Soft drinks blow
AG Barr profits slump in ‘disappointing’ first half
Sales took a hit in the first half
Profits at Irn-Bru maker AG Barr fell during a “disappointing” first half as the company grappled with wetter weather, discounting and changes to some of its recipes.
The company, which saw its shares plunge by a quarter in July when it warned the market of the downturn, said today it has addressed “brand related challenges” in its Rockstar energy and Rubicon juice drinks, and customers are adjusting to higher prices.
Revenue for the six months ended 27 July fell to £122.5m (2018 : £136.9m) and profit before tax and exceptional items came in lower at £13.9m (2018 : £18.2m). Statutory profit before tax was £13.5m (2018 : £18.2m) took into account £0.4m of exceptional costs associated with an internal restructuring programme which began in the period.
The company said: “We have returned our Barr Soft Drinks business, particularly Irn-Bru, to its long-term value driven approach, improving our price positioning and reducing our promotional intensity within the market.
“This transition, combined with the disappointing spring and summer weather, most notably in our key markets of Scotland and the north of England, has had a short-term volume impact across the portfolio, exacerbated by specific brand challenges in Rockstar energy and Rubicon juice drinks.
“We are now seeing positive indications of consumer acceptance of this new price and promotional positioning. Early indications are that increased average realised prices are compensating for the reduction in volumes experienced while shoppers readjust to new promotional price points.”
The company said the first half “has been disappointing. However, it was always expected to be a year of pricing transition for the business which would lead to “elevated levels of risk”.
It said: “We now have plans in place to address our specific brand related challenges and to ensure that the business is appropriately scaled to perform in the current market.
“We are entering a period of less demanding trading comparisons and, as our new pricing establishes and our strong second half brand plans take effect, our focus is now on returning to long-term growth. Despite continuing economic uncertainty we expect to meet the revised profit expectations communicated in July.”
It said value in the total UK soft drinks market was down 0.6% while volume declined 4.1% year on year. However taking the last 13 weeks of the reporting period, covering May, June and July, market performance was notably weaker, with value down 6.3% and volume down 8.7%.
“This reflects the particularly strong comparative market performance across the corresponding 13 weeks in 2018, when value and volume increased 12.2% and 7.1% respectively.
“This notable market swing was particularly felt by A.G. Barr as our prior year performance was substantially ahead of the market as we successfully navigated the unique factors across the summer of 2018.”
The board has declared a a 2.5% rise in the interim dividend to 4p per share, payable on 25 October to shareholders on the register on 4 October.
Market reaction
John Moore, senior investment manager at Brewin Dolphin, said: “Investors were spooked earlier in the year by the normally reliable AG Barr’s profits warning. Following the announcement, the share price dropped nearly a third – but today’s update should provide some reassurance that there has been no further deterioration.
“The weather hasn’t been kind to the business this year and the soft drinks tax has caused issues too, leading to a sales drop on a comparative basis; but, to be fair, AG Barr had a particularly good run last year making it a tough comparator.
“Crucially, there is also a clear plan of action for its Rockstar and Rubicon brands, which have had their problems and were a catalyst for the profits warning.
“Perhaps the most important indicator of management’s view of the long term is the rise in dividend and continuation of the share buyback programme – they suggest the bad news this year could be a temporary blip and AG Barr is back on track.”
Barrs didn’t listen to their customers when they went ahead and destroyed decades of history by changing the recipe for Irn Bru. These resulting issues were predicted and I’m afraid to say they are not surprising.