Management Briefing

Review of the Year 2011 - Water

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The last 12 months has seen the bottled water industry pick itself up out of the doldrums, following a number of years of declines in mature markets.


Two of the major players in bottled water, Nestle and Danone, spent the year reaping the benefits of a rising tide for the industry.

Danone Waters entered the year with "a healthy face" after reporting a rebound in sales in 2010, returning to 2008 value levels globally. The company invested in a number of advertising campaigns throughout the year, including a new Evian babies commercial entitled 'Live Young' in April, and a GBP3m (US$4.9m) UK 'Volcanicity' ad campaign for its Volvic brand in May.

The two largest investments of the year for the French firm came with the construction of a facility and an investment in an existing one, in May and November respectively. The first, a EUR6m (US$8.6m) innovation centre for bottled water, is being constructed on the site of the company's Evian bottling plant south-east France. The Centre International d'Expertise de l'Eau (CIELE), is scheduled to enter service in early 2012.

The second was a EUR6m investment at Danone's plant in Salvetat-sur-Agout, in southern France, which produces the French group's Salvetat sparkling mineral water brand. Part of the sum will be spent on increasing production capacity after Danone posted volume growth for the brand of 10.5% in 2010.

Despite the investment, later in the year, Danone became embroiled in speculation that it was looking to offload its bottled water business to Japan's Suntory Holdings in order to concentrate on its infant nutrition business. It is not the first time that Danone's bottled water unit has been the subject of sale speculation. Last year, the French firm was reported to have sounded out both Asahi and Suntory over a possible deal.

Danone declined to comment on the reports, but Kepler Capital Markets analyst Jon Cox told just-drinks in October, that a disposal of Danone's water business would make sense, if it wants to grow further in infant nutrition. The category is currently growing at around 7% annually.

Nestle, meanwhile, was not to be outdone by Danone in 2011. In May, Nestle Waters North America acquired the Sweet Leaf Tea Co from private equity firm Catterton Partners. Nestle had made an initial $15.6m investment in Texas-based Sweet Leaf in March last year, with an option to buy the company outright at a later date. The purchase included the Sweet Leaf and Tradewinds beverage brands.

The Switzerland-based bottled water producer also repositioned its pan-European spring water brand Aquarel on the French market in June, to target children aged between six months and three years.

In November, a further investment in the UK saw Nestle spend GBP35m (US$54.8m) on the construction of a facility to produce lightweight bottles for its Buxton and Nestle Pure Life mineral waters in the country.

But, Nestle Waters also had its fair share of controversy in 2011. In February, the company filed a lawsuit against the Russian company Elitvoda Ru, accusing it of illegally importing its Perrier, Vittel and S.Pellegrino water without its permission.

Fast forward to September and the shoe was on the other foot, with Nestle Waters becoming the subject of a $50m class action lawsuit, filed by a US customer. The case accused the company of an "oppressive and fraudulent scheme" regarding late payment fees. Nestle stood firm however, and has said that it will vigorously defend itself against the accusations.

The year wasn't all about Danone and Nestle, however. UK-based Highland Spring also had a busy year, having signed a number of endorsement deals.

The firm kicked off 2011 by extending its sponsorship of Scottish rugby. Tennis was next on Highland Spring's agenda with the launch of its 'New Balls for Britain' campaign - the company's biggest promotion to date in the UK. This was followed in August with two sponsorship deals in the UK, with IMG Golf and the Scottish Golf Union (SGU).

Highland Spring rounded its year off with a final deal in September. The firm extended its partnership with the Lawn Tennis Association in the UK, becoming the official water supplier to the governing body's Mini Tennis programme until 2013.

US firm Primo Water also made its mark on the bottled water industry in 2011. In April, the firm completed the acquisition of US drinks firm Omnifrio Beverage Co. In a further indication of Primo's ambitions, the company filed for an amendment to its existing revolving credit facility, which it secured in November, providing it with access to up to $25m.

Primo was also one of a number of bottled water firms in 2011 that decided to go public and launch on the stock market. Primo closed its public offering of 6.9m shares at $11.26 per share in June, while UK-based Waterlogic raised GBP48.5m through a listing on the London Stock Exchange a month later. Mountain Valley Spring Co began to prepare its IPO to list on the Nasdaq Capital Market Exchange this month.

On the M&A front, 2011 saw the purchase by South African finance group Bidvest of a near-15% stake in Icelandic Water Holdings in June. Four months later, Pacific Water acquired China Water & Drinks for an undisclosed sum. DS Waters of America followed in December with the purchase of the assets of Deep Rock Water Co.

However, while many bottled water firms were busy investing in expansion, others were facing a tougher battle to stay afloat.

UK-based Silver Springs announced a restructuring of its business in August, with the discontinuation of a number of poor performing private-label brands. The move resulted in the firm cutting around a third of its workforce two months later.

In September, storm clouds also gathered over Norwegian bottled water firm Isklar's business. The company announced it was seeking third-party investment after a court in Norway appointed an administrator to help restructure the group's debt. The company said it would also engage in a cost-cutting process in a bid to reduce debt.

And so, we look forward to seeing how the water industry has fared in 2011, when the FY figures come through next year. Considering how healthy the industry looked a year ago - figures published by The International Bottled Water Association in June revealed a 3.5% increase in bottled water consumption in the US in 2010, and research from Zenith in May showed 0.7% volume growth in the UK last year - the signs look positive.

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