Diluted growth prospects for Britvic

By Michael Stones contact

- Last updated on GMT

Britvic faces a tough challenge to grow sales in a soft drinks market with diluted growth prospects
Britvic faces a tough challenge to grow sales in a soft drinks market with diluted growth prospects

Related tags: Soft drinks market, Investment

Fruit Shoot manufacturer Britvic faces a tough challenge to boost profits this year in a soft drinks market experiencing diluted growth prospects - despite the firm’s US expansion plans - according to City analyst Investec.

Cost savings achieved through restructuring will continue to play a key role, said Investec’s Nicola Mallard.

“While Britvic has another busy schedule of launch/media investment in the pipeline, which it hopes will enable it to outperform, the backdrop could make the delivery of volume and ARP​ [average realised price] growth more of a challenge this year,”​ she said. “There will, at least, be a second tranche of savings from restructuring, which should ensure profit progress continues.”

Savings

The savings were achieved through the closure of two factories in Great Britain and a call centre and a depot in Ireland.

Britvic predicted earnings before interest and tax in its financial year to the end of September 2015 of £164–173M in its latest financial results posted last November. In the year to September 28 2014, it delivered a 17% boost to earnings before interest and tax to £158.1M.

“Britvic delivered strong headline growth in profits in its financial year 2014,”​ said Mallard. “That was helped by the absence of Fruit Shoot cost and the first contribution from its restructuring projects.”

The US market was likely to be a big driver for growth, if not short term profit, in the year ahead. “The group continues to invest heavily in its international plans, spearheaded by Fruit Shoot, which is proving as popular in the kids’ category overseas as it is in the UK,”​ she said. “The US should take another big step forward in 2015 with the national multipack launch, although no profits are expected this year – or next.”

Investec forecast full-year 2015 earnings before interest and tax at £166.7M, profit before tax of £142.2M and earnings per share of 45.2p. Mallard predicted earnings at the lower end of the range predicted by the manufacturer in order to reflect the slow start to the year and the competitive backdrop, as the category enters one of its most important trading periods.

There was no indication of UK consumers spending more on food and drink, while the retail offer is becoming increasingly polarised as shoppers changed their buying habits, according to Investec.

Competition is intensifying

“Competition is intensifying, which had lead Britvic to sound a note of caution over the outlook for the soft drinks market in the coming year,”​ said Mallard.

The analyst retained her ‘hold’ advice on Britvic stock.

Meanwhile, last month Britvic revealed a £25M investment​ at its plant near Pudsey in West Yorkshire. The investment at the factory which makes a range of brands including Pepsi and Mountain Dew Energy will create 40 new jobs.

Related topics: Drinks

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