The collapse of the Britvic merger cost AG Barr £4.9m in fees, not to mention all the senior management man hours wasted. But CEO Roger White has put the misfortune behind him.
“You put a year’s worth of work into anything and then don’t achieve what you set out to. That is a little disappointing but is in the past now,” he says.
So what’s on the table? After the deal fell through in July, AG Barr was widely tipped to throw its hat in the ring for GSK’s Lucozade and Ribena - which were sold to Suntory for £1.35bn earlier this month.
White says he is interested in M&A opportunities as and when they arise, but in the case of the GSK brands, he never got the chance to make a bid. “They never made it to market so that is what it is,” he says.
AG Barr results
Turnover grew 5.8% to £128.7m (volumes +4.2%, pricing +1.6%)
Gross margin +90 basis points EBIT margin +40 basis points
Profit before tax rose 12.3% to £16.6m
Net debt £15.8m annualised net debt/EBITDA ratio <0.4
It has been suggested Suntory would want to follow the purchase of Lucozade and Ribena by acquiring AG Barr. White downplays such talk. “We’re a public company so people will always comment. But over my tenure there’s been lots of comment and no activity.”
He sees plenty of potential for AG Barr to grow ahead of the market without acquisitions, however. “Organic growth has always been and will always be at the heart of our strategy. Unlike some of our competitors, geographic expansion and expansion into the multiples and into multiple formats remain attractive opportunities,” he says.
A key pillar of AG Barr’s strategy is expansion south of the Scottish border, and in particular into the North of England.
The push south is working. In its half-year results this week, AG Barr reported a 4.9% increase in overall turnover. In England and Wales, which now accounts for 59% of turnover, sales were up 9%.
As well as easing capacity constraints, which limited sales growth of cans in the first half of 2013, the opening of a new factory in Milton Keynes this summer will support the development of the business in England and Wales.
Another key growth driver is the supermarkets. AG Barr’s traditional strength is selling to smaller stores, but it sees opportunities to grow distribution across its portfolio by selling more multipack formats in the supermarkets. In the first half, it achieved double-digit growth in supermarket sales.
As for the different brands in the AG Barr stable, White says he wants to build up Irn-Bru’s sugar-free sales and develop more flavours for its fast-growing energy drink Rockstar.
He also sees potential in some of its smaller brands such as Barr, which has evolved from being “a pocket money brand” to one that is this year getting TV advertising for the first time, he says. Its exotic fruit drinks are set to benefit from the growth of the UK’s ethnic population, too.
Its rivals are not going to make life easy for AG Barr, mind. After a bad 2012, Coca-Cola promoted aggressively this year - causing the average price of Irn-Bru to overtake Coca-Cola on a per litre basis [Nielsen 26 w/e 27/7.13]. But White is refusing to get sucked into a promotional battle. “We continue our strategy of selling as much as possible at full price,” he says.
That restraint is paying off. In the first half, AG Barr achieved pricing growth of 1.6%, which, along with a benign commodity cost environment, helped it grow gross margins by 90 basis points.
The company has plenty of scope to grow organically and with a net debt/EBITDA ratio of just 0.4, don’t bet against the company making a successful acquisition before too long.