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The Britvic Group was established in 1986 by Bass, Whitebread and Allied Breweries. The three merged their respective soft drinks businesses to form Britannia Soft Drinks Limited. And now Britvic is the parent company of Britannia Soft Drinks Limited. Britivic was originally established to act as the soft drinks supplier to the pub estates of these three shareholders. Britvic finished the acquisition of the brand like Tango, Robinsons, Orchid Drinks, Red Devil brand, water source one after another. The company cooperates with Pepsi and enters into an exclusive bottling arrangement for Pepsi and 7up in Great Britain. And Distribution of Lipton Ice Tea in Great Britain awarded to Britivic in 2009. Britivic becomes an independent company by listing in the London Stock Exchange in 2005. And the company has become one of the two leading soft drinks businesses in Great Britain. Successful new products developments, like J2O and Fruit Shoot, make Britvic become the largest supplier of branded still soft drinks, the faster growing category in the soft drinks market, while remaining the number two supplier of branded carbonates. The Britvic Group operates in Great Britain and Ireland.The Company finishes acquisition of a soft drinks business in Ireland on 29 August 2007¼ˆBritvic plc. 2010¼‰.
In 2006, Britvic sold 1.4 billion liters of soft drinks in hundreds of different flavors, shapes and sizes and delivers to over 4,000 customers and approximately 200,000 points of distribution. The company turnover around £680 million a year, and the company have approximately 2,700 employees based either at the main offices in Chelmsford and Solihull or at one of seven factories and network of depots around the country¼ˆBritvic plc. 2006¼‰.
For the GB soft drink take home market, the main market players are Coca-cola Enterprises, Britivic, GlaxoSmithKline, Danone, and Tropicana. For the GB soft drink licensed on-trade market, the main market players are Coca-cola Enterprises, Britivic, Redbull.
The Britvic Group has strong market positions. The GB soft drink take home market share is around 11% in year 2006, 2007, 2008, and in 2009 that number up to 12%. The total sale of the soft drink take home is around 6billion a year. The GB soft drink licensed on-trade market share is 44% in year 2006 and 2007, 45% in year 2008, and the number up to 48% in year 2009. The total sale of the soft drink licensed on-trade is around 2.3billion a year. From the date above, we can see that Britvic Group has solid and strong market position, and the market share is increased moderately.
Market share positions
Source: Summarized from Britvic plc Annual Report 2006,2007,2008,2009
For Ireland market, the Britvic Ireland is Ireland second largest branded soft drinks business by volume. Britvic Ireland has similar brand and category profile to Britvic GB, and sold 253 million liters in the year to September 2008. Britvic Ireland have around 800 employees, one carbs/stills factory, one water factory and two distribution centers¼ˆBritvic plc. 2010¼‰. The soft drink take home market share of the company is around 29%, and the soft drink Licensed on-trade market share is around 37%¼ˆBritvic plc. 2010¼‰. The company has grown market share and revenue across all of the categories with a strong performance, despite difficult trading conditions.
The Britvic cooperate with recycling companies in the UK to introduce plastic bottles containing PET which has been recycled from British households. Currently recycled material is made from imported material.
The main commodity price risk arises in the purchases of prime materials, being PET, sugar, cans and frozen concentrated orange juice. Where it is considered commercially advantageous, the group enters into fixed price contracts with suppliers to hedge against unfavourable commodity price changes.
Interest bearing loans and borrowings
Full year dividend
Earnings Per share
Free cash flow
Source: Summarized from Britvic plc Annual Report 2006,2007,2008,2009
Gearing is a measure of financial leverage, demonstrating the degree to which a firm’s activities are funded by owner’s funds versus creditor’s funds. The best known examples of gearing ratios include the debt-to-equity ratio (total debt / total equity), and debt ratio (total debt / total assets). Then we choose the debt ratio to measure the financial leverage. The debt ratio of the company is 95.5% in 2005, 110.2% in 2006, 99.3% in 2007, 98.7% in 2008, and 100.2% in 2009. And the debt ratio of company is around 100% in the five financial years. To some extent, the high debt ratio is risky for the company. So we can see that the company greatly relies on borrowing to support operation. Britvic Group with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are. And the interest bearing loans and borrowings is the main component of the liability, and the Proportion is 64.1% in 2005, 44.4% in 2006, 60.0% in 2007, 58.8% in 2008, and 53.0% in 2009. So we can see that the company greatly relies on borrowing to support operation. Britvic Group with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are. If the loan interest rate is higher than Margin, the company should reduce the loans and borrowings in the coming financial years and enhance the capacity of managing liquidity risk.
