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Edited Transcript of BVIC.L earnings conference call or presentation 27-May-20 8:00am GMT

Half Year 2020 Britvic PLC Earnings Presentation

Chelmsford Jul 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Britvic PLC earnings conference call or presentation Wednesday, May 27, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Joanne Wilson

Britvic plc - CFO & Director

* Simon Litherland

Britvic plc - CEO & Director

* Steve Nightingale

Britvic plc - Director of IR

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Conference Call Participants

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* Emma Letheren

RBC Capital Markets, Research Division - Analyst

* Ewan Mitchell

Barclays Bank PLC, Research Division - Research Analyst

* Nico Von Stackelberg

Liberum Capital Limited, Research Division - Research Analyst

* Richard Felton

Goldman Sachs Group, Inc., Research Division - Equity Analyst

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Presentation

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Simon Litherland, Britvic plc - CEO & Director [1]

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Good morning, everybody. Thank you for joining us for the webcast of our interim results. Before we get into the detail of the results, I want to recognize the efforts of so many people during this unprecedented time.

Firstly, I want to thank the Britvic team for keeping the business running so effectively during all the change and volatility. It really has been a fantastic team effort. Thanks to our customers for working with us to keep the shelves stocked and to our suppliers for playing their part in keeping us open for business.

And on behalf of Britvic, I want to offer my personal thanks to everybody who is working to keep us safe and well. Across each of the markets where we operate, we have seen amazing people care for the sick and dying, and we've relied on people in transport, manufacturing, the postal service and so many more who work tirelessly to keep communities protected. We all know that we are living through unparalleled time and writing the playbook as we go. Amid so much fear and uncertainty, to know that we have humanity, courage and kindness at the heart of our societies is, I'm sure, a great source of comfort to us all.

Now for obvious reasons, we'll be taking a different approach to our presentation today. First, I will update you on the impact of COVID-19 and why we believe we are well-placed to navigate the challenges it presents. Joanne will then take you through our first half performance, which will illustrate our strong momentum before going into COVID-19. I'll also share more detail on our robust and good liquidity position. Finally, I will update you on our strategic priorities, the progress we have made and the planning we are undertaking for the eventual recovery and emergence of a new kind of normal.

Over the last 6.5 years, we've built a strong track record of performance and a reputation for delivering beyond expectations. On the left-hand side of the slide, you can see an impressive financial performance from 2013 to 2019 with a revenue CAGR of 3.9%, margin expansion of 350 basis points, an adjusted EPS CAGR of 9.2% and a dividend per share CAGR of 8.5%.

Going into this crisis, we had strong momentum. And in the first half of 2020, we have continued to deliver growth across our key metrics of revenue, margin, EBIT and earnings per share despite the impact of lockdown restrictions across our business in March.

I'm particularly pleased with the continued growth of our core brands such as Robinsons, MiWadi and Pepsi, 7UP, Tango and Maguary. Joanne will expand on our performance later. But first, I will focus on our response to COVID-19, which I know will be foremost in your minds.

As a business, we are well-placed to manage through the pandemic. Britvic is a multi-market, multi-channel business, operating in a highly resilient category. We have an exceptional portfolio of well-known brands, most of which are #1 or #2 brands in their categories and are trusted family favorites.

Our business is well-invested with a multi-site, flexible supply chain. As you all know, we recently invested [nearly] through GBP 1 billion in our GB supply chain, and that investment has been a key enabler for us in recent times. We have an amazing team of talented and committed people, one that has built a track record of successfully dealing with change and volatility. And we are a highly liquid and cash-generative business.

From the very start, we were quick to establish clear priorities for our business. These were to safeguard our people, maintain our operational agility, support our customers, our suppliers and our communities and to protect our liquidity, ensuring we maintain the financial strength required to navigate through this. By staying true to these principles, we continue to calmly and consistently manage the business through the external market turmoil.

Our first responsibility is to our own people. Throughout this pandemic, we have continued to follow the advice of both the government and public health authorities in every market where we operate. Very early on, we identified vulnerable employees across our workforce and put in place additional measures to protect them and procedures to actively support any employees who might have contracted this virus.

At each of our supply sites, we are ensuring the highest standards of safety and hygiene, including social distancing measures, temperature checking and multiple cleaning regimes. From the onset, all those who were able to work from home have done so. We had invested ahead of this outbreak in virtual office technology and have adapted remarkably well to online working. We continue to do everything we can to help our employees thrive.

As a result of planned employee communications, engagement and support, we, in fact, feel more connected as a team than ever before. I'm really proud of how our teams have responded to these challenges. And in particular, the dedication of our frontline workers is, in equal measure, impressive and humbling.

The supply of food and drink was crucial in times such as these, and we have focused our operational -- focused on our operational agility to ensure we play our part. Very low levels of absenteeism have meant we've been able to keep our production and logistics site open and running effectively. We've maintained very high service levels in all our markets, and only our Teisseire factory in Crolles has struggled to meet increased demand for syrups as we chose, for employees' safety reasons, not to open all lines during the peak of the pandemic in France. As the country comes out of lockdown, we are now moving back to full production.

We are adapting our commercial plans to reflect the significant shifts in demand between channels. We have focused our production on brands and packs consumed at home with a prioritization of core SKUs to maximize efficiency and meet demand. In this regard, the flexibility of our supply chain in GB has been particularly impressive following our recent business capability program.

We've also been working highly collaboratively with both suppliers and customers everywhere to ensure the continuity of supply of raw materials and maintain availability of our products in store. We also continue to review our marketing and promotional spend so that we may optimize the return on a reduced overall spend.

Very early on in the COVID pandemic, we undertook to play our fullest part in supporting those most in need. We were a very early signatory to Justine Greening's C-19 Business Pledge in the U.K., which aims to encourage and recognize those businesses to adopt a multi-stakeholder position in formulating the COVID-19 response. In our case, beyond putting the health, safety and well-being of our own people first, we've also supported communities and partnered with customers and suppliers to do our Britvic bit.

