AG Barr puts fizz back into sales in second half

Soft drinks maker AG Barr put some fizz back in its performance in the second half of the year to help it hit full year profit targets and said it was well placed to traverse another challenging year ahead.

The manufacture of Irn-Bru and Rubicon grew revenue roughly 1.5% on a like-for-like basis from its ongoing businesses in the 52 weeks ended 28 January 2017, which was a turnaround from the 2.8% decline in the first half of the year.

Total revenue of roughly £257m was down less than 1% on the £258.6m the previous year, which does not adjust for the 53rd week in the previous year and nor the discontinued Orangina business.

With operating margins remaining in line with expectations, the company said it would meet profit expectation for the year.

All this was amid a highly competitive UK soft drinks market, with the latest IRI data for the 48 weeks to the start of January showing value up circa 1% and volume up circa 1.5%.

Cumbernauld-based Barr said the second half trading performance strengthened thanks to product innovations such as the launch of sugar-free drink Irn-Bru Xtra, its first new core product in 35 years, and low-calorie Rubicon Spring, a range of sparkling spring water containing fruit juice.

Xtra has so far only been distributed in Scotland, with a roll out in England planned in the next full year.

Helped by a company-wide reorganisation in the fourth quarter that cut the base level of overheads, management kept a firm hand on costs and the margin on target.

Cash flow remained strong and the balance sheet was described as "robust", enabling new plans to be announced for a £10m investment in a PET (polyethylene terephthalate) plastic packaging capability at its Milton Keynes facility that is designed to improve efficiency and flexibility.

AG Barr shares rose 2% in early trade to 512.5p, where they sit roughly midway between last June's 455.3p 12-month low and April's 614.5p high.

House broker Shore Capital said the revenue performance suggested growth in the mid single digits in the second half.

"We note there is already some strong innovation work to come through in FY2018F such as the Funkin ‘Cocktail at Home’ product. Therefore, we now look forward to a year where Barr is arguably working off a ‘clean slate’ and we believe the business looks well-positioned to deliver growth in the year ahead despite the ongoing market challenges," analysts said.