Britvic Prelim inary Results Wednesday, 29 th November 2017 - - PDF document

Britvic Prelim inary Results

Wednesday, 29th November 2017

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Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 2

Delivering on Our Strategic Priorities and Vision

Sim on Litherland CEO, Britvic

Good morning and welcome everybody. Today I am going t o t alk about how we have delivered our commit ment s in F17. Mat t will t hen come up and updat e on our financial performance and I will come back and close by reflect ing on our st rat egic delivery t o dat e and sharing some of t he highlight s t hat will be coming up in F18. 2017 Another Year of Strong Progress So, 2017 has been anot her st rong year for Brit vic, demonst rat ing once again t hat we can deliver in t he short t erm while cont inuing t o invest in long t erm growt h. Highlight s include st rong revenue in profit growt h, successfully innovat ing int o a rapidly changing cat egory, cont inued organic margin growt h t hrough combining price realisat ion wit h a cont inued focus

• n cost reduct ion, complet ing and int egrat ing t wo acquisit ions during t he year, one in Brazil

and one in Ireland, progressing our invest ment in t he GB supply chain and our wider business capabilit y programme and cont inuing t o int ernat ionalise t he business wit h 41% revenue now generat ed out side of GB. Growing Revenue across Our Core Markets Despit e t he headwinds facing all FMCG businesses, we have delivered revenue growt h across

• ur core market s in 17. In GB, growt h came from successful revenue management and t he

carbonat es brands. We led promot ional price movement in t he market . Pepsi grew bot h revenue and market share t hanks t o Max and t he relaunch of R Whit e’s drove double digit growt h. Whilst GB st ills have improved, t here is st ill more work t o be done but I am confident t hat we have st rong plans t hat I will share wit h you lat er. In France, we also successfully execut ed a revenue management plan t his year despit e cont inued pressure from grocery buying groups. Our invest ment in t he brand port folio has cont inued t o pay off wit h brands now account ing for over 60% of revenue compared t o 50% at t he t ime of acquisit ion. I am part icularly pleased wit h t he growt h in our juice brand Pressade, which grew 32% t his year making it t he t hird largest cont ribut or t o soft drinks revenue growt h in France 2017. Finally, in Ireland, we also grew revenue despit e a highly compet it ive pricing environment , part icularly in carbonat es. Our port folio of leading low and no sugar brands has cont inued t o resonat e wit h Irish consumers seeking healt hier choices. In t he off t rade, our Count erpoint wholesaling businesses has delivered furt her growt h, bot h expanding dist ribut ion of our soft drinks range and also increasing our share of alcohol and snacks t hat accompany it . In addit ion, it has benefit ed from t he East Coast acquisit ion, which has significant ly improved

• ur rout e t o market in Dublin.

I nvestm ent in I nnovation I s Delivering Growth Innovat ion was ident ified in our st rat egy as a key long- t erm growt h driver for t he business. We have t herefore over t he last t hree years increased invest ment in our innovat ions capabilit y in areas such as insight , liquid development and packaging t echnology. The benefit s

• f t his are now coming t o fruit ion. We are successfully launching new product s t hat meet t he

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 3 growing consumer t rend of healt hier and more premium drinks. We oft en ut ilise t he st rengt h

• f our core brands t o innovat e from. For example, we launched Robinsons Squash’d t o make

it easier for people t o drink squash when out of t heir homes and last year we launched Robinsons Refresh’d t o enable t he enjoyment of a nat ional low calorie ready t o drink Robinsons while on t he go. We also cont inue t o t arget our brands t owards new sources of growt h, such as t he growing energy market wit h our nat ural energy drink Purdeys. Finally, we t arget all of our innovat ion t o be long t erm margin accret ive and t he vast majorit y will be below t he sugar levy. Compared t o 2010 when own brand innovat ion account ed for 1.5% of t ot al revenue, we are now generat ing 5.4%. We hold ourselves t o a st rict definit ion of innovat ion as t he launch year +3, which means t hat t he cont ribut ion from innovat ion will fluct uat e over t ime as some product s drop out and new ones come in. However, we ant icipat e t hat over t he long t erm a similar level of cont ribut ion t o t hat which we have achieved t his year. I nnovation Delivering Growth across Kids, Fam ily & Adult Categories Some of our recent innovat ion successes are shown on t his chart . We have expanded t he presence of Fruit Shoot int o flavoured wat er wit h a st ill and sparkling Hydro range, which has increased revenue by 17% t his year. In Ireland, Mi Wadi Zero drove growt h in t he squash cat egory and increased it s revenue by 40%. IN France, our organic based Pressade increased revenue by 32% following t he launch of t he Bon Jour breakfast juice range. This year, we cont inued t o ut ilise t he st rengt h of t he Robinsons brand, expanding it by launching Refresh’d, a low calorie all- nat ural juice and spring wat er drink t hat has delivered 4 million in ret ail sales value in t he 19 weeks since launch. As I said early, R Whit es has grown revenue by 13% t hanks t o t he addit ion of a premium range feat uring new more sophist icat ed flavours and premium packaging t hat leverages it s herit age credent ials. Finally, Purdey’s, a nat ural energy drink made wit h nat ural juice and bot anicals wit hout caffeine, t aurine or added sugar has grown revenue by 29%. Brazil – Successfully Navigating Current Challenging Conditions So, aft er a successful first year in Brazil, we have experienced t he ant icipat ed adverse impact

• f t he macro environment and consumer spending. Our focus has been wo- fold. First ly, we

have prot ect ed and indeed grown margins and profit abilit y in t he short t erm, which we believe will leave us in a much st ronger posit ion as a consumer environment becomes less

• challenged. We have t aken price t o offset double digit input cost inflat ion, yet cont inued t o

t ake share t hrough st rong in- st ore execut ion. Secondly, we have cont inued t o invest in t he long- t erm opport unit y by expanding our brand port folio and geographic reach. We have recruit ed addit ional commercial resource and acquired Bela Ischia, t he leading concent rat es brand in Rio. The business has been successfully int egrat ed t his year and our guidance of R$10 million in cost synergies will be exceeded. In t erms of innovat ion, last year we launched Mega Fruit Shoot t owards t he end of t he year and we cont inue t o roll out and nurt ure t he brand and are st art ing t o ext end t he dist ribut ion int o t he five most populous regions on t he East Coast . We have also ext ended our port folio furt her int o ot her cat egories, such as t ea and coconut wat er. In t he USA, Fruit Shoot has made st eady progress t his year.