B. Cash flow
Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments. It is considered to be a proper indicator of a company’s financial health. The amount of free cash flow of Britvic Group is negative in year 2005, and it becomes active since 2006, Chief Executive Paul Moody (2006) said that full deployment of both SAP and Siebel software has enabled us to reduce the demand on working capital and so improve our free cash flow. As we can see from the table, the number is increasing year by year, and reaches £69.7m in year 2009. The enough cash flow indicates that the solvency of the company. And the good performance of the revenue and operating profit contribute to the free cash flow increase. The company overhead cost savings achieved through a range of initiatives including centralization and automation of indirect procurement. The revenue and the operating profit are both increasing for 5 financial years. Comparing with year 2007, the operating profit in 2009 is up by 20.8%, the revenue in 2008 is up by 29.3%. Although during the economic recession, Comparing with year 2008, the operating profit in 2009 is up by 13.8%, the revenue in 2009 is up by 5.6%. We can expect that the trend of the profit in future is promising.
C. Earning per share and dividend policy
Because the operating profit is increasing, the Earning per share increases moderately during the 5 financial years. The EPS is 18.5pence in year 2005, 18.4pence in year 2006, 20.4pence in year 2007, 24.8pence in year 2008, 29.9pence in year 2009. And compare with year 2008, the EPS increased by 20.5% in year 2009. And the company spent about 50% EPS to the shareholders. Full year dividend of the company is also increases moderately with EPS year by year. The full year dividend per share is 10.0pence in year 2006, 11.0pence in year 2007, 12.6pence in year 2008, 15.0pence in year 2009.That indicates Britvic Group’s strong capacity to earn profit. And that can consolidate the confidence of the shareholders, also helps company financing through issuing shares other than loans and borrowings.
In the past, the company focused on acquisition. Through finishing the acquisition of the brand like Tango, Robinsons, Orchid Drinks, Red Devil brand, water source one after another, Britvic Group develop quickly. The Britvic Group has a clear strategy for growth now. First, the company support and grow the core brands like Pepsi, fruit shoot, tango, Robinsons, j2o, 7up; second the company support the new band for tomorrow like drench, Gatorade, Pepsi raw, V water, Lipton iced tea; third, the company try to improving free cash flow and margins; fourth, the company try to operate internationally and expand into Europe. The acquisition of a soft drinks business in Ireland on 29 August 2007 represented an important step in the strategic development of Britvic¼ˆBritvic plc. 2007¼‰.
And also the company focused on innovation. In 2008, the company launches two innovations Gatorade and Drench, and both have performed extremely well. The company promotes healthy lifestyle and provides a wide variety of soft drinks to meet customer’s needs, helping them make informed choices, marketing the drinks responsibly and promoting health, wellbeing and nutrition.
As we discussed above, the Britvic Group holds strong market positions in Great Brittan and Ireland. And in this area, the customers like the brands of the company. Britvic have lots distribution within the Great Britain soft drinks market, and the distribution net are nearly every where in the country.
And the company also holds good relationship with the resource suppliers. From the balance sheet, the trade and other payables is £244.3 m in 2008, £291.6 m in 2009¼ˆBritvic plc. 2009¼‰, indicate that the Britvic has good reputation and the resource suppliers provide credit to the Britvic.
Although the Britvic Group operates well in Great Britain and Ireland, compare with the transnational corporation in this industry like coca-cola enterprises, the size and the market of the Britvic is relatively limited. During the international development, the Britvic Group pays less attention to the local culture. That means in different area, an international company should operate locally. And in Ireland market, there are Category gaps, and the Britvic should launch more brands in Ireland market.
And the Britvic Group has lots of brands, and that increase the difficult of operation. The marketing section have to focus the brands separately, that is really a challenge for the company.
