AG Barr reported full-year revenue of £268.6m (2021: £227.0m), slightly ahead of the £267m previously guided. The group saw growth across the board, with core brands - IRN-BRU, Rubicon and Funkin - all ahead of pre-covid levels.
Well managed costs, despite pressures from supply chains and inflation, meant underlying operating margins improved to 15.6% from 14.8% last year. That fed into a 26.5% increase in underlying profit before tax, to £41.5m.
Despite facing "significant inflationary pressures", cost management initiatives and higher pricing are expected to help the group deliver "continued growth in both revenue and profit in the coming year".
The board has proposed a final dividend of 10p.
The shares were up 2.1% in early trading.
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Our view
Having just posted a solid set of full-year results, with revenue slightly ahead of previous guidance and margins improving despite several cost headwinds, the IRN-BRU and Rubicon maker can start to look forward, after a tricky couple of years.
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. A positive launch for the Rubicon product was welcome news and is helping to claw back some of the revenue lost when the Rockstar franchise deal was terminated a couple of years ago.
That brings us on to Funkin, which sells a range of pre-made cocktails in both bars/restaurants and for consumers at home. Performance was impressive last year, and it offers a genuine avenue for growth. Bar and restaurant sales have made a strong recovery as restrictions eased over the year. 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 supply chains and energy costs. For now, cost controls and price increases look to be keeping the impact low and margins are pushing higher.
Positive free cash flow throughout the pandemic provided the foundations for a healthy balance sheet. Around £69m in net cash is not to be sniffed at in the current climate. Not only does it help prop up the 2.8% prospective dividend yield, but means the group has firepower to pursue non-organic growth opportunities if they arise, like the recent purchase of a 61.8% stake in MOMA Foods. 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
Soft Drinks (85% of sales) saw revenue rise to £230.6m (2021: 210.0m). Growth was driven by the successful launch of Rubicon RAW Energy, strong performance across core brands, and a shift in consumer behaviour back to out of home drinking as restrictions eased. Higher sales, weighted to more profitable products, meant gross margin rose to 44.9% from 42.2%. Gross profit rose from £88.7m to £103.5m.
The IRN-BRU brand saw growth across volumes, sales, and gross margin. Single serve cans and smaller packs proved particularly popular and the reintroduction of IRN-BRU 1901 in Scotland supported growth. The Rubicon portfolio benefited from strong initial performance from the launch of Rubicon RAW Energy and growth in Rubicon Spring.
Funkin revenue more than doubled to £36.9m, benefitting from the reopening of the hospitality sector, particularly in the first half of the year. Despite supply chain pressures, the improved sales meant gross margin improved to 39.8% (2021: 35.9%).
After the purchase of MOMA foods, free cash flow for the year was £33.3m (2021: £43.6m). The decrease included an increase in working capital as the group made efforts to rebuild inventory. Despite the reintroduction of the dividend, net cash improved to £68.7m (2021: £50.0m).
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.
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