Britvic warning takes fizz out of drinks giant

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The Independent Online

Britvic, the soft drinks company behind some of Britain's best-selling brands, such as Pepsi and Tango, stunned the City yesterday by admitting that consumers had lost their taste for sugary drinks.

More than £130m was wiped off the value of the company, which listed on the stock market in December, as investors reacted badly to the news of the national aversion to fizz. Shares in Britvic plunged 63.5p to 210.5, well below the 230p issue price.

Sales of carbonated drinks, which make up a little less than half of Britvic's drinks cabinet, dropped by about 8 or 9 per cent in January and February as shoppers swapped bubbles for smoothies. For Britvic to hit even the bottom of the range of profits forecasts set just three months ago, it said the fizzy drinks market would have to recover.

The decline in Britvic's fortunes raised questions over the stories it spun to the City in November while selling itself to potential shareholders. One large institutional investor said yesterday: "Has the growth story that the management were marketing when they came round three months ago stopped? Or has management credibility taken a hit? It's too early to say."

Paul Moody, the chief executive, said it was hard to explain the abrupt fall in sales of its fizzy brands, which include its eponymous brand, R Whites lemonade and 7-Up. "The decline has been quite marked," he admitted. "We are seeing a very different market post-Christmas to the one we were looking at from October to December."

The trend for consumers to reach for something less sugary than a can of Pepsi is nothing new. Sales of bottled water, fruit-based drinks and sugar-free variants of all the old favourites are soaring as the message that the more calories, the bigger the girth, finally hits home with our growing nation of fatties.

A recent survey of the fastest-growing grocery brands, by AC Nielsen for the industry magazine Checkout, showed that probiotic drinks such as Danone's Actimel and fruit juices such as Tropicana, which is owned by PepsiCo, are growing at the expense of run-of-the-mill colas.

Mr Moody said: "Over the past three to four years there has been a tendency for the market to switch from carbonates to still drinks, driven by a greater awareness of health and well-being. Since Christmas we have seen a weakening in the total market with the move into still drinks accelerating. As a consequence, sales of carbonates has slowed."

Britvic's prospectus, issued to all would-be investors, painted a glowing picture of the "large, growing and dynamic market" that it supplies. The 200-odd pages are full of references to the company's strong profits track record and bullish forecasts about the rosy future for soft drinks.

Yesterday Mr Moody admitted the company had been caught out by the past two months of falling sales. "The market moving the way it has is not what we would have anticipated or hoped for." But he denied misleading the City: "We couldn't have been more explicit about something that we didn't see." He says the company issued its trading statement to flesh out revenue and operating profit numbers released yesterday by InterContinental Hotels, which was Britvic's biggest shareholder before it was spun off.

A reminder of just how much money InterContinental pocketed from the sale of its stake in Britvic made uncomfortable reading for all those pension fund managers nursing heavy losses. The hotels group funded a £500m cash handout to its shareholders, in part from the £371m it banked from Britvic. (Whitbread, another former shareholder, made £140m, while Pernod Ricard scooped £117m. Of the four original owners, only PepsiCo is still a stakeholder with 5 per cent of Britvic's shares.)

One thing Britvic has going for it is its heritage. The company we associate today with a range of fruity soft drinks was originally christened The British Vitamin Products Company. It traces its roots to a 19th century Chelmsford-based chemist, becoming Britvic only in the 1970s. Today it is attempting to return to its healthier origins by focusing on still drinks such as Fruit Shoot and bottled water after its recent purchase of Pennine Spring.

Jill Ardagh, the director general of the British Soft Drinks Association, believes Britvic's moves are typical of an industry she says is preparing to bid its unhealthy past farewell. "The soft drinks industry is adapting to meet these demands. The products to meet concerns about obesity and healthy lifestyles," she added.

In the US, Cadbury-Schweppes is about to launch the first all-natural fizzy drink. A variant of the 7-Up brand, which it owns in North America, the drink will not contain artificial flavourings or colourings. Mr Moody would not be drawn on whether Britvic was working on a similar product for the UK market.

The changing tastes of consumers provided a shot in the arm for the Government, which has come under fire over fears it will not fulfil its pledge to halt rising child obesity by 2010.

And certainly Britvic is not the first company to be caught out by shifting trends. The collapse of the sausage roll supremo, Canterbury Foods, this year was blamed on the success the celebrity chef Jamie Oliver has had in weaning schoolkids off pastry products. Then there was RHM, which floated last year. Like Britvic, its maiden trading update was a disappointment to the City because of customers shunning some of its more fattening products. Cakes, in the case of RHM.

What could compound matters for Britvic, however, and put even that bottom-end forecast out of its reach, is the prospect of another high-profile food scare, this time concerning benzene. The Food Standards Agency said this week it had discovered worryingly high traces of the carcinogenic chemical in 230 drinks on sale in the UK. Mr Moody insisted none of his products were affected, but admitted it was too early to predict the likely impact on sales. That hangover could yet prove hard to shift.

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