	the increase in raw material costs

Again, we continue to minimise costs using a variety of tools including the PVO programme, which in itself saved around £1.0m in 2008 carbonates on top of the previous cumulative total across carbonates and stills over 2006 and 2007 of £4m.

International	52 weeks ended 28 Sep 2008 £m	52 weeks ended 30 Sep 2007 £m	% change
Volume (millions litres)	26.1	22.6	15.5
ARP per litre	72.4p	69.0p	4.9
Revenue	18.9	15.6	21.2
Brand contribution	4.9	3.8	28.9
Brand contribution margin	25.9%	24.4%	1.5%pts

Our International business continues to deliver a strong performance with revenue growth of 21.2% to £18.9m. Although the export business in Ireland was transferred to Britvic Ireland in March, the remaining International business goes from strength to strength. The performance has been driven by the consolidation of our strong market position in the Netherlands, Denmark, Sweden, and Finland, as well as significant account wins in the Middle East and India.

The increase in brand contribution margin of 1.5%pts can be explained by the growing contribution from major country launches in 2006 which attracted high launch costs that year.

Ireland	52 weeks ended 28 Sep 2008 £m
Volume (millions litres)	253.1
ARP per litre	56.9p
Revenue	200.7
Brand contribution	70.2
Brand contribution margin EBIT	35.0% 14.7

Note: Volumes and ARP include own-brand soft drinks sales and do not include 3rd party drink sales included within total revenue.

Britvic Ireland, acquired in August 2007, delivered a robust performance in light of tough trading conditions in both the Licensed On-Premise and Take Home channels. Revenue was up 6.2% on a like-for-like basis,  due to exchange rate movements. However, underlying euro revenues were down 6.4%, though volume decline was restricted to 3.4%. We see a continued tough trading environment in Licensed On-Premise, although the Take Home market has recently stabilised. 

GB/International Costs and overheads	52 weeks ended 28 Sep 2008 £m	52 weeks ended 30 Sep 2007 £m	% change
Non-brand A&P	(7.7)	(7.0)	(10.0)
Fixed supply chain	(60.2)	(66.2)	9.1
Selling costs	(87.3)	(85.0)	(2.7)
Overheads and other	(58.0)	(60.5)	4.1
Total	(213.2)	(218.7)	2.5
Total A&P spend	(45.4)	(46.1)	1.5
A&P as a % of net revenue	6.3%	6.7%	(40bps)

GB & International A&P spend was 6.3% of branded revenue, below our long term ambition of 7%.

This was driven by a tactical decision to reduce spend in the latter part of the year in light of the poor weather conditions, as was the case in financial year 2007. However, combined with PepsiCo's contribution to A&P, gross spend as a percentage of sales was maintained at 7.7%.

The reduction in fixed supply chain costs of around £6m is due to the outsourcing of the secondary distribution network, outlined in March 2008, where fixed supply chain costs now become variable costs. This programme is expected to save £5-6m in total operating cost by the end of financial year 2009.

Overall therefore, we have maintained very strong and disciplined control over our cost base in response to challenging trading conditions.

Selling costs are marginally higher due to the filling of sales-based vacancies in the year. Overheads and other costs were lower principally due to a lower bonus provision compared to that of the prior year.

Exceptional items

During the period, Britvic incurred pre-tax exceptional operating costs and profits which net to £18.3m in total. The main elements of this comprised:

Cash items, namely restructuring costs which relate mainly to the closure of the Cork factory in Ireland, as well as the termination of the 3rd party distribution relationship as part of the synergies case.

Secondly, Transitional Share Awards - this represents the final year of the 3 year scheme we announced in 2006 to aid the transition from Long Term Incentive plans which terminated on separation from IHG.  

Non-cash items relate not only to the move from returnable to non-returnable bottles in the on-trade, but also a required reconfiguration of our IT platform to accommodate the Britvic Ireland business. 

In addition, we have included an impairment of £3.0m, this relates to both the Cork factory site and the Hartlepool site, whose closure in early 2009 we announced earlier this year.

Interest

The net finance charge before exceptional items for the period for the Group was £26.6m compared with £18.7m in the same period in the prior year. The impact of debt incurred to finance the acquisition of Britvic Ireland was approximately £10.4m versus £0.9m in the previous year. Though the Group had a €100m loan in place through the year, the average weighted coupon on the remaining sterling-based debt was 6.3%.

Taxation

The tax charge of £17.1m before exceptional items represents an effective tax charge of 24.4%. The effective tax rate as reported in the accounts for the previous year was 28.2%. Including the effect of exceptional items, the effective tax rate was 38.6%, which is higher than last year's rate of 23.6% primarily due to the impact of the abolishment of IBAs. 