As you can see from the slide, we have actively supported communities in all our markets, donating drinks, chillers and PPE to hospitals, care homes and hospices as well as supporting our suppliers and customers in every channel.

Our financial resilience stems from a solid funding platform. We have a strong balance sheet, and I'm grateful for the support of both our banking syndicate and our U.S. private placement debt holders. We are a highly cash-generative business, and we retain a disciplined approach to capital allocation.

As the extent of COVID-19 became clear, we took an early decision to execute a series of disciplined actions to further protect our cash position, including cutting all nonessential discretionary spend and reviewing marketing and capital spend. Since Britvic floated in 2005, we have consistently returned capital to shareholders through our progressive dividend policy, which is a core part of capital allocation.

Although we are highly confident of our liquidity position, even under our stress test modeling scenario, we have taken the very prudent position to defer the decision on our dividend until later in the financial year when there'll be more visibility and clarity of the full impact of COVID-19 on the business. By making these decisions, we have ensured the business can withstand both the significantly changed market dynamics and help ensure that we emerge from this period strongly.

COVID-19 has clearly had a significant impact on consumer behavior, and we are well-placed to respond to the trends that we see emerging. For instance, in grocery, we have seen the return of the big weekly shop with a bigger basket size and limited top-up shopping. In each of our markets, we have a leading position in the at-home channel. So this trend suits us well, and I will go on to show you that we are continuing to take share.

Next, there has been a significant increase in demand for both online delivery and click and collect everywhere, and most of all, in GB, where we are in the advantage position of over-indexing our market share in the online grocery market.

Clearly, the lockdown restrictions have severely limited out-of-home socializing. Our range of out-of-home brands are, however, also available in a range of pack formats for at-home consumption. In these difficult times, consumers are seeking trusted local brands. This plays to our strength with a broad portfolio of family favorites, be that Robinsons and Pepsi in GB and Ireland, Teisseire in France or Maguary in Brazil.

And finally, the virus and lockdown have brought health and well-being even further to the front of consumers' mind. Over the last 6.5 years, we have demonstrated leadership of offering great-tasting, low and no-sugar brands. And as we highlighted at prelims, our average calories per serve is now below 30.

Now this slide is something of a departure from our normal approach in that it focuses in an April trading, 1 month after the reported period. But given that only a couple of weeks of the lockdown fell into the reported period in our lead market, we thought it would be helpful to illustrate the different dynamics we are experiencing across Britvic in both markets and channels.

The left-hand table shows Britvic 2019 volumes split by market between at-home and out-of-home and illustrates that we are represented very differently across our markets. On the right, we show the at-home and out-of-home April volume performance across GB and Ireland. Not surprisingly, out-of-home has been severely impacted. Our out-of-home channel includes on-the-go convenience and wholesaling as well as pubs and restaurants, foodservice and leisure. The mix within out-of-home, therefore, favors GB over Ireland where we are more exposed to wholesale and the licensed on-trade.

By fairly stark contrast, at-home was proved more resilient with changing consumption in buying patterns resulting in increased at-home volumes. Elsewhere, in France and Brazil, our businesses are skewed towards the at-home channel. And we are seeing stronger performances from our flavored concentrates brands such as Teisseire and a weaker performance from Fruit Shoot, which is consumed on-the-go or at more social occasions. Clearly, these trends will evolve as we move beyond lockdown. But hopefully, this helps give an indication of what we've experienced in different markets and why.

To give a little more detail on the at-home performance in GB, this chart illustrates the Nielsen year-on-year value chain since the start of February. What you can see is that as the crisis unfolded in mid-March, volumes initially rose significantly as consumers stocked up. Then there has been somewhat of a normalization of demand since then, aligned for fluctuations such as the timing of Easter and warmer weather.

The grocery channel and neighborhood convenience have performed particularly strongly. The penetration of online grocery has increased significantly during this time. Encouragingly, throughout this period, Britvic has outperformed the market and taken share every single week. While this is the trend we have flagged for some time, our share gains have actually accelerated since the start of the pandemic.

Within the at-home market, brand performance has predictably followed the consumer trends. Family favorites, which are drunk at home, such as Robinsons and carbonates, have thrived. While packed formats typically consumed out-of-home, such as Fruit Shoot and Lipton Ice Tea, have suffered along with brands more associated with socializing, such as J20. This trend is consistent in our other markets, including France, where we have seen Teisseire move into positive year-on-year growth.

The resulting pack mix has swayed significantly towards the more value-driven, lower-margin offerings to multipack cans and large PET and away from dispensed and small PET. This mix impact significantly offsets some of the volume benefit.

Now I hope the last few slides have given you some color on the market conditions and the strength and breadth of our response. There's clearly a long way to go, but we have taken decisive action, and our performance is robust in these very unusual circumstances.

I will now hand over to Joanne for the financial performance update.

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Joanne Wilson, Britvic plc - CFO & Director [2]

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Thank you, Simon, and good morning, everyone. Before I start, just a reminder that, today, we are reporting performance for the 26 weeks to the 31st of March, whereas last year, we've reported on performance for the 28 weeks to the 14th of April. To enable like-for-like comparisons, our commentary uses 2019 financials restated to the 31st of March. Both statutory and like-for-like comparisons can be found in the RNS released this morning.

As Simon shared, we entered the period affected by COVID-19 on the back of strong trading momentum, with our first quarter revenue increasing 2.6%. For the first half, group revenue grew 1.4% while adjusted EBIT increased 9.4% and adjusted EBIT margin by 80 basis points. Adjusted EPS increased 2.7% year-on-year, with growth impacted by a higher effective tax rate of 26.1% at the half year versus 20.8% last year. This reflects the revaluation of deferred tax, in line with the reversal of the previously enacted 2% reduction in the U.K. corporation tax rate.

Despite confidence in our liquidity position, we have taken the prudent measure to defer the decision on the dividend until later in the year when we will have further information on the impact of the pandemic this financial year. Adjusted net debt-to-EBITDA was 2.5x and in line with expectations.

