Shares in AG Barr plunged nearly 30% after it warned revenue will be down 10% and profits up to 20% this financial year.

The Cumbernauld-based producer of Irn-Bru said trading for the year so far has been below expectations and blamed disappointing sales of its Rockstar energy drink and Rubicon brands.

 

In a pre-close trading update today, it added that it has also been hit by disappointing spring and early summer weather, most notably in Scotland and the north of England.

Outlook revenue for the 26 weeks to 27 July 2019 is estimated to be in the region of £123 million, representing a decline of around 10% on the 2018 from £136 million.

Despite its strong second half plan the firm said it is not expected that it will recover fully from the volume impact in the first five months of this year and the current trading it is experiencing.

As a result, it expects profit performance for the full year to decline versus the prior year by up to 20%. It is also anticipated that there will be some exceptional costs incurred in the current financial year as it takes action to regain momentum.

 

AG Barr said 2018 was an unprecedented year for soft drinks with changing pricing and promotional dynamics in the market following the introduction of the soft drinks industry levy (SDIL) – the sugar tax – alongside CO2 shortages and a long, hot summer.

Against this backdrop the company said it placed an intentional short-term trading focus on volume which successfully boosted growth. As updated in March, it has subsequently returned its Barr Soft Drinks business to its long-term value driven approach, increasing price positioning in the market.

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In a transitional pricing year for its core portfolio, led by Irn-Bru, the firm said it is seeing positive indications of acceptance of the new price positioning. It added that innovation performance and pipeline remain strong with encouraging initial interest in its recently launched Irn-Bru Energy product.

AG Barr said it has taken action to address specific brand related issues, including the planned launch of three new Rockstar products at the end of the summer, and recipe improvement activity for Rubicon juice drinks, however the benefit of these actions will not be felt until later in the second half of the financial year.

 

It said Funkin continues to perform strongly and the recent launch of nitro-infused premium cocktails in cans is already exceeding expectations.

AG Barr will announce its interim financial results for the 26 weeks to 27 July 2019 on 24 September 2019.

Roger White, AG Barr chief executive officer, said: “While the Funkin business goes from strength to strength, it has been a challenging start to the year for Barr Soft Drinks.

 

“Weather comparatives and trading, particularly in the impulse on-the-go market, have been even tougher than expected which, along with some brand specific challenges, have led to a short-term impact on our financial performance.

“We are focused on returning to growth and will continue to take the actions we believe necessary to succeed in the dynamic environment within which we operate.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “To say this is a curve ball is an understatement. Consumer goods companies like AG Barr are supposed to be reliable compounders, with sales that turn up come rain or shine.

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“Unfortunately the combination of price changes and a bit more rain than shine has seen sales of Barr’s soft drinks trailing behind last year’s performance, and profits struggling even more.

“The pain for shareholders has been compounded by the fact that, with a price to earnings ratio of 26, the shares were priced for perfection, leaving them vulnerable to a tumble on the smallest disappointment.

“The cocktail of woes that have struck the group are more than a small disappointment, but it’s important not to lose sight of some of AG Barr’s underlying attractions. The group’s got net cash on the balance sheet which will help it weather the storm, and a loyal customer base for its core Irn-Bru brand – which has not been caught up in the recent troubles. In the long term those strengths should tell.”



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