Earnings per share

Basic EPS for the period, excluding exceptional items, was 24.8p, up 21.6% on the same period last year of 20.4p. Basic EPS (after exceptional items) for the period was 14.9p compared with 19.7p for the same period last year. 

Dividends 

The Board is recommending a final dividend for 2008 of 8.8p per share. Together with the interim dividend of 3.8p per share paid on 4 July 2008, this gives a total dividend for the year of 12.6p per share an increase of 14.5% on the dividend paid last year. Subject to approval at the AGM, the total cost of the dividend for the financial year will be £26.9m and the final dividend will be paid on 13 February 2009 to shareholders on record as at 5 December 2008.

Cash flow and net debt

Free cash flow was £66.2m, £0.9m ahead of the underlying prior year number, driven by a continued focus on cash and capital expenditure management. Additional contributions were made to the defined benefit pension scheme of £10m in the year as part of the ongoing programme agreed with trustees. At 28 September 2008, the Group's net debt was £401.4m compared to £403.6m at 30 September 2007, a minor improvement on last year but impacted by a £28.8m adverse movement due to the revaluation of foreign currency-denominated debt. However, this accounting treatment is offset to the tune of £19.4m through reserves due to the effective hedging in place on our US$ denominated debt. At constant exchange rates from year-end 2007, 2008 net debt would have been £379m.

Capital employed

Non current assets increased in the year from £488.2m to £519.1m due in the main to the retranslation of euro-based intangible assets recognised on the acquisition of Britvic Ireland and the fair value of derivatives.

Depreciation decreased in the year by £1.4m to £35.4m. The reduction on the prior year reflects the level of disposals made in the year.

Current assets also increased from £203.6m to £216.3m.

At the same time current liabilities increased from £223.2m to £266.5m driven principally by an increase in trade and other payables. 

ROIC, including Britvic Ireland, has improved to 15.5% from 14.8% in 2007 reflecting the continued focus on costs, cash flow and the proactive management of the Group's asset base.

Share price and market capitalisation

At 28 September 2008 the closing share price for Britvic plc was 214p. The Group is a member of the FTSE 250 index with a market capitalisation of approximately £462m 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 reviews. 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 risk and cash management. 

At 28 September 2008, the Group's net debt of £401.4m consisted of £172.3m drawn under the Group's committed bank facility and £243m of private placement notes. This was netted off with around £12.9m of surplus cash and £1.0m of issue costs of loans.

Pensions

The GB business operates a pension scheme, the Britvic Pension Plan (BPP), which has both a defined benefit and a defined contribution section. The defined benefit section of the BPP was closed on 1 August 2002, and since this date new employees have been eligible to join the defined contribution section of the BPP. 

Following a 60 day employee consultation period that started on 4 February 2008, the Britvic Pension Plan changed with effect from 1 July 2008. The key changes are detailed below.

Defined benefit section:

•	The pension accrual rate reduced from 1/60 to 1/90 for each year of future service membership for employee members.
•	The pension accrual rate for Executive members was reduced proportionately by one third reduction for each year of future service membership.
•	Increases to pensions in payment for pension earned for membership from 1 July 2008 are in line with the Retail Price Index up to 2.5% each year.

Defined contribution section:

•	The Company contribution rate for future service was increased to 1.5 times employee contributions for employee members.
•	A proportionate increase for Executive members.

The changes have not had a material effect on Britvic's future pension scheme obligations.

The latest formal actuarial valuation for contribution purposes was carried out as at 31 March 2007 under the Scheme Specific Requirements and as a result, annual contributions of £10m in respect of the funding shortfall outlined in the Recovery Plan will continue to be made by 31 December in each of the years 2008-2010 in order to eliminate the funding deficit in the Plan.

The amount recognised as an expense in relation to the BPP defined contribution scheme in the income statement for 2008 was £2.0m (2007: £1.4m).

Corporate Responsibility

Britvic's Corporate Responsibility strategy was launched in 2006 shortly after flotation. It was designed to create internal management structures, identify gaps in our activities and bring together existing work in a coordinated fashion. 

The strategy has achieved its purpose, establishing firm foundations for our work and setting off activity relevant to our business and our stakeholders. We are proud of our achievements to date, many of which are set out in our first comprehensive CR report, published in May 2008. 

We have now evolved our strategic thinking and our approach. We have worked with stakeholders inside and outside our business to establish our vision for corporate responsibility at Britvic. 'Progressive brands - responsible business - dedicated people' reflects our values now and going forward, and focuses on our three key audiences: consumers, customers and employees. 