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 4 Steady Progress for Fruit Shoot in the USA We have delivered double digit revenue increase and reduced our losses. The singles format has increased it s market value share, cement ing it s opposit ion as t he number t wo brand in t he channel overall and number one in some st at es. We cont inue t o focus on building dist ribut ion, for example, on in dollar general where we now have t wo variant s of Fruit Shoot being list ed in t he chiller in over 8,000 out let s. IN t he grocery channel, we are now lapping t he first year of mult ipack coming t o market . Weight ed dist ribut ion has cont inued t o increase and now st ands at 37%. We have ret ained all our major list ings and are expanding our on- shelf presence in select ed ret ailers. The feedback from ret ailers is posit ive and we are encouraged by t he st eady progress we have made. Our focus is t o cont inue t o build consist ent qualit y in- st ore execut ion where we are list ed so t hat we may drive t he rat e of sale. We cont inue t o see enough proof point s t o support our belief t hat t here is a meaningful

• pport unit y for Fruit Shoot in t he USA, but it is st ill t oo early t o call it a long- t erm success.

Now I will hand over t o Mat t t o t ake you t hrough t he det ail of our financial performance.

Financial Performance

Mat Dunn CFO, Britvic

Good morning everyone. Before we dive int o t he det ail of our financial performance, I t hought it would be useful t o provide cont ext on t he market condit ions where we operat e. In our European market s, t he soft drinks cat egory performed resilient ly in 2017 wit h value growt h in GB, Ireland and France. Encouragingly, aft er a number of years of deflat ion we have seen value grow ahead of volume in all of our market s t his year. The numbers quot ed here are for t he off- t rade grocery and convenience sect or rat her t han t he t ot al market , but t hey give you a flavour of t he resilience t hat underpins t he cat egory. As you can see from t he slide, growt h in t he year was const rained by a weaker fourt h quart er, part icularly in GB and France where t he weat her in t he school summer holiday period was a damp squib following a great st art t o t he summer in June and Early July. In Brazil, t he soft drinks cat egory has been hit by t he fall in consumer spending, a shave many ot her FMCG cat egories wit h a double digit drop in volume t ranslat ing t o around 6% drop in ret ail value. whilst t he environment undoubt edly remains difficult and t he out look remains uncert ain, we have seen signs of improvement more recent ly. A Strong Financial Perform ance In t he cont ext of t hese market condit ions, Brit vic has delivered anot her st rong set of result s in 2017. Our organic performance has been good wit h revenue up 2.5%, EBITA up 5.6% and margin up by 30 basis point s. These result s reflect t he successful execut ion of our st rat egy wit h bot h revenue growt h and our cost management act ivit ies playing a role in t his performance. Report ed margin has declined 30 basis point s due t o t he st ronger euro increasing t he cont ribut ion from France where we have a privat e label business, Ireland where we have a large wholesale business and t he inclusion of Bela Ischia in Brazil. Adjust ed EPS has increase by 7.3% t o 52.9p. This benefit ed from t he st rong EBITA growt h as well as lower int erest cost s

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 5 reflect ing our refinancing act ivit ies in t he earlier part of t he year, as well as a lower t han ant icipat ed t ax rat e due t o t he one- off benefit s of t he reduct ion in fut ure French corporat ion t ax rat es on our deferred t ax liabilit ies. Given our st rong performance and t he confidence in fut ure prospect s, we have declared a final dividend of 19.3p result ing in a full year increase of 8.2%. Despit e our cont inued invest ment in our GB supply chain and t he complet ion of t wo acquisit ions t his year and net debt EBITDA rat io of 2.0x is in t he middle of our st at ed range and at t he lower end of our expect at ions at t he st art of t he year. The invest ment s we have made will no doubt st rengt hen our business and our st rong cash flow generat ion has allowed us t o make t hese invest ment s whilst ret aining our st rong funding plat form and financial flexibilit y. Business Unit Perform ance Turning now t o our business unit segment al performance. GB carbonat es generat ed st rong growt h led by Pepsi Max and R Whit es, as Simon has already referenced. ARP increased due t o t he implement at ion of new promot ional price point s in t he off t rade and posit ive mix from a 13% increase in revenue from on- t he- go consumpt ion packs. Brand cont ribut ion margin declined 120 basis point s because of increase A&P invest ment , cost and foreign exchange pressures, as well as increased sourcing of product from Ireland as we managed t hrough our line change overs in t he supply change. I m proving Perform ance for GB Stills As you all know, t he second half of t he year benefit ed from t he changes we made t o our price and promot ions framework in t he spring. GB st ills volume grew for t he first t ime since 2010. Revenue declined in t he year primarily due t o price deflat ion in Robinson in what remained a compet it ive squash cat egory. Robinsons declined in t he final quart er against a st rong comparat ive last year. This is part icularly pronounce given t he st rong promot ional programme we execut ed in t he t hird quart er and t he longer consumpt ion t ime of squash when compared wit h our ot her product s. J2O also declined in t he year as it t ransit ioned t o new promot ional price point s in t he off t rade. Whilst t he Fruit Shoot brand was flat , t he focus on t he Hydro variant result ed in furt her growt h as it capt ured an increased share of t he flavoured wat er cat egory. Pepsi Continued to Outperform the Category and Gain Share Underpinning our st rong GB performance was t he cont inued success of our part nership wit h Pepsi and in part icular t he cont inued success of brand Pepsi and Max. Pepsi has cont inued t o drive cat egory and growt h in gain share t his year, driven by Max. It remains t he number one black cola variant in blind t ast e t est s and it out performs against all ot her no sugar variant s. In recent years, we have broadened it s appeal furt her wit h t he int roduct ion of cherry and ginger variant s and t he brand has benefit ed from a long- t erm focus on invest ment we have cont inued t o put behind it . I m proving Perform ance for GB Stills GB st ill performance is improving; however, it fell behind our expect at ions t his year largely due t o a disappoint ing Q4. In squash, a deflat ionary environment has persist ed. However, whilst core range Robinsons volume declined marginally t his year, it benefit t ed from t he

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 6 launch of Refresh’d and it s brand healt h measures have improved. Brand awareness is high and t he at t ribut es of real fruit in every drop and t he link t o healt hy hydrat ion are resonat ing wit h consumers, wit h more consumers considering t he brand t han a year ago. As I referenced earlier, J20 has declined t his year. A key fact or has been t he loss of feat ure and disciplinary in grocery result ing from t he implement at ion of high promot ional price point s. In t he coming mont hs, we are int roducing new pack format s t o regain promot ional slot s wit h ret ailers. Alongside t his, we have just refreshed t he look of bot h core J20 and J20 Sprit z wit h new packaging across t he range. Fruit Shoot has performed bet t er and our focus on t he Hydro variant is paying off. Despit e t he cat egory t he core brand plays in remaining challenging, we have again seen an improvement in overall brand healt h wit h Fruit Shoot being front of mind for more shoppers t han it was a year ago. In France, our performance was st rong in a difficult market and we t ook market share. Aft er a good first nine mont hs of t he year, t he poor lat e summer weat her led t o a weak soft drinks cat egory performance in t he final quart er and had a part icularly high impact on syrups. The cont inued focus on t he brand port folio generat ed a 5% increase in branded revenue, part ly

