Story of the year
We remain focused on delivering the strategy we laid out in May 2013. Despite a challenging environment in all the markets in which we operate, we have delivered another strong set of financial results and continue to make good progress in executing our longer term strategic goals.
The breadth of our portfolio, strength of our core brands and increasing innovation capability means we are well placed to adapt and evolve with consumer trends and customer needs that continue to change, probably faster than ever before.
We have returned to like-for-like revenue growth and, through our transformational business capability programme, we continue to build a stronger, more efficient business. Our pre-exceptional EBITA increased by 8.4%, enabling us to declare a 6.5% increase in the dividend.
Generate profitable growth in our core markets
Our carbonates portfolio, which includes both PepsiCo brands and our owned brands, enjoyed another successful year. Our continued focus on no and low sugar resulted in Pepsi Max, 7UP and Tango all delivering growth. Whilst the value of the cola category declined by 1.4%, Pepsi grew its retail market value by 6.7%, adding over £26m of retail value from Max, with its new Cherry variant leading this growth. 7UP Free outperformed the fruit carbonates category with double digit retail value growth, and Tango delivered its best performance in over 10 years.
We have been more challenged in stills this year although the second half of the year reflected encouraging signs of improvement. Robinsons declined year on year following our decision to remove added sugar from the range and due to very competitive own label pricing in the dilutes category. J2O had a weak Christmas and our limited-edition flavours performed poorly this year. J20 Spritz, a lower sugar sparkling variant introduced last year is performing well and offers good future growth potential. Fruit Shoot gained share in a declining category. We continue to evolve the brand, reducing sweetness and adding vitamins to the core brand and Fruit Shoot Hydro, our flavoured kids water, is growing strongly.
Over the last three years we have invested in our marketing and innovation capability and this is now starting to bear fruit. The contribution from innovation continues to grow and represented 4% of our 2016 revenue. Recent successes in GB include J20 Spritz and Robinsons Squash’d; we are particularly pleased with the early performance of the Drench and Purdey’s brands which we have improved, repositioned and relaunched with new variants. Our innovation pipeline is strong; 2017 will include new adult offerings such as the relaunch and extension of R Whites lemonade and the introduction of adult premium brands, including our ‘zero proof’ Thomas and Evans and our premium mixers range from the London Essence Company.
We have made good progress broadening our channel presence, winning new accounts such as Subway and G1, the leading hospitality group in Scotland, and retaining major contracts such as KFC and Fullers. A key element of our revenue management strategy has been to grow our higher margin immediate refreshment portfolio which includes pack sizes such as 500/600ml PET and 330ml cans. As a result we have taken share and grown more retail market value in this category than any other manufacturer, with Pepsi Max, Drench and Ballygowan leading this success. Further opportunity in this segment remains as we still under-index versus our overall market share.
The tragic terrorist events of the last year, combined with social and economic pressures, have had an impact on consumer confidence and behaviour in France. In addition, syrup sales are particularly weather sensitive and the weather this summer did not match the previous year affecting sales. In contrast Fruit Shoot performed well, aided by the introduction of a 1.5 litre sharing pack. Our juice brand Pressade also continued to grow strongly, with its focus on organic and locally sourced fruit proving popular with consumers. Next year we are introducing a high juice version of Fruit Shoot and a new range of premium syrups under the Moulin de Valdonne brand, addressing the consumer demands for naturalness and a premium treat.
2016 has been a successful year for our Irish business unit. We leveraged our number one position in “no added sugar”, in which we enjoy over 30% share, to outperform the market. Ballygowan water contributed more growth to the Irish soft drinks market than any other brand. We successfully extended the brand through the launch of Sparklingly Fruity.
MiWadi led the squash category back into growth and this year MiWadi 0% sugar became the first soft drink brand to receive approval from Diabetes Ireland. It was a successful year for our business out of home as we used the breadth of our portfolio to successfully take share in both convenience and through our licensed wholesaling arm, Counterpoint.
To further increase our reach into the Licensed channel, we are today announcing the acquisition, subject to competition approval, of East Coast Suppliers Ltd, a licensed wholesaler with a strong presence in Dublin. Through this acquisition, our business will become the number two wholesaler, providing a direct route to market for our growing adult premium soft drinks portfolio.
Realise global opportunities in kids, family and adult categories
We have had an excellent first year in Brazil. Despite the current tough economic conditions, we have grown volume and revenue and our brands Maguary and Dafruta have gained market share. Multiple price increases were successfully executed to maintain margins in the face of double digit raw material inflation. More recently we have launched Maguary Fruit Shoot, a fantastic achievement for the combined Ebba and Britvic team in such a short period of time. Initially we are focusing our efforts on Sao Paulo city before we undertake a broader roll out across Brazil. The local senior management team have all been retained and have proved a great addition to Britvic.
