Barr restores dividends as H1 revenue tops £135m

A.G. Barr, the Cumbernauld-based maker of Irn-Bru, Rubicon energy drinks and Funkin cocktail mixers, said on Tuesday it will recommence payment of dividends as it reported that first-half revenue rose 19.5% to £135.3 million in the 27 weeks to August 1 — despite problems in its supply chain.

On a like-for-like basis, excluding an extra week of trading, revenue was £128.5 million, an increase of 13.5%.

Barr said statutory profit before tax in the period rose to £24.4 million from £5.1 million, but this reflected “a number of benefits specific to the circumstances in the first half of this year.”

Barr added: “We do not expect to maintain the current level of operating margin in the second half, reflecting the rephasing of our increased marketing investment and our anticipation of increased cost inflation across the balance of the year.”

Barr warned: “Funkin’s exceptional growth in the period has led to some supply chain challenges …

“In recent weeks we have seen increased challenges across the UK road haulage fleet, associated in part with the COVID-19 pandemic, impacting customer deliveries and inbound materials.

“In addition, the risks associated with the wider labour pool and the current COVID-19 pandemic response are areas we continue to monitor closely.”

In its outlook, Barr said: “Our full year planning takes into account the first half benefits which will not repeat in the second half as well as the impact of cost inflation later in the year, reflecting the well documented pressure on supply chains and rising commodity prices.

“We remain confident in our previously communicated full year performance expectations, to deliver profit slightly ahead of our 2019/20 pre-COVID-19 levels.”

Barr is proposing an interim dividend of 2p per share plus a one-off special dividend of 10p.

Explaining the dividends, Barr said: “During the period of dividend suspension the group benefited from a number of one-off cash inflows that were outside normal trading.

“These included the payment received relating to the termination of the Rockstar franchise agreement, compensation for the removal of a wind turbine at our Cumbernauld site and the disposal of certain surplus property, primarily distribution depots.

“Following a review of the group’s current net cash position and our future funding requirements, the board concluded that a one-off special dividend should be distributed to shareholders, recognising the one-off and non-operating nature of the cash receipts.”

Barr CEO Roger White said: “AG Barr is a growth-focused business operating in resilient and growing market categories, with dynamic brands, great people and a strong financial position.

“Our positive first half performance reflects these fundamentals as well as the encouraging performance of recent innovation launches in both soft drinks and cocktails.

“We remain on track to deliver strong full year profit performance, slightly ahead of our 2019/20 pre-COVID level.”

AJ Bell investment director Russ Mould said: “Even a recovery in sales and profits, a net cash balance sheet and the return of dividend payments are failing to raise a cheer for soft-drink maker AG Barr’s first-half results.

“Perhaps investors are more concerned about the prospect of shortages of carbon dioxide and haulage capacity as well as wider input cost pressure, given the clear hint from chief executive Roger White that profit margins may be lower in the second half than the first.

“But if the first-half’s record stated pre-tax profit of £24.4 million benefited to the tune of around £5 million, thanks to restocking by bars and restaurants and the phasing of marketing investment, it might not pay to overdo the gloom.

“Management still expects operating margins to exceed last year’s 14.8%, on an adjusted basis for the full-year, even if that implies a sharp drop in the second half from the 17.7% reached in the first six months.

“Much of that comes down to AG Barr’s brands.

“The FTSE 250 firm’s well-nurtured range of brands includes not just IrnBru but Funkin’ and also Rubicon, which is launching a new range of energy drinks to attack that fast-growing market.

“Those brands, which survived the last carbon dioxide shortage three years ago, as well as the launch of the sugar tax in the same year, bring pricing power.

“That could be a very useful facet if input cost increases prove persistent not least because pricing power helps to generate and defend high profit margins and high returns on capital.

“Double-digit profit margins and returns on capital in turn help to support cash flow, which funds further investment in the business and those brands and then finally returns to shareholders, in the form of dividends or even share buybacks.

“The Scottish firm has returned £138.5 million to its shareholders over the last ten years via dividends and today’s offer of both a 2p regular interim dividend and a 10p special payment hints at management’s long-term confidence in the business, even if the first-half dividend is half the level of the last interim payment made two years ago.

“AG Barr also ran share buyback programmes in its 2018, 2019 and 2020 financial years with a combined worth £30 million, to take total cash returns over the decade to £168.5 million.

“That is more than a quarter of the company’s current total market capitalisation and patient shareholders may well decide to stick with the shares, as a result, looking through the near-term uncertainties that face the business in the view that its brands will, as before, bring it through.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.