Britvic

The Group has made significant investment across its procurement, production and quality control, customer management, category marketing and distribution functions with the aim of being able to deliver a high quality product whenever and wherever its customers require. The role of each of these functions in further detail below.

Procurement

The Group’s purchasing and supply requirements fall into two key categories: prime costs (principally packaging and raw material ingredients) and non-inventory costs (for example, advertising and promotion, vending machines, chillers, dispense equipment and transport and distribution). In 2007, the Group’s prime cost amounted to approximately £275 million sourced through approximately 180 suppliers. The key areas of expenditure include Pepsi and 7UP concentrate, packaging (principally PET, glass and cans) and other ingredients (principally fruit juices, flavours, sugar and sweeteners).

The Group seeks to maintain close control on supply costs and to reduce the risks of supplier default affecting its customers. In this regard, the Company operates a focused multi-sourcing policy wherever practicable and has established strategic partnerships with key suppliers. The Group has entered into a series of fixed-term contracts and currency hedging arrangements to mitigate the effects of price or currency movements in relation to acquisition of key raw materials, such as orange juice and sugar. The Group also has a long-term supply relationship with PepsiCo under which the price of Pepsi and 7UP concentrate is established (see paragraph entitled ‘‘Relationship with PepsiCo’’ below).

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Production and quality control

The Group has manufacturing plants at seven locations in Great Britain, plus a handful of sites in Ireland:

• Beckton (produces majority of carbonated PET products);
• Leeds (produces majority of still juice and carbonated ‘‘bag-in box’’ products and all non-returnable glass for licensed on-premise channel);
• Norwich (produces the majority of Robinsons squash and ready-to-drink range);
• Hartlepool (currently produces Ame, Purdey’s and Britvic cordials)
• Rugby (produces all 330ml cans and has two PET lines);
• Widford (houses the Group’s technical centre for new product development, the concentrate production unit and produces a range of glass, can and PET products); and
• Huddersfield (produces Britvic’s natural spring water products).

Over the last 5 years, the Group has made significant investment in its production capability including the recent £8m installment of aseptic technology at its Rugby factory. This programme of investment has provided flexible production capacity enabling the Group to develop and manufacture new packaging formats and to produce and package multiple products (for example, Pepsi and Tango) on a single production line. The Group has also generated efficiencies by pursuing vertical integration when appropriate (for example, introducing PET bottle blowing into certain production lines) and all PET bottles are now blown in-house. The Group’s management believes there are still opportunities to generate further cost savings through opportunities for increased vertical integration in its production processes.

We believe that the Group’s manufacturing facilities have further space available for the introduction of new production lines, to accommodate medium-term growth forecasts.

The Group seeks to achieve high standards of production and operational quality with regard to the products and services that it offers its customers and consumers. To achieve this goal, the Group employs considerable resources in manpower, equipment and management systems, which are regularly monitored in light of best industry practices and technological developments. In addition, the Group has resources dedicated to health, safety and the environment. The processes and systems in place are designed to ensure high standards of legislative compliance and product integrity and such processes and systems are subject to regular review and revision in response to changes in legislation and external best practice benchmarking.

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Customer Management

The customer management department is organised into four distinct business units: take-home grocery, licenced, convenience & impulse and foodservice & vending.

The business units have the primary responsibility of managing the profitability of individual accounts through the implementation of brand and category plans. This includes: the development of annual account plans for each customer; the negotiation of pricing; the execution of promotional activity; and the implementation of detailed category plans.

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Category Marketing

The category marketing department is responsible for managing the Group’s brands.

The category marketing department comprises:

• the brands marketing team, which is focused on developing the equity of the brands in terms of the product, packaging and communication with consumers (for example, advertising and website development);
• the category insight team, which works with external agencies to provide both the category marketing and customer management teams with access to research into the motivation and preferences of consumers; and
• the category planning department, which seeks to exploit opportunities identified from consumer and customer insight through the development and extension of the Britvic brands.

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Distribution

The Group has a well-invested and large-scale distribution network which delivers to customers from production, distribution and warehousing sites located across Great Britain and Ireland.

