Comment: AG Barr remains thirsty for growth

SCOTTISH soft drinks group AG Barr’s latest resilient trading update shows again that, if its planned merger with Britvic founders at the regulatory hurdle, it will be a setback, not a calamity.

Martin Flanagan

The Cumbernauld-based group has had to weather the coldest British spring since 1962 and a clear intensifying of price promotions in the sector.

And yet Barr has still managed a 2.4 per cent increase in revenues in the period from late January to mid May, compared with most of the industry, including Britvic, treading water at best.

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Barr also confirmed yesterday that its plan to open a new plant in Milton Keynes, which will ease distribution of its products outside its Scottish and northern heartland, is well-advanced and will come onstream this summer.

The Competition Commission is due to rule on the group’s planned merger with Britvic in the next week. If the regulator waves through the tie-up, with no material adverse stipulations attached, it would allow a step-change in reach and ambitions for Barr.

But mergers aside, the company has shown, not for the first time, that it can cope with an adverse trading backdrop without destroying profit margins, while also having an eye for opportunities for organic growth.

Barr has been pragmatic in not eschewing some price promotions itself. Barr chief executive Roger White says the company would lose market share if it was too precious in its attitude to promotions, but he says it has been gaining share in what has been a challenging couple of years for the soft drinks industry.

After yesterday’s shaft of revenue sunshine from the group despite the unseasonable weather and sharpened pricing competition, there were a number of City broker upgrades in recognition of its resilience as a stand-alone operator.

My feeling is that Barr’s shares are therefore pretty well protected whichever way the CC decision goes on a merger with Britvic.

If it is a green light, many analysts have priced in a 20p to 25p gain for the stock. If the deal is scuppered, however, any adverse effect on the shares should be relatively modest.

The City has effectively bought into White’s argument that Barr has a sound business and financial model, with “multiple opportunities” to develop the business.

Bigger is better when it comes to audit checks

IN ITS annual health check on Britain’s company audit standards, the Financial Reporting Council (FRC) makes clear that the quality of work on FTSE 350 companies is much better than that done on smaller businesses.

The reason is not difficult to find, says the FRC, whose influential report is the fruit of a regulatory watchdog keeping a gimlet eye on the standards of what we would like to think of as the accounting watchdogs.

Bigger businesses tend to have stronger in-house financial functions so that the quality of the information the auditors work on is better.

There is usually also better corporate governance in larger businesses so higher-quality non-executive directors can also help spot financial problems even before the auditors get involved.

And the FRC says the auditors themselves tend to allocate their more experienced staff to audits on higher-profile companies.

It creates a virtuous circle of bigger, financially stronger businesses being assessed by the best individuals the accountancy industry has to offer.