FY20 started well, with value share gains in GB, Ireland and Brazil. As expected, lockdown has affected out-of-home and on-the-go consumption in particular. Conversely, sales of at-home consumption packs have increased significantly, thus leading to an adverse mix effect. GB and Ireland have been the most affected markets for Britvic, as they have a greater exposure to the out-of-home channel. The company is maintaining its guidance of a likely monthly impact from the COVID-19 pandemic of £12–18m adjusted EBIT, although its scenarios seem very conservative.
There was a planned change in the reporting period, which affects reported growth rates. Reported revenue was down 9.1%, but up 1.4% on a like-for-like and constantcurrency basis. Adjusted EBIT was up 9.4% on the same basis, but down 9.6% on a reported basis, with adjusted EBIT margin up 80bp on a l-f-l basis. The dividend was deferred to later in the year for prudence when the effect of COVID-19 will be clearer.
Britvic had issued a statement on 23 March with a COVID-19 update, in which it shared a sensitivity analysis and attempted to quantify the monthly impact on the business of a full lockdown in its markets. The company is now sharing further details: the scenarios included an assumption that a level of restriction on movement would continue until March 2021 and that only a small proportion of outof-home outlets reopen during this time. In addition, it assumed the busiest trading period in FY20 was affected. As lockdowns are eased across Britvic’s key markets and the level of trading restrictions reduces, we expect the monthly EBIT impact should also be lower. Of course, management has already taken the necessary mitigating actions to protect profit and cash flow, such as reducing A&P, stopping all non-essential and non-committed capex, and tightly managing working capital.
Britvic trades at a consensus FY20e P/E of c 16x, a c 35% discount to the UK beverages sector. We believe the discount should narrow over time, although in the shorter-term COVID-19 uncertainty remains the biggest risk for the whole sector.