One-off factors lift AG Barr trading in first half

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Sharecast News | 03 Aug, 2021

Drinks maker AG Barr reported an effervescent first-half revenue figure of £134m in a trading update on Tuesday, 18% ahead of the prior year, while on a like-for-like 26-week basis, revenue was expected to be up 13%.

The London-listed firm said trading in the period to 1 August had been strong across both its business units, Barr Soft Drinks and Funkin, driven by a combination of brand-led initiatives and market factors, some long-term and structural and others more one-off, resulting in a short-term boost to operating margin, which it was not expecting to be replicated in the second half.

Its full-year operating margin was still anticipated to be “slightly ahead” of the prior full-year.

In Barr Soft Drinks, the board said that over the past six months it had benefited from recovery in ‘on-the-go’ consumption, growing volume and improving product mix, while its ‘at-home’ sales had remained strong, as they had done throughout the Covid-19 pandemic.

Recent new product launches were performing “well”, with positive consumer feedback and “encouraging” customer listings.

The energy subcategory was still outperforming the total soft drinks market, and Barr said its focus on innovation in that area, primarily ‘Rubicon RAW Energy’, had made a “very positive” start.

It was planning to accelerate its commercial investment in the brand across the balance of the second half.

Looking at its cocktail brand Funkin, Barr said the response to the Covid-19 pandemic had been “especially challenging” for the hospitality sector, but it was pleased to see positive momentum as consumers returned to hospitality venues.

Funkin delivered a “strong” first-half performance in the on-trade, driven by both customer restocking and an increase in cocktail rate-of-sale.

During the various lockdown periods, Funkin capitalised on the increase in demand for cocktails at home, through both traditional retail and direct-to-consumer channels, becoming the UK's top ready-to-drink cocktail brand.

Barr said at-home cocktail sales had continued to grow across the first half, supported by a continued strong rate of sale and an increasing level of brand distribution.

The company said it would accelerate its investment in the second half, as it continued its strategy to further develop Funkin as a consumer brand.

On the operational front, Barr said its resilience had been “excellent” across the first half, but in recent weeks it had seen increased challenges associated in part with the Covid-19 pandemic across the UK road haulage fleet, impacting customer deliveries and inbound materials.

In addition, the risks associated with the wider labour pool and the current pandemic response were areas it was monitoring closely.

The board said Barr’s positive first half performance reflected the underlying strength of the business, and the encouraging performance of recent launches as well as a number of non-recurring factors, in particular customer restocking, deferred overheads and marketing investment phasing choices.

It reiterated its guidance from 20 July that profit for the current 53-week financial year ending 30 January was expected to be “slightly ahead” of the 52-week year prior to Covid-19 in 2019 and 2020, where its profit before tax came in at £37.4m.

Barr said its full-year performance expectations took into account the one-off nature of some of the first half benefits, and its anticipation of increased cost inflation later in the year, reflecting the “well-documented” pressure on supply chains and rising commodity prices.

“We are pleased with the performance of the business in the year so far,” said chief executive officer Roger White.

“There is good momentum behind our core brands and we have re-entered the growing big can energy category with our Rubicon RAW Energy range.”

White said the firm planned to increase its brand investment in the second half, building on its progress to-date.

“While uncertainty remains, we are confident in delivering our plans across the balance of the year and meeting our recently revised full year profit expectations.”

At 0848 BST, shares in AG Barr were up 1.55% at 574.76p.

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