City cuts AG Barr profit forecast

The company saw interim turnover dip by more than £5 million to £130.3m, with underlying pre-tax profits rising by 3.3 per cent to £17.8m. This was after adjusting for discontinued business, the termination of the Orangina franchise and the acquisition of cocktail puree business Funkin in a deal worth up to £21m in February.

AG Barr warned that sales had not picked up as much as it had expected since it last updated the City in July.

While it said the business had responded well to market challenges, its sales momentum had been interrupted by “extreme” regional weather patterns across the UK in August, which particularly affected sales in the impulse channel.

Shares in AG Barr dropped by nearly six per cent, and closed the day down 32p at 530p.

Barr chief executive Roger White admitted the first half had been a “tricky”, citing tough comparatives with last year when it sponsored the Commonwealth Games, poor weather and the disruption caused by integrating business systems across the group over the last two years.

However, Mr White was upbeat about the company’s long-term prospects, noting that the current year had followed two consecutive years of record growth at the business.

Mr White said: “We’re investing for the medium and long term of the business. We’ve had a tricky six months on the back of that, but actually we’re very positive about the underlying performance of the business, such that we are putting the dividend up eight per cent.

“We’ve got an asset base that’s in very good shape – we’ve now got a state-of-the-art system platform to run the business off and despite the difficulties we have maintained share across the first half and we will now be getting back into growth as we look forward.”

Responding to the results, house broker Investec cut its pre-tax profit forecast by nine per cent to £41m as it signalled that Barr was “unlikely to meet full-year expectations”.

However, the analyst said it sees “no longer-term competitive issues here”, and declared that it anticipates growth to resume in the second half and carry on into next year.

Asked if he was concerned by Investec’s profits downgrade, Mr White said: “We would always like to beat expectations – that would be our general objective. But because of the positive actions we have taken for the long term plus the circumstantially difficult marketplace we have found ourselves in over the last few months, it has been tricky particularly as we moved into the second half.”

He added: “We just felt we should recognise that in the market and make sure shareholders understand we are investing for the long run. We had a record year last year on the back of a record year before that. But we are doing a one in 15-year reinvestment in our business.”

On trading generally, Mr White noted “there is a lot of dynamism” in the UK grocery sector, with tough competition between brands and different styles of grocery outlets.

Added to that, he said “consumers are being more promiscuous than they have ever been with their retail purchasing activities.”

Analyst Shore Capital, which trimmed its forecast of adjusted earnings before interest and tax for AG Barr by four per cent to £42.3m, noted that the soft drinks market had moved into price deflation over the period, with Nielsen pointing to a 0.6 per cent value decline.

Mr White noted that the Funkin syrup and puree business was delivering innovation, driving sales and winning customers in the growing cocktail market. Funkin contributed around £4.9m of sales over the period, offsetting the loss of income from Findlays and Orangina. Asked if AG Barr was keen to do further deals, Mr White said: “Our balance sheet remains strong [and] we have the capacity to go after things as and when they become available.”

AG Barr lifted its interim dividend by eight per cent to 3.36p per share.