Irn-Bru returns to growth as AG Barr profits hit
Challenging year, but Irn-Bru has returned to growth
Irn-Bru maker AG Barr is expecting adjusted profit before tax to come in at the top end of current market expectations, just ahead of £37m, but down on last year’s £45.2m profit before tax and exceptionals.
Revenue for the year to 25 January 2020 is also expected to be lower at £255m, against £279m last time.
The Cumbernauld-based company has previously indicated that it faced a combination of challenging trading conditions during the year, particularly across the summer period.
In addition, following its 2018 volume-led strategy, across 2019 it adjusted its promotional and pricing position to align more closely with the market.
“While this had an expected impact on volume, it has delivered an increase in average realised price, re-establishing our consumer pricing position,” said the company in a trading update.
“Our Rockstar and Rubicon recovery plans are now being implemented, IRN-BRU has returned to growth in the final quarter and Funkin continues to perform strongly.
“We have completed the first phase of our business re-engineering programme. The associated exceptional costs in the period of £1.5 – £2m are expected to be almost entirely offset by a one-off exceptional gain related to the removal of a wind turbine at our Cumbernauld site.”
We enter the new financial year with confidence and a strong trading plan– Roger White, CEO
The business remains strongly cash generative and, as planned, a £30m share repurchase programme completed during the period. The balance sheet remains robust.
“The external landscape remains challenging, however we exit the year with encouraging trading momentum which we expect to continue into 2020.”
Roger White, chief executive, said: “Our focus remains the delivery of long-term value growth. We are taking action to reset our business and we enter the new financial year with confidence and a strong trading plan.”
Investors were encouraged by the more upbeat tone and the shares jumped nearly 10% to 596 p in early trade.
AG Barr will announce its full year financial results on 24 March.
John Moore, senior investment manager at Brewin Dolphin, said: “Today’s update from AG Barr should provide further reassurance to investors who were spooked by last year’s profits warning.
“The normally reliable company is contending with a challenging market, including tough comparators, the sugar tax, and unfavourable weather over the past year or so – but it is still managing to deliver, assisted by a very strong balance sheet.
“The turnaround plans for its Rockstar and Rubicon brands are positive moves, as is the business re-engineering programme.
“There is also a bullishness to this latest statement from AG Barr – underlined by the expectation that profits will come in at the top end of guidance – that suggests last year could be a temporary blip and the company is back on track.”
AJ Bell investment director Russ Mould said: “Scottish soft drinks firm AG Barr has got some fizz back on today’s bullish trading update, having gone flat in 2019 after a large and uncharacteristic warning on profit.
“The Irn-Bru maker had been a victim of a soggy summer, the sugar tax and shortages of carbon dioxide but also a strategy shift to focus on maintaining prices rather pushing volumes.
“In the long run this may prove to have been a smart move, as too much discounting can damage the integrity of a brand. And while the volume of drinks fell, average prices increased, helping drive today’s guidance for profit to be at the upper end of expectations.
“Encouragingly, the core Irn-Bru brand returned to growth in the fourth quarter amid strong Christmas trading, while recovery plans are being implemented at energy drink Rockstar and exotic drinks brand Rubicon.
“As the company acknowledges, the backdrop remains difficult but it at least benefits from a strong balance sheet, underpinned by robust cash generation, enduring brands, settled management and a best-in-class manufacturing base.
“Plans to introduce a deposit return scheme in Scotland, allowing consumers to return glass and plastic drink containers in return for a nominal sum, could be a complication and added cost for the business going forward.”