The centrepiece of the Group’s distribution network is the NDC located at Lutterworth which houses a leading edge high-bay warehousing and distribution facility. The NDC is owned by Britvic but is operated under a management contract by Wincanton Logistics. Due to the importance of the NDC to the distribution network, Britvic has established procedures that are designed to maintain the lines of supply to its customers in the event of a disruption in operations at the NDC. These include the use of warehousing of Wincanton Logistics and other third parties and the utilisation of any excess storage space at existing factories together with increased deliveries direct from the factory to customers.

Primary distribution (i.e. from production sites direct to customers, to the NDC and to third-party retail depots and from the NDC to third-party retail depots) has largely been outsourced to contract hauliers who operate on common pricing terms based principally on agreed rates for specific pick-up and delivery points.

The Company has also recently outsourced its extensive British secondary retail distribution network (i.e. from retail depots to customers) which is staffed and operated by KNDL across Great Britain.

The Company regularly monitors and assesses its warehousing and distribution facilities with a view to continued improvements in customer service. Increasing customer service expectations, the wide array of packaging formats and increasing sales volumes have placed additional demand on the Group’s warehousing and distribution capacity. The Company has responded to the increased demand through the introduction of a series of initiatives intended to increase storage and distribution capacity within, and the efficiency of the use of, the present facilities.

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Developing employee performance

We believe that developing the Group’s organisational capability is crucial to the Group’s continued growth and, accordingly, the recruitment, development and retention of talented people is a key pillar of the Group’s strategy. Britvic has introduced a number of initiatives to improve the working environment, including the introduction of flexible working practices and, more recently, flexible reward systems.

The Group also operates a range of employee development programmes, including skills workshops for the customer management and category marketing departments; line manager best practice courses; and bespoke development programmes for key individuals.

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Business Transformation Programme and Information Technology

The Business Transformation Programme involved the phased replacement of all major IT systems within the Group together with a re-engineering of many of the Group’s key business processes. Prior to its implementation, the core of the previous IT systems had been established in 1987 and had been extended or modified to accommodate growth, acquisitions and the development of further brands as part of the portfolio. The Group’s management decided that it was necessary to rationalise the previous systems so as to better support the Group’s operations and expected growth. The new IT systems include SAP enterprise resource planning software and Siebel customer relationship management software. The Business Transformation Programme has impacted upon all aspects of the Group’s business including procurement, accounting and financial control, inventory management, production control and customer relationship management. Its implementation underpins the Group’s strategy, as the new platform provides a significant increase in the IT capability and functionality across the entire Group as well as establishing a single reliable source for data. The implementation of the Business Transformation Programme was completed in 2006.

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Brands and intellectual property

The Group strives to protect its brands and trade marks, including, where appropriate, by taking action in respect of suspected infringements. The Group seeks to register trade marks in countries in which the Group trades, or may trade in the future. Its trade mark strategy is to seek to register the key trade marks (for example, Robinsons, Britvic, and Tango or Britvic Tango) in all significant markets (for example, European Union countries, the USA, Canada and Australia). The Group also seeks to register key trade marks and all other trade marks in any international market where management believes there is, or could be, a commercial opportunity.

The Group owns all of the brands and trade marks it uses in the business, with certain material exceptions including:

• the Pepsi and 7UP trade marks are licensed to Britvic for use in Great Britain and Ireland, the Isle of Man and Gibraltar (unless and until it becomes a Spanish possession) by PepsiCo (or one of its subsidiaries) (see paragraph entitled ‘‘Relationship with PepsiCo’’ below). PepsiCo must approve all advertising and consumer promotion strategies and materials which relate to the Pepsi and 7UP brands. The Group has recently entered into a licence with PepsiCo in relation to the Gatorade trade mark;
• the Group does not own or have the right to use the Robinsons brand or trade marks in a limited number of jurisdictions, most notably India;
• the Group does not own or have the right to use the Tango or Britvic Tango brands or trade marks in a limited number of jurisdictions, notably Australia, Brazil and Canada;
• the Red Devil trade mark is owned for use in the UK and Republic of Ireland only; and
• Shandy Bass is licensed to Britvic from Brandbrew S.A. for use worldwide.

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