From the financial analyses, the debt ratio of the company is relatively high. And that indicate the company is prefer financing by borrowings and loans, and that may let the company in a risky conditions and may be more vulnerable to downturns in the business cycle.
Over the next 20-25 years, the British population is expected to reach 70m from the current population of around 60m, and that indicates a growing market for the company¼ˆBritvic plc. 2008¼‰. Comparing with the past generation, Younger generations drink more purchased soft drinks less tea, coffee, alcohol, dairy drinks and tap water. European fast food culture and the carbonated drinks quite fit. So the company should seize the opportunity to launch more innovations to attract the new generation,
Now the consumers pay more attention to healthy lifestyle, and that also provides a good opportunity for the company. The Britvic should launch more unique products to cultivate the customer loyalty.
The company penetrate into European counties gradually, The Britvic Launch in-market activities in Holland, strong Robinsons squash activity in the Nordics, and Fruit Shoot in Sweden. The company also penetrates to Turkey and Bulgaria market. The company has new travel contracts in the airline and shipping sectors. And through the already successful Britvic International business, the company should explore ways to extend the availability of Britvic’s wholly-owned brands worldwide through franchising arrangements.
For the soft drink market in Great Britain and Ireland, there full of competition. Besides Britvic, for the GB soft drink take home market, the main market players are Coca-cola Enterprises, Britivic, GlaxoSmithKline, Danone, and Tropicana. For the GB soft drink licensed on-trade market, the main market players are Coca-cola Enterprises, Britivic, Redbull. In year 2009, the GB soft drink take home market share of Britvic is 12%, and the Coca-cola Enterprises market share is 27%¼ˆBritvic plc. 2009¼‰. The number of market share of Britvic in Europe almost increase a little.
And for the global economic conditions, the 2008 crisis let the economy into recession. Lots of consumers is lost their job and in debt. So for the European market, also go through recession. How to conquer the recession, and hold the market position, is a challenging work to do for Britvic.
Also the company faces financial risk that includes commodity price risk, interest rate risk, exchange rate risk, liquidity risk and credit risk. And the company operate internationally in the future will face the political and country risk.
A. Foreign currency risk management
Foreign currency risk is related to exposure to fluctuations to the sterling-US dollar and sterling-euro exchange rate. The group operates in euro-denominated countries and finances these partly through the use of foreign currency borrowings. Additionally cash generation from euro-denominated operations can be utilized to meet euro payment obligations in sterling denominated companies, providing a natural hedge.
The group also has transactional exposures, which are from purchases of prime materials or commercial assets in currencies. Such purchases are made by euros and US dollars. On 27 September 2009, through forward foreign exchange contracts, the company hedged 48% of forecast exposures 12 months in advance, and the number in 2008 is 71%¼ˆBritvic plc. 2009¼‰.
Where funding is raised in a currency other than the currency ultimately required by the Britvic, cross currency interest rate swaps are used. That can convert the cash flows to the required currency. These swaps have the same duration and other critical terms as the underlying borrowing.
B. Country and Political risk management
More and more countries in Europe pay more attention to the environment protection. If a company without awareness of that may face the risk of local government regulations. And Britvic has adopted an Environmental Management System which is certified to the international standard ISO 14001. The company also use recycled materials for packaging.
Conflict between employer and employees in Europe market is a risk faced by any company. The strike of the employee can hinder the normal productions, so Britvic pay more attention to the employ welfares. And Britvic has reduced its accident frequency rate by 68% over the last 5 years¼ˆBritvic plc. 2009¼‰.
A. International strategy
Based on Great Britain, the Britvic should target broad market. The company should walk out the Europe gradually. Through the already successful Britvic International business, the company should explore ways to extend the availability of Britvic’s own brands worldwide through franchising and licensing. Britvic also should target the emerging Asian market like China, India and so on. The population of China is largest in the world, and the new generation prefers soft drinks to traditional tea. So the company can competes with coca-cola in China market with the unique brand of healthy lifestyle.
During the international development period, the company should learn the local culture first, and launch special designed products to the local market. That means operate locally.
B. Qualified personnel and Innovation
In the past, the company achieves success through innovation. The Britvic group should keep the spirit of innovation, and win more property right in the design of products. That is the winning points of the company for the future development. And the human resource sector should prepare qualified personnel for the group future construction.
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