Soft-drink giant Britvic has posted a solid third quarter, reporting a sales increase of 3.4% compared to the previous year, to £366.9 million, or a relatively flat performance (-0.6%) if the impact of the soft-drink industry levy is excluded.
Given that this performance followed a strong comparative third quarter the previous year, when revenue was up 4.5%, Britvic can be fairly happy with its performance.
As chief executive Simon Litherland noted in the group's trading statement, on the back of a good Q3, the group is now 'confident of achieving market expectations for the full year'.
A shortage of carbon dioxide across Europe – a fundamental ingredient in the production of fizzy pop – has meant that Litherland and his team might also be rueing the lost opportunity presented by the most recent quarter, bathed almost entirely in warm sunshine.
Carbon dioxide stocks are low across Europe due to the closure – in many cases, for essential maintenance – of factories that produce ammonia for use in fertiliser. Carbon dioxide, as used in beverage production, is a by-product of this process.
Missed Potential
As Russ Mould, an investment director at AJ Bell, put it, the summer of 2018 should have been one of the “best-ever” sales drivers for Britvic.
“Sadly, it hasn’t been able to make the most of the sun due to the industry-wide shortage of carbon dioxide,” Mould said.
“There are many different levers in action with Britvic at present, and the end result is that trading should still hit market expectations, which is quite impressive, given several negative factors at play,” he added.
“On one hand, it has had to contend with the sugar tax, with a shift to low- or no-sugar products. In normal market conditions, this year would have been a period of monitoring how some product recipe changes have gone down with the public,” Mould furthered.
This changed, however, when Mr Blue Sky made his first appearance in May, commencing a two-month heatwave in the UK.
“The warm sun, making the public very thirsty, has distorted the situation, which meant Britvic still hasn’t been able to get a handle on how the sugar tax has changed consumer buying habits,” said Mould. “Add in the CO2 shortage, and you’ve got a whirlwind of push-and-pull levers.
“The task for Britvic is to, therefore, try and milk the sunshine while it lasts, particularly as the carbon dioxide issue now seems to be going away. The assessment of the sugar tax will have to be done at a later date,” he added.
Difficult To Measure
Phil Carroll of Shore Capital echoed Mould's comments, saying that it was difficult to measure the impact of the sugar tax on Britvic's operations due to the twin influence of the weather and the CO2 shortage.
“The implementation of the sugar tax may also have had some impact [on Britvic's performance], but it is difficult to say at this stage,” Carroll noted.
“However, on a more positive note, full-year market expectations were set ahead of the surprisingly beneficial weather, so, overall, whilst we will not be upgrading our profit expectations post today’s update, we won’t be downgrading numbers either,” he added.
Shore Capital has retained its hold stance on Britvic, with Carroll pointing out that there is still potential for Britvic to make the most out of the remainder of what remains a promising summer.
“The question now is: will the hot weather continue, and can Britvic take advantage of the increase in demand with the CO2 issue behind them?” Carroll asked.
Following the publication of its Q3 figures, one suspects that the next most important report on which Litherland will have his eye will be the weather forecast.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
