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As Irn-Bru maker reports record profits...

Water outstrips cola as consumer tastes slow Barr’s growth

 

Irn-Bru CommonwealthConsumers are drinking more water than cola for the first time, putting pressure on fizzy drinks manufacturers, according to Irn-Bru maker AG Barr.

Together with falling prices in the soft drinks market, companies in the sector are feeling a squeeze. Barr said it will become tougher to build on its 10% record profits growth last year.

The company announced that all is core brands had outperformed the market, helped by the Commonwealth Games.

But it said the current year as “started slowly, reflecting tough comparative trading and promotional phasing” and it will continue to control costs and invest in the brands which include Rubicon, Tizer and Strathmore Water. It also made a move into the cocktail mixer market with the acquisition of Funkin.

Investors were spooked by the slowdown down and in early trade marked the shares 2.9% or 15.5p lower to 661.5p.

The UK soft drinks market, as measured by Nielsen, entered a deflationary phase towards the end of the year, said Barr.

But it said year-on-year comparative figures were impacted, in part, by exceptionally warm weather in the previous year.  In volume terms, carbonates declined by 1.3% following strong growth in the previous year, however carbonates grew value by 1.0%.  The still category experienced volume growth of 0.8% with marginal decline in value of 0.2%.

“Once again the overall market was driven by the performance of the water category which has overtaken cola to become the largest single category by volume for the first time,”said chief executive Roger White.

“There is no doubt that consumer preferences are changing within the total soft drinks category.  Areas where traditional growth has been available are now proving more difficult to generate growth making differentiated brands and appealing to consumers more important than ever.”

Against this market backdrop, the company reported that all of its core brands have grown in the period.  The still category has delivered a particularly strong performance with growth of 5.7%, driven by more than 20% growth in the Strathmore brand and Snapple which, although relatively small in total revenue terms, grew by 35%.

Carbonates’ performance was robust, with growth well ahead of the market in Irn-Bru Sugar Free, Rubicon and Barr.  This year Rockstar grew more in line with the energy market at 5.2%, following the significant growth of 60% in the prior year.

Pre-tax profits rose to £41.9 million (2014: £38.1m) on a 2.7% increase in turnover to £260.9m (2014: £254.1m). Stripping out the impact of the loss of the Orangina brand, turnover increased by 3.3%.

The company proposes a final dividend of 9.01p per share (2014: 8.19p) to give a proposed total dividend for the year of 12.12p per share, an increase of 10% over the prior year.

The company generated £40.6m of free cash in 2014/15 – up nearly £3m on the prior period, which itself was a record year. The increase was primarily attributable to the strong underlying EBITDA and lower exceptional cash outflows.

Mr White told Daily Business that the company will be investing about £10 million this year in its Milton Keynes site where output is expected to double. More than half of production is currently in Cumbernauld and about 40% in Milton Keynes. Through growth of the business the balance will be closer to 50:50.

He said the company is continuing to broaden its portfolio and whil Irn-Bru continues to grow, its growth is outpaced by the company and it now accounts for 42% of revenue against about 55% ten years ago.

“It is still at the heart of what we do. People are making choices around different dynamics. There is still a treat value to a fizzy drink but the growth in water and flavoured water is more important to the category.”

He denied that the company was making any deliberate move to be less reliant on carbonated drinks, stating that the category has grown against predictions it would fall.

Sales across England and Wales increased by 5.6%, with Sugar Free growing by more than 20% in this market. Irn-Bru sales have been strong in the north of England and the company now plans to target increased levels of distribution and brand awareness further into England and Wales in 2015.

The company has signed a three-year deal to become the official soft drink partner for clubs across the Sky Bet Championship, Sky Bet League 1 and Sky Bet League 2 which will kick-off during this year’s Sky Bet Play-Offs.

The new partnership with the Football League is the biggest ever for Irn-Bru in terms of its scale and adds to its sports sponsorship which also includes the Scottish Professional Football League. (See story here)

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