• ffset by decline in privat e label. Pressade and Fruit Shoot cont inue t o deliver growt h, more

t han offset t ing t he subdued syrups performance. The consolidat ion of buying groups has cont inued t o creat e challenges, part icularly in t he syrups cat egory pricing, alt hough pricing improvement s were realised in juice in order t o prot ect profit abilit y. The weaker performance in t he last quart er combined wit h up weight ed A&P invest ment and cost pressures result ed in a reduct ion in brand cont ribut ion on a const ant currency basis, wit h a growt h in lower margin juice furt her impact ing margins. In Ireland, performance was excellent despit e int ense price compet it ion, part icularly in carbonat es. Growt h in own- brand product s was led by t he predominat ely low and no sugar st ills port folio. Count erpoint benefit t ed from an improved offering across it s alcohol and snacks range as well as from t he acquisit ion of East Coast earlier in t he year. The margin decreases as a result of bot h t he price compet it ion and t he growt h in t he sale of t hird part y brands in t he wholesales business, which generat es a lower margin. In Brazil, t he underlying organic const ant currency performance across t he year was impact ed by t he well- publicised macro- economic challenges. However, we ant icipat ed t hese t o a cert ain ext ent and in what has been an incredibly t ough environment , t he t eam have delivered an

• ut st anding result , execut ing robust price realisat ion t o prot ect margins and t aking share t o

grow brand cont ribut ion by 7.5%. Int ernat ional has cont inued t o generat e revenue growt h and increased margin. The USA benefit ed from t he launch of t he Fruit Shoot mult ipack last year, result ing in a 21% increase in revenue. In Benelux, t here was a cont inued focus on improving margin and mix. We cont inue t o invest in our int ernat ional business for long t erm growt h, but as is evident from t he st rong cont ribut ion and margin improvement , we have seen our effort s t o improve t he profit ably of t he business unit delivering result s. Unrelenting Focus on Cost Efficiency We have also cont inued our relent less focus on cost efficiency and t his has delivered good result s. A&P spend declined by 3.6 million on a const ant currency basis. Whilst branded spend did decrease marginally, a large element of t he overall reduct ion was t he result of efficiencies in our non- working A&P spend. This cont inues t o reduce as a percent age of our overall

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 7 invest ment , driven by efficiencies in agency fees, research and product ion cost , enabling us t o direct spend int o consumer facing act ivit y or point of purchase act ivat ion. Fixed supply chain cost s have increased due t o increment al depreciat ion from our GB invest ment programme whilst selling and ot her cost s have benefit ed from our rigorous approach t o cost cont rol. We t ook proact ive cost act ion by ext ending our business capabilit y programme t o incorporat e 5 million of overhead savings in 2017. This includes a flat t ening of our st ruct ure in some areas, as well as reducing duplicat ion bet ween our business unit s t hrough t he combinat ion of some roles. A t ot al fixed cost base has also benefit ed from gains in our proact ive foreign exchange hedging programme. Our focus on cost efficiency has underpinned t he progress we have made in cont aining t o grow our margin. Since 2013, we have increased our EBITA margin 230 basis point s from a low 10.4 t o 12.7% t oday. This year we added 30 basis point s of organic margin but whilst report ed margin, as I ment ioned earlier, did decline by 30 basis point s due t o FX t ranslat ion and acquisit ion dilut ion. Whilst we are st ill below best in class levels, we have ident ified six clear drivers of margin growt h t hat you can see here on t his slide. The GB supply chain programme in part icular will deliver subst ant ial benefit s and Simon will t ake you t hrough t his in more det ail short ly. As well as our t rack record of margin improvement , we have worked t o achieve a st rong balance sheet and long- t erm funding plat form t o support long t erm sust ainable growt h. We have generat ed free cash flow of £54.5 million despit e invest ing £147 million in CAPEX in our business and in part icular our businesses capabilit y programme. This has been support ed by a more rigorous approach t o cash management and our working capit al management in part icular. We have also looked at opport unit ies t o dispose of non- product ive asset s and as indicat ed at t he st art of t he financial year, we have disposed of propert y for a considerat ion in excess of £17 million. As a result of our st rong cash management t his year, adjust ed net debt t o EBIT DA has come in at t he lower end of our guidance range. As we head int o next , we are coming t o t he end of t he elevat ed CAPEX spend driven by t he GB supply chain programme and we will see a significant st ep up in free cash flow generat ion from 2019. We have also complet ed a number

• f refinancing act ivit ies which have furt her st rengt hened our long- t erm funding plat form.

The improving cash flow conversion from FY19 I just referred t o will provide a number of

• pt ions. We have been consist ent over a number of years in our capit al allocat ion priorit ies

across t hree key areas. Offering a progressive dividend policy based on a 2x cover, invest ing back int o our business where we see an at t ract ive ret urn, such as wit h our GB supply chain programme, and last ly execut ing select ive M&A as we have wit h t he recent acquisit ions of Bela Ischia in Brazil and East Coast in Ireland. Our long- t erm object ive is t o ensure we have sufficient financial flexibilit y t o pursue t hese goals in concert . Our net debt t o EBITDA t arget range of 1.5 t o 2.5x achieves t his aim whilst providing cover for unforeseen risks or shocks t o t he business. It remains an appropriat e range for us in t he medium t erm.

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 8 Accounting for Soft Drinks Levies and I FRS15 Turning now t o next year, bot h t he int roduct ion of t he soft drinks levies in t he UK and Ireland and IFRS15, which we int end t o implement in 2018 will affect our report ed result s. From an account ing perspect ive, for t he soft drinks levy our report ed ARP will increase t o reflect t he passing on of t he soft drinks levy t o ret ailers which we will do in full. Our cost s of goods will also increase t o reflect t he levy which we pay over t o t he government . Whilst t he net P&L impact of t he account ing is 0, we ant icipat e it will reduce bot h report ed brand cont ribut ion and EBITA margin percent ages. The implement at ion of t he IFRS15 account ing st andard requires us t o make t wo reclassificat ions. First ly, some of our cust omer relat ed invest ment spend will be reclassified from selling and dist ribut ion cost s and will be inst ead t reat ed as an

• ffset t o revenue. Secondly, we will reclassify cert ain incent ives received from suppliers from

revenue t o cost of sales. As a result , our report ed revenue will reduce and so will our cost base wit h 0 impact on profit . Our report ed EBITA margin will increase because of t his change. Wit h t hese t wo changes happening in t he same year, we will look t o provide as much disclosure as possible. To improve comparabilit y, we have draft ed a rest at ement of t he 2017 financials for t he IFRS15 change. The full rest at ement will be made available on Brit ivic.com in a few weeks and well ahead of t he Q1 t rading st at ement . In t erms of guidance for 2018, we ant icipat e input inflat ion t his year will be in t he low single digit s from a combinat ion of underlying commodit y inflat ion and FX as hedges roll off. Capit al spend for t he year is proposed in t he range of £144 t o 150 million subject t o consult at ion surround our Norwich sit e. This figure, as I have already ment ioned, represent s t he last year

• f elevat ed capit al spend as we complet e t he GB supply chain invest ment element of t he

business capabilit y programme. Taking int o account t he proposed elevat ed capit al spend, and

• ur commit ment t o a progressive dividend policy, we ant icipat e t hat debt leverage at t he end
• f t he year will remain wit hin our t arget operat ing range and it is likely t o come somewhere in

t he range of 2.1 t o 2.3 t imes. Our effect ive t ax rat e for t he year should be in t he range of 22.5 t o 23.5%, depending on our mix of profit s, whilst our int erest charge will be marginally higher t han F17 due t o increased debt levels and rising int erest rat es in t he UK. I will now hand back t o Simon, who will give you a perspect ive on our st rat egy and plans for 2018.

