AG Barr sales drive on but input costs see profits lose fizz

● Poor late summer weather hangs over otherwise ‘robust’ trading performance

Irn-bru maker AG Barr has more than doubled the pace of the soft drinks market’s growth in its first trading half, but admitted the post-brexit vote weakness of sterling has hit input costs.

Roger White, chief executive of Cumbernauld-based AG Barr, said the pound’s weakness had wiped “about £5 million” off its profits in the six months to 29 July.

He also said the lacklustre weather in August and September had seen sales in the second half fall 6 per cent in value and 8 per cent in volume.

White said: “September was a lovely month last year, but it’s been rotten this year.” On the fall in sterling’s value hitting the cost of AG Barr’s raw materials, he said: “This would seem to be the new normal.

“We are not anticipating any material strengthening of sterling.” The group, whose products also include Rubicon, Tizer and Strathmore water, saw its headline pre-tax profits fall to £19.4m at the halfway stage from £21.1m a year earlier.

The City was impressed with the group’s near-9 per cent rise in revenues to £136.6m, against a UK soft drinks market up 4.2 per cent in the period.

But White acknowledged this was partly due to softer comparatives in 2016 when the early summer weather was poor and there was some price deflation. “We are not dodging that,” he said.

The chief executive added that last year’s new product launches, Irn Bru Xtra and Rubicon Spring, had both done well, and hailed a “particularly pleasing” sales performance in England and Wales after a push to increase sales south of the Border.

AG Barr’s rising input costs and continued investment in the business has squeezed operating profit margins by 70 basis points to 13.2 per cent, and the group said it was responding with a cost efficiency programme first trailed about this time last year.

That has seen about 10 per cent of the workforce – about 100 staff – depart. White said AG Barr also continued to make good progress in its anticipatory work on reducing the sugar levels in its drinks ahead of the introduction of a UK government sugar tax from April next year to try and reduce obesity in the UK. The company aims to ensure 90 per cent of its brands contain less than 5g of total sugar per 100ml by January 2018.

The sugar levy relates to the sugar content of drinks, with a higher amount charged for the most sugary beverages.

In a note on the latest results, house broker Shore Capital said the performance was “robust”, and that “Barr continue to strengthen the business operationally with a continued focus on brand investment and cost efficiency”.

Damian Mcneela, an analyst in the fast-moving consumer goods sector, said the sales performance was “impressive”. “The company acknowledged that… weather patterns had adversely affected demand in the impulse channel but indicated that it still expected to achieve full-year expectations,” he said.