Britvic – First look at the british beverage corporation/bottler

I have looked a little bit more into the “Bottler Universe” and have found on the Coca-Cola Hellenic Bottling Company Investors Relation homepage a nice tool were you can compare their (Coca-Cola Helenic) performance against Peers. (link)

The listed peers:

• Coca-Cola Enterprise
• Britvic
• Heineken
• Diageo
• Carlsberg

 

I have done this with a setting over 5 years and all peers; Britvic and Heineken performed the best (and both outperform the FTSE100).

Just by the name you can guess that Britvic is either a cheap bed sold by IKEA or a british bottling company that bottles own brands and PepsiCo brands. Lets find out more about them – latest 2015 annual report (link).

The company was founded in Chelmsford as the British Vitamin Products Company. They started producing fruit juices in the 30ies and started marketing them under the Britvic brand in 1949.

Acquired by Showerings of Shepton Mallet, a division of Allied Breweries from 1968, the company changed its name to Britvic in 1971. They merged with Canada Dry Rawlings and acquired the R. White’s Lemonade brand, Tango and the Corona brand in the 80ies. Since 1987 they also has owned the UK franchise for Pepsi and 7 Up. In 1995 Britvic bought Robinson’s.

In December 2005 the Company IPO’ed – allowing its well-known main shareholders InterContinental Hotels Group, Whitbread, Pernod Ricard to realise their investments.

In May 2007 the Company went on to buy the soft drinks and distribution businesses of Ireland’s Cantrell & Cochrane (C&C) for £169.5m.

In 2012 the company tried to merge with Scotland’s soft drink’s producer A.G. Barr, whose brands include Irn Bru, Tizer and D’n’B but the merger had been abandoned.

In 2015 they bought Brazilian soft drinks company Ebba.

 

This is how they describe themselves:

Britvic is a leading soft drinks company, with operations in Great Britain (GB), Ireland, France and Brazil.

Across these four markets, the company has developed a strong portfolio of its own iconic brands, including Robinsons, Tango, J2O, drench, MiWadi, Ballygowan, Teisseire, Fruité, Maguary and DaFruta. In addition, in GB and Ireland, the company produces and sells a number of PepsiCo’s famous soft drinks brands, including Pepsi, 7UP, SoBe and Mountain Dew, under exclusive agreements with PepsiCo.

… Through franchising, export and licensing, Britvic has also been growing its reach into other territories, particularly the United States and India.

 

This is the Britvic Plc long therm chart from yahoo finance – the red line is the FTSE100:

They outperformed the “Footsie”. The stock currently is down from its All-Time-High (at a 52W-low). (Note to myself: I have to figure out what happened in 2012-2013, the stock has rallied for about 2 years straight.)

 

Notes from the annual report 2015

About the company and their business model:

We manufacture, market and sell both Britvic and PepsiCo brands in GB and Ireland, supported by dedicated commercial teams in both countries. In France, we manufacture, market and sell our own category-leading brands, as well as supplying private label juice and syrups.

On 30 September, we completed the acquisition of Brazilian soft drinks company Ebba, which manufactures and sells the two leading liquid dilutable brands, Maguary and Dafruta, and has a growing presence in the ready to drink nectar category.

Internationally, we work primarily in partnership with local companies through franchise, distribution or licensing arrangements to exploit the global potential of our kids, family and adult brands. In the USA, we have agreements with a number of Pepsi bottlers and in India we are partnering with the Narang Group. We also export Britvic products around the world and are a significant player in the travel sector.

 

Reveue by country in 2015:

 

Here are some numbers they present:

Why don’t they report unadjusted EPS on the Frontpage? What do they adjust? Let’s look deeper into it:

Exceptional and other items (page 20):

In the period, we accounted for a net charge of £9.4m of pre-tax

(£8.7m post tax) exceptional and other costs. These include:

• Brazil acquisition-related costs of £6.5m
• Strategic restructuring costs related to the 2013 cost initiatives programme of £3.6m, within the original cumulative guidance of £29m
• Business capability programme adviser fees and business continuity costs of £1.4m
• Fair value gains of £0.9m
• Gains on disposal of property and assets of £1.2m.