Clear Priorities For 2018

Sim on Litherland CEO, Britvic

Thanks Mat . Mat has shared t he 2017 result s and I would like t o t ake a moment t o remind you of t he progress we have made in delivering t he st rat egy we have shared in 2013 and some highlight s for 2018. Our Strategy Rem ains as Appropriate Today as in 2013 The four st rat egic pillars you see on t his slide are as relevant t oday as t hey were in 2013 and we believe t hey will count ies t o deliver st rong ret urns for shareholders going forward.

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 9 Our Strategy Has Consistently Delivered Profitable Growth Over t he last four years we have delivered consist ent growt h and creat ed significant shareholder value. On average, revenue has increased by nearly 4% per annum and our revenue out side of GB has increased from 35% t o 41% as we int ernat ionalise our business. EBITA is up over 9% per annum and we have expanded EBIT margin by 230 basis point s over t he four years. This is t ranslat ed int o EPS growt h of nearly 11% per annum and DPS growt h

• f 9.5% for our shareholders. We are proud of our t rack record and it gives us confidence in

t he validit y of our st rat egy. For 2018 we have comprehensive plans in place against all four pillars of t he st rat egy. However, t oday in t he int erest of t ime, I will just share some of t he key highlight s against each pillar wit h you before we close and move t o Q&A. As Mat has already highlight ed, 2017 has been anot her out st anding year for Pepsi Max in a highly compet it ive cat egory. 24 years on from it s launch, Pepsi Max has a ret ail value of £280 million in t he t ake- home channel. In t he last four years alone, t hat value has grown by over £100 million and Pepsi’s share of cola has increased by 6% t o over 28% driven by Max. In 2013 we launched Pepsi Max Cherry, which cont inues t o grow, wit h it s 2017 ret ail sales value increasing by over 20% t o £53 million. In 2017, we launched Pepsi Max Ginger, which has generat ed anot her £6 million in ret ail sales value, of which 52% was increment al t o t he cat egory. Cherry and Ginger have bot h broadened t he appeal of Max, at t ract ing 1.1 million new consumers int o t he brand in 2017. We have a comprehensive plan for Pepsi Max t his year, wit h our Christ mas act ivat ion now happening and as we head int o 2018 we will see major market ing campaigns across t he year. This will include a cont inued focus on t ast e t hrough t he ‘If you don’t love it , you haven’t t ast ed it ’ campaign and on leveraging Pepsi’s long- st anding relat ionship wit h foot ball t hrough Champions League act ivat ion. The Pepsi port folio will also benefit from our invest ment in t he business capabilit y programme as we st ep change our abilit y t o bring new pack format s t o market , which will be part icularly import ant wit h t he advent of t he soft drinks levy in April. Continuing the Reinvigoration of The Robinsons Brand Robinsons is t he number one squash brand in GB and t he nat ion’s most t rust ed soft drinks

• brand. However, in 2015 we recognised t hat Robinsons faced a number of challenges and

commenced t he reinvigorat ion of t he brand. We reformulat ed t he liquid t o creat e clear preference versus own label and de- list ed t he added sugar variant . We also began t o broaden t he shoulders of Robinson int o new consumpt ion occasions, st art ing in 2015 wit h t he launch

• f Squash’d t o t arget usage out of home and followed in 16 by t aking it int o Dispense and

Subway, and subsequent ly KFC. Finally, in 2017 we launched Refresh’d as a ready t o drink all- nat ural product for on t he go consumpt ion. We are now embarking on t he next st age wit h t he reset of t he squash cat egory int o good, bet t er and best . The launch of t he bet t er fruit creat ions, which has t wice t he fruit cont ent of t he good range and carefully blended flavours such as pear and blueberry aimed at older

• families. In addit ion, we are launching a premium cordials range in a 500ml glass bot t le

aimed at adult s and sweet ened by nat urally sourced st evia and sugar wit h combinat ions of real fruit and bot anicals, such as crushed lime and mint . Bot h ranges are margin enhancing, cont inue our commit ment t o lead on healt h and are exempt from t he sugar levy.

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 10 As we have evolved t he brand over t he last t hree years, we have maint ained Robinsons qualit y and herit age while adapt ing and responding t o changing consumer needs and t ast es. Performance is gradually improving and t he cust omer response t o t he upcoming proposit ions has been posit ive. Looking now at Fruit Shoot , while we recognise t hat t he kids’ cat egory as current ly defined faces more scrut iny from parent s, we also know t hat kids are act ually drinking more, not less. We are confident by ut ilising our insight s int o what parent s and kids really want , we cont inue t o develop a proposit ion t hat appeals t o bot h t he gat ekeeper as well as t o parent s t hemselves. Since launching t he brand in 2000, we have been developing Fruit Shoot in different ways. Taking it int ernat ionally int o all of our market s and developing local flavours t o suit local t ast es, developing Hydro and Hydro Sparkling and sugar free flavoured spring wat er drink int ended for older children, we have t aken out added sugar and reduced sweet ness and are adding vit amins t o t he core range and are launching t he first ever global Fruit Shoot campaign ‘It ’s My Thing’, which celebrat es real kids doing t heir t hing, what ever t hat may be. We have also had a st rong innovat ion pipeline and we are current ly t aking an all- nat ural product called Juiced int o t he t rade in GB. It ’s 50% wat er and 50% juice and sweet ened only wit h real fruit , and is schools compliant . While we are some mont hs away from launch in mid- 2018, feedback has been posit ive from all of mums, kids and cust omers, so we believe t his will help creat e furt her moment um being t he Fruit Shoot brand. I nvesting to Grow Our I nternational Footprint In 2018, we will cont inue t o invest in growing our int ernat ional foot print . In Brazil, while it ’s much t oo early t o call a t urn in t he market , we are seeing signs of st abilisat ion. We will cont inue our innovat ion programme in 2018 wit h furt her launches in our exist ing cat egories of concent rat es and ready t o drink juice. Our innovat ions are designed t o promot ed easier consumer use, such as our pre- sweet ened Uno concent rat e and t o offer healt hier opt ions such as Mega A wit h st evia. We are also broadening t he port folio int o ot her cat egories t hrough t he cont inued nat ional rollout of Fruit Shoot and t he development of our ice t ea brand Nat ural Tea and our coconut wat er Pura Coco. Bela Ischia is now fully int egrat ed, and we are t aking advant age of an enhanced rout e t o market in and around Rio t o build furt her dist ribut ion of Fruit Shoot and t he broader port folio. In t he USA we are working closely wit h Pepsi t o expand singles dist ribut ion beyond it s heart land of convenience and gas int o front of st ore grocery and looking for t arget ed