Turning now to the business unit highlights. I am pleased to report strong revenue growth of 3.1% in GB with a 6% increase in volume, partly offset by a 2.7% decline in the average realized price as a result of pack mix. Total GB brand contribution increased 1.1%.

Carbonates revenue increased 4.6% driven by strong volume growth of 7.9% primarily in large at-home pack formats, most notably multipack cans. ARP declined 3% driven by the mix impact from larger packs and, to an extent, a sharp drop in out-of-home volumes, including small PET and dispense following the trading restrictions in March.

Revenue growth was led by Pepsi, 7UP and Tango, with all 3 brands growing both value and volume share. Brand contribution declined 3.6% due to the pack mix as well as a higher cost of goods and increased A&P spend.

Stills revenue declined 0.4%. Within this, Robinsons grew year-on-year, benefiting from disciplined revenue management activity in the Everyday range and continued growth in the Creations range. Core Fruit Shoot performed well and grew share while Juiced and Hydro sub brands were in decline despite maintaining share.

On-the-go and socializing brands, J20 and Drench were in decline. Lipton Ice Tea continued to deliver strong growth over the half despite a slowdown in March following government restrictions. Stills brand contribution was significantly ahead of last year due to revenue management actions as well as cost of goods at reduced A&P.

In Ireland, revenue decreased 1.9% driven by a significant decline in sales through the Counterpoint licensed wholesale business. The branded business in grocery and convenience performed strongly with volume and revenue significantly ahead of last year. Pepsi, Ballygowan and MiWadi were the main drivers of growth, partly offset by Club mixers and Fruit Shoot.

Brand contribution declined 1.3% while margin increased 10 basis points, reflecting lower A&P spend. Both the licensed wholesale channel and the water cooler business, which supplies Ballygowan to offices, have been significantly impacted since early March by the closure of the licensed trade and the increase in people working from home. GBP 8.5 million noncash impairment charge has been recognized to write-off goodwill and other assets held within the Counterpoint business.

In France, revenue decreased 8.9% with both brands and private label in decline. As we anticipated, the EGalim law has continued to adversely impact our pricing and promotional strategy. The recent trend for Teisseire has however been favorable, with March volumes increasing year-on-year. The brand contribution decline was limited to 2.6% due to favorable cost of goods and lower A&P spend.

The proposed disposal of assets to Refresco have been delayed as time lines for the clearance from the French competition authorities have been extended due to COVID-19. We do still expect the sale to complete later this year.

In Brazil, revenue increased 17% with double-digit growth in both quarters, contributing to 8 consecutive quarters of growth. Revenue benefited from strong summer trading and ready-to-drink pack formats, Fruit Shoot and new products such as Puro Coco.

Although we gained share in concentrates, the category saw a weaker performance as we responded to increasing competition from regional brands with an elevated level of promotional activity. The Be Ingredient fruit processing business was also in growth. Both revenue and brand contribution in Brazil benefited from a historic tax rebate during the first half of the year.

In international, revenue decreased 8.5%. This was primarily due to the exit of Fruit Shoot multipack in the U.S. last September and a decline in our travel and export business as COVID-19 restrictions started to impact early in the second quarter. Brand contribution increased 47.1%, and margin increased by 960 basis points, with lower A&P spend and tight cost management more than offsetting the impact of the revenue decline.

Turning now to our fixed costs. A&P spend of GBP 23.8 million was GBP 5.8 million less than last year, with lower spend in all markets. This was primarily driven by planned activity phasing skewed to the second half of the financial year and reduced spend on Fruit Shoot in the U.S. We also took measures in March as part of our cost mitigation action in response to COVID-19.

Fixed supply chain costs of GBP 61.1 million was 6.6% higher than last year. This reflects investment in sustainability initiatives, including increases in the cost of producer responsibility notes purchased to meet U.K. government obligations and higher depreciation costs from our BCP investment. Overheads decreased 5% to GBP 63.3 million due to lower reward assumptions and a reduction in discretionary spend.

As Simon highlighted, we have proactively implemented a number of actions to protect the financial strength of the business both from a profit and cash perspective. We have updated our technical guidance to reflect these and other changes.

Firstly, input cost inflation will be lower than originally anticipated at low single-digit levels following hedging activity and other actions. CapEx will be approximately GBP 50 million as we refocus the balance of year spend on critical activity. We expect adjusted items of GBP 12 million to GBP 15 million. This now includes a noncash impairment charge of GBP 8.5 million related to the Ireland wholesale business. The total cash impact of adjusting items is estimated of GBP 7 million to GBP 10 million.

We have reached agreement with the pension trustees to defer GBP 5 million of this year's contribution to FY '21. A cash payment of GBP 10 million will be made in June.

On tax, we now expect the full year effective tax rate to be 22.5% to 23.5% as we revalue the deferred tax in line with the reversal of the previously enacted 2% reduction in the rate of U.K. corporation tax. A couple of things to note on tax payments. As previously guided, we have 2 additional scheduled corporation tax payments in FY '20. The cash impact of this will be partially offset by utilizing historic overpayments on account, and we have deferred certain VAT payments to March 2021 following HMRC guidance.

On interest, we expect a reduced level of circa GBP 20 million to GBP 21 million. At half year, our working capital was adversely impacted by approximately GBP 12 million, reflecting the support provided to certain affected out-of-home customers in GB and Ireland. We expect a continued but lower working capital impact through the second half.

Finally, you will be aware that we issued in March an RNS to help the market evaluate the potential impact on our business of the COVID-19 pandemic and resulting restrictions. There remains a high level of uncertainty on the duration and nature of restrictions and on how consumers will respond. At the time, we estimated a profit impact this year of between GBP 12 million and GBP 18 million per calendar month. Based on performance since then and our updated sensitivity analysis, the estimated monthly impact on profit remains unchanged.

