In the Spotlight - Britvic's plant closures and the AG Barr merger
Is the merger still on?
It has been a busy six months for Britvic - a merger with AG Barr delayed, full-year profits down one-fifth - so it should have come as no surprise Wednesday's (22 May) first-half results were so intriguing.
But they still managed to cause a splash.
First up was the numbers themselves. Profits rebounded from last year's slump to jump by 32% despite no change in sales. Meanwhile, Fruit Shoot, buried in bad news last year as rotten weather hit sales and a faulty cap sparked an expensive recall, was wallowing in glory with new distribution deals in the US and a plan to launch in India.
But the real pot-stirrer was Britvic's decision to close two UK factories and a warehouse as part of a GBP30m cost saving plan, a shock announcement that had the soft-drinks tea-leaf readers furiously discerning what bearing this had on the Barr merger.
Nomura's Ian Shackleton figured its chances were now 10%, down from 30% three months ago, while a JPMorgan quoted in The Herald said that Britvic's announcement "serves as a 'declaration of independence".
A reporter at Sky got the drop on everyone by highlighting Brivic's new strategy on Tuesday, citing insider knowledge. He also suggested Barr may now switch its attention to GlaxoSmithKline's Lucozade and Ribena brands, which were put up for sale last month.
Wayne Brown, analyst at Canaccord Genuity, made a lot of sense by pointing out that the closures may well have been part of Barr's post-merger business plan anyway. After all, it was Barr's CEO Roger White who was supposed to have taken the helm of Barr Britvic Soft Drinks. The company is also close to completing its huge bottling plant outside Milton Keynes, which Brown last year said could lead to Britvic shuttering production facilities.
The hint of inevitability will do little to placate the 400 Britvic employees with their jobs on the line, and local anger over the closures has been high. A BBC Radio interview with just-drinks' deputy editor James Wilmore (found here at 1:05:00, UK only) examined the reasons behind the cuts, while in Huddersfield, where 40 jobs will go, the local MP had some choice words for those behind the decision to shut the Birkby plant.
“These are 40 jobs, 40 livelihoods and 40 families,” Barry Sheerman said.
One blogger said the Huddersfield closure was “a bitter blow every way you look at it. And the decision to shut has to be questioned as the group’s profits continue to soar.”
Which brings us back to those profits. With sales relatively flat, it is obvious Britvic has been ramping up prices, a strategy, which despite the continuing poor weather in the UK, seems to be working. However, Canaccord's Brown said the dynamics behind the profits jump - the price increases and a lower marketing spend - are “unsustainable”. He even says Britvic may be plumping up its profits ahead of the Competition Commission’s decision on the merger, due in July.
Which would mean Britvic still cares what the body has to say. Which means we still have a merger on our hands.
- Diageo Q4 & FY - Preview
- Is Diageo approaching its "Et tu, Brute" Moment?
- Has Diageo added Beer to its 'Non-Core' List?
- SABMiller, Carlsberg, Heineken: Poland's beer itch
- Diageo, Heineken and NBL in South Africa & Namibia
- NPD: Tomatin Contrast, Cù Bòcan
- Diageo, Heineken end South Africa, Namibia JV
- Diageo comm's director latest to leave
- Diageo hit by SEC investigation in US
- Pernod launches pomegranate whisky drink
- Global gin insights - market data, product innovation and consumer trends research
- Global rum insights - market forecasts, product innovation and consumer trends research
- Global Tequila insights - market forecasts, product innovation and consumer trends research
- Global cachaca insights - market data, product innovation and consumer trends research
- Global non-Scotch whiskies insights - market forecasts, product innovation and consumer trends research