Our vision is underpinned by four strategic goals, each one indicating an area of material relevance to Britvic. These goals are to: 

•	Optimise the environmental performance of our packaging
•	Increase the efficiency of our operations
•	Support our local and global communities
•	Support healthy lifestyles and employee wellbeing

Each of these strategic goals is supported by short and longer term targets. Some of these have already been announced, such as our zero waste to landfill commitment by 2015, while others will be confirmed as the programme unfolds into 2009. The programme ensures a robust response to the environmental and social challenges of today and tomorrow. Highlights of the achievements over the past year include: 

Reducing packaging waste: our commitment to reducing the environmental impacts from our packaging is longstanding. This year we redesigned our Robinsons 1 litre bottle, reducing the weight by 2 grams. This alone saved 330 tonnes of PET per year and built on a previous redesign in 2007 that also saved another 250 tonnes annually. 

Cutting road miles: our logistics team have been hard at work maximising the efficiency of our fleet. This year we have saved 500,000 road miles through better planning and we have also started using the rail network for some shipments to Scotland. We have just committed to upgrading our primary haulage fleet to the latest Euro 5 standard, which will be fully implemented in due course.

Reducing emissions: our factory teams have worked for many years to reduce our energy consumption. They have had many successes and our energy consumption is almost back to 1997 levels, despite the growth of Britvic in that time. This is a considerable achievement, particularly considering that in that time we acquired two additional factories and brought all of our bottle-blowing in house. 

Flexible tools for employees: anyone at Britvic can now connect their laptop from home or on the move via wireless broadband, and use IT systems just as if they were working at one of our sites.

Increased giving: our commitment to employee supported causes remains strong. We have increased donations in cash and product, plus actively encouraged employee volunteering during working hours. 

Central to our strategy is a commitment to partnership with likeminded organisations - be they suppliers, charities, regulators or customers. We recognise that we can often be more effective when working together with skilled partners. 

We have already committed to various industry initiatives via our sector trade associations (BSDA & FDF) and non-governmental organisations such as WRAP and Envirowise. We have set up a small community fund with the Essex Community Foundation and have recently joined forces with the food & drink redistribution charity Fareshare who take short-dated food and drink products and give them to those in need. 

On a commercial level, we have started working with some of our suppliers to better use our fleets. We have found several instances where suppliers making deliveries to our sites return home via a location where we too wish to make a delivery. By making use of empty lorries on return journeys we are both maximising our fleets and reducing emissions. 

Our supply chain teams work relentlessly to drive improvements, evaluating and investing in new systems and technologies as appropriate. 

Target	2008 Target	2008 Result	2007 Result
Energy kWh per tonne produced	-2%	-1.5%	-9.4%
Effluent M3 per tonne produced	-2%	-15.8%	-7.2%
Water M3 per tonne produced	-2%	-3.6%	- 6.0%
Landfill solid waste Kg per tonne produced	-7%	-19.5%	- 15.7%
Accidents frequency rate Per 100,000 hours worked	-10%	-23.2%	- 27.9%

At our Interim Results in 2008 we published our first Corporate Responsibility report as an independent company. The document is a transparent explanation of our achievements and our ongoing work. An update to this report will be published at the time of our Interim Results in 2009. 

Business Resources

Britvic is one of the two leading branded soft drinks businesses in GB 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 and Fruit Shoot. 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. 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 2015. 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. Britvic in 2008 also signed further Pepsico EBA's for Gatorade and V Water.
•	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 GB.
•	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 90% of the points of sale of the licensed on-trade channels in 2008.

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 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:

•	actions by the Group's competitors.
•	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 28 September 2008

, 

52 Weeks Ended 28 September 2008

52 Weeks  Ended 30 September 2007

		Before Exceptional Items	Exceptional Items*	Total	Before Exceptional Items	Exceptional Items*	Total
	Note	£m	£m	£m	£m	£m	£m
Revenue		926.5	-	926.5	716.3	-	716.3
Cost of sales		(426.1)	-	(426.1)	(286.0)	-	(286.0)
Gross profit		500.4	-	500.4	430.3	-	430.3
Selling and distribution costs		(290.8)	-	(290.8)	(241.4)	-	(241.4)
Administration expenses		(112.9)	(18.3)	(131.2)	(108.9)	(5.7)	(114.6)
Operating profit / (loss)	6	96.7	(18.3)	78.4	80.0	(5.7)	74.3
Finance income	9	0.4	-	0.4	0.9	-	0.9
Finance costs	9	(27.0)	-	(27.0)	(19.6)	-	(19.6)
Profit / (loss) before tax		70.1	(18.3)	51.8	61.3	(5.7)	55.6
Taxation	10	(17.1)	(2.9)	(20.0)	(17.3)	4.2	(13.1)
Profit / (loss) for the period attributable to equity shareholders		53.0	(21.2)	31.8	44.0	(1.5)	42.5
Earnings per share
Basic earnings per share	11	24.8p	(9.9p)	14.9p	20.4p	(0.7p)	19.7p
Diluted earnings per share	11	24.3p	(9.7p)	14.6p	20.2p	(0.7p)	19.5p
*See note 5.
All activities relate to continuing operations.

