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AG Barr Well-Positioned To Weather COVID-19 Storm, Despite Challenging First Half

Soft drinks manufacturer AG Barr is likely to navigate through the current COVID-19 crisis relatively unscathed, despite a challenging start to the year, leading analysts have said.

In the six months to 25 July, the Irn-Bru maker said that revenue fell by 7.6% to £113.2 million (€122.8 million), while profit before tax was down by 62.2% to £5.1 million (€5.54 million).

However, swift action to control costs and maintain financial stability, coupled with the effects of a 'business re-engineering' programme last year, through which the business is seeking to simplify its operations and rationalise its portfolio, should do the business some service in the medium term.

Choppy Waters

"AG Barr is a fine business but one that has faced choppier waters than it is used to for a little while," commented Clive Black of Shore Capital, noting that the business has proven itself to be "agile and capable" despite tough market conditions.

"Barr is a high-quality company that has faced a period of challenge," he added. "To its credit, management reflected and learnt from the issues encountered in FY2020, so taking decisive action to really make Barr a very fit for purpose business going into FY2021.

"That work has streamlined and focused the group, so leading to a capability to face into the coronavirus crisis with agility and capability, reflected in market share gains."

In addition, the company boasts a "strong balance sheet, augmented by tight cash management and cost control", particularly in the first half of the year, Black said.

"Accordingly, Barr is a strong business, a valuable company, with well-invested manufacturing facilities, a strong core brand portfolio, top-class management and the basis, to us, to sustain ongoing value creation to shareholders, predicated upon excellent cash generation."

'Heavy Lifting'

Elsewhere, Wayne Brown of Liberum said that AG Barr is "well positioned to weather the COVID storm", thanks to some "heavy lifting" undertaken in 2019 to commence a streamlining of the business.

He said that the second half of the year will undoubtedly prove challenging, both due to the effects of COVID and the exit from the Rockstar business at the end of last year, "while operating margin will be under pressure from the negative channel mix and tougher comps, as the group lapped the 2019 price realignment gains in 1H’21 but will lap the 2019 operational cost savings in 2H’21E."

Despite this, Liberum has raised its forecast for the business, due to the continued benefits from the streamlining programme, and the positive performance of the Funkin business.

"There are more cost savings to be had in 2H’21E, the Funkin brand has material market opportunities and we see the likely return of dividends within 12 months," he said.

Commenting on AG Barr's half-year performance, the company's chief executive Roger White also said that management is "confident that our business will continue to prove its resilience for the balance of this year and beyond."

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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