My final slide covers our liquidity position. A priority for us has been to ensure we have ample liquidity to support the business despite the uncertain environment. We start from a position of strength. Earlier this year, we successfully refinanced our GBP 400 million revolving credit facility to 2025, with an accordion feature for an additional GBP 200 million subject to lender consent. Together with our long-term USPP notes, we have access to over GBP 1 billion worth of facilities, of which approximately GBP 300 million is currently undrawn.

Our debt facilities carry a net debt-to-EBITDA covenant of 3.5x. This ratio was 2.5x at the half year. And our forecasts on modeling, including a highly conservative scenario, which assumes government restrictions through to our half year 2021, indicate significant financial headroom at each month-end and for the next 12 months, and the net debt-to-EBITDA ratio below covenant levels at both the full year 2020 and half year 2021 test.

As you would expect, we have taken a number of actions to protect cash. These include tight working capital management with a particular focus on credit management, a highly disciplined approach to all-cash spend with significant reductions in planned A&P, CapEx and overhead spend, reallocation of selected spend and capital across the group to optimize returns and the deferral of certain cash payments into FY '21.

Thank you, and I will now hand back to Simon who will share some of our strategic priorities as we navigate the near and the medium term.

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Simon Litherland, Britvic plc - CEO & Director [3]

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Thanks, Joanne. As we previewed in November, we have evolved our strategy and how we set it out. While we don't have time to go today to go into much detail, I want to stress that even in the midst of COVID-19, we are confident we have the right strategy, and we continue to progress successfully.

As a reminder then, we have 4 strategic priorities as set out on this slide. These are to build local favorites and global premium brands, continue to work to benefit healthier people and a healthier planet, capitalize on the significant opportunity to flavor billions of drinking water occasions and to continue to innovate to access new growth spaces.

In terms of our market focus, we continue to see GB as a growth market and plan to build our existing momentum to lead market share. Our international agenda continues with the drive to globalize our premium brand and improve margin and profitability in all our other markets across Western Europe, and Brazil remains an important growth market for us.

Underpinning this strategy are 3 critical enablers. We will generate the fuel for our growth through appropriate focus on efficiency gains across our organization. We will build on our successes from what we've learned, including through COVID-19, to transform our organization with the capability and culture we need to succeed. And finally, where it makes sense to do so, we will undergo selective M&A activity to accelerate progress towards our strategic goals.

Even through the pandemic, our strategy is serving us, and we are focusing on our nearest end priorities to help us navigate it. We continue to build our local family favorite and global premium brands, and we are seeing just how much consumers trust and value those brands in the current environment. We are leveraging our recent supply chain investment pack flexibility in GB to realize the increased at-home opportunity. And we are collaborating with our customers and their recovery strategies for the out-of-home channel.

The GB business capability program has enabled us to produce a broader range of pack formats and mitigate risk through manufacturing core brands across all sites. Previously, for example, Robinsons was manufactured solely in Norwich.

We are staying true to our ESG responsibilities in prioritizing our Healthier People, Healthier Planet sustainable business agenda. We are maintaining our competitive edge from our leadership positions in low and no-sugar brands and variants, which has been evidenced in the strong performance of brands such as Pepsi Max and Tango.

We are also continuing to lead the industry by delivering against the most stringent of science-based targets and climate action, reducing our carbon footprint to limit global warming to within 1.5 degrees. And we're doing everything we can to promote a circular packaging economy, including by minimizing any packaging waste.

We are capitalizing on the growth in flavor concentrates to sustain long-term commercial opportunities in flavoring billions of water occasions. Our trusted family favorite brands deliver healthy, great value hydration, and this also supports healthier people. Across our markets, our range of flavor concentrate brands are benefiting from consumers seeking healthy hydration at home.

And finally, we are continuing to innovate to access new spaces in both products and channels, for example, by adapting our sensational drinks portal, which supports the on-trade to focus on advice to navigate the challenges posed by this pandemic. We have an expansive long-term plan in each of these areas, which we will share when we have more time.

So in summary, we have every confidence we will continue to deliver value for our shareholders and for our stakeholders more broadly. As we navigate these difficult times, we have a great deal of experience and expertise to lean into. We have an impressive track record of delivery and entered the pandemic with real trading momentum.

We have a broad portfolio of enduring market-leading brands that consumers trust and love, which benefit from category trends around health, family and lifestyle choices. We have up-weighted our focus on nonfinancial performance, giving even more emphasis to both people and planet within our holistic business strategy. And we are a financially strong and operationally agile business driven by highly engaged and dedicated employees.

Britvic today is a well-managed business operating in a resilient category, and we retain every confidence in our long-term growth prospects.

Thank you for your time. We'll now be happy to answer your questions. So I'll hand back to the call operator to explain how you can participate in the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) I will now hand back to Steve to introduce a webcast question.

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Steve Nightingale, Britvic plc - Director of IR [2]

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I noticed we've got a number of questions coming through the phone line. So the first question came through on the chat service from Ed Mundy at Jefferies. I guess it's a 3-part question here. First part, your COVID-19 guidance of GBP 12 million to GBP 18 million per month assumes no uplift in the at-home channel, whereas off-trade has accelerated April plus 12% in GB. Is it fair to assume that the impact will be significantly less than GBP 10 million per month, assuming that the off-trade continues at current April levels? Secondly, you have optimized marketing and promo spend. How do you ensure that you are not damaging long-term brand equity? And thirdly, you have deferred the decision on the dividend until you have more visibility and clarity on the full impact of COVID-19. Can you share what the qualitative and quantitative parameters are that will influence the decision to pay a dividend in 2020?

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Simon Litherland, Britvic plc - CEO & Director [3]

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Great. Thanks, Steve. Joanne, do you want to pick up the first question on our modeling assumptions? And then I will do the marketing spend and the dividend question. Thanks for the questions, Ed.

