It’s sweet as Barr lifts sales
IRN-BRU maker AG Barr has reported an uplift in first-half sales in spite of the introduction of the so-called sugar tax, a change of recipe and a carbon dioxide shortage.
The Cumbernauld-based company, which also produces Rubicon, the Strathmore springwater range and Funkin cocktail mixers, said in a trading update for the 26 weeks ended July 28 2018 that it is on track to meet full-year profit expectations.
It said there is “continued strong sales momentum” with revenue expected to be £136 million, an increase of 5 per cent on its prior first half, when it was £129.8m.
The results are “especially positive” given the 8.8% growth reported for the corresponding period in 2017, AG Barr said.
The soft-drinks industry faced the implementation of the Soft Drinks Industry Levy in April. This was followed by shortages of CO2, used in fizzy drinks. However, the heatwave provided a boost to the industry.
AG Barr changed the recipe of Irn-bru earlier this year before the levy, the tax on producers to help tackle rising rates of obesity and associated medical conditions, although the company insisted the law-change was not the driver behind the recipe move.
Roger White, chief executive of AG Barr, said: “Our growth across core brands is especially encouraging and our strong secondhalf brand and sales development plans give us confidence that we can deliver against our profit expectations.”
He added: “There are quite a lot of moving parts at the minute – we’ve had different weather patterns with lots of snow in the first quarter and an early decent summer and then the implementation of the levy with the pricing regime as a consequence in a bit of flux, and some CO2 challenges for the industry, so I think it is too early to tell the impact of the levy on the market.
“What I think we are clear about is the continued and significant movement of consumers towards low and no-sugar products.
“That has been consistent over the last few years and, if anything, has been accelerating.”
Mr White declared: “We have continued to invest significantly behind our brands even in this period of volatility and uncertainty and we’ve continued to put big efforts into growing availability of the products, making sure that the marketing activity is suitable and making sure that the innovation within those brands is going to work for consumers.
“Absolutely, we are not sitting back on our laurels at all, and we continue to invest a lot of time, effort and money to grow the businesses.
“We are very pleased with the current performance of the business.”
George Salmon, equity analyst at Hargreaves Lansdown, said: “The company behind Scotland’s ‘other national drink’ continues to churn out growth.
“More market share gains for AG Barr will reassure investors spooked by the imposition of the soft drinks levy, but the fact the group is stepping up the marketing spend shows it’s not putting its feet up just yet.
“Increased investment in marketing and product innovation will impact margins, and could see profit growth limited to the low-single-digit percentages this year.
“However, given the industry is at such an important juncture, we think the decision to step up spending is a good one, especially since the extra investment is unlikely to prevent Barr extending its remarkable record of dividend growth.”
AG Barr said that “the external landscape remains volatile”, but added: “During this period of uncertainty we will continue to invest behind our brands, innovation and people which, while having a moderate impact on margins in the current financial year, will support the delivery of our growth strategy.”