Britvic Fruit Shoots itself in the foot - UPDATE

Talks with Scottish soft drinks rival AG Barr are still in progress, Britvic said in a trading statement which revealed the impact of the Chemsford firm's Fruit Shoot product recall earlier this year.

Revenue in the year to the end of September fell 2.6% from the year before to £1,256.4m, although with the effects of exchange rate fluctuations stripped out the year-on-year decline was just 0.8%.

Britvic said the decline was primarily as a result of the recall of its Robinson's Fruit Shoot product in July when the company became concerned that the new bottle design might prove a choking hazard. This lopped a couple of percentage points off revenue growth, the company estimated.

Full year sales in Great Britain (GB) of fizzy drinks rose 3.1% to £517.9m, but the impact of the Fruit Shoot drink can be seen in the 8.4% decline in GB Stills sales to £321.7m. The July - September quarter saw GB Stills sales down 14.1% year-on-year. In contrast, sales of fizzy drinks were up 2.1% on a year earlier.

Combining fizzy and still drink sales, GB revenue was down 1.7% over the full year to £206.5m from a year earlier, with fourth quarter sales off 4.3%.

International sales (excluding France and Ireland, which are treated as separate trading areas) were also hit by the Fruit Shoot recall with fiscal fourth quarter sales down 13.6%, which brought the full year improvement in sales down to 0.7%.

Ireland's continuing economic problems mean it is a tough market for Britvic. Full year sales were down 14.8%, or 9.6% on a constant currency basis, to £138.7m, with fourth quarter sales down 8.5% on a constant currency basis.

The picture was brighter in France, where full year sales rose 1.7%, or 8.0% on a constant currency basis, to £248.8m. Fourth quarter sales shot up 13.3% on a constant currency basis.

Though it cannot do much about the effects of unhelpful exchange rate movements, other than hedge against them, the company has put the Fruit Shoot problems behind it, with shipments resuming within the six weeks time frame envisaged at the time of the product recall. The firm said it remains on track to meet historic levels of supply by January 2013, while it remains committed to cracking the US market with its Fruit Shoot range.

The Olympics puts some fizz in to the top line in Britain, while France "has delivered a strong pricing platform and excellent revenue growth against a toughening consumer environment," said Paul Moody, the Chief Executive of Britvic.

"Conditions in Ireland remain challenging as a consequence of the macro-economic environment but we are successfully maintaining market share," Moody added.

The full year numbers have yet to be signed off, but Moody said he and the board are confident of meeting market expectations. Be that as it may, the shares subsided to 357p from 359.5p overnight in the first hour of trading.

Broker Canaccord Genuity said the trading update did not provide much by the way of pleasing reading.

"Full year revenue of £1,256.4m is below our forecast of £1,300.8m, and we were at the bottom of the consensus range," the broker revealed.

"Whilst quarter-four saw a better than expected revenue performance from GB Carbonates this was more than offset by weakness in GB Stills, Ireland and in International markets. France was its revenues boosted by significant price increases (+12.2%) which is unsustainable in our view but volumes were down year-on-year," Canaccord Genuity's Wayne Brown said.

Brown thinks both Ireland and France will continue to be a drag on group performance in the current financial year, while he wonders whether it is significant that the update made no comment on margin or the level of promotional activity in the fourth quarter.

"The merger talks with AG Barr are on going. Our view remains unchanged that Britvic shareholders should welcome the approach. Failure of a successful merger suggests that a) Britvic's dividend could be at risk and b) coupled with the worsening outlook on costs and the performance of its Irish and French businesses, forecasts remain on the downside risk," Brown states.

The performance of the business has been affected by the Fruit Shoot recall but Brown's concerns go deeper than this, as "our long term concern [is] that profits have failed to translate into cash."

Panmure Gordon takes a bit more of a glass half full view. It must be using a different source for market forecasts to Canaccord Genuity, because it thinks the revenue figure was in line with market expectations.

The broker said GB Carbonates are performing in a tough market but there is little to cheer outside of Britain.

JH