Soft drinks group AG Barr expects sales growth to resume in the second half of the year and has underlined its confidence with confirmation of an £11 million expansion at its giant production and storage facility in Milton Keynes.
In an update ahead of its annual general meeting, the Cumbernauld-based firm reported a 1.1 per cent decline in group sales during the 15 weeks to 9 May. This was against particularly tough comparisons from the previous year, when it benefited from being one of the main sponsors of the Commonwealth Games in Glasgow.
We remain confident in our long-term prospectsAG Barr statement
Although the wider soft drinks market registered modest value growth of 0.7 per cent in the first quarter, Barr said it has a strong programme planned across its range of brands which includes Irn-Bru, Rubicon, Strathmore and Tizer. It therefore expects sales growth to pick up in the second half of the financial year.
The company, led by chief executive Roger White, said: “We remain confident in our strategy and long-term prospects. We are on course to meet our expectations for the full year despite the challenging conditions across the market.”
The first-quarter sales figures exclude the divested Orangina brand and Findlays water coolers operation, but include a £3m contribution from Funkin, the cocktail mixer business acquired earlier this year in a deal worth up to £21m.
Nicola Mallard, an analyst at Investec, said: “We had already flagged the likelihood of lower first-half revenues, although this may not be true of profits, given margins are holding up well.”
Barr will invest a further £11m in its hi-tech canning facility in Milton Keynes, which includes an adjacent warehousing facility managed by Eddie Stobart. Immediate plans include additional warehouse capacity on a newly-acquired 1.5 acre plot next to the existing 12.7 acre site.
“We have also agreed to purchase a further 3.86 acres of development land, adjacent to our existing site, to give us additional expansion options in the future,” Barr said. “The total cost of this development is £11m, including £4m for the land for additional future expansion.”
Investec, which rates Barr’s shares as a “buy”, said that the investment in Milton Keynes highlights the firm’s “continued belief in the opportunities available for its brands in England”.
Barr said sales margins are continuing to hold up well despite a “competitive and volatile” retail market. This has been driven in large part by grocery price deflation amid the ongoing supermarket price wars.
“The balance sheet remains strong and there have been no significant changes in the financial position of the company… since publication of the report and accounts for the year ending 25 January 2015,” the firm added.
In March, the FTSE-250 company reported a 10 per cent hike in pre-tax profits to £41.9m on turnover which rose by 2.7 per cent at £260.9m. White warned then that the UK soft drinks market is in a deflationary period that will make it more difficult to maintain top-line growth.
For the current financial year, analysts at Numis are predicting pre-tax profits of £45.7m on sales that are expected to rise by 8 per cent to just shy of £282m.
The broker, which has a “hold” rating on Barr’s stock, added: “Markets remain tough, but the group is on course to meet full-year expectations.”