Bruised by recession and intense competition, Innocent is in talks with investors to fuel overseas expansion. How's it hanging? By Adam Leyland and James Ball
Innocent is the coolest kid in school. With its free spirit, friendly branding, extraordinary growth and impeccable ethical credentials, it's the business start-up all its peers look up to.
Yet after spending a decade cold shouldering un-hip suitors from the corporate world, Innocent is finally ready to choose a besty mate. The original seed capital of just £250,000 was provided by Maurice Pinto for a 25% stake. With sales of £113m at the last count, even this maverick American multi-millionaire has surely done few better deals.
But since October, Innocent has been looking to raise £30m, for a minority stake, to fund its ambitious overseas expansion. And, as well as private equity groups, several big trade players are thought to be among the players who've expressed an interest.
Reports in the press this week suggested Coca-Cola was the frontrunner, but Heinz and Swiss-based food group Hero are also rumoured to be in the frame. And Unilever looked but has since ruled itself out (see p44).
With three to five players shortlisted, who is Innocent likely to pick? And, after a tough year battling PepsiCo, Nestlé and own-label players for share in the beleaguered smoothies category, what is Innocent actually worth?
Innocent isn't simply looking for capital, stresses co-founder Richard Reed "Our brief was to find a bigger Pinto," he says. "Someone who can contribute financial clout and help with the mission." But Reed refuses to be drawn on the possibility of a trade partner. "It's really encouraging, but we've still got a long way to go," is all he'll say, adding:
"I'm NDA-ed up to the hilt."
Whoever Innocent chooses, the value of Innocent has undoubtedly been hit, say analysts.
With sales falling 22.6%, the brand slumped from 34th to 55th in this week's 100 Biggest Brands supplement, though with overall smoothie sales falling from £195m to £145m [Nielsen 52w/e 31 January 2009], Innocent outperformed the market.
"All or nothing with Coke"
Margins in the sector were also under pressure. Despite the rising cost of fruit, value sales fell faster than volumes. Forex fluctuations also played havoc. And last but not least was PepsiCo's launch of Tropicana and Nestlé's launch of Boosted Smoothies. "We were dealing with tough dynamics," says Reed.
At one stage Innocent's share dropped from 76% to 59%, according to IRI. Since then, however, Nestlé has pulled the plug on its offering, while Tropicana's share has fallen from a high of 19% to just 5%, while Innocent recovered all of its lost share, albeit on a smaller base, through increased promotional activity.
"The past year has shown that Innocent is potentially vulnerable to heavyweight trade players entering its markets," says one City source. "Tropicana certainly caused big issues, and made significant demands of Innocent's management." And the City source believes Innocent will look for a trade partner, rather than finance from private equity. "It's clear Innocent is looking to tap a corporate's wisdom as well as its pockets. Coca-Cola is the obvious favourite for a link-up, especially given PepsiCo's presence in the market," he adds.
Another City source disagrees. "Coca-Cola has no experience as a minority investor. It's all or nothing with Coke. I'd have thought Unilever was a better fit given its experience with Ben & Jerry's."
What all agree is that, despite the recent setbacks, Innocent is still a very strong brand, with potential in the UK and abroad. "Innocent has done an outstanding job in the UK and remains ambitious to expand overseas," says the first City source. "It may not be worth what it was a year ago, but it's a very nice business for anyone to pick up a slice of."
As well as being the market leader in five countries, and with a presence in 14 countries, Reed also reports sales of Veg Pots in the UK well ahead of expectations."We budgeted for £4m sales in the first year. We're looking at £6-8m."
So how much is Innocent worth? For all its sales growth, Innocent has never been tremendously profitable. Its most recently filed accounts, for the year to 31 December 2007 showed net profits of £6.2m, slightly down on the year before. And though trading margins were a healthy 37%, its liabilities outweighed assets by about £1m.
The figures for 2008 will certainly be worse than those above. But it still has good reason to expect a strong valuation. The minimum value, if the founders are to retain a majority stake - and given Pinto's 25% stake - is 25% of the business. This implies a valuation of at least £120m for the whole company, a little over one times annual sales. But this is well below most experts' estimates.
"The Innocent brand remains very strong. There's still plenty of mileage there," says one broker. "A year ago it would have been higher, but a valuation that's a multiple of sales, perhaps £200m to £300m, is not unreasonable. A minority stake is certainly going to be less attractive than snapping up the whole company, and so worth less, but who knows? For the right price, a buyout may even now not be completely off the table," he adds.
Learning from mistakes
Reed insists this is out of the question. In the meantime, he's keen to demonstrate the business has learnt from its mistakes. "We were dealing with tough dynamics. But one mistake we made was we went quiet when people needed to be reminded of who we are and what we're about. We are brand leaders and didn't have much innovation. When times get tough you need more NPD, not less."
Innocent is also doubling its consumer marketing spend in the year ahead. And as well as pushing health, it has also started promoting its value, having lowered average selling price and increased multibuy activity. With a new green smoothie out in April - its first to be banana-free - Innocent is back in innovation mode too. The mojo is back.
