This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
News
BUSINESS CITY COMMENT – Buoyant Britvic Set to Float
“standfirst”>Britvic is outperforming the soft drinks sector by some distance and its UK market share is second only to Coca-Cola. For its shareholders it’s the perfect time to sell. Fionnuala Synnott reports
Britvic, the Essex-based soft drinks group, has announced its plans to float on the London Stock Exchange by the end of the year following a decision by shareholders InterContinental Hotels Group (IHG), Whitbread and Pernod Ricard to exit the soft drinks business. The statement follows months of speculation in the market after IHG announced that it would sell its shares in the company via an IPO at some point in the next three years.A spokesperson for Britvic said, “Last year, our shareholders announced that soft drinks were no longer core to their business and identified a window during which to float the company. Depending upon market conditions, the IPO was to take place between January 2005 and December 2008. Those conditions have now been satisfied.” The time is right for Britvic to go public. The stock market is finally out of the doldrums and the company has just completed a lengthy £30m business transformation process updating its IT systems. The decision to float was taken on the back of strong financial year-end figures. Last year, the group generated sales of nearly £698.2m (E1.03 billion) and earnings before interest, tax and amortisation of £78.7m (E116m). Paul Moody, the group’s managing director, said Britvic’s annual revenue had increased by approximately 60% over the past few years, outperforming a UK soft drinks market that has grown between 2% and 4% over the past five years. Nearly a third of the group’s sales revenue came from the 11 new brands launched last year.The maker of Robinsons, Tango, J20 and Fruit Shoot has a 22% share of the still and carbonated soft drinks market in the UK, putting it just behind Coca-Cola, which has a 29% UK market share. Britvic has also witnessed strong growth in its still soft drinks range. Fruit Shoot has become the number one children’s drink in the UK since the product was launched in 2000 and is showing double-digit growth, with annual sales worth £72m at retail value.
One of Britvic’s key business strengths is its agreement with US drinks giant PepsiCo, which gives Britvic the right of first refusal on the distribution of all new carbonated drinks in the UK. The group has just renewed its long-term distribution deal with PepsiCo and will be the exclusive UK distributor of PepsiCo drinks such as Pepsi and 7 Up until 2023. Britvic will start distributing PepsiCo’s star sports drink Gatorade in the UK next year, reflecting the increasing popularity of sports drinks, alongside juice and water.
Bottled water launch
UK consumers are becoming increasingly health-conscious and Britvic is keen to capitalise on the fast-growing health-drinks market by making more no added sugar variants of its drinks. The group also plans to tap into the lucrative bottled water sector by launching Drench, a water brand aimed at young adults, and relaunching Pennine Spring, the brand it bought as part of the Ben Shaw’s acquisition in November 2004. More British adults are buying into the health benefits of bottled water and the lifestyle choice it implies. According to a recent report by Mintel, the proportion of British adults drinking bottled water has increased from 35% to 54% in the last four years. With UK consumption currently at less than half the European average, the incremental growth opportunity and potential profit margins for soft drinks companies are significant.
Exit strategyThe listing will provide an exit for all of Britvic’s shareholders, apart from PepsiCo. IHG and leisure firm Whitbread, which has been criticised for spreading itself too thinly across a range of business sectors, intend to sell their respective 47.5% and 23.75% holdings in the company. Pernod Ricard has also announced its plans to sell the 23.75% stake it acquired through its purchase of Allied Domecq earlier this year. In a statement, IHG said shareholders will be asked to approve the sale of its Britvic shares at an extraordinary general meeting to be held on December 7. IHG and Whitbread are set to return most of the cash from the sale to their shareholders, while Pernod Ricard is likely to pay down debt incurred during the purchase of Allied Domecq. PepsiCo will retain its 5% holding in the group. This has fuelled rumours that PepsiCo may eventually look to buy out Britvic. However, with such a small equity stake in the company, it is more likely that PepsiCo will look to partner with Britvic based on its existing bottling agreement. In order to compete with Coca-Cola, PepsiCo needs an established and stable business partner in the UK market, the largest outside the US. There has also been speculation that the newly listed company will seek to participate in the auction of Cadbury Schweppes’ European soft drinks business. But this is unlikely to happen as a highly leveraged buyout would make it an unattractive business partner for PepsiCo.
The precise value of the flotation has yet to be decided but a source close to the deal said, “It is not a million miles away from £800m.” According to the source, the deal will include over £300m of debt, leaving Britvic with between £450m and £500m of equity. At this valuation, IHG would receive just over £270m with Whitbread and Pernod Ricard taking £135m each from the float. A spokesperson for Britvic said, “We won’t be raising new capital from the flotation and the money raised will be used to pay back shareholders.”
Possible windfall Although the firm has been run as a stand-alone business for several years, its new independence will doubtless be beneficial to management and Britvic’s 3,000 UK staff who may profit from a share windfall under a potential incentive scheme. “We are currently discussing a number of options and we hope to make an announcement once we list, hopefully before the end of the year,” said the spokesperson.
Britvic is expected to release a prospectus giving a price range for the IPO later this month and shares should start trading on the LSE in mid-December. Magic Circle firm Linklaters is advising Britvic, while legal heavyweight Freshfields Bruckhaus Dereinger is acting for Deutsche Bank and Citigroup, the two investment banks leading the deal. Gerald Corbett, chairman of Woolworth and former chief executive of Railtrack, who was in charge at the time of the Hatfield crash in 2000, will chair the listed company. Michael Shallow, finance director of Suffolk brewer Greene King since 1991, will be a non-executive director on the company’s board.
© db December 2005