IRN-BRU maker AG Barr has revived investors
with the promise of better-than-expected annual profits – after a miserable 2019 hit by poor weather, the sugar
tax and controversial recipe changes.
Shares in the Cumbernauld-based soft drinks business jumped more than 15% after it said it expected underlying pre-tax profits at the
top end of market expectations, “just ahead” of £37 million for the year to January 25.
The shares closed up 15.3% at 627p, despite expected lower sales for the year of about £255m versus £279m the previous year.
“It’s been a difficult year and we’re looking forward to the new year,” said
AG Barr chief executive Roger White.
“We’ve been through quite a tricky period of consumer confidence, political turmoil and consumers not being certain about what’s happening in the UK economy. Perhaps 2020 will have more certainty.”
The company, which also makes drinks including Rubicon and Tizer, warned last July that full-year profits would be up to 20% below expectations, with a range of unusual factors having an impact.
AG Barr had reformulated 99% of its portfolio into sugar-free recipes ahead of the sugar tax being introduced in April 2018. But some customers complained about the new tastes.
Drinks makers also suffered from a European shortage in 2018 of CO2 – the gas used to carbonate soft drinks
– which led to some operators reducing promotional activity or temporarily suspending production.
And the summer of 2018 was reported to be the hottest in 40 years, with comparatively poor summer weather in 2019, particularly in Scotland, flattening sales.
The company said moves to hike prices may also have dented sales, but it has now brought its pricing in line with rivals.
In a trading update, AG Barr said Irn-Bru returned to growth in the last three months of the year, and its plans to turn around energy drink Rockstar and tropical brand Rubicon were being implemented. Funkin, its cocktail mixer brand, continues to perform strongly, the company added.
“AG Barr endured a pretty miserable 2019, as higher prices dented volumes,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
“However, it looks like the improved margins and relatively healthy winter sales have added some fizz to the year end, giving management a cautiously optimistic note in this trading update.”
Russ Mould, investment director at investment platform AJ Bell, said maintaining prices rather pushing volumes may prove to have been a smart move, as too much discounting can damage the integrity of a brand.
He added: “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.”
Mr White said AG Barr believed increasing the circularity of packaging was the right thing to do. “100% of what we use is recyclable, but it’s not all recycled,” he said. “If [the deposit return scheme] supports growth in recycling, I think it’s a good thing.”
AG Barr said a one-off gain related to the removal of a wind turbine at its Cumbernauld site would almost entirely offset the £1.5m-£2m cost of completing the first phase of its business re-engineering programme.
“We are taking action to reset our business and we enter the new financial year with confidence and a strong trading plan,” Mr White said.
On Brexit, AG Barr had been planning for this for 12 months now.
“So let’s see what happens,” he said. “We are building brands long-term that consumers understand, have a relationship with and love. Everything else is secondary to that.”
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