Profits have plunged more than 60% at AG Barr as the shutdown of the hospitality sector during the first coronavirus lockdown in March hit the Irn-Bru maker.
At the height of the lockdown period, sales to hospitality customers plunged 95% and were down 65% across the six months ended 25 July 2020.
The group was forced to make a £10m writedown in the value of its Strathmore hospitality brand and assets as a result and has reduced the workforce at the Forfar manufacturing site.
Pre-tax profits declined 62.2% to £5.1m in the first-half period, with total exceptional charges of £11.5m denting the bottom line.
Overall, first-half revenues at the group declined 7.6% to £113.2m, with retail sales offsetting some of the decline in hospitality.
“Whilst we are seeing some recovery across hospitality, it will take time for the sector to regain momentum and as such we do not anticipate Strathmore returning to pre-Covid-19 sales levels in the foreseeable future,” the group said in its results statement this morning.
Sales also declined 34% at the Funkin drinks brand as a result of the challenges in the hospitality sector. However, retail and on-line sales grew by more 170%, with the nitro infused ready-to-drink cocktails in particular delivering a strong performance.
Despite the first-half revenue decline, AG Barr grew its market value share of soft drinks in Scotland and in England and Wales.
The Irn-Bru brand increased revenue by 1% in the first half of the financial year versus the corresponding period in 2019/20.
Sales at the Rubicon brand fell 9% in the half as the pandemic affected the key trading period of Ramadan.
Despite the decline in the top line, pre-tax profits before exceptional items jumped 19.4% to £16.6m as the group acted quickly to control costs and conserve cash.
Net cash at bank for the group was £25.8m higher than the same time last year and sat at £30.4m at the end of the first half.
Chief executive Roger White said: “We remain on course to deliver a full-year performance in line with the revised expectations we communicated in the July 2020 trading update.
“We have continued to invest in our core brand equity for the long term, maintained our quality and service standards and remain a profitable and cash generative business in a robust drinks sector. We are confident that our business will continue to prove its resilience for the balance of this year and beyond.”
Looking ahead, the group expected full-year revenue to be down by 12-15%, with a modest reduction in operating profit margin. However, this scenario assumes the UK does not enter into a further significant period of lockdown.
Investors were cheered by the strong balance sheet and good cash position of the group, sending shares up 5% to 391p as markets opening this morning.
After yesterday’s dramatic decline (see below), the FTSE 100 rallied this morning to open 0.5% higher at 5,834.55pts.
B&M European Value Retail, British American Tobacco, Imperial Brands and Reckitt Benckiser all buoyed the blue-chip index, rising 1.4% to 465.3p, 1.9% to 2,674.5p, 1.6% to 1,363p and 1.1% to 7,420p respectively.
Other risers included Just Eat, up 2.1% to 8,726p, Ocado, up 2.3% to 2,866p, and Vimto maker Nichols, up 4.5% to 1,275p.
This morning’s losers included Applegreen, which fell 7.7% to 300p, Naked Wines, down 3.5% to 423.3p and WH Smith, down 2.7% to 990p.
Yesterday in the City
A mix of renewed lockdown fears and a banking scandal clobbered the markets yesterday with the FTSE 100 losing more than £50bn in value. London’s blue-chip index slumped by 3.4% to 5,804.29pts as investors took flight from hospitality, travel, leisure and food-to-go stocks.
The biggest losers for the day included Marston’s, which slumped 16% to 39.1p, prepared food manufacturers Greencore and Bakkavor, which fell 11.1% to 97.8p and 7.8% to 60p respectively, and travel food-to-go operator SSP Group, down 7.4% to 181.6p. However, most retail and food stocks were in the red on the back of lockdown fears, with Hotel Chocolat down 8.4%, Greggs down 4.5%, WH Smith down 6.9% and Primark owner ABF down 4.3%.
Supermarket shares did well as investors fled for the safety of defensive businesses, with more bumper sales expected as consumers stock up cupboards once more. Tesco ended the day up 2.7% at 225.5p and Morrisons was up 2.3% to 178.2p. Takeaway food operators were also buoyed by the virus fears, with Domino’s up 1.1% to 345.4p and Just Eat climbing 1.4% to 8,544p.