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Sisi JinHe LiuXinya HeHanjiao QianMuzi LiBinhui Hao

Overview

1. Corporate’s operation & strategy

2. Accounting Policies Analysis

3. Ratio Analysis

4. Cash Flow Analysis

5. Conclusion

Q1:A brief discussion on the company’s Operation & StrategySisi Jin(08119790)

Company’s operation Second largest company in UK’s soft drink industry. Current operations comprise Britvic GB, Britvic

Ireland, and Britvic France. Britvic both manufactures its own brand of drinks

as well as signs bottling deals.

StrategyCritical Success Factors Differentiation (3 Brand water strategy)

Distinct consumer targeting High growth segments Differentiated brand positioning

Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.

Distribution Network On-the-go distribution

Strong Customer Base “Big 4” supermarket

StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)

Distinct consumer targeting High growth segments Differentiated brand positioning

Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.

Distribution Network On-the-go distribution

Strong Customer Base “Big 4” supermarket

StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)

Distinct consumer targeting High growth segments Differentiated brand positioning

Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.

Distribution Network On-the-go distribution

Strong Customer Base “Big 4” supermarket

StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)

Distinct consumer targeting High growth segments Differentiated brand positioning

Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.

Distribution Network On-the-go distribution

Strong Customer Base “Big 4” supermarket

StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)

Distinct consumer targeting High growth segments Differentiated brand positioning

Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.

Distribution Network On-the-go distribution

Strong Customer Base “Big 4” supermarket

Q2:Accounting Policies AnalysisHe Liu (08117632)

Step 1: Key accounting policies

Revenue recognition: Allows for sales related discounts and rebates

Intangible assets and goodwill: Acquisition method Goodwill is not amortized Intangible assets: trademarks; franchises rights, customer lists

and software costs

Step 2: Degree of accounting flexibility

Post-retirement benefit: Assumptions: factors such as discount rate, inflation, pension

plans, salary increase, expected return on scheme assets, mortality and other demographic assumptions.

The numbers they allocated in the financial statement did not seem outlandish or vary greatly from year before

Step 3: Evaluation of accounting strategy

Comparing with Nichols (soft drink company) Similarities: many aspects (revenue recognition) Differences:

Reasons: Britvic has a lower operation capability in paying off the debts from suppliers

Step 3 (cont.)

Significant change (voluntarily)The average days of payment:2008: 36 days; 2009: 49 days (driven by higher

trade payables)

Q2:Accounting Policies Analysis

Xinya He(08118756)

Step 4: Quality of disclosure

Dis-aggregation--------The overall items are broken down as its segmental reporting that is organized into five reportable units through its geographic areas, which are GB stills- United Kingdom excluding Northern Ireland, GB Carbs-United Kingdom excluding Northern Ireland, Ireland, International and France

Good relation with shareholders-------Company gives presentations covering annual and interim results to analysts, investors and perspective investors. Business reviews section in annual report discloses the details of company’s financial performance, the risks it faces and plans for future.

Step 5: Potential red flag

Impairment in 2010 is 116.7 million while this figure is merely 4.2 million in the previous year. Possible explanations has been disclosed in the company’s annual report which states that Ireland business segment encountered a sustained economic downturn which cause 89.6 million impairment losses.

Step 6: Accounting Distortion

“Exceptional items” -----which permitted by the accounting rules group many one-off events that cause losses. So a company can produce two figures regarding earnings per share (EPS); the basic EPS figure which includes these losses and an "adjusted" EPS which doesn't

Britvic did this in its 2010 accounts; a statutory loss of 21.4p per share became an adjusted profit of 39.8p when the exceptional losses were ignored.

Q3:Ratio analysis

Hanjiao Qian(08119866)

Overview

Five categories of ratio: (FY 2008-2011, Britvic Vs. Nichols)

1. Profitability

2. Liquidity

3. Gearing/Leverage

4. Working capital management

5. Investment activities

Profitability ROE is a comprehensive indicator of a firm’s performance. But it cannot be

used to assess Britvic’s performance, because it disinvested one of its subsidiaries which leads to a huge retained loss in 2006, making the total shareholders’ equity be negative, and remains negative in following years.