The cash costs of exceptional and other items in the period were

£8.6m.

This is not a red flag to me (jet) – this sounds reasonable – they also adjusted gains.

Earnings per share

Adjusted basic EPS for the period was 46.3p. Adjusted underlying basic EPS for the period, excluding exceptional and other items and acquisition related amortisation, as well as the weighted average number of shares related to July share placing, was 46.7p, up 12.0% on the same period last year (41.8p). Basic EPS (after exceptional and other items charges post-tax) for the period was 41.8p compared with 36.5p for the same period last year.

So the basic EPS is 11% lower than the adjusted underlying basic EPS.

The management?

I really like how they address it when something is not going well (and don’t blame weather and other stuff):

Stills performance this year was disappointing with both volume and

ARP down, leading to revenue declining 4.1%. This was primarily due

to the performance of Robinsons, which was impacted by both

competitive pressures and our decision to remove the added sugar

variant from the portfolio.

Noteworthy:

Fixed costs declined by 4.2% to £343.9m. During the year the residual benefits of the 2014 strategic cost initiatives were achieved, such as the benefits of the factory closures in GB and the consolidation of GB and Ireland back-office functions.

It looks like they only paid out 53,3% of the bonus in 2015. I like it when the hurdles that were set are not just fantasy-hurdles they present to their shareholders.

 

Cash Flow

Cash flow and net debt

Free cash flow was a £89.3m inflow, compared to a £88.9m inflow the previous year. Working capital was an inflow of £10.3m (2014: £1.6m outflow) as a result of a one-off change in supplier payment terms. Capital expenditure was £3.6m higher than last year, driven by the continued implementation of the strategic initiatives. Other spend increased by £17.1m and included £9.2m of own share purchases to satisfy share incentive schemes (2014: £nil) and higher tax payments, largely driven by timing

differences.

Overall adjusted net debt reduced by £117m and took our leverage to 1.3x EBITDA

from 1.9x last year. In July 2015, £87.8m cash was received from the issue of shares under a non pre-emptive placing, subsequently used in consideration for the acquisition of Ebba. The adjusted net debt (taking into account the foreign exchange movements on the derivatives hedging our US Private Placement debt) at 27 September 2015 was £263.9m, compared to £380.9m at the end of last year.

Here (annual report 2015) they are talking about 1,3x EBITDA Debt –the new number (2016) is 2x EBITDA. (?)

Valuation Today

Some numbers from the Chairman’s introduction (2015 annual report):

Despite difficult market conditions, this past year has seen Britvic deliver a record

EBITA of £171.6m, up 7.1%. Profit after tax of £112.5m has translated into underlying adjusted earnings per share* of 46.7p, an increase of 12.0%.The board is declaring a final dividend of 16.3p, bringing the full year dividend to 23.0p, a 10.0% increase on the previous year. We continue to remain fully committed to our progressive dividend

policy and paying out 50% of earnings in dividends in the coming years.

The Stock is trading today at 645.00p

So that’s an PE-Ratio of 13,93 (calculating with adjusted EPS 46,3 like reported here) – not that expensive for a company in a stable business that have outperformed the Index (FTSE100) over the last 5 years. On the other hand, revenue is shrinking and other metrics are  growing with high single digit/low double-digit rates – so the price looks fair.

They have increased their interim dividend by 4,5% (link). I think that a dividend payout for 2016 of 24.5p is realistic (and not to aggressive assumed). That would translate in a 3,8% dividend yield – also not that bad.

Adjusted net debt to EBITDA ratio improved 0.2x on last half-year to 2.0x

First conclusion

I will stop here for today. I like the company, I liked that the management told the shareholders when something is not running well. And of course I liked the past performance of the shares and the company – they must have done a lot of things right.

On the other hand their reporting is a little bit confusing. They use adjusted EPS a lot – and EBITDA – and EBITA – sometimes it seems like they want to confuses me. On the other hand if they wanted to screw shareholder they would not pay out just 53% of bonuses.

I also have to take a better look at the “rally years” (and the company in general) to better understand what is going on.

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