In the Spotlight - AG Barr
AG Barr has been a darling of the UK financial and business media this week, after the Irn-Bru maker released its 2008 results, reports Michelle Russell.
Clearly no business is immune to the worst global economic depression in most people's living memory, but AG Barr is certainly proving a good deal more resilient than others in the soft drinks sector, after posting a 14% rise in net sales to GBP169.7m (US$240.7m) for 2008.
Sales rose by 6.6% when excluding the contribution of Rubicon, the French juice business bought by Barr for GBP59.8m last August. The addition of a 53rd week to the group's results also added a further GBP2.7m to sales revenue.
Net profit after tax crept up 1.2% to GBP17m, compared to GBP16.8m in 2007, but pre-tax profit rose in double digits.
The company said like-for-like sales in the first seven weeks of the new financial year were ahead of 2008 levels.
Altium analyst Greg Feehely said he was "encouraged" that current trading is tracking ahead of last year.
"The performance highlights, in our view, the resilient nature of the AG Barr brands, particularly in light of the poor 2008 summer and the weak consumer environment," he said.
Brokerage Investec Securities also seemed impressed, pointing out that the profit figure was GBP500,000 ahead of its forecast.
AG Barr CEO Roger White said that, while the company was not recession proof, it has managed to slip under the recession radar.
"Our products are a relatively low value item in people's shopping basket and are generally not viewed as a discretionary item. I wouldn't say we're recession proof but I think we're pretty near the bottom of the pile when it comes to cutting out discretionary spend," White told Reuters.
Last year's acquisition of Groupe Rubicon looks to have been a smart move for the company, as it buoyed sales by GBP8.8m.
Still, two consecutive wet British summers and a 2.2% volume fall in the UK soft drinks market by volume in 2008, have exposed a few gaps in Barr's armour.
While sales of Irn-Bru motored ahead by 8%, the company's Strathmore bottled water brand suffered a fall in sales, which Barr said was "broadly in line with the general market place". Strathmore sales fell by as much as 10% for the year.
Poor weather, a tightening on consumer spending and controversy over the environmental sustainability of bottled water, have dented bottled water market growth in the UK.
White, however, insisted that bottled water remained an "integral part" of AG Barr's range of beverages.
The company's Tizer brand also proved to be a weak link, although White said sales have now stabilised, with revenues in the second half of 2008 flat on the same period a year before.
White said a new recipe, packaging and marketing strategy should boost future sales.
Shares in AG Barr have lost 7% of their value in the last quarter and were down 1% on Monday at GBP12.09.
Given the falls elsewhere earlier this week, this may not be such a bad performance.
Analyst Nicola Mallard said: "For those looking for security in this turbulent market, we think Barr shares offer a safe haven."
The Independent believes the group's 7.7% dividend increase, of 3p to 42p, should be a persuading factor.
"This (dividend) increase demonstrates the continuing confidence we have in our ability to maintain progress despite the current economic uncertainties," said White.
With net debt a modest GBP31m and positive profit forecasts, the near-term future looks pretty good for the 134-year old Scottish business.
The group has also begun to build up its fledgling international business. Sales of Irn-Bru in Russia rose by 23% in 2008, against a deteriorating Russian economy and a carbonated soft drinks market down 7% for the same period.
Value exports to other territories also increased, up by 21% during the year, with further growth potential in Scandinavia and the Middle East being developed, the company said.
Looking ahead, Altium Securities expects pre-tax profits of GBP25m for 2010, giving EPS of 89.1p (up from 88.2p this year).
Scott Reid of The Scotsman said "everything will be crossed" that we don't see a repeat of the 2008 summer washout.
"Aside from the robustness of the UK market (these days you're as likely to spot an Irn-Bru drinker in Cambridge as Cumbernauld), there's still scope for overseas growth and selective bolt-ons," he said.
It seems that the Scots are no longer alone in their love for the orange stuff.
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