ROA becomes the best choice. Overall, Nichols performs better than Britvic, and shows quicker recovery

than Britvic.

FY 2008 FY 2009 FY 2010 FY 2011

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

4.30% 5.48%

-4.61%

5.48%8.08%

19.46%21.46% 20.62%

ROA comparison

ROA(Britvic)ROA(Nichols)

Profitability Gross profit margin decreases: perform badly in cost control. Operating expense ratio: very high compared with Nichols

can explain why Britvic has a lower NPM even if its GPM is higher than Nichols. For future operation, Britvic plc. should pay attention to cost control and

improve efficiency.

FY 2008 FY 2009 FY 2010 FY 2011-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00% 54.01% 53.93% 55.07%51.39%

45.55% 44.76%

36.69%42.72%

3.43% 4.78%

-4.23%

4.53%

Profitability ratios

gross profit marginoperating expense rationet profit margin

Nichols: FY 2011Gross profit margin: 46.74%

Operating expense ratio: 28.39%

Net profit margin: 13.47%

Liquidity Two ratios are both improved. Current ratio: (1) increase; (2) value of ratio is still less than 1 (the ability of repayment).

Quick ratio (assess a company’s ability to meet CL based on higher liquid assets):

(1) use CA to repay CL more quickly than previous years. Nichols plc. still shows more efficiency in utilizing liquid assets to meet

current obligations.

FY 2008 FY 2009 FY 2010 FY 20110.00

0.20

0.40

0.60

0.80

1.00

1.20

0.81 0.90

1.00 0.99

0.63 0.72 0.77 0.76

Liquidity ratios

current ratioquick ratio

Nichols: FY 2011Current ratio: 2.14

Quick ratio: 1.88

Gearing/Leverage D/E ratio computation is meaningless (negative total SH’s

equity). But negative total SH’s equity indicates TA is less than TL,

reflecting high risk of liquidation. Interest coverage: although PBIT can cover interest payment,

compared with Nichols, less safe.

BritvicFY 2011

BritvicFY 2010

BritvicFY 2009

BritvicFY 2008

NicholsFY 2011

Interest coverage 3.50 3.81 2.90 156.46

Working capital management Days’ inventory increases: limit the ability to manage inventory efficiently. Days’ receivable increases: having problems in credit terms and collecting

cash from customers. Days’ payable increases then decreases: a free source of borrowing (due to

negative total SH equity), negative impact on company’s credit rating. Nichols shows more efficient working capital management.

FY 2008 FY 2009 FY 2010 FY 20110.00

50.00

100.00

150.00

200.00

250.00

40.56 41.41 48.51 50.07 55.86 61.64 65.06 67.60

191.67

216.90 228.48

209.03

Working capital management

Days' inventoryDays' receivableDays' payable

Nichols: FY 2011Days’ inventory: 31.90

Days’ receivable: 69.88

Days’ payable: 118.60

Investment ratios P/E ratio: a measure of future earnings growth. Huge loss in Irish market in 2010 had an impact of SH’s expectation of Britvic. Dividend cover: a measure of security. Reduce dividend is a bad signal. Nichols in 2011 shows higher future earnings growth and safe

dividend coverage than Britvic.

BritvicFY 2011

BritvicFY 2010

BritvicFY 2009

BritvicFY 2008

NicholsFY 2011

P/E ratio

13.01 16.32 14.53 14.46

Dividend cover 1.45 1.68 1.29 2.57

Q3:Cash flow analysis

Muzi Li(08119660)

Cash flow statement    Britvic

2011Britvic2010

Britvic2009

Britvic2008

Nichols2011

  Net Income 79.9 (28.8) 66.2 51.8 11.759

Long-term operatingAccruals

Income tax paid (20.9) (21.8) (18.9) (8.1) (3.068)

Financial costs 32 26.3 23.6 26.6 (0.072)