• pport unit ies in food service. In t he mult ipack, we cont inue t o focus on driving a consist ent ly

high st andard of execut ion in st ore t o build t he rat e of sale, which will be helped by an expanded range. We have also t aken t he opport unit y in t he backend of 2017 t o bolst er our t eam wit h t he appoint ment of a new senior specialist in t he commercial act ivat ion space. Finally, in Benelux, Mat spoke earlier about our success and building margins, we cont inue t o invest behind t he est ablished Teisseire and Fruit Shoot business, but just as import ant ly we are also t est ing t he appeal of some of our ot her brands such as Purdey’s and our premium adult port folio in t hose market s. Since 2013, we have led t he indust ry in t aking st eps t o help consumers make healt hier choices t hrough t arget ed reformulat ion, ‘bet t er for you’ innovat ion and responsible market ing, meaning t hat we have not had t o knee jerk following t he announcement of t he soft drinks

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 11

• levy. We believe in choice and offer a uniquely st rong and broad port folio which delivers bot h

great t ast e and ‘bet t er for you’ opt ions. By next April, 72% of our t ot al port folio and 94% of

• ur own brands will be under t he levy in GB. In Ireland, 69% of t he t ot al port folio and 79% of
• ur own brands will be exempt . While we cannot go int o t oo much det ail wit h regard t o our

commercial st rat egy due t o compet it ive sensit ivit y, our workplace port folio is underpinned by a clear commercial plan in F18. We will be t ransparent on price and while we do not set ret ail prices, we will always pass on t he levy for product s where it applies as t he government int ended. We will updat e our promot ional act ivit y t o accelerat e consumer purchase t owards low and no sugar variant s and we are act ively working wit h our cust omers in bot h t he on and

• ff t rade on how t o best merchandise t he fixt ure t o ensure t he best out come for t he cat egory.

Of course, t he int roduct ion of a levy of t his nat ure creat es a level of short t erm uncert aint y but we are confident t hat we face int o t his uncert aint y from a posit ion of st rengt h. BCP On- Track to Deliver Sustainable Long- Term Benefits Our business capabilit y programme as implement ed t o dat e is firmly on t rack t o deliver sust ainable long- t erm benefit s. In GB, we have cont inued t o make significant progress a t our product ion sit es wit h new lines and warehousing coming on st ream as well as ground works for t he final phase. At last year’s preliminary result s, we announced a 5 million cost saving init iat ive, which we have delivered by st reamlining our group management st ruct ure and we have also out sourced dist ribut ion and warehousing in Ireland. In Oct ober, we announced a proposal t o t ransfer product ion of Robinsons and Fruit Shoot from our Norwich sit e t o our manufact uring sit es in East London, Leeds and Rugby. As a result , we are proposing t o close t he Norwich manufact uring sit e t owards t he end of 2019 and we remain in consult at ion wit h impact ed colleagues. We are commit t ed t o a full and proper consult at ion wit h t hose impact ed employees and we are very grat eful for t heir hard work. Our proposal is in no way a reflect ion

• f t heir performance or commit ment .

On Com pletion the GB Supply Chain I nvestm ent Will Step- Change Our Capability On complet ion, our GB supply chain invest ment will have t ruly st ep- changed our supply capabilit y. We will have reduced product ion and dist ribut ion cost s and creat ed a plat form t o deliver long t erm sust ainable growt h. Our capacit y will have increased wit h more efficient lines, more warehousing space and a reduced need for project capit al when we int roduced new pack format s or innovat ion in t he fut ure. For example, our new can lines in Rugby give a 40% increase in capacit y compared t o t he old lines and our sit es in East London has now doubled it s st orage capacit y. Our new liens also offer great er flexibilit y of packaging. We can make PET carbs and st ills on t he same lines, use different mat erial such as st eel and aluminium cans and produce different sized packs t o help us different iat e across channels and hit key price point s, such as 3 lit re carbonat es value pack or a 1.5 lit re cont our bot t le. We have also increase efficiency wit h fast er more efficient liens which have short er changeover t imes, and which are sit ed closer t o t he point of demand. The t hree new can lines in Rugby are t he fast est in t he world and t he new larger PET lines in London and Leeds are t wice as fast as t he liens t hey have replaced. Finally, once fully commissioned, our new lines will reduce our wat er and energy consumpt ion. For example, in East London t he new PET line is 30% more energy efficient t han it s comparable old lines. As a result of all t he new equipment commissioned t o dat e, we have already eliminat ed over 300 t onnes of plast ic

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 12 bot t le packaging in GB in 2017. From a financial perspect ive, we remain on t rack t o achieve

• ur previously st at ed guidance subject t o consult at ion at Norwich.

Sum m ary So, in summary, despit e input cost inflat ion and macro uncert aint y, we have delivered anot her st rong performance in F17 and are well placed t o navigat e t he headwinds in 2018. We have maint ained our focus on cost and efficiency and demonst rat ed our abilit y t o realise price, grow organic revenue and margins and we believe we have t he best posit ioned port folio t o face int o t he fort hcoming soft drinks levy from posit ion of st rengt h. Our invest ment in t he long- t erm growt h drivers of innovat ion and int ernat ionalisat ion is bearing fruit . The cont ribut ion t o revenue from our own brand innovat ion is growing, demonst rat ing our abilit y t o effect ively innovat e and t o grow in consumer segment s. An increasing proport ion of our business is generat ed out side of GB. Our business capabilit y programme is ent ering it s financial phase. It is delivering end year benefit s ahead of guidance and will deliver furt her benefit s going int o 2018 and 2019. We are confident of furt her margin growt h over t he long t erm and of improving cash flows as t he business capabilit y programme nears complet ion. Overall, we approached 2018 wit h confidence and expect t o deliver cont inued progress. Thank you for list ening t o us and Mat and I will now t ake quest ions.

Q& A

Chris Pitcher ( Redburn) : Thank you. Mat , I was wondering if you could hazard a st ab at what t he sugar levy may mean t o cost of goods inflat ion because you have guided t o low single digit input cost inflat ion but obviously, t hat is only part of t he st ory. Then also on A&P spend at 4.5% of sales, could you give us a feel for where t hat is going t o progress in t erms

• f delivering t he innovat ion t arget s. Final one, could you have a st ab at fiscal 19 CAPEX t o

underst and what t he drop offs are likely t o be. Sim on Litherland: So, on A&P 4.5%, we generally have made some good progress at reducing our non- working spend but I would expect A&P t o pick up over t ime as we bring more brands t o market and invest behind our core brands. Having said t hat , you will not ice t hat a good majorit y of our innovat ion is act ually off t he shoulders of our core brands, so we get t he benefit s of advert ising and market ing behind, for example, Robinsons Refresh’d flowing over int o Robinsons in t ot alit y. So, I t hink we have been quit e efficient wit h our spend as well. Mat Dunn: So, let me deal wit h t he CAPEX one first . I guess I am hazarding a guess in t erms

• f it is very early t o be t alking about FY19 but if you look at t he level of elevat ed spend in t he

region of £70- 80 million, t hat will give you a feel for what our underlying CAPEX is on an

• ngoing basis but t hat would be a very indicat ive view just based on t aking out what we have

been invest ing over and above, and we would expect t o get some maint enance CAPEX benefit s over t ime but exact ly what comes t hrough in F19 – and it also slight ly depends on t he exact ly t he conclusion of t he consult at ion process in t erms of what ever may happen and

• ver what t imeframe.