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Joanne Wilson, Britvic plc - CFO & Director [4]

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Yes, of course. Thanks, Ed. So just in terms of the guidance of GBP 12 million to GBP 18 million per month, of course, now you'd expect since March, we have updated our modeling and scenarios to take into account the data that we're seeing both internally and externally. As Simon shared, we've seen strong volume performance year-on-year in our at-home channel, and that is stronger than we had anticipated in March. But as we've also shared, there is an adverse pack mix, which is offsetting some of that benefits on trading contribution and at-home. And out-of-home is slightly weaker than expected. So we've had the full closure of KFCs, McDonald's, et cetera, and then are starting to reopen again, but we have updated our modeling to reflect that.

I think since March as well, we're a little bit clearer on the social distancing measures that will be put in place on the government guidance for the on-trade. And we have modeled what that might mean for the percentage of outlets that will reopen on the on-trade. We expect that to be more gradual than originally anticipated. And also what is unclear is how consumers will respond to those social distancing measures and the easing of restrictions.

The range of scenarios at the top end is prudent scenarios as you would expect. And as we see those restrictions easing, as we see consumers recovering their consumption and buying patterns, we would expect that impacts each month to reduce. And I would also just add that we have delivered all the mitigations that we were expecting to deliver from a profit perspective in March.

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Simon Litherland, Britvic plc - CEO & Director [5]

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Very good. Thanks, Joanne. On our marketing spend on brands, I think some of the decisions have been really, really optimizing that spend because events like Wimbledon, football-related events, some of our music events that we sponsor with brands like Pepsi have all been canceled. So that's been the first place of recourse.

Secondly, there's clearly been no point in spending in the on-trade during quarter 3 or indeed in certain channels like out-of-home media or billboards, et cetera. We do continue to advertise some of our at-home brands. So Robinsons, for example, or Pepsi Max, you might have seen in TV and online.

And I think overall, we're not in danger of damaging our brands at all. We're left with a broad portfolio of #1 and #2 brands in their categories, which tend to be trusted family favorites across all of our markets. And those brands, in particular, are doing really well in the at-home channel as you've seen in the presentation, with brands like Robinsons up 25% in April, and our carbonates brands also up 10% to 20%. So really comfortable that we'll do the right thing for our brands. And as we emerge out of this, we are prepared to respond with agility both in terms to -- in terms of our customers' needs and reach to market as well as our advertising and promotions.

On the third question around the dividend. I think, basically, we took the decision just to be prudent. There's an awful lot out there that we don't know. As Joanne just articulated, we don't know when the out-of-home channel will reopen exactly. We also don't know how our customers will respond the extent to which they can profitably open outlets with social distancing measures. And of course, we don't know how consumers respond as they kind of start to get back to normal either in on-the-go consumption, how much will be meal deal at work, lunchtime moving around again or indeed how quickly consumers will go back to the on-trade. There's a lot we don't know. And we just felt it was a prudent thing to do. And we'll know a lot more by the year-end, and we can make our dividend decision then. Okay, Steve.

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Steve Nightingale, Britvic plc - Director of IR [6]

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Thanks, Simon. There are some more web chat questions that have come through. But I think in the order of fairness, we'll hand back to the operator for the telephone calls because they've been waiting on the line since the start, and then we'll come back to the kind of web chat questions once we've worked through those 4 calls.

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Operator [7]

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And so our first question comes from Richard Felton from Goldman Sachs.

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Richard Felton, Goldman Sachs Group, Inc., Research Division - Equity Analyst [8]

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Two questions for me, please. The first question is on your covenant stress testing. So you highlighted in your statement that March 2021 was the most sensitive from a covenant stress testing perspective. But nonetheless, there is a breach. I'd like to dig into the assumption that you use for that a little bit, please. So specifically, is that based on a GBP 12 million to GBP 18 million adverse monthly EBIT impact? Or do you assume a less negative impact as you get to your less busy time of year and lockdown restrictions begin to ease? And secondly, what is the assumption for your dividend that you use for that scenario modeling? That's my first question.

My second question is on GB carbs. So overall, very strong performance in H1, but price/mix was perhaps a little bit softer than anticipated. How much of the decline in ARP per liter was due to shifting consumer habits and on-trade closures once COVID-19 disruption occurred compared to the underlying trend? Or maybe to ask this question slightly differently, what would the ARP per liter have looked like if results had run to the end of February instead of the end of March?

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Simon Litherland, Britvic plc - CEO & Director [9]

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Okay. Joanne, do you want to take the first then I'll take the carbs question and you take the covenant and stress testing.

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Joanne Wilson, Britvic plc - CFO & Director [10]

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Yes, of course. (inaudible). So in terms of GBP 12 million to GBP 18 million, and just to be clear, that is the impact, the estimated monthly impact on the calendar month in FY '20. And our modeling scenarios do go out 18 months as they go through to the end of FY '21. And the GBP 12 million to GBP 18 million just reflects the seasonality in our business as well and the impact on profit. So I think that's the first point to make.

In terms of the scenarios, we've done a range of scenarios as you would expect us to. And there's a highly conservative scenario in there, which assumes restrictions remain in place on the on-trade through to March 21, which, as you rightly point out, is a working capital peak and therefore, particularly sensitive for the covenant calculation. And now those restrictions assume that not all outlets will be open by March, but also that consumers will be slow to resume their previous consumption patterns in the on-trade.

And so I think it's very, as we described, some highly conservative scenarios, you should view it as a stress test. In terms of the dividend decision, look, as we've been making decisions across the business, we have taken into account all of the modeling scenarios as Simon and I have shared. And from a liquidity perspective, we are very confident in our monthly liquidity and being covenant-compliant at each of the stress tests for the full year and the half year.

The dividend decision was really a prudent decision based on the level of uncertainty that we're still seeing and high governmental ease restrictions, the impact of social distancing measures, et cetera in the business. And therefore, it was prudent to defer that decision in dividend until later in the year when we have more clarity on the impact on our business. Simon, do you want to answer the carbs?

