IMMEDIATE RELEASE                                                                                       28 September 2021
 

A.G. BARR p.l.c.

("A.G. BARR" or "the Group")

 

A.G. BARR produces and markets some of the UK's leading drinks brands, including IRN-BRU, Rubicon and Funkin.
 

INTERIM RESULTS FOR THE 27 WEEKS ENDED 1 AUGUST 2021
 

Strong first half performance and recommencement of dividends

Financial summary

	Aug 2021	July 2020	Change
Revenue	£135.3m	£113.2m	19.5%
Profit before tax (before exceptional items)*	£23.7m	£16.6m	42.8%
Statutory profit before tax	£24.4m	£5.1m	378.4%
Operating margin before exceptional items*	17.7%	15.1%	260 bps
Earnings per share before exceptional items*	12.15p	10.52p	15.5%
Net cash flow from operating activities	£16.9m	£24.0m	(29.6%)
Net cash at bank	£65.6m	£30.5m	115.1%

 

Highlights

 

·    Strong trading across both business units

o  Barr Soft Drinks : Positive momentum across core brands IRN-BRU and Rubicon, recovery in "on-the-go" consumption, and encouraging performance from new product launches including Rubicon RAW Energy

o  Funkin : Strong growth in the Funkin brand including 150.1% growth in Funkin's ready to drink              cocktails and on-trade momentum supported by some customer restocking

·    Record first half profit reflects positive underlying volume momentum as well as a number of benefits which will not repeat in the second half.  Full year operating margin expected to be slightly ahead of the prior full year

·    Strong balance sheet with £65.6m of net cash at bank

·    Recommencement of dividends, comprising an interim dividend of 2.00 pence per share plus a one-off special dividend of 10.00 pence per share

 

 

Roger White, Chief Executive, commented:

"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."

 

 

For more information, please contact :

A.G. BARR  0330 390 3900                                 Instinctif Partners  020 7457 2020

Roger White, Chief Executive                                                               Justine Warren

Stuart Lorimer, Finance Director                                                           Matthew Smallwood

_____________________________________________________________________________________

 

Interim statement

 

We are pleased to report a strong performance in the first half of our 2021/22 financial year. 

 

For the 27 weeks ended 1 August 2021 the Group delivered revenue of £135.3m, up 19.5% on the prior year.  On a like-for-like basis, excluding the extra week of trading, revenue was £128.5m, an increase of 13.5%.

 

Statutory profit before tax in the period was £24.4m (2020/21 : £5.1m).  This strong performance reflects positive underlying volume momentum as well as a number of benefits specific to the circumstances in the first half of this year.  While it is difficult to be precise, it is estimated that in operating profit terms the impact of the benefit in the first half, which will not repeat in the second half, equates to c.£5m.

 

Soft drinks market

 

The overall measured soft drinks market has once again proven its resilience.  IRI Marketplace data for the 27 weeks to 31 July 2021 records the total UK soft drinks market increasing in value by 8.0% and in volume by 4.0%.  Within this, still drinks have recovered from the prior year's decline, up 9.7% in value terms.  While carbonates volume growth slowed to 1.4% in the period, value continued to accelerate, growing 6.9%.

 

As previously commented, the 2020 soft drinks market was characterised by the migration of out-of-home consumer demand into the home environment.  This position is now reversing as the hospitality sector and on-the-go channels begin to recover.  As a consequence market share data, skewed by these unusual market dynamics, is now beginning to return to a more normalised read.

 

Business performance

 

Trading has been strong across both our business units, Barr Soft Drinks and Funkin.  This performance has been driven by a combination of brand-led initiatives and market factors, some long-term and structural and others more one-off, resulting in an unusually high profit performance in the first half.

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.  We do however anticipate our full year operating margin to be slightly ahead of the prior full year.

 

Operational resilience

 

We continue to put the safety and wellbeing of our employees and customers at the heart of our business.

Funkin's exceptional growth in the period has led to some supply chain challenges.  However our operational resilience in Barr Soft Drinks has been excellent across the first half of the year, maintaining continuity of production and delivering high levels of quality and customer service.

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. 

We believe the commitment and capability of our workforce and supply base will stand us in good stead in these uncertain times.