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 13 From a sugar levy perspect ive, you are quit e right t o say effect ively commodit y cost ing guidance excludes t he impact of t he sugar t ax. In t erms of t he pot ent ial impact , I guess t he rat es are well known and one can est imat e t he impact t hat t hat would have based on our current volume in mix, but I guess t he biggest uncert aint y is what is going t o happen t o t hat volume and mix and t herefore it is very hard t o give you a specific number. I t hink as well as t he uncert aint y we face, we need t o underst and compet it ive react ions, what a ret ailer is going t o do and what a consumer is going t o do before we will see a firm pict ure of what impact t he sugar t ax has on our business. Chris Pitcher: – working assumpt ion you are comfort able t hat t he net effect of price increases and levy means it will be gross profit neut ral. Mat Dunn: From an account ing perspect ive, yes. In t erms of what happens t o t he volume and where t hat goes, t hat is where t he uncert aint y comes t hrough. Richard Felton ( Morgan Stanley) : Two quest ions please. First of all, when you t hink about t he sugar t ax next year, clearly on Robinsons you have done a lot of work removing t he no added sugar variant s. Could you give us a lit t le bit of colour about your compet it ors and privat e label, how t hey are posit ioned? Have t hey t aken similar st eps t o remove sugar from t heir brands or do t hey st ill remain above t he sugar t ax levy current ly? Secondly, a quick quest ion on London essence, seeing it increasingly at more bars in London, it has a decent shelf space in t he off t rade, any comment on how t hat brand is progressing and your plans going forward. Sim on Litherland: Okay, t hank you Richard. I do not know all t he compet it or plans, I have t o say but I t hink it is some and some. I do t hink it is import ant t hat t here is st ill choice for

• consumers. We have seen some own- label t ake out any added sugar, so Tesco I t hink was

t he first ret ailer t o do t hat in a st rong way and some ot her compet it ors have indicat ed t hat t hey will change t he formulat ion of some of t heir brands; some have been done, some are yet t o be done so we kind of have t o see how t hat plays out . However, I t hink it will be some and some. On your second quest ion, in t erms of London Essence, we are kind of pleased t he progress. It is obviously a slow build wit h a premium brand like London Essence, but we are in about 200 premium out let s across London and t he brand is really well- received by barmen in part icular, in t erms of mixing t hem; we are pleased wit h t he progress we are making, and we move int o premium off- t rade over Christ mas, so you will st art t o see London Essence appearing in Wait rose, for example, for t he Christ mas period, so we will see how t hat progresses. Andrea Pistacchi ( Deutsche Bank) : Two

• r t hree quest ions, please. First , value is

ret urning t o UK soft drinks, as you were saying, in part driven by t he cost pressures, yet you are st ill seeing a lot of deflat ionary pressures, because of privat e label, impact ing Fruit Shoot and Robinsons, so how sust ainable do you see t his sit uat ion, t his deflat ion, in privat e label from t heir point of view? The second quest ion, on J2O: a lot of innovat ion plans across your port folio, I t hink except we did not hear anyt hing on J2O; I t hink even 2017 was a lit t le light in t erms of J2O innovat ion, so what is t he long- t erm ambit ion for t his brand? The t hird one,

• n t he on- t he- go, I t hink you said double- digit growt h in Carbs for on- t he- go. The summer

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 14 clearly did not help from t hat point of view, so what specific plans have you been doing t o enhance t he on- t he- go, which is, of course, high- margin? Sim on Litherland: Yes, so we are seeing value come back. Obviously, we had t wo or t hree years of deflat ionary pricing, I t hink raw mat erials and t he impact of foreign exchange has meant t hat pricing has st art ed t o come back int o our cat egory and we have successfully t aken price. We have done it on a select ive basis, bot h t hrough headline price and t hrough promot ional effect iveness and have been quit e choiceful where we have done it . However, in t ot alit y, we have successfully t aken t he price t hat we want ed, and we will do t hat again in

• 2018. One of t he reasons specific brands, like Robinsons Fruit Shoot , are at t ract ive t o t he

discount s is because of t he dept h of penet rat ion and consumpt ion t hat t he cat egories have. You will see t he price point in t hose brands moving up, part icularly t hrough promot ional st rat egies but also what we are t rying t o do is put value back int o our brands, so t he t hings I have t alked about in t he present at ion; reformulat ion: we are really confident t hat core Robinsons t ast es great and t ast es bet t er t han t he compet it ive set and t ast es bet t er t han

• wn- label; t hings like Creat ions at t he bet t er and Cordials at t he premium range will be at

higher price point s, will be at bet t er margin for us and our cust omers. So, we will st art t o put value back int o t he cat egory in t hat way. Likewise, margins are accret ive on Hydro for cust omers and ourselves and Juiced will be a premium- priced offer, so we will st art t o t read cust omers up if t hey are looking for healt hier, ‘bet t er for you’ opt ions. So, it is a journey, but I am comfort able we will st art t o creat e more space bet ween ourselves and own- label, which is a big compet it or for t hose cat egories. On J2O, we did not do a specific slide on it but t here is lot s st ill happening on t hat brand. It is st ill a massive brand and we successfully t ook price t his year, albeit wit h some volume downside, mainly because we lost feat ure and display; it is a brand t hat really does respond well t o being visible and being seen in st ore, people buy more, drink more. You will not ice in st ore a new pack livery, which significant ly increases st and- out and makes it look more premium because t he J2O compet it ive set has grown significant ly over t he last few years. We have also changed t he Sprit z packaging. The Sprit z liquid is fant ast ic; it is really well- liked by

• consumers. I t hink t he packaging has probably not been opt imal, so we have a good st ep.