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Simon Litherland, Britvic plc - CEO & Director [11]

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Excellent. Thanks, Joanne. Yes, good question on the carbs, Richard, thanks. Obviously, what drives our ARP are a number of things, customer mix, brand mix, test mix. And at the end of March, the ARP would have been down 3%. The impact of COVID closes on that. We haven't got the specific number, but you can probably assume it was about 1/3 of that. And effectively, what has that been driven by, it's been driven by us, our increased participation and then performance particularly in large multipack cans on our carbonates brands.

Obviously, from mid-March onwards in GB, we were impacted from an ARP perspective by closure of the out-of-home channel both from a dispense perspective and from immediate consumption, which is obviously our highest margin single-serve packs. So it would be a part of that order, if that helps.

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Operator [12]

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We now have a question from Ewan Mitchell from Barclays.

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Ewan Mitchell, Barclays Bank PLC, Research Division - Research Analyst [13]

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Three questions or 2 and a bit from me. Could you just give us a little bit more color on the profitability between your at-home pack and your out-of-home? Sort of are we thinking when it's down to the EBIT line that this is within a couple of percentage points or is that -- or is it greater than that? Secondly, the share gains that you highlighted since the beginning of the pandemic, would you put those down to your perhaps favorable channel mix versus your competitors? And as such, do you expect to hold on to them even when we return to more normal behaviors? And finally, just on the 7UP, could you just give a little bit more color as to the plus 40 in April? And then thirdly, the over-indexed to e-commerce. Could you just give us some numbers in terms of percentage of sales for you and how that varies between carbs and stills and then also where that lies in terms of margin and price accretion?

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Simon Litherland, Britvic plc - CEO & Director [14]

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Okay. Thanks, Ewan. Joanne, do you want to take number one and number three, and I'll take number two?

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Joanne Wilson, Britvic plc - CFO & Director [15]

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Yes. So just in terms of the profit impact between at-home and out-of-home, look, we don't share margin analysis at that level, but I will give you a little bit more color. So when we talk about out-of-home, it's a broad range of channels. So it's everything from bars and restaurants through to wholesalers and indeed some high street operators such as Co-op and Spar. Within those, as you'd expect, we've seen very different performance, and we operate a very different margin. So there's not one rate of margin across the out-of-home.

As we shared, out-of-home tends to operate overall at a higher margin than at-home and certainly at the branded contribution level. When you move down the P&L, there are other costs, so just depreciation relating to commercial assets or the dispense equipment, et cetera, that we have in the business and maintenance of those. But typically, as I say, out-of-home is at a higher margin. And as Simon said, what we're seeing in at-home is that shift to the larger packs, which is diluting margin overall. So hopefully, that helps with the question.

And in terms of 7UP, we're really pleased with the strong performance that we've seen in 7UP. And really, a couple of things have driven that, and so we have driven much better distribution across some of our key at-home customers in the U.K. That's improved. That was also having a stronger marketing campaign with the comeback of Fido, and that's really driven up 7UP. But particularly, the 7UP Free, we've seen very strong volume performance and share gains on that product.

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Simon Litherland, Britvic plc - CEO & Director [16]

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Okay. Thanks, Joanne. Yes. On the share gains, I think you're right in that we do slightly over-index in at-home from a share perspective, which is positive for us in this environment. But I think it's also fair to say that the share gains have been consistent through the year and certainly for some of our brands consistent for a [number] of years.

So if you look at a 12-week perspective, we've taken share on Pepsi, Robinsons, Fruit Shoot, 7UP, Tango and J20. And that certainly has accelerated on brands like Robs, Pepsi, 7UP, Tango in the last 4 weeks with stocking up and I think with the at-home family environment that's been created through lockdown. We're pretty confident that what we have in Robinsons and our low, no-sugar carbonates brands are very much on trend from a consumer perspective and would anticipate holding on to both the share and continue to make good gains going forward as well post the end of this rather volatile period.

And then finally, on the e-commerce, look, there's not a whole lot of detail that I can give. We've given quite a lot of detail already, but we do overtrade in that channel in GB by a couple of percentage points versus our in-store share, if you like. And obviously, over the last couple of years, we've been quite focused on building our relationships, particularly with the big e-retailers in terms of building that. And obviously, as we come out of this, I think that is a trend that has accelerated massively through this pandemic and one that will be here today. So it will be an increasingly important channel for us going forward. And we've got -- although we're in not a bad position, there's certainly more work we need to do in building our capability and reach into that channel.

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Operator [17]

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We now have a question from Nico Von Stackelberg from Liberum.

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Nico Von Stackelberg, Liberum Capital Limited, Research Division - Research Analyst [18]

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Just a quick question on the working capital. There was a cash outflow of roughly GBP 106 million linked to trade and other payables and contract liabilities. Can you walk me through the various moving parts on this line? I think some of it had to do with tax. Secondly, on Brazil, could you provide me the numbers, excluding that big tax rebate, just so I can see the underlying performance? And also given where the balance sheet is, the decision to defer the dividend, and broadly speaking, your track record in Brazil, I was surprised that M&A is really on the table right now. Can you explain why that makes sense? Finally, there are a lot of different mitigating items that you can pursue, and you are pursuing some of them, for example, VAT. You've deferred the March payment following the HMRC directive. And I guess I was wondering, can you walk me through all of the different, I guess, at the end of the day, the numbers on VAT deferral? Like, for example, would you be deferring 2 more months of VAT or is that just a one-off 1 month payment and you sort of saved the other 2 months for later on the year if you need it?

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Simon Litherland, Britvic plc - CEO & Director [19]

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Nico, thanks for those questions. Joanne, do you want to pick up the working capital outflow and the mitigations? And I'll pick up Brazil and M&A.

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Joanne Wilson, Britvic plc - CFO & Director [20]

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Yes. Nico, thanks for that. And yes, I can get you some more information on the tax as well. So just if I start with adjusted free cash flow outflow, so we had an outflow of GBP 37.3 million in the first half, and that's versus a GBP 12.7 million outflow in H1 '19. I think it's important to note that we typically do see a cash outflow in our first half due to the nature and shape of our business, our working capital peak, and we see the big seasonal sales coming through in the second half.

