Cobra prepares to strike

In a drinks business exclusive, Cobra – on course to hit the £100m brand mark – reveals plans for a stock market floatation to finance an ambitious expansion strategy. Patrick Schmitt reports

You would certainly be kicking yourself now if you’d turned down an opportunity to invest in Cobra at the outset. Begun from the back of a van by Karan Bilimoria, it’s now an £80m brand, on course to hit £100m, when  – as exclusively told to the drinks business – the company plans to float. It’s an interesting tale, which proves you can still succeed in a competitive and consolidated sector, even one with as horribly high barriers to entry as the beer business.

But why the decision to float? So far the company has managed to finance itself through a range of inventive approaches, including bills of exchange, invoice discounting, raising ordinary shares, raising preference shares, raising convertible preference shares and taking advantage of government Small Firm Loan Guarantee schemes. However, Bilimoria says, “It was always Cobra’s long-term intention to float, and we are aiming for the second half of 2007, because we have, by our standards, a big fund-raising round planned for February 2006,  after that we will float. We have always wanted to float at a certain size and I think that will be £100m market cap.”

Aside from hitting a target size for floatation, there are many reasons for Cobra’s plan to float, the most interesting of which must be Bilimoria’s suggestion that the company is interested in acquisitions. “We have never done an acquisition and after we have floated there is the potential to acquire either domestically or overseas.” He mentions a possible aim to buy up breweries in India and tells us, “I have always had a dream to own a real ale brewery in the UK.”

So while floatation will allow Cobra to raise funds for further expansion “on a much larger scale”, it also gives investors an exit route from the company. “We have a business angel with a 5% stake in the company who has been with us for 12 years, and he might want to cash in, while it gives other external shareholders the ability to sell,” says Bilimoria. Being a listed UK company also, apparently, gives Cobra credibility, especially in India.

But there are dangers when it comes to floatation, especially for an innovative company like Cobra. “Some companies do feel forced to look at the short term,” Bilimoria says of publicly listed businesses, “but we have always taken a long-term view; I had a five year forecast before I’d even sold a  bottle of beer. There will be no short-termism and I don’t want the entrepreneurial spirit to be curbed.”

Not only that, but Bilimoria wants Cobra to be a US$1 billion brand.  db January 2006

INSIDER OPINION

Christopher Carson, Constellation Europe
“I think Cobra is one of the most innovative drinks companies of recent times, and the accolades prove it. To continue this success the trick will be further market penetration, especially in the sectors where the brand is not so active. The company needs to focus on its key SKUs, the ones that have been successful rather than adopting a scattergun approach.”

Christopher Edgcumbe-Rendle, business development director, Cobra
“We are expecting huge growth in the next two years and are looking to grow in key markets such as the US, South Africa and India. In the UK we will be going for the larger groups – multiple retailers, regional brewers and the multiple grocers. Draught beer is a big focus, however the pitch will be based on Cobra’s traditional smooth, less gassy, easy to drink profile, but the beer will be sold at a higher price point.”

Karan Bilimoria, CEO, Cobra
“September 2001 was a trigger point for the company. We had global ambition but our interests were 95% based in the UK. It was far too risky to have all of our eggs in one basket in both supply and market terms and so we decided to diversify.

In the last four years the company has grown three subsidiaries in three different countries and now we are producing in the UK, India, South Africa, Holland and Belgium. The company had three SKUs in 2003, at the end of 2005 it has 32.
Our aim is to grow sales over the next three years by three times. The majority of that growth we feel will come from the UK.

The earliest we will float will be from the middle to the end of 2007. We are most likely to float on AIM but that depends on market conditions.”

Dynshaw Italia, finance director, Cobra
“We have always been rather imaginative as a company in how we raise funds. There are many different methods of finance and we have been innovative. To be honest we have now stretched this to the maximum and now the next phase will have to concentrate on the element of equity release.

The secret of floating successfully is getting the balance right. The downside is that it splits resources for management time as the priority always lays with reporting and looking to the investors which is a distraction from running the business. We are fortunate, however, in that many of the systems required during the floatation process are already in place within the business.

The possibility of acquisitions will allow us to expand our portfolio, increase our profile – the currency of shares will help a great deal.”  db January 2006