Going forward, you will st art t o see t hat come int o st ore in t he coming weeks and mont hs, aligning Sprit z closer t o t he core but also making it look more premium and more special. On t op of t hat , we have a new market ing campaign t hat will come t o market in t he new year which we are very excit ed about , so lot s happening on J2O. The penet rat ion of Sprit z is st ill quit e low, so t here is st ill lot s of dist ribut ion opport unit y and I t hink if we can get t rial behind J2O Sprit z, it will appeal t o older, more sophist icat ed consumers and drinking occasions and will cert ainly benefit t he brand. Mat Dunn: I t hink t he first t hing t o say is t hat t here is an underlying consumer shift t o shopping on- t he- go. I t hink we see t hat t rend cont inuing. In addit ion, we have been focused

• n t rying t o ext end our dist ribut ion and reach. We have invest ed a lit t le bit in increment al

sales act ivit y t o do t hat , t rying t o penet rat e some of t he smaller convenience st ores, for example, because we cont inue t o under- t rade in t hat area relat ive t o some of t radit ional core grocery, for example. We have also been looking t o ext end our cont ract s in food service and

• bviously in food service t he draught product is a big feat ure of what is consumed but t he

packaged product plays a crit ical role. If we t ake somet hing like Subway, or using KFC as an

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 15 example, t hey will benefit our on- t he- go consumpt ion as well, bot h draught and packaged. So, t here is a lot of act ivit y, but it is driven by, I guess, being as well- dist ribut ed as possible and visible as possible where people are shopping on t he go and t herefore capit alising on t he t rend. The effort s we have already made in t he business capabilit y programme give us t he pack flexibilit y t o do t hat and t o make sure t hat we can service t hat channel fully. Patrick Higgins ( Goodbody) : Just t wo quest ions from me, please, first ly on cost efficiency phasing from t he GB capabilit y programme. Obviously, you delivered a few ext ra million t his year; how should we t hink about t he phasing of t hat over t he next t hree years? Secondly, just on Brazil, obviously you have highlight ed t he macroeconomic challenges t here in FY2017; how has t rading been in t he last couple of mont hs and should we ant icipat e an improvement next year? Thank you. Mat Dunn: I t hink, for cost efficiency phasing, I t hink you should see t he addit ional delivery t his year as a pull- forward of benefit from FY2018, i.e. delivered early. I t hink, in t erms of t he

• verall guidance, given we are st ill in consult at ion wit h regard t o Norwich, it is hard for me t o

comment , ot her t han t o confirm what Simon has already said which is t hat our st at ed guidance, in t erms of our expect at ions for t he end of t he programme, remain in place subject t o t hat consult at ion and t he conclusion of it . Sim on Litherland: On Brazil, I t hink we are seeing signs of st abilisat ion. It is a brave man t o call it in a market like Brazil, I guess but in t he last 2–3 periods, our business has performed bet t er, which gives us some confidence, but I always say one swallow does not make a summer. Laurence Whyatt ( Société Générale) : Hi, I had t hree quest ions on t he sugar t ax, if t hat is alright ? Could you give us an updat e on 7UP and whet her t hat will be reformulat ed ahead of t he sugar t ax being int roduced? We underst and t hat Sprit e is going t o be. Could you also give us an updat e on t he percent age of your own brands t hat are affect ed by t he sugar t ax and also your not - own brands? Finally, we have seen some evidence, in t he on- t rade, of people split t ing t heir menus out bet ween sugary drinks and non- sugary drinks and pricing appropriat ely. Are you seeing any evidence, among your large cont ract s, of anyone suggest ing t hey may change t heir menus or make it clear if any of t he product s cont ain sugar

• r not and t herefore pricing different ly in t he on- t rade?

Sim on Litherland: Okay. Yes, we will reformulat e 7UP; it will be in t he mid- t ier. So, it will go from above eight t o bet ween 5–8, wit h a St evia formulat ion. 94% of our own brands are unaffect ed by t he levy, so t he core brands t hat are Pepsi full- sugar and 7UP full- sugar. Obviously, t hose brands have no- sugar equivalent s and obviously Pepsi Max is t he brand t hat we have focused on and market ed behind since 2005. I t hink t he on- t rade has act ually got quit e a way t o go, act ually, t o evolve t heir port folio, t heir offering and t he way t hey offer t heir brands t o consumers. We know t hat we under- t rade in Max, for example, in t he on- t rade, so t here is significant opport unit y for us t o sell more no- sugar in t he on- t rade. I t hink you will see different ial pricing st art ing t o come t hrough more in how t hey segment t heir menus and t heir offers. However, I t hink t hat is a posit ive st ep forward. Carl Walton ( UBS) : Hi, one on Pepsi Max. In t erms of t he performance of Ginger so far, how has t hat compared t o your expect at ions and t he first year of Cherry? How should we t hink about t he init ial performance of t hat brand and t he fut ure pot ent ial? Secondly, on

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 16 int ernat ional profit abilit y, I t hink we have heard in t he past it is int ernat ional t ot al around 5 million negat ive, but I t hink you ment ioned maybe t he US has improved, so is t hat now a different number and any guidance on how t hat might move going forward? Thank you. Sim on Litherland: Okay, I will do t he first one. I do not know if you have t ast ed Pepsi Max Ginger, but it is more polarising t han somet hing like Cherry. I personally like it ;

• t hers do not . It has 6 million ret ail sales value, so not as successful as Cherry but what it

does is it is more int erest in t he brand, it has brought more consumers int o t he Max

• franchise. The key t hing about Max is, when you t ast e it , you love it . So, net - net , it is a

posit ive cont ribut or t o t he growt h of Max. Mat Dunn: I guess 50% of Ginger’s consumpt ion comes from consumers who do not t radit ionally drink cola. Sim on Litherland: Yes. Mat Dunn: So, I guess it makes Simon’s point . From an int ernat ional profit abilit y perspect ive, we have been in a net invest ment phase for a while. I t hink we have previously t alked about t he fact t hat we were probably invest ing t o t he t une of about 100 basis point s int o t he business. That has reduced but we would st ill be in net invest ment mode and it would be slight ly ahead of t he number you were referring t o, Carl, in t erms of what our net invest ment is int o t he whole int ernat ional division. Andrea Pistacchi: Given t he t ax increase in April, how do you t hink of t he t iming of t he negot iat ions and pot ent ial price increases t hat you will put t hrough in t he grocery channel? Will it all be delayed, do you t hink, because of t he t ax increases? Sim on Litherland: We will keep it separat e. So, any price grocery t hat we do, we will do early and t hen t he t ax will come t hrough at t he t ime of t he t ax. Andrea Pistacchi: Second quest ion was for Mat , if you could just provide a lit t le more granularit y please on t he input cost guidance? Whet her t hat low single digit includes – is t here st ill a delayed negat ive impact on FX here, given your hedges, you are st ill get t ing a bit

• f a hit t here, t herefore is an underlying raw mat erial inflat ion act ually bet t er t han t hat ?

Mat Dunn: There is an FX impact in t hat number. As, effect ively, our hedges roll off and I guess we ult imat ely t end t owards spot over t ime, alt hough we are st ill obviously hedging forward, so t here is an impact . I t hink, wit hin low- single- digit s, I guess t hat if you t ook t hat

• ut it is cert ainly st ill low- single- digit s. I guess it is where it sit s in t hat range t hat FX would

add t o, rat her t han saying if you t ook out FX t here is not inflat ion; t here definit ely is on a number of t he underlying raw mat erials. Dam ian McNeela: Thank you. A couple of quest ions on GB St ills. I t hink, obviously, t he

• verall group margin has been pret t y st rong but if we were t o look at GB St ills, t hat

performance has not been t hat great over recent years. I hear what you are saying about t he new launches; should we expect GB St ills’ cont ribut ion margin t o improve next year and beyond? Just specifically on t he Creat ions and Cordials, you said you got a good cust omer response; are you get t ing addit ional shelf space for t hose launches? Finally, on t he int ernat ional side of t he business, I t hink you were sort of quot ing how much of your business is out side of t he GB; can you give us sort of a sense of how you t hink about t he size of GB on a five- year view for Brit vic and what t he pot ent ial drivers of t hat are, please?

