AG Barr fixes supply chain as first-half sales surpass £247 million: full reaction
“In an increasingly consolidated soft drinks market, the bigger question will be what is next for AG Barr” – Nick Sherrard, MD, Edinburgh-based consultancy Label Sessions
Irn-Bru maker AG Barr has said sales growth was “constrained by supply chain issues” in the first half of the year but stressed this has now been resolved.
The Cumbernauld-headquartered group, famous for producing “Scotland’s other national drink”, estimated that the disruption to deliveries and reduced product availability on shelves lost the business around £10 million worth of revenue. It said these were partly internal issues linked to its “capability and capacity change programme”, as well as external problems linked to manufacturing by a third party.
The firm, whose other brands include Rubicon and Boost, said stock availability and customer service had normalised over the second half of the year.
In a trading update accompanying its interim results, Barr told investors: “With the majority of our Cumbernauld operational change programme having been completed, and with our Milton Keynes manufacturing upgrade firmly on track, we are confident that we have a strong, stable and more efficient supply chain for the second half and beyond.”
The group still reported an 8.5 per cent increase in total revenues to £247.4m for the 26 weeks to August 1. Growth was boosted by its recent acquisitions of the Fentimans and Frobishers drinks brands.
Adjusted pre-tax profits nudged up 2.6 per cent to £36.1m for the half-year, compared with the same period a year earlier. Statutory profit before tax was down 3.7 per cent, year on year, primarily as a result of one-off costs associated with integrating Fentimans.
The group, which was established 150 years ago, said the successful integration of the acquired brands helped to offset the impact of investments into its operations and cost inflation linked to the Middle East, which was “not fully passed on to customers”.
The interim shareholder dividend is being raised by 11 per cent to 3.82p per share.
Chief executive Euan Sutherland said: “We made strong progress against our strategic priorities during the first half of the year, with continued momentum across our brands and strong execution against our strategic growth drivers. Despite supply constraints impacting customer service in the peak summer months, our core brand portfolio performed well in the market, supported by successful rebrands, innovation and marketing.
“Our recent acquisitions have expanded our addressable market and investment in our manufacturing capabilities continues to significantly strengthen the business for the long term.”
He added: “Looking ahead, we remain confident in the significant opportunities for the business and our ability to build on this momentum in the second half. With our acquisitions now fully integrated and our investment programme progressing well, we remain on track to deliver full year performance in line with market expectations.
“We will continue to focus on delivering above-market growth and creating sustainable long-term value for our shareholders.”
Nick Sherrard, managing director of Edinburgh-based consultancy Label Sessions, said: “AG Barr has recovered well from the summer disruption and is on track to deliver its full-year guidance thanks to disciplined cost control and investment in its operations. But what is helping the company to outperform the wider soft market right now is the strength of its brands.
“Irn-Bru is a staple in Scotland, gaining popularity in other parts of the UK and further afield, while product innovation means it continually has fresh appeal to consumers. Rubicon is growing, while the addition of Fentimans and Frobishers looks like a deft touch, bringing higher-end options into its stable of brands.
“In an increasingly consolidated soft drinks market, the bigger question will be what is next for AG Barr. Recent acquisitions mark a step change in its growth, and you can’t rule out additional deals to further diversify its portfolio in the next year or two if the right opportunities arise.”
Alex Pugh, an analyst at Freetrade, said: “This should have been Irn-Bru’s dream summer, with a heatwave, Scotland at the World Cup, and a fresh rebrand. Barr still outgrew the market, but around £10m of sales slipped away because it couldn’t get stock onto shelves, thanks to factory upgrades which caused disruption.
“Supply chain problems are fixable. But fading demand isn’t. Strip out the acquisitions and growth looks flatter. Barr has swung from £41m net cash to net debt after two deals and a year of factory spending.
“AG Barr bought Frobishers and posh mixer brand Fentimans. It’s used cash and borrowing to do it, betting it can grow those brands faster inside Barr than they’d grow alone.”
Pugh noted that cocktail brand Funkin’s sales had slipped, showing how premium trends can waver amid headwinds out of the firm’s control.
“With Fentimans added and fuel costs not yet passed on to shoppers, the firm’s pricing power is about to be tested,” he added.
AG Barr said its adjusted operating margin had been maintained at 15 per cent in the first half, supporting the modest rise in adjusted profit before tax.
Chris Beauchamp, chief market analyst at investing and trading platform IG, noted: “Any business that manages to hold margins steady in these difficult times should be applauded. AG Barr has managed to do it even while acquiring new businesses that have helped drive a solid performance in the first half.
“Capex expansion should bear fruit in the next year, while the business appears to have weathered concerns about supply constraints,” he added.
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