Higher costs hit AG Barr margins24 September 2012
Scottish soft drinks firm AG Barr has reported an 8% dip in first-half profits higher sugar and brand investment dented the firm’s margins.
AG Barr, best known for Irn-Bru and Rubicon, said that pre-tax profit reached £14.9 million in the six months ending 28 July, down from £16.8 million during the same period last year. Revenue increased by 5% to £130 million, while carbonated drink and still drink sales were up 5.5% and 1.8% respectively.
The firm, which is in ongoing discussions over a £1.4 billion merger with UK soft drinks company Britvic, said that it expects market conditions for the remainder of the year to remain challenging.
Meanwhile, analysts have said that job losses are likely if the merger is approved. Phil Carroll, Shore Capital’s drinks analyst told The Scotsman that the firms would aim to save around £20 million a year through cost-cutting and synergies.
“It is difficult to put an absolute figure on potential synergies. But other deals in the sector give you an idea of what the Barr/Britvic combination could achieve. It is normally assumed you could get a mixture of cost-cutting and revenue-raising synergies of 5 to 10% of the smaller company’s revenues,” said Carroll.
“On Barr’s revenues [£222.4m last year], that would give you a figure of about £13m or so at least. They could also probably take another £5m or so off Britvic’s cost base, which gets you up to a figure of between £18m and £20m.”
“A merged company would also have greater media-buying powers in a tough climate for the media, and I would think there are also bound to be savings from a slimmer workforce. A £20m estimate of synergies from the deal is therefore very plausible, probably even pretty conservative. It could be more,” he added.
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