The soft drinks group expected to deliver a 5.6% rise in sales to about £135M – ahead of market growth of 1.6%. AG Barr said the result was well ahead of the total soft drinks market performance measured by Nielsen for the period from 26 January 2014 to 12 July 2014.
During the period market volume fell by 0.3%. “Our growth is well balanced across our core brands, all of which have responded positively to increased marketing activities, in the current period,” said the firm.
Promotional price competition
But it warned promotional price competition in the soft drinks market remained intense. Despite investing in increased promotional activity and marketing investments, the firm’s margins remain in line with expectations, it added.
AG Barr confirmed the closure of its Tredegar site in Wales in early 2015, after the completion of a consultation process. Up to 40 jobs are expected to be lost. It recently announced plans for more investment in carton packaging capability at its Milton Keynes site.
While the business was entering a period of tough year-on-year comparative trading, it was benefiting from the recent good weather and a strong sales programme.
“We anticipate that the soft drinks market across the second half of the year will continue to be highly competitive,” said the firm. “But we expect to deliver another year of good growth given our sustained investment in brands and innovation, on top of the good progress we are making in executing our annual operating plans.”
N+1 Singer analyst Sahill Shan described the pre-close statement as “highly satisfactory”. Shan said: “Given the sales growth position after 15 weeks was 5.2%, this implied pick up to 6.2% over the second quarter is highly positive, given a very strong 9.8% comparative.”
Key brands
Management had confirmed today (July 25) that top-line growth in the first half had been similar across the key brands Irn Bru, Rubicon, KA, and Rockstar. During financial year 2014 most of the growth was driven by the in-licensed energy brand Rockstar.
The analyst predicted first half operating earnings to be ahead of sales growth, as the group benefits from more favourable input costs. Year-on-year operating earnings were forecast to grow at 8% towards £18.2M.
Full year profit before tax was estimated at £42M, driven by 6.3% sales growth and a 10% rise in operating earnings.
“In the context of a tough market backdrop where there appears to be no let up in promotional activity, today’s pre-close is hugely reassuring - further underlining the fundamental strengths of the proposition,” said Shan. But there remained much hard work to do over the key second half.
Investec retained its ‘hold’ advice on AG Barr’s stock. Its analyst Nicola Mallard noted: “The group still has the important summer months – including the current Commonwealth Games sponsorship and Christmas trading period ahead of it – so we make no changes to forecasts today.”
AG Barr will announce interim financial results for its first half on September 23.