Acquisitions and organic revenue growth helped AG Barr boost its first-half revenues by a third, but profits were hit by a rise in lower-margin sales and soaring costs.
Reporting its results for the six months to 30 July, the Irn-Bru maker announced 33% growth in sales to £210.4m on a reported basis, boosted by its Boost Drinks acquisition in December 2022.
Organic sales were up 10.4% on a like-for-like basis, thanks to growth across its key categories. Irn-Bru grew revenue by 8%, while its Rubicon brand delivered a revenue increase of 17%.
Adjusted profit in the period was £27m – an increase of 6.7% on the prior year first half – as margins fell to 12.5% from 16.2%.
This drop in margin was in line with expectations due to persistent cost inflation, alongside the known near-term impact of the lower-margin Boost division. In addition, margin was affected by the decision not to pass on the full impact of cost inflation to customers in order to remain focused on offering affordable brands.
Liberum reiterated its upgrading forecast. Bearing in mind the wet summer, the results represented a “very strong outturn” in the first half, it said. “We continue to see significant potential for growth and margin expansion once the transitionary impacts of inflation are over, which should drive significant earnings growth.”
AJ Bell noted: “Group operating profit has not advanced since 2018, and this may be one reason the shares are broadly unchanged over the past decade… but shareholders could still be pleased if the outcome is a resumption of sustained growth, especially after the challenges that have faced the firm over the past decade or so.”
AG Barr shares were marginally up on the news, but remain 10% down year to date despite the summer earnings upgrade.
Elsewhere, beauty player PZ Cussons posted double-digit annual growth and held margins flat as it benefited from the acquisition of Childs Farm and strong organic growth.
Reported revenue grew 10.7% to £656.3m as a result of like-for-like revenue growth of 6.1%. This was boosted by Childs Farm, which was acquired in March 2022, and favourable FX movements. Organic growth of 6.1% reflected price/mix growth of 12.1% and volume declines of 6%.
Adjusted operating profit margin was broadly flat, as an 80bps improvement in gross profit margin funded increased investment and offset cost inflation. However, on a statutory basis, operating margin fell by 200bps and EPS declined by 26.8%, reflecting a £16.5m writedown of the Sanctuary Spa brand.
Shore Capital said it could not “fault management with its strategy nor execution”, but noted negative externalities with economic issues in Nigeria “a key airflow to the stock’s future direction.”
Shares fell 5.1% on the results to 151.8p and remain down by more than 30% so far in 2023.