Barr Soft Drinks

Over the past six months we have benefited from recovery in "on-the-go" consumption, growing volume and improving product mix, while our "at home" sales have remained strong, as they have done throughout the COVID-19 pandemic.  Recent new product launches are performing well, with positive consumer feedback and encouraging customer listings. 

As the third lockdown arose, our flexible business planning approach allowed us to rephase much of our marketing investment into the second half of the year.  Notwithstanding this rephasing, we ran a full IRN-BRU consumer campaign during Euro 2020, supported the permanent launch of the premium IRN-BRU 1901 format, and launched our new IRN-BRU advertising campaign "It Tastes Magic" across all media platforms.  The IRN-BRU brand as a whole has grown revenue by 18.9%, supported by our marketing activity and the continuing recovery of on-the-go consumption.

We continue to deliver our Rubicon brand strategy, developing the brand into an aspirational mainstream range of exciting fruit based drinks aimed at a broad range of consumers.   In the first half of the year total Rubicon brand sales (excluding Rubicon RAW Energy) increased by 26.2% with Still, Sparkling and Spring variants all delivering growth.

The energy sub category continues to outperform the total soft drinks market.  Our renewed focus in this area, with the development of IRN-BRU Energy and now the launch of Rubicon RAW Energy, is increasing our share of this important and growing market.  We plan to accelerate our commercial investment in Rubicon RAW Energy across the balance of the second half to support the development of this strategically important brand. 

Funkin

The response to the COVID-19 pandemic has been especially challenging for the hospitality sector, however we are pleased to see positive momentum as consumers return to hospitality venues.  Funkin has delivered a strong first half performance in the on-trade, with sales in this sector up 229.5%.  This has been driven by both one-off customer restocking and a significant increase in cocktail rate of sale experienced during the reopening of the sector.

During the various lockdown periods, Funkin capitalised on the increase in demand for cocktails at home, through both traditional retail and direct to consumer channels, becoming the UK's No.1 ready to drink cocktail brand (Source: Nielsen pre-mixed alcoholic drinks total coverage value sales data MAT 31/07/2021).

Our "at home" cocktail sales have grown by 114.3% to £10.2m, representing 54.5% of Funkin's total sales in the first half of the year.  This significant growth has been supported by a continued strong rate of sale and an increasing level of brand distribution.  We will accelerate our investment in the second half of the year as we continue our strategy to develop Funkin as a premium consumer brand.

Exceptional items

In the period ended 1 August 2021 we have reported pre-tax exceptional income of £0.7m relating to the profit on disposal of our former Sheffield distribution depot which was closed in early 2019 (the costs of which were recorded as exceptional in 2019/20) and sold in February of 2021 for £1.1m. (2020/21 : Exceptional charge of £11.5m, comprising £10m non-cash Strathmore brand and asset impairment and £1.5m cash associated with our business re-engineering programme).

 

Cash Flow
 

Cash flow generated from operations of £20.3m was £9.8m lower than the corresponding period in the prior year (2020/21 : £30.1m), driven primarily by month end timing and the impact of the 27 week period.

 

Capital expenditure in the first half of the year was £1.4m (2020/21 H1 : £2.8m) reflecting the phasing of planned expenditure.  We expect to complete our planned capital expenditure programme across the balance of the financial year with a full year estimated expenditure of £6-8m (2020/21 : £7.1m). 

 

Balance sheet

 

Our closing net cash at bank* as of 1 August 2021 was £65.6m, a £15.6m increase on the 2020/21 year end position.  This strong performance is a consequence of our positive trading, robust working capital controls, minimal bad debts, appropriate inventory levels, the temporary suspension of dividends and our modest capital expenditure.

 

Throughout the COVID-19 pandemic we maintained a prudent and proactive approach to cash management with a focus on cash conservation, the suspension of dividends and capital expenditure reductions, combined with strong operational controls over working capital.  During the first six months of the financial year we didn't utilise any Government COVID-19 support and paid our 2020 VAT payments which had been deferred in line with the Government's COVID-19 response measures.  To date our bad debt and overdue balances remain minimal, despite having extended credit to some customers and having agreed repayment plans with others who have been particularly impacted by lockdown restrictions.

