Britvic interim earnings sparkle but bubble burst by CFO retirement

20th May 2015 09:49

Although interim earnings at Britvic beat forecasts in the face of UK grocery deflation, the departure of the drinks company's finance director disappiointed investors.Revenues in the six months to 12 April declined 0.7% to £650.3m, only slightly behind consensus expectations of £651m despite challenging trading conditions that were countered with a 15% increase in advertising and promotions (A&P) spend.However earnings before interest, tax, depreciation and amortisation (EBITDA) of £64.7m was up 6.2% on the same period last year and roughly 3% ahead of forecasts, thanks to a disciplined control of costs that led to a 60-basis-point improvement in margins.Adjusted earnings per share (EPS) increased 11.6% of 16.4p, leading to the interim dividend being lifted 10% to 6.7p, which management said also reflected their "confidence in future prospects".Chief executive Simon Litherland lamented the retirement, announced along with results, of chief financial officer John Gibney after a decade and a half at the company, having played an important role in the group's acquisitive growth. Nevertheless, with the search for a successor already begun, he was bullish about prospects and said, while trading conditions are expected to remain challenging, guidance for the current year was unchanged, with analysts noting an easier comparative from last year in the second half.The second half will see the beginning of benefits from recent innovation launches, with the roll-out of Fruit Shoots in the USA said to be "making progress" but expected to be loaded towards the next financial year.Innovations include the launch of a cherry flavoured Pepsi, with 7UP refreshed with a new pack design and marketing campaign, Tango given a new look, and French syrups brand Teisseire launched into the UK with a range of products for mixing with hot drinks or alcohol or water."Despite the challenging market conditions we have delivered double-digit earnings growth, continued to improve our margin and further reduced debt," Litherland said."Importantly we continued to increase A&P investment behind our brands, our innovation and marketing capability and in our international business unit, to drive future revenue and profit growth." Nomura said that, although the existing cost-saving programme will formally complete this financial year, it saw potential for a continued margin gains over the medium term, as the international business moves from loss to profit and the other potential efficiencies from the supply chain are found."However, we see the company continuing to invest behind the business to drive future top-line growth."Shore Capital said it did not anticipate material changes to full-year market expectations as today's performance underpinned full-year expectations ahead of the important summer months."However, we note it does also include an uplift in A&P spend which is positive."