We continue to invest behind our international division in the USA. Fruit Shoot singles, distributed by our partner Pepsi in the convenience and leisure channels, have continued to perform well and we have maintained our market share. Fruit Shoot is now listed in Pizza Hut nationally and is performing well.
This year we have also launched multi-pack into the grocery channel with our partner Advantage Sales and Marketing, who are a well-established operator in grocery. The scale of the opportunity is large but the USA grocery market is complex, diverse and highly competitive. We are pleased with the listings we have gained with major retailers such as Walmart, Kroger and HEB but recognise that we have further work to do to properly establish the brand in this channel in the year ahead.
Finally, we took the difficult decision to withdraw from India this summer. Whilst the brand was growing its distribution, the path to sustainable profitability was proving to be a long one and we have decided to focus our efforts and investment elsewhere.
Continue to step change our business capability
Last year we announced a transformational three-year investment programme to deliver increased supply chain flexibility and efficiency with a minimum 15% EBITDA return. We continue to see a significant opportunity for our business to improve its capability and our current expectation is that the net capital investment in the programme will be around £240m. The first year of our investment into the supply chain in GB is on track and we have identified opportunities in Ireland and France. In 2016 we commissioned our first new large PET line and on site warehousing in Leeds. We also made significant progress on the installation of three new can lines in Rugby. These will be fully operational in spring 2017 and will start to deliver significant cost and commercial benefits as we head into 2018. In 2017 we will commence the next phase of our investment programme, with a new PET line in London, as well as new aseptic lines in Rugby and in France. In Ireland, we announced changes to our distribution model, outsourcing all warehousing and distribution to increase capacity and reduce cost.
As we have looked to extend our business capability agenda beyond supply chain, we have taken the opportunity to flatten our team structures and create more synergy between our business units, which will improve the speed and effectiveness of decision making as well as drive out cost. We anticipate that these initiatives will deliver incremental annual cost savings from 2017 of £5m.
Build trust and respect in our communities
Public health has continued to be a key issue in 2016, with soft drinks levies proposed to be introduced in 2018 in the UK and Ireland. Britvic believes in offering choice, whilst making it easier for consumers to reduce their calorific intake without compromising taste or quality. We are disappointed at the introduction of category-specific taxes, since we believe a holistic approach is necessary to tackle this complex issue.
Playing a proactive role in helping to address obesity has long been an integral part of our sustainable business plan. We have led the industry in our approach to health: reformulating brands such as J20 and Drench; introducing new product innovations such as MiWadi Zero and MiWadi Mini; and removing added sugar Fruit Shoot and Robinsons. Our actions since 2012 have led to an annualised 19bn calorie reduction and our portfolio is now strongly weighted towards low and no sugar in GB and Ireland.
Our brands have also continued to help families get active, promoting sport through high level sponsorships including Robinsons’ enduring association with the Wimbledon Lawn Tennis Championships and Teisseire’s sponsorship of the Tour de France. This year Fruit Shoot partnered with Tough Mudder to enable children across the UK, France, Ireland and the USA to participate in a Mini Mudder obstacle course. Fruit Shoot also partnered with Right to Play - a global organisation that uses the transformative power of play to educate and empower children facing adversity.
We have made good progress on reducing our environmental impact, with the investment in our manufacturing plants leading to a 1.5% reduction in water usage per litre of soft drink produced. At our Leeds factory, water consumption is down 22% and energy use reduced 45% relative to production, compared to FY15. We are confident our London and Rugby sites should see a similar efficiency saving once the supply chain investments become fully operational by 2020.
This year our charitable contributions have been valued at nearly £900,000 and our employees have continued to live our values, going the extra mile to support great causes and build an inspiring place to be. In GB, our employees have been supporting our two new charity partners, Sported and the Wildlife Trust. In Ireland, we launched our employee volunteering policy, enabling employees to take 2 days paid leave to volunteer. In France we have been supporting young people entering the labour market through workshops, open days and partnering employee volunteers with young people on job discovery exercises.
2017 will be another challenging year, with difficult trading conditions and input cost inflation for the first time in several years. The UK’s vote to leave the EU and the proposed soft drinks levies in GB and Ireland from April 2018 have created additional uncertainty.
However, we are well positioned to deal with these challenges. We have a clear strategy that is working, hugely talented and committed people, and a robust balance sheet that provides a strong platform from which we will continue to deliver our strategic goals. The breadth of our portfolio, strength of our brands and innovation capability leaves us well placed to continue to grow. Through our transformational business capability programme we are creating a stronger, more efficient business, with a lower cost base. I am confident that we will deliver 2017 results in line with market expectations whilst continuing to progress our strategic priorities.