FDBusiness.com

Britvic, the second biggest soft drinks manufacturer in the UK and Ireland, has cautioned that escalating input cost inflation, particularly for sugar, PET and steel, will not permit any improvement in its operating profit margin in 2011. When Britvic commenced price negotiations with the aim of protecting cash margins, it anticipated that input-cost inflation in its Great Britain and Ireland markets would be 5-6%.

However, the pace of input cost inflation in recent weeks has been unprecedented, leading Britvic to revise the full year GB and Ireland input cost inflation guidance to 9-11%. In particular, the soft drinks group has been adversely impacted by sharp recent increases in the price of PET, steel and sugar.

Paul Moody, chief executive of Britvic.

The escalation in input costs comes after the completion of this year’s price negotiation process, meaning that Britvic does not now expect to be able to recover or mitigate in full the additional input cost increases expected this year. The input cost inflation will impact the outcome for both the first half and full year.

Despite these headwinds, Britvic still expects its 2011 operating profit performance to be materially ahead of the 53-week result reported for financial year 2010.

“We have witnessed a rapid and unprecedented uplift in the cost of key raw materials. This has been driven by a shortage of supply to the market, where, for example, we have seen prices for PET, derived from oil, surge by around 20% in the last month alone. We do, however, remain confident about the medium to long-term outlook for the business,” says Paul Moody, chief executive of Britvic.