IRN-BRU maker A.G. Barr's (BAG) weak first-half trading update and uncertain outlook are the cause of a 2.4% share price reverse to 523p.
The Cumbernauld-headquartered maker of Rubicon fizzy drinks and Strathmore water expects to report a 2.9% sales drop to £125 million and warns input costs will rise in 2017 due to sterling weakness in the wake of the Brexit vote.
A.G Barr traded through a difficult UK soft drinks market in the six months to 30 July, price deflation the order of the day as retailers slugged it out and volumes in decline amid changing consumer preferences. Compounding these challenges were the downpours that dampened demand for fizzy drinks throughout June and into July.
CEO Roger White (pictured below) insists A.G. Barr held market share on a volume and value basis, yet guides towards a 2.9% revenue reverse to £125 million on a like-for-like basis, stripping out sales generated from the discontinued Orangina franchise in the prior period.
White insists that this is not a profit warning, for now at least, adding 'the balance of the summer will remain an important trading period, however, assuming market conditions improve and our robust second half plans deliver, we expect to meet our profit expectations for the full year.'
Shore Capital's Phil Carroll sticks with his year-to-January 2017 forecast of improved pre-tax profits of £43.6 million (2016: £42.1 million), though making up the shortfall in the second half seems a tall order in these testing industry conditions.
There's also a cautious outlook statement in terms of currency, with management commenting: 'The decision of the United Kingdom to leave the European Union has resulted in a degree of economic uncertainty and a weakening of Sterling. The impact of weaker Sterling will not have a significant impact in 2016, but it is anticipated input costs will increase in 2017, providing management time to adjust plans accordingly.'
While plans for a UK soft drinks levy leave an additional cloud hanging over the sector, CEO Roger White remains focused on implementing the long-term strategy of investing behind A.G. Barr's brands, as well as developing more lower sugar products to align the portfolio with consumers' growing preference for healthier beverages.
During the half, A.G. Barr introduced a full IRN-BRU brand redesign and pushed ahead with its reduced sugar innovation and reformulation across its portfolio. Besides announcing a new zero sugar variant, 'IRN-BRU XTRA', the beverages firm also launched lower/no sugar products across the Rubicon and Snapple brands, which are said to be showing 'encouraging early signs'.