Innocent is the coolest kid in school. With its free spirit, friendly branding, extraordinary growth and impeccable ethical credentials, it's the business start-up all its peers look up to.
Yet after spending a decade cold shouldering un-hip suitors from the corporate world, Innocent is finally ready to choose a besty mate. The original seed capital of just £250,000 was provided by Maurice Pinto for a 25% stake. With sales of £113m at the last count, even this maverick American multi-millionaire has surely done few better deals.
But since October, Innocent has been looking to raise £30m, for a minority stake, to fund its ambitious overseas expansion. And, as well as private equity groups, several big trade players are thought to be among the players who've expressed an interest.
Reports in the press this week suggested Coca-Cola was the frontrunner, but Heinz and Swiss-based food group Hero are also rumoured to be in the frame. And Unilever looked but has since ruled itself out (see p44).
With three to five players shortlisted, who is Innocent likely to pick? And, after a tough year battling PepsiCo, Nestlé and own-label players for share in the beleaguered smoothies category, what is Innocent actually worth?
Innocent isn't simply looking for capital, stresses co-founder Richard Reed "Our brief was to find a bigger Pinto," he says. "Someone who can contribute financial clout and help with the mission." But Reed refuses to be drawn on the possibility of a trade partner. "It's really encouraging, but we've still got a long way to go," is all he'll say, adding:
"I'm NDA-ed up to the hilt."
Whoever Innocent chooses, the value of Innocent has undoubtedly been hit, say analysts.
With sales falling 22.6%, the brand slumped from 34th to 55th in this week's 100 Biggest Brands supplement, though with overall smoothie sales falling from £195m to £145m [Nielsen 52w/e 31 January 2009], Innocent outperformed the market.
"All or nothing with Coke"
Margins in the sector were also under pressure. Despite the rising cost of fruit, value sales fell faster than volumes. Forex fluctuations also played havoc. And last but not least was PepsiCo's launch of Tropicana and Nestlé's launch of Boosted Smoothies. "We were dealing with tough dynamics," says Reed.
At one stage Innocent's share dropped from 76% to 59%, according to IRI. Since then, however, Nestlé has pulled the plug on its offering, while Tropicana's share has fallen from a high of 19% to just 5%, while Innocent recovered all of its lost share, albeit on a smaller base, through increased promotional activity.
"The past year has shown that Innocent is potentially vulnerable to heavyweight trade players entering its markets," says one City source. "Tropicana certainly caused big issues, and made significant demands of Innocent's management." And the City source believes Innocent will look for a trade partner, rather than finance from private equity. "It's clear Innocent is looking to tap a corporate's wisdom as well as its pockets. Coca-Cola is the obvious favourite for a link-up, especially given PepsiCo's presence in the market," he adds.
Another City source disagrees. "Coca-Cola has no experience as a minority investor. It's all or nothing with Coke. I'd have thought Unilever was a better fit given its experience with Ben & Jerry's."
What all agree is that, despite the recent setbacks, Innocent is still a very strong brand, with potential in the UK and abroad. "Innocent has done an outstanding job in the UK and remains ambitious to expand overseas," says the first City source. "It may not be worth what it was a year ago, but it's a very nice business for anyone to pick up a slice of."
As well as being the market leader in five countries, and with a presence in 14 countries, Reed also reports sales of Veg Pots in the UK well ahead of expectations."We budgeted for £4m sales in the first year. We're looking at £6-8m."
So how much is Innocent worth? For all its sales growth, Innocent has never been tremendously profitable. Its most recently filed accounts, for the year to 31 December 2007 showed net profits of £6.2m, slightly down on the year before. And though trading margins were a healthy 37%, its liabilities outweighed assets by about £1m.
The figures for 2008 will certainly be worse than those above. But it still has good reason to expect a strong valuation. The minimum value, if the founders are to retain a majority stake - and given Pinto's 25% stake - is 25% of the business. This implies a valuation of at least £120m for the whole company, a little over one times annual sales. But this is well below most experts' estimates.
"The Innocent brand remains very strong. There's still plenty of mileage there," says one broker. "A year ago it would have been higher, but a valuation that's a multiple of sales, perhaps £200m to £300m, is not unreasonable. A minority stake is certainly going to be less attractive than snapping up the whole company, and so worth less, but who knows? For the right price, a buyout may even now not be completely off the table," he adds.
Learning from mistakes
Reed insists this is out of the question. In the meantime, he's keen to demonstrate the business has learnt from its mistakes. "We were dealing with tough dynamics. But one mistake we made was we went quiet when people needed to be reminded of who we are and what we're about. We are brand leaders and didn't have much innovation. When times get tough you need more NPD, not less."
Innocent is also doubling its consumer marketing spend in the year ahead. And as well as pushing health, it has also started promoting its value, having lowered average selling price and increased multibuy activity. With a new green smoothie out in April - its first to be banana-free - Innocent is back in innovation mode too. The mojo is back.
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