Britvic models impact of Out of Home closures, restricted movement and demand in grocery due to COVID-19

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Soft drinks business Britvic has modelled the impact of Out of Home closures, restrictions on movement, and differing potential supply and demand implications for its grocery business due to coronavirus. The company said all elements in its supply chain are currently working and while the modelling anticipates some minor potential disruption, it does not include a significant supply chain discontinuity, such as the enforced closure of all or a substantial part of any of its major production or distribution sites. Nor does it include significantly elevated levels of bad debt.

Based on the modelling work to date, in the event that these conditions persist across its key markets of GB, Ireland, France and Brazil, Britvic said its best estimate of the impact for the Group is a reduction in EBITA of between £12m and £18m per calendar month.

The above figures include a number of actions it is taking to mitigate the profit impact through cost control and reduced discretionary spend across our business, including A&P. Britvic said it is also taking further actions to ensure the security of its cashflow, including the deferral of capital expenditure and closely managing our working capital, while also seeking to give appropriate support to customers and suppliers.

Britvic stressed it starts from a strong financial position, as a highly cash generative business with a robust balance sheet. Its Net Debt to EBITDA at the end of FY19 was 2.1x. Britvic said it has an open and strong relationship with a broad and supportive banking group, and is a long-standing issuer in the private placement market.  This combination provides access to c.£1bn of facilities, which will help it to absorb the impacts of the scenarios outlined above. 

The company recently successfully refinanced its £400m revolving credit facility up to 2025, with the potential to extend the maturity to 2027 with lender consent. There is also an accordion mechanism in place to increase the RCF size by up to another £200m (again with lender consent). In addition it has access to £600m of private placement notes, of which we recently refinanced £150m. Covenants are set at 3.5x Net Debt to EBITDA and 3x EBITDA to Net Interest Expense (which was at a comfortable 14x at the end of FY19).

In addition, the company said it will explore the newly announced Covid Commercial Financing Facility (CCFF) from the Bank of England. Finally, it remains fully engaged with all of our lenders, and should it require further headroom or flexibility, it is confident we could achieve this.

An interim dividend is due to be proposed in its interim results on May 20. While all the above gives the company confidence in its funding arrangements, the uncertainty that surrounds the business and pace of change means that it will reflect, at the appropriate time, with the best available up to date information, whether it is in its shareholders’ best interests for the company to recommend or postpone the interim dividend.

In addition to all the business continuity work, Britvic said it also remained focused on maintaining a full state of readiness to ensure that it can resume strong trading once the crisis passes and normality returns.

Simon Litherland, CEO, commented: “I have spoken many times about Britvic’s resilience in the face of tough external circumstances. Never has that been tested as much as is happening now. I am always proud of the way our people respond to a challenge and once again they are delivering beyond my expectations.

“Soft drinks has historically been a resilient category in any downturn. Britvic starts from a strong financial position and we are taking further action to protect our cashflow and profitability. Our brands’ consumer appeal is enduring in good times and bad, and we are confident in our ability to bounce back strongly as normality returns. The long-term investment case for Britvic remains intact.

“In the short term our priorities remain the welfare of our people, maintaining the availability of our products to consumers through our diverse customer base, and sound financial management of the business.”