CONSOLIDATED BALANCE SHEET

At 28 September 2008

		2008	2007
	Note	£m	£m Restated*
Assets
Non-current assets
Property, plant and equipment	13	228.1	227.4
Intangible assets	14	263.8	246.1
Trade and other receivables	17	2.4	2.4
Pension surplus	25	-	9.1
Other financial assets	28	22.2	-
Deferred tax assets	10d	2.6	3.2
		519.1	488.2
Current assets
Inventories	18	49.4	45.3
Trade and other receivables	19	152.7	130.9
Other financial assets	28	0.3	0.1
Cash and cash equivalents	20	13.9	27.3
		216.3	203.6
Non-current assets held for sale	21	5.9	4.8
Total assets		741.3	696.6
Current liabilities
Trade and other payables	26	(244.3)	(203.2)
Interest bearing loans and borrowings	24	(11.6)	(13.1)
Other financial liabilities	28	(1.0)	(0.3)
Current income tax payable		(9.6)	(6.6)
		(266.5)	(223.2)
Non-current liabilities
Interest bearing loans and borrowings	24	(402.7)	(417.8)
Deferred tax liabilities	10d	(37.7)	(32.0)
Pension liability	25	(23.9)	(14.7)
Other financial liabilities	28	-	(3.4)
Other non-current liabilities	29	(1.2)	(1.2)
		(465.5)	(469.1)
Total liabilities		(732.0)	(692.3)
Net assets		9.3	4.3
Equity and liabilities
Issued capital	22	43.2	43.2
Share premium	23	2.5	2.5
Own shares	23	(7.9)	(10.3)
Share scheme reserve	23	7.3	5.3
Hedging reserve	23	7.0	1.9
Translation reserve	23	17.2	2.9
Retained earnings	23	(60.0)	(41.2)
Total equity		9.3	4.3

*Restated following the completion of the fair value allocation of Britvic Ireland (see note 15).

The financial statements were approved by the Board of Directors and authorised for issue on 25 November 2008.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 52 weeks ended 28 September 2008

		2008	2007
	Note	£m	£m
Cash flows from operating activities
Profit before tax		51.8	55.6
Net finance charge		26.6	18.7
Impairment of property, plant and equipment		4.8	-
Depreciation		35.4	36.8
Amortisation		7.2	5.7
Share-based compensation		7.8	4.7
Net pension charge less contributions		(12.4)	(14.9)
(Increase) / decrease in inventory		(2.0)	0.6
(Increase) / decrease in debtors		(15.3)	1.3
Increase in creditors		44.4	9.1
Loss on disposal of tangible assets		3.0	0.4
Income tax paid		(8.1)	(11.8)
Net cash flows from operating activities		143.2	106.2
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		6.1	9.9
Interest received		0.3	0.9
Purchases of property, plant and equipment		(45.3)	(20.7)
Purchases of intangible assets		(5.9)	(5.5)
Acquisition of subsidiary net of cash acquired		(6.8)	(160.6)
Net cash flows used in investing activities		(51.6)	(176.0)
Cash flows from financing activities
Finance costs		(0.2)	(0.7)
Interest paid		(26.7)	(21.2)
Net interest bearing loans (repaid) / received		(45.5)	132.2
Purchase of own shares		(8.1)	(10.2)
Dividends paid to equity shareholders		(24.7)	(22.2)
Net cash flows from financing activities		(105.2)	77.9
Net (decrease) / increase in cash and cash equivalents		(13.6)	8.1
Cash and cash equivalents at beginning of period		27.3	19.2
Exchange rate differences		(0.8)	-
Cash and cash equivalents at the end of the period	20	12.9	27.3

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES

For the 52 weeks ended 28 September 2008

		2008	2007
	Note	£m	£m
Actuarial (losses) / gains on defined benefit pension scheme	25	(29.9)	61.3
Current tax on additional pension contributions		2.9	3.0
Deferred tax on movement in pension liabilities		3.6	(21.4)
Movement in cash flow hedges net of deferred tax		5.1	2.3
Deferred tax on share options granted to employees		(1.4)	1.1
Current tax on share options exercised		0.5	1.6
Exchange differences on translation of foreign operations		14.3	2.9
Net (expense) / income recognised directly in equity attributable to equity shareholders		(4.9)	50.8
Profit for the period attributable to equity shareholders		31.8	42.5
Total recognised income and expense for the period		26.9	93.3

To view the Notes to the Consolidated Financial Statements, please follow the link below;

http://www.rns-pdf.londonstockexchange.com/rns/9517I_1-2008-11-26.pdf

 

END

 

 

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