Second half off to strong start at AG Barr

Irn-Bru maker AG Barr saw first half profits decline but bucked the market trend in increasing volumes during the period.

Profit before tax and exceptional items slipped to £14.9m in the six months ended July 28th, from £16.2m in the corresponding period of last year. Broker Panmure Gordon had forecast a figure of £15.6m, but its figure might have been on a constant currency basis; AG Barr said it took a £1m hit from adverse currency movements, although around £0.6m of this is expected to unwind in the second half of the year. On a constant currency basis, first half profit before tax was £0.3m behind the similar period in the prior year.

The top line was above the broker's expectations (of £129.7m), however, with turnover up 4.9% to £130.0m from £124.0m the year before. Volumes shipped were up 2.8% year-on-year, with fizzy drink volumes up 5.5% and still drink shipments up 1.8%. The group noted that for the take-home drinks market as a whole in the UK, although revenues were up 2.2%, volumes were down 1.5%. Indeed, analysts at Cannacord are this morning highlighting to clients the meaningful market share gains achieved by the company.

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In this same vein, another piece of good news for AG Barr shareholders is that sales in the first seven weeks of the second half have shown double digit percentage growth.

Less good is the continued impact of rising raw material costs, especially sugar, which contributed to operating margins sliding by just over one-and-a-half percentage points. Britain's soggy summer did not help matters much, which the company says prompted a change in consumer behaviour away from impulse buys of single cans towards the cheaper and "more promotionally driven" multi-packs.

"Despite the immediate challenges of the market our core brands Irn-Bru, Rubicon and Barr are in good health and well positioned to continue to grow into the future," the group said.

"We expect trading to remain challenging over the coming months and we have put in place cost control measures and a robust trading programme for the balance of our financial year. Assuming there is no further deterioration in the market, we remain confident about our prospects," the group said.

As for the group's merger talks with Chelmsford-based rival Britvic, there is no new news to report other than that discussions are still in progress.

The interim dividend has been bumped up by 7.5% to 2.616p from 2.433p. On this point analysts at Cannacord had this to say: "We see the 7.5%increase in the interim dividend as a sign of confidence, but the next catalyst will be an update on the proposed merger with Britvic."

JH