Britvic (LON:BVIC), the FTSE 250 soft drinks giant, warned today that a rapid and unprecedented rise in the cost of key raw materials during the first half of the year meant it was unlikely to see any improved operating profit margins in 2011. The Robinsons-to-Pepsi group said it had been caught out by the sudden price rises but that overall operating profits would still be materially ahead of last year. Britvic said that trading in the second quarter had been strong across each of its operating territories, with the GB & Ireland price-negotiation programmes successfully concluded. Though the Irish soft drinks market remained challenging, the GB and French markets continued to demonstrate resilience, illustrated by GB take-home market volumes up by 2.9% year-on-year in the four weeks to 22 January.

In January Britvic commenced price negotiations with the aim of protecting cash margins in response to its then-current expectations that GB & Ireland’s 2011 input-cost inflation would be 5-6%. Since concluding the negotiations, a surge in raw materials costs has forced a revision of the full-year GB & Ireland input-cost inflation guidance up to 9-11%. In particular, Britvic has been adversely impacted by sharp recent increases in the price of PET, steel and sugar. The forecast of particularly challenging input-cost inflation pressure for Britvic France, given its product mix, has remained unchanged.

Britvic said that because the escalation in input costs came after the completion of this year’s price-negotiation process, it was now not expecting to be able to recover or mitigate in full the additional input-cost increases that are expected this year. As a result, the input-cost inflation will impact the outcome for both the first half and full year, and there are unlikely to be any operating-profit margin improvements, excluding the impact of France. In response, the Britvic share price fell by 10% to 375.2p.

Paul Moody, the chief executive of Britvic, said: “Since our last update to the market 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, and we look forward to providing…

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