So let me help you understand some of the movements year-on-year. So the balance sheet includes the 28 weeks. So there's an GBP 11 million drag on EBITDA if you just look at H1 '19 versus H1 '20. As you said, we have a working capital outflow of GBP 30 million, and I'll come back and share a little bit more detail on that. And then, of course, share-based payments and purchase of shares, tax interest, et cetera, there was about a GBP 6 million outflow. Offsetting that, we had lower CapEx of GBP 7 million, and we had lower cash pension contributions of GBP 16.5 million.

So let me talk you through the working capital, and then I'll come back and talk about some of the movements you expect to see in the second half because most of that is relevant on H1. So on working capital, we had a -- we estimate the COVID impact on receivables of about GBP 12 million at the end of March, when, particularly, our on-trade customers had requested delays in payments. And I'll come back and talk about what's happened since then.

On taxes, we guided at prelim, we have additional tax payments this year as a result of HMRC changes to their payment schedules. We saw 3 tax payments in the first half versus 2 last year, and that drove an GBP 18 million drag on tax payments. And also our move from period to calendar reporting, it drove a net capital -- working capital outflow of GBP 7 million. And that's because we're reporting at a month end rather than mid-month, and that has an adverse impact on working capital.

There's a lot of other moving parts within it, so the exit of U.S. multipack in the U.S. as a result in the reduction of payables as well. We had lower reward payable at the half year that we had last year and also lower capital credits as a result of the conclusion with ECP. But Nico, we can take you back -- take you through some more detail on that if it would be helpful.

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Nico Von Stackelberg, Liberum Capital Limited, Research Division - Research Analyst [21]

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Yes, please.

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Joanne Wilson, Britvic plc - CFO & Director [22]

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Just to dig through the second half, we do expect some of the more significant movements to unwind. So obviously, the period to calendar impact will not be there at the full year as we will be reporting at month end. That will unwind. We do expect the tax impact to partially offset because we have had a historic overpayment on account. So that will mitigate a significant amount of that impact from the tax payment schedules. And plus, as you referenced, the VAT deferral in GB, and I'll come back and share a bit more detail at that, will benefit.

We are expecting CapEx to be lower for the full year. Most of the savings year-on-year will come through in the second half. And we expect pensions to be GBP 5 million favorable from a cash position. So a lot of that, what you're seeing in the first half, we expect to unwind. We, in all of our modeling, are expected to be cash-generative in the full year and in a position to reduce our net debt.

So if I just come back to, I think, 2 important points within that, which I think are important to clarify. The COVID impact of GBP 12 million at the half year, we have since agreed payment plans for the majority of our on-trade customers. And we have collected better-than-forecast cash in April, and I've seen gain in better-than-forecast cash coming in, in May. So we do expect that, that will unwind. But in the second half, we expect a little bit of a drag from working capital just in terms of the support we're providing to some of our on-trade customers until -- extend to some of our smaller suppliers.

In terms of the VAT, we're deferring the March, April and May VAT, and that will be deferred to March 2021. So it will come into -- it will be in the full year -- or sorry, it will be in the half year '21. And we estimate that, that deferral will be circa GBP 20 million. So quite a lot of detail, but hopefully, that helps give a bit more visibility.

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Simon Litherland, Britvic plc - CEO & Director [23]

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Great. Thanks. And let me just talk to the other ones quickly. So Nico, yes, Brazil and the tax. Yes, Brazil had a really strong period. We've had 8 consecutive quarters of growth, and this half is no different. And without giving specific numbers, but you can safely assume that the growth in Brazil would have been double-digit without the tax rebate. So really pleased with the performance in Brazil. We're doing particularly well with our strategy of putting brands into the market, which we've got great-tasting liquids, strong brand presence and are priced competitively for the Brazilian consumer.

Fruit Shoot's also done really well in the half where we've had our colored PET bottle in the market for a while, but more recently, launched a smaller, better-priced 150 ml tetra pack version, which has been doing very well.

And indeed, in the concentrates category, we've stabilized that category and are taking share again. And we just recently launched both a punch, a pack, a punch format of liquid concentrates, which is going up against product concentrates in that market, which is a really big category. And we're also just trialing a Robinsons-type liquid called the Fruit Shoot tropical in the market. So there are lots of exciting things happening in Brazil actually. And obviously, the COVID impact looks like it could be quite significant. But as we also know, most of our business is focused in the off-trade in that marketplace.

On M&A more generally, look, it's part of our long-term growth strategy. We want -- we're obviously managing this business for the long term. And the strategy of identifying interesting new markets for us at the right price, et cetera, has very much been part of our journey. And likewise, we always keep our eyes open to see if there's opportunities to fill in category gaps in our portfolios in different marketplaces. But at the same time, we also look to simplify our business where we can, and the French disposal of our own label Juiced business is a good example of that, which as we shared in the presentation, is still on track to be completed later on this year.

Steve, have we got any more?

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Operator [24]

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We now have a question from Emma Letheren from RBC.

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Emma Letheren, RBC Capital Markets, Research Division - Analyst [25]

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I wanted to ask, you've mentioned that you are benefiting from consumers increasingly demanding trusted brands in soft drinks. So it's obviously a reversal of what we've perhaps been seeing for the last few years with some of the small level property brands gaining share. I'm wondering how sustainable do you think this trend is? And how long do you expect this to last? And then secondly, if you could talk a bit more and maybe give some examples of how the changes you made in your recent supply chain investment in the U.K. helped you manage this crisis and many of the changes in demand, and also if the crisis actually highlighted any around the supply chain that perhaps not as resilient as you saw and now need additional investment in case something like this happens again.

