By Scott Wright

THE chief executive of AG Barr has warned the company will see “margin compression” in the second half as the Irn-Bru maker comes under pressure from rising costs and the impact of surging inflation on consumer spending.

Roger White hailed a strong performance by Cumbernauld-based Barr in the first half, as trading benefited from Covid recovery in the on-trade and out-of-home sector, as well as good summer weather. First-half profits increased by 1.2 per cent to £24.7 million as turnover surged by 16.7% to £157.9m, Barr reported.

The company said it had been able to offset the impact of cost inflation on operating margin through sales growth, cost control and its price approach in the six months ended June 30. And it said it remains confident of increasing profits over the full year.

However, AG Barr warned margins will erode in the months ahead, citing increasing costs, continued brand investment and the “volume impact of reduced consumer confidence.”

Mr White told The Herald: “We are seeing, as we move into the second half, a bit of margin compression as the cost base, particularly from an input price point of view, accelerates, whether that is fruit costs, raw materials or packaging, the impact of sterling weakness or just the general cost inflation that we are seeing.

“The input cost inflation is a primary driver that then leads you through to what the impact is on the consumer, not so much on a pricing perspective but just on a household income and affordability point of view.”

While Mr White hopes the energy price cap announced by the UK Government earlier this month will provide some protection to consumers, he remains concerned about the ability of households to cope with the pressure of inflation in the months ahead.

Mr White’s comments came the day after sterling collapsed to a record low against the dollar following controversial measures announced in the UK Government’s mini-Budget.

He noted that sterling’s weakness versus the dollar has been a factor behind the rising cost of fruit for Barr’s Rubicon brand. The prices of mango and passionfruit have been rising because of poor harvests in India and South America, and increased labour, transport, and processing costs.

“When you add all of those things together, it is a bit of a perfect storm,” Mr White said.

Barr increased its prices to trade customers at the start of the calendar year to help the company offset inflationary pressures, but has no plans to review prices again this year.

Asked if the company was likely to benefit from the support measures planned by ministers to help companies deal with surging energy costs, Mr White said Barr was not a major consumer of energy directly but was indirectly in terms of companies in its supply chain. “Hopefully there will be some level of support there for people, but it is hard to unpick at the minute,” he said.

Meanwhile, Mr White reportedly said he would be “surprised and disappointed” if the UK Government scrapped or partially reversed the so-called sugar tax, amid suggestions that Prime Minister Liz Truss planned to ditch the levy.

Separately, AG Barr said it had met shareholders who had declined to support its directors’ remuneration report at the company’s annual general meeting in May. The resolution was passed with 73.29 % of voted shares in its favour. Barr said it has since consulted and engaged with investors who did not support the resolution, and explained in a statement that their chief concerns had “related to the structure and performance targets in relation to the 2021 long-term incentive arrangements”, adding that “these were specific to the exceptional circumstances caused by the Covid pandemic and it is unlikely that they will be repeated.”

The company said: “The board is grateful to those shareholders who took part in the engagement process and values the feedback provided.”

AG Barr announced an interim dividend of 2.5p per share, an increase of 25% on the prior year. Shares in the company closed down 6p at 491.5p.