Other financial instruments 10.2 1.5 - - -

Impairment of property, plant and equipment and intangible assets 0.5 116.7 4.2 4.2 4.8

Depreciation and amortization 48.5 42.4 38.7 42.6 0.17

Shared-based payments 3.8 7.8 6.9 7.8 -

Net pension charge less contribution (27.9) (16) (13.4) (12.4) (0.748)               Loss on disposal of tangible and intangible assets 4.6 1.3 1.7 3.0 -  Tax expense recognized in the IS - - - - 4.225  Change in provisions - - - - (0.179)  Operating cash flow before working capital investments 130.7 129.4 109 116.1 12.087  (Increase)/decrease in inventory (4.4) 1.3 (1.0) (2.0) (2.302)  (Increase)/decrease in trade and other receivables (24.1) 10.4 (18.9) (15.3) (4.652)  Increase/(decrease) in trade and other payables 22.8 (16.6) 41.8 44.4 7.05

  Operating cash flow before investment in long-term assets 125.0 124.5 130.9 143.2 12.183

Net (investments in) or Liquidation of operating long-term assets and equipment

Proceeds from sale of property, plant and equipment 0.6 4.7 9.5 6.1 -

Purchases of property, plant and equipment (37.7) (40.2) (38.3) (45.3) (0.154)

Purchases of intangible assets (11.9) (9.8) (11.9) (5.9) -

Acquisition of subsidiary net of cash acquired (4.5) (151.9) - (6.8) (2.3)

             Interest received - - - 0.3 -  Finance income - - - - 0.072  Free cash flow available to debt and equity 71.5 (72.7) 90.2 91.6 9.801  After tax net interest income (expense) (31.1) (24.9) (25.2) (26.9) -  Net debt (repayment) or issuance (9.5) 54.8 (7.3) (45.5) -  Free cash flow available to equity 30.9 (42.8) 57.7 19.2 9.801  Dividend (payments) (40.3) (34.9) (27.8) (24.7) (5.195)  Net stock issuance (repurchase) and other equity changes (1.0) 92.5 (3.3) (8.1) 0.083  Net increase (decrease) in cash balance (10.4) 14.8 26.6 (13.6) 4.689  Exchange rate differences (0.6) (0.5) 0.2 0.8 -  Net increase (decrease) in cash balance- As Reported (11.0) 14.3 26.8 (14.4) 4.689

Cash Flow Analysis Operating cash flow before working capital investments① Depreciation and amortization and financial costs② Pension charges③ Outstanding impairment shown in 2010

Operating cash flow before investment in long-term assets① Constant increase in receivables② Constant decrease in payables③ Inverse situation witnessed in 2010

Continued Cash Flow Analysis Operating cash flow before investment in long-term assets① Constant growth or expansion② Acquisition of Britvic France was realized in 2010

Free cash flow available to debt and equity① Constant debt and dividend payments② In 2010, Britvic issued new debt and new stock to pay back the debt

and to raise fund.

Q4: Conclusion & ForecastingBinhui Hao(08119214)

Business Strategy

Recommendations Reinforcing their loyalty to maintain their strong customer base Updating products to hold on market niche and attract new

customers

Accounting Quality

Red Flags The ratio of sales and receivables The ratio of inventories The ratio of Operating Activities

Recommendation Paying more attentions to its overall operations to explain these

dramatic and abnormal changes

Financial HealthLess Competitive Lower liquidity Lower profitability Higher leverage

Recommendations Maintaining a certain current ratio in order to ensure adequate liquidity. Cost control and efficiency performance should be the priority of the

further development.

ForecastingThe successive growth of 7% in Sales and 10.8% in Gross profit in 2012

The historical sales trend An average annual growth rate

of 6.6%

Business Strategy New-product introducing Expanding market share

The successive growth of Net Revenue on an average of 1.8% in 2012

The historical sales trend An average annual growth rate

of 1.8%

The Conpany situation Mature market Increasing sales and gross profits

Forecasting

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