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Simon Litherland, Britvic plc - CEO & Director [26]

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Certainly, Emma, let me take those. So on trusted brands, I think, yes, it is interesting as we have seen consumers return to pretty much market leaders and brands they know and love well. I think what we do see and have seen over a number of years now is these smaller start-up brands started to make a presence with access to reach to market and online marketing, et cetera. And as people are in the crisis, they tend to turn to spend the money on brands they know and love, if you like, rather than try something new. Having said that, will it be sustainable? Let's see how we come out of this crisis and the extent of the recession that we face into, but I think that is a trend that will continue.

I think the second thing I'd say is despite the (inaudible) of small brands that you see coming to market because our category doesn't have a great deal of barriers to entry. There's not that many that actually get to scale. And so it is genuinely a combination of great-tasting brands, great liquids with a good marketing presence, but it's a combination of reach to market. And so obviously, businesses like ours with a broad portfolio of brands, strong customer relationships where we can bring a brewed offer in a simple way to our bigger customers, both in the on and off-trade, we still are advantaged. So I think you, obviously, do see some brands start small and breakthrough, and we all can name some examples of those. But the proportion of those relative to the scale of the category and the number of brands that are actually launched is quite small.

On the supply chain, look, I mean, I think that investment has really proved itself as we would have hoped. I mean, first of all, from a risk perspective, we can now produce most of our brands in multiple sites. And I think when you face into some sort of crisis like the one we just have, that's something that's suddenly very important. And I think the other key thing is that's really demonstrated our flexibility and our ability to shift between pack sizes in the different sites. And without that investment, we never would have been able to meet demand that we have, and specifically in some of our bigger pack sizes, multipack cans, for example, large PET. So we really have seen the benefit of that investment come through in the last 12, 18 months and certainly been very beneficial for us in this crisis.

Learnings, I guess, the one site where we've had more of a challenge has been Crolles, where, as you know, we are limited to, at the moment, one site to produce Teisseire, which is a smaller site. The lines are closer together. So as we shared in the presentation, we reduced the number of lines that we're operating just from a safety -- for safety reasons from our employee perspective, but we are now ramping back up to full production. So we would have shorted the market a little bit in March through April, but we need to now build stock back up in that category.

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Steve Nightingale, Britvic plc - Director of IR [27]

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I think that's all the telephone questions answered. There's a couple on the web that we'll kind of get to. I just want to give Joanne the opportunity just to kind of come back on one of Nico's questions.

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Joanne Wilson, Britvic plc - CFO & Director [28]

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Yes. Sorry, Nico, I thought -- I didn't hear the tax question properly. I thought it was related to something else in more detail. But in terms of the tax rebate in Brazil, it relates to fees and costs positions like a VAT tax, and it was circa GBP 3 million in half year. And I'm not seeing revenue contribution. There's a slightly lower impact on profit after tax.

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Steve Nightingale, Britvic plc - Director of IR [29]

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And so just to kind of -- before we kind of close off, we've got a couple of web chat questions.

First, kind of combined, is from Ned Hammond and from Nicola Mallard. Ned asked, have you seen any improvement in on-the-go sales since the initial easing of lock down and kind of relevant share gains? And Nicola asked, can you just give us a guide on how April has performed for the group?

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Simon Litherland, Britvic plc - CEO & Director [30]

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Okay. I'll take that. Thanks, guys. Yes, look, it's really early days. But what I can say is that customers like Co-op, Spar are actually starting to order a little bit more. So you're starting to see it come back. And that, obviously, has a positive mix impact, because I see intermediate consumption. Smaller packs through customers like that will start to come back, whereas in the last kind of 6 weeks or so they've been predominantly being taken on packs.

And then on the other side of the coin, you are also starting to see some of your fast food restaurants open up, and we're starting to support those customers as they come back. And on the counter side, that will have a negative mix on profitability. There's not much more to say than that. And I think the next time we'll guide on -- we'll give you some flavor on April will be at our quarter 3 results.

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Steve Nightingale, Britvic plc - Director of IR [31]

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And then I think the kind of final question, just kind of quick combined from [H. C. Capital Advisers]. What will be the likely impact on pension contributions going forward? And Joanne, can you comment on the amount of exceptional charges going forward, so adjusting items?

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Joanne Wilson, Britvic plc - CFO & Director [32]

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Sorry. Just starting with pension. Historically, we have paid a GBP 20 million contribution a year. This year, we -- as we shared, we've deferred GBP 5 million of that cash payment into Q1 FY '21. So there will be a GBP 15 million cash payments this year.

As we've shared previously, we are in the process of completing our triennial valuation on our GB-defined benefit scheme. And we'll conclude that and agree a new schedule of contributions by the 30th of June this year. So we'll share further detail on that when we have confirmed with the trustees.

In terms of adjusting items, I mean, just broadly, adjusting items have come down significantly following the completion of the business capability program. This year, we have shared that for the full year, we expect adjusting item of about GBP 12 million to GBP 15 million, which includes the impairment of Counterpoint charge, which is a noncash charge of GBP 8.5 million. There's some additional charges relating to the Norwich closure and also the sale of our private label business in France. So that's driving the guidance for the full year, and the cash impact of adjusting items is estimated at GBP 7 million to GBP 10 million, and that includes from prior year adjusting assets within that cash.

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Steve Nightingale, Britvic plc - Director of IR [33]

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Great. Thanks, Joanne. Thanks, Simon. So I think we've reached the end of all the kind of telephone questions and pretty much all of the webcast questions. There's a couple of minor ones -- residual questions I don't think we've got time to get to today. So I'll follow back up on those with the individuals concerned. So I'll now hand back to the call operator.

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Operator [34]

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This concludes Britvic...

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Simon Litherland, Britvic plc - CEO & Director [35]

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Thanks, everybody, for joining in, and if I can just say, thanks very much to our Britvic team who I think are managing the business brilliantly through these troubled times. Really confident we'll come out of this strongly and confident about our long-term growth aspects. So thanks, everybody, for joining this call today. I hope it was useful and look forward to seeing you all soon.