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Falling prices, changing consumer tastes and a disappointing summer have combined to hit revenues at Irn-Bru maker AG Barr (BAG).
Totals sales fell £5m to £125.6m in the six months ended 30 July, compared with a year ago, with like-for-like sales down 2.8%.
However, CEO Roger White described the first-half performance as “solid”, with the soft drinks producer maintaining its market share and rolled out a number of lower sugar versions of Irn-Bru and Rubicon.
An improvement in operating margins, thanks to cost controls and reductions, nudged pre-tax profits before tax and exceptional items up £100k year on year to £17m.
The Funkin cocktail mixer business, which AG Barr acquired in February last year, also performed ahead of expectations, with revenue up 28% in the period, driven by distribution gains in the UK and the US, a successful innovation pipeline and investment in new digital platforms.
International revenues jumped 16% in the half supported by a further territory extension agreement with its partner Rockstar, the energy drinks brand, signed on 1 September, covering a number of central eastern European countries.
“We have delivered a solid first half performance, maintaining market share, improving our operating margin with a slight improvement in our pre-exceptional profit versus the prior year,” CEO Roger White said.
“This is despite continued price deflation in the UK market, a challenging customer and consumer environment as well as poor weather in the important early summer months leading up to the end of the reporting period.
“Good progress has been made across the key areas of innovation, product reformulation, brand development and operational efficiency. We will continue to focus on these areas throughout the second half of the financial year.”
He added that market conditions remained volatile but with a strong performance over the key Christmas period profits for the year were expected to be slightly ahead of 2015.
The introduction of Irun-Bru Xtra and Rubicon Spring, both of which contain no added sugar, have bolstered the group’s portfolio as “negative media coverage” of sugar have turned consumers towards lower and no sugar products, AG Barr said.
White also criticised the government’s proposed sugar levy in the interim statement.
“We believe this proposed tax is a punitive and unnecessary distortion to competition in the UK market which will be very complex, expensive and difficult to implement,” he said.
“Our aggressive reformulation and sugar reduction actions, along with our innovation and marketing, will drive sustained and significant improvements in the balance and choice offered across our portfolio. We believe our positive actions and sugar reduction progress, along with those of many of our competitors within the soft drinks industry, make the implementation of a soft drinks only sugar tax an unnecessary measure in the context of Government health policy objectives.”
Shares in AG Barr opened 0.2% up at 523.5p despite the difficult trading environment and falling sales, with the drops in revenue already trailed by the group in an earlier trading update.
Morning update
AG Barr aside, there is little else on the markets this morning for grocery.
The FTSE 100 made gains on opening, up 0.2% to 6,837 points. Tesco, Sainsbury’s, Morrisons and Ocado have all made steps towards recovering yesterday’s Aldi-inspired losses (see below), up 0.3%, 1%, 0.4% and 1.1% respectively.
Yesterday in the City
The listed grocers registered heavy falls yesterday after Aldi announced record sales and an intention to invest £300m in its store estate to become even more competitive.
Tesco (TSCO) led the pack, falling 2.8% to 176.5p despite Aldi profits going backwards as it slashed prices to retain its gap to the traditional supermarket. A number of industry analysts pointed to the recovery underway at Tesco as putting more pressure on the German discounter.
Sainsburys (SBRY), which reveals Q2 figures tomorrow, fell 2.1% to 248.7p, and Morrisons (MRW) also dipped 0.9% to 216.4p.
Online grocer Ocado (OCDO) fell 1.4% to 254p and Marks & Spencer (MKS) was also among the day’s fallers, down 2.2% to 313.6p
Booker (BOK), B&M Bargains (BME) and Greggs (GRG) also fell 1.9%, 2.6% and 1.7% respectively.
Cranswick (CWK) finished the day 1.1% up at 2,316p as Shore Capital released a note previewing an upcoming trading update.
The FTSE 100 suffered its worst one-day performance in three months as Lloyds received a downgrade from Goldman Sachs and the mining giants went backwards. The index fell 1.3% to 6,855 points.
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