Margins under pressure at AG Barr

published 27 July 2012

AG Barr, the soft drinks group, is losing its fizz, as margins come under pressure, with the recent heavy rainfall in the UK only adding to the gloom.

Despite the difficult conditions, the Irn-Bru maker has has continued to grow strongly ahead of the market and anticipates sales revenue of around £130m for the six months to July 28th, an increase of over 4.5% on the prior year, after its core brands continued to respond well to its approach of investing in brand equity and extending distribution. In the first 14 weeks of the six-month trading period, sales were running 4.3% ahead of the same period last year, so the projection of a better than 4.5% uplift in sales represents an improvement.

However, margins were reduced by the increased cost of goods, increased brand investment and adverse changes to its sales mix at brand, pack and channel level.

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"As a result we expect profits in the first six months to be slightly below the prior year," the firm said. "We anticipate that margins will improve in the second half, but that it is unlikely to offset the margin shortfalls of the first half."

For the full year, the market is expecting a slight improvement in pre-tax profits to £35.5m from £35.42m last year, although those forecasts may be revised following this trading update.

The group continued: "Our operational focus has been to deliver a strong level of customer service across our business at the same time as we develop the detailed execution plans for our investment in the Crossley site, at Milton Keynes. We have now completed all of the development actions for Crossley and having obtained detailed planning approval we have now committed to the full project, including a new credit facility through HSBC to support the development.

"We anticipate, as previously guided, a full project budget of around £41m and a production commencement date for the site in the third quarter of 2013."

For the 26 weeks to June 23rd, Nielsen reported the total soft drinks market volumes down 1.0% whilst value was 2.0% ahead. Within this overall performance, carbonates volume was flat with stills declining by 3.0%. The carbonates category was once more driven strongly by the energy segment, which grew in value by 11% over the time frame.

The share price fell 2.97% to 417.90p by 08:55.