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AG Barr - revenue and earnings ahead of expectations

AG Barr expects full year revenue of £267m, a 17.5% increase from last year and ahead of guidance and pre-pandemic levels.

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AG Barr expects full year revenue of £267m, a 17.5% increase from last year and ahead of guidance and pre-pandemic levels. That reflects good performance across all business units. Operating margins are expected to be ahead of last year, leading to underlying pre-tax profit slightly ahead of expectations.

The group's introduced several cost saving measures alongside price increases to help combat rising inflation. CEO, Roger White, said: ''We have delivered an excellent financial performance against a volatile backdrop''.

Full year results are expected to be announced on 29 March 2022.

The shares rose 2.7% in early trading.

View the latest AG Barr share price and how to deal

Our view

The Rubicon and Irn-Bru maker navigated the lockdown challenges relatively well. Now, with restrictions largely easing, sales and profits for the year are expected to come in higher than before the pandemic.

As consumers get back to normal daily activities, demand is shifting away from at home options and restaurant and bar beverages are seeing a recovery. AG Barr's strong brands have helped it capture a good amount of returning sales.

And the group's leveraging those brands to spin out new products. The Rubicon name is being put on a new energy drink to sit alongside Irn-Bru energy, as the group looks to capture more of the growing energy drinks market.

That brings us on to Funkin, which sells range of pre-made cocktails in both bars/restaurants and for consumers at home. Performance has been impressive over the first half and it offers a genuine avenue for growth. On-trade (bar and restaurant) sales have made a strong recovery as economies have reopened. And 'at home' cocktail sales continued to grow despite bars reopening. As demand heats up the growth has presented its own challenges, causing some supply chain issues that'll need to be ironed out.

For the wider business, cost inflation is being felt too- particularly across packaging and energy linked commodities. For now, cost controls and price increases look to be keeping the impact low.

The group's managed to maintain positive free cash flow throughout the pandemic, and that's put the balance sheet in a better position than we'd feared. Around £66m in net cash is not to be sniffed at in the current climate and helps prop up the 3% prospective dividend yield too. Remember though, no dividend is ever guaranteed.

Overall, strong branding and net cash position should make AG Barr relatively defensive over the long-term. But there's not too much to get excited about, with sales growth over the next couple of years expected to be in the low single digit range. That's likely why the group trades slightly below its longer-term price-earnings ratio.

AG Barr key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Full Year Results (30 March 2021)

AG Barr's full year revenue fell 11.2% to £227.0m and profit before tax and exceptional items fell 12.3% to £32.8m. After £6.8m in net exceptional charges profit before tax was £26.0m, down 30.5%.

The group intends to resume dividend payments this year in accordance with a new policy. AG Barr will aim to pay a dividend equal to half of free cash flow and net profit.

Group Carbonate sales, which account for around 81% of revenue and 87% of gross profit, fell 6.2% to £184.3m. Management attributed this to Covid disruption and the loss of the Rockstar Energy distribution contract, which previously contributed 8% of group sales.

The IRN-BRU brand reported a 9.7% fall in net revenue despite growth from the newer sub-brands - IRN-BRU Energy and IRN-BRU XTRA. Carbonated Rubicon drinks were disproportionately impacted by lockdowns, because they rely more on out-of-home consumption. Rubicon Spring revenue fell 8.1%, while Rubicon Sparkling was flat. Barr Flavours grew sales 3.3%.

Stills & Water revenue fell 35.9% to £25.7m, including an 18.2% fall in Rubicon Stills due to disruption during the key Ramadan trading period. Closures in the hospitality sector meant sales were down 80-90% for the Strathmore brand, and the group has shifted to a single shift production schedule to control costs.

Funkin sales fell 11.5% to £17.0m thanks to disruption to away-from-home sales. However, underlying take-home sales benefitted from a home cocktail boom and performed well.

The group recorded net exceptional charges of £6.8m. Charges included a £10.0m reduction in the value of the Strathmore brand and assets, a £1.3m charge at Funkin and a £3.1m charge to restructure parts of the business. These charges were partially offset by a £7.6m compensation payment for the termination of the group's Rockstar deal.

Free cash flow was £43.7m, up from £25.4m thanks to strong working capital management and reduced capital expenditure. As a result of these measures and the dividend suspension, AG Barr ended the year with net cash of £50.0m, up from £10.9m at the end of last year.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 1st February 2022