 

Earnings per share before exceptional items* of 12.15p (2020/21: 10.52p) reflects the impact of the Government's planned increase in corporation tax on our deferred tax rates. 

 

Responsibility

We continue to strive to be a sustainable and responsible business.  Environmental sustainability in particular is a key area of focus and we remain committed to be net zero by 2040, if not sooner.  Our No Time To Waste environmental sustainability programme is about setting our environmental sustainability ambitions and then delivering them, and we are on track to share our science based targets and our net zero roadmap during the course of 2021.

Board changes

We were pleased to welcome Mark Allen OBE and Zoe Howorth to the Board in July 2021 as independent Non-Executive Directors.  As previously communicated Mark will succeed John Nicolson as Chairman when John steps down from the Board prior to the next AGM in May 2022.

 

As part of her responsibilities, Zoe will Chair the Board's Environmental, Social and Governance Committee.

 

Having completed eight years as a Non-Executive Director, Pam Powell stood down from the Board at the end of June 2021 as part of the long term Board succession plan.  We would like to thank Pam for her support, insight and guidance during her term on the Board.

Dividend
 

We previously committed to recommence dividend payments during the course of the financial year ending January 2022.

Our dividend framework provides for a progressive and sustainable dividend that takes into account current performance trends including sales, profit after tax and cash, and satisfies certain guiding principles :

 

·    Dividend cover: targeting 2 times earnings cover

·    Payout ratio: targeting 50% of free cash flow

·    Consistent with medium-term profit outlook

Under this framework the Board is recommencing our dividend distributions with an interim dividend for the 27 weeks ended 1 August 2021 of 2.0 pence per share (2020/21 : nil) payable on 29 October 2021 to shareholders on the register on 8 October 2021. 

 

In addition we are announcing a special dividend of 10.0 pence per share payable on 29 October 2021 to shareholders on the register on 8 October 2021.  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.

Outlook

AG Barr is a growth-focused business operating in resilient and growing market categories with exciting brands, great people and a strong financial position.

Our positive first half reflects the underlying strength of the business alongside the encouraging performance of recent innovation launches.  It also reflects a number of non-recurring factors, in particular customer restocking, deferred overheads and marketing investment phasing choices.

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.  

 

John Nicolson                                                           Roger White

Chairman                                                                    Chief Executive

 

 

* Items marked with an asterisk are non-GAAP measures.  Definitions and relevant reconciliations are provided at the end of this announcement

 

 

Consolidated Condensed Income Statement
		Unaudited			Unaudited			Audited
		6 months ended 1 August 2021			6 months ended 25 July 2020			Year ended 24 January 2021
		Before exceptional items	Exceptional items*	Total	Before exceptional items	Exceptional items*	Total	Before exceptional items	Exceptional items*	Total
	Note	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	6	135.3	-	135.3	113.2	-	113.2	227.0	-	227.0
Cost of sales		(73.8)	-	(73.8)	(64.9)	(0.3)	(65.2)	(132.2)	(1.2)	(133.4)
Gross profit	6	61.5	-	61.5	48.3	(0.3)	48.0	94.8	(1.2)	93.6
Other income		-	0.7	0.7	-	-	-	-	7.6	7.6
Operating expenses		(37.6)	-	(37.6)	(31.2)	(11.2)	(42.4)	(61.2)	(13.2)	(74.4)
Operating profit	8	23.9	0.7	24.6	17.1	(11.5)	5.6	33.6	(6.8)	26.8
Finance costs		(0.2)	-	(0.2)	(0.4)	-	(0.4)	(0.7)	-	(0.7)
Share of results of associate		-	-	-	(0.1)	-	(0.1)	(0.1)	-	(0.1)
Profit before tax		23.7	0.7	24.4	16.6	(11.5)	5.1	32.8	(6.8)	26.0
Income tax expense	9	(10.2)	-	(10.2)	(4.9)	1.7	(3.2)	(8.0)	1.1	(6.9)
Profit attributable to equity holders		13.5	0.7	14.2	11.7	(9.8)	1.9	24.8	(5.7)	19.1
Earnings per share (p)
Basic earnings per share	10			12.78			1.71			17.18
Diluted earnings per share	10			12.71			1.71			17.16
Earnings per share before exceptional items	10			12.15			10.52			22.31
* Refer to Note 8