Rock stars, so they say, can be fickle friends, as AG Barr is finding out to its cost (Greig Cameron writes). Having woken up yesterday to the news that the Scottish drinks group is losing its franchise to sell the Rockstar energy thirst-quencher, which makes up about 8 per cent of its sales volumes, investors hit the “sell” button, sending its shares down by 7 per cent.
Thank goodness, therefore, that AG Barr can reach for its signature brand to keep its spirits up. “Irn-Bru gets you through,” so the marketing mantra goes, and now it may have to.
Barr’s partnership with Rockstar began in 2007 and it gave the company distribution rights for the drink in the UK, Ireland and parts of Europe through to 2024. The move to remove those rights now is out of the Scottish company’s hands and is a result of Pepsico, the American beverages and snacks conglomerate, striking a near-$3.9 billion deal to buy Rockstar Inc, the parent of the brand, in March this year. A termination notice has been served, with AG Barr’s exit from Rockstar likely to come in August.
A hefty compensation sum will be due, but it will be bittersweet. Britvic, Pepsico’s bottler of choice in Britain, is already in talks to take on the Rockstar contract. AG Barr attempted an audacious merger swoop on Britvic in 2013, but no deal could be agreed.
However, the company is no one-trick-pony. Along with Irn-Bru, it counts Tizer, Rubicon, Strathmore and Funkin cocktail mixers in its portfolio and it distributes Snapple and Bundaberg ginger beer. In September last year, when Tempus last looked at AG Barr, it gave it a “buy” rating, noting that a forecast fall in the share price may attract buyers. At that point, the shares had dropped by almost 30 per cent to 589p after a surprise profit warning. Yesterday they fell 34p to 447p. At that price, potential suitors might be even more tempted to explore their options.
Roger White, the long-serving chief executive, was already taking self-help measures to rebuild margins and profit before the onset of the coronavirus pandemic. Results published in April for the 12 months to the end of January showed revenue down 8.4 per cent to £255.7 million, with underlying pre-tax profit dropping 17.3 per cent to £37.4 million. Mr White confirmed then a 20 per cent cut in executive pay, that some staff were being furloughed, that non-discretionary spending was being trimmed and that the final dividend had been suspended.
Since then, the business has maintained its production and continued to bring in cash, although its sales in convenience stores and through impulse buys in shops have been hit, along with its supplies to the hospitality sector. Shore Capital, the broker, believes that an update on trading scheduled for late next month will show some uplift from purchases in supermarkets.
As for Rockstar’s exit from the stage, there may be a potential solution in place. AG Barr launched Irn-Bru Energy, containing 32mg of caffeine per 100ml, similar to a medium latte from a coffee chain, about 12 months ago. Analysts at Shore believe that the product will be the group’s “prime offering” in the energy drinks market in Britain.
Mr White, who pointed out that 85 per cent of Barr’s sales were from brands that the company