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 17 Sim on Litherland: Sure. The int ent ion cert ainly is t o get increment al shelf space for Robinsons in t ot alit y and t hat is t he way conversat ions are going wit h cust omers. However, it is import ant t hat we kind of reset t he cat egory as well and we generally want t o t ry and creat e good, bet t er and best ; t he conversat ions t hat we are having wit h cust omers are posit ive in t hat regard. We will see, probably, more cannibalisat ion bet ween good and Creat ions because some of t he flavours we will act ually swap out of good and put t hem int o t he Creat ions offer. We would expect Cordials t o be more increment al. However, net - net it will be posit ive for t he brand read overall. Just as import ant ly, I t hink it will have a posit ive impact on t he cat egory for our cust omers. On t he second one, we have not act ually set a t arget for t he proport ion of our business t hat we want out side of GB. However, obviously, wit hin our st rat egy one of t he four pillars is int ernat ionalising our core brands and t hat in it self will mean t hat it will increase over t ime. I guess it will not necessarily be linear eit her because we have said it will eit her be done

• rganically or t hrough acquisit ion. So, I suspect it will be a bit of a journey but direct ionally

we should see more business out side of GB over t ime. Mat Dunn: From a margin perspect ive, I guess t he first t hing I would say is your point is absolut ely right , Damian; act ually, t he margin decline t hat we saw in St ills t his year was act ually lower t han we saw in Carbonat es. I t hink t hat reflect s some of t he act ivit ies t hat Simon has spoken about . I guess, in t erms of looking forward, t here are a number of act ions t hat give us confidence t hat we are doing t he right t hing t o build St ills’ margin, whet her it is t he good, bet t er, best st rat egy, whet her it is t he innovat ion, which is margin- enhancing; we have t aken price on J2O, et c., et c. At t he same t ime, we have persist ent deflat ion in t he cat egory and so t hose t wo t hings are bot h at play in t he margin. I guess it is t he ext ent t o which t hose t wo t hings play out over t he course of t he next year which will dict at e exact ly where t he margin lands. Kom al Dhillon ( JP Morgan) : Just a quick quest ion on t he sugar t ax again, unfort unat ely. What demand elast icit y are you assuming at t his point for St ills and Carbonat es separat ely going int o April next year, please? Mat Dunn: We have looked at t he elast icit y, but I t hink t here are t wo challenges wit h using elast icit y models effect ively. Because we have never had different ial price point s, t he exact effect ive elast icit y and effect ively cross- elast icit y and t herefore swit ching, it is very hard t o get any level of st at ist ical confidence in any of t he modelling. So, t he absolut e elast icit ies t hat

• ne would normally look at in t erms of soft drinks pricing I do not t hink are part icularly

reliable indicat ors. I guess we t hink about t he levy more from a consumpt ion point of view t han we do from an absolut e elast icit y point of view. However, we cannot model t hat effect ively. So, as a result of t hat , I t hink we would expect t here t o be an elast icit y impact , but it is t he degree t o which swit ching happens which will dict at e what I t hink t he final out come is. Sim on Litherland: Of t he t hings t hat affect t hat , one is consumer choice. Mat Dunn: Yes. Sim on Litherland: Do t hey swit ch wit hin a cat egory? Do t hey st ay and pay t he price? Do t hey swit ch int o wat er? Do t hey swit ch int o juice? So where do t hey go? That will have a

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 18

• difference. What our compet it ion do, from a pricing and a st rat egy point of view and also how
• ur cust omers react , how t hey lay out t he menus, t o t he earlier quest ion, or how t hey lay out

t he shelves in st ore will also have an impact . None of t hat is defined yet , so it is very hard t o predict exact ly how our volumes will be impact ed. Andrew Holland ( Société Générale) : Just coming back, Simon, t o somet hing you said around Pepsi’s share, you said it was 28% value share; was t hat share of cola or share of your – Sim on Litherland: Share of cola. Andrew Holland: Share of cola. Sim on Litherland: Yes. Andrew Holland: How do you t hink t hat has changed and how do you t hink Max’s share has changed, say in t he last five years? Sim on Litherland: I t hink we have grown six percent age point s in t he last four years; t hat 280 million is in t he last 24 years. However, we have const ant ly t aken about 100 basis point s

• f share, I t hink, per annum; t hat is probably t he average. In 2017, Max act ually t ook

150 basis point s of share, Pepsi 40 basis point s overall, which meant t hat obviously Pepsi full- sugar and Diet Pepsi lost some share. Andrew Holland: Unrelat ed t o t hat , you also were t alking about reducing non- working spend in A&P. Sim on Litherland: Yes. Andrew Holland: Presumably you do not set out t o spend money t hat does not work; can you give us some examples of non- working spend t hat you are successfully reducing? Sim on Litherland: Yes, we can, cert ainly. Mat Dunn: Yeah, it is probably not t he best - named spend in t he world. What we mean by non- working spend is spend t hat does not direct ly t ouch a consumer. However, t hat would include, for example, producing advert s. Our measure is what direct ly t ouches a consumer at t he point of spend versus somet hing t hat goes int o our abilit y t o market our product s effect ively. So, when we call somet hing non- working, we do not mean it is not effect ive; we mean it is not direct ly t arget ing a consumer. So, it would include spend wit h agencies, product ion of advert s, creat ive – Sim on Litherland: Research. Mat Dunn: – bot t le design, research, t hose kinds of t hings. So obviously we believe t hey add value, ot herwise we would not do t hem at all but what we look t o do is obviously generat e efficiencies in t hat . So, we have rat ionalised our agency rost er, for example; we have changed t he people t hat do some of t he product ion of our advert s but also t here are efficiencies by using t he same collat eral consist ent ly, which is a good t hing from a consist ency point of view; it obviously means you have t o do less re- work and less development of copy. So, t here are lot s of ways t o t ry and make t hat efficient . What we are looking t o do is shift t he balance t o make sure t hat we are closer t o 80% working and 20% non- working; we were probably above t hat hist orically. So, it will never be zero and it never should be; it will vary

Brit vic Preliminary Result s Wednesday, 29t h November 2017 www.global- lingo.com 19 year by year, pot ent ially but somewhere bet ween 15–20% on an ongoing basis of our t ot al A&P spend. Sim on Litherland: Alright , t hanks Mat . Okay, t hanks everybody for coming. Good t o see you all and see you soon. Thanks for your quest ions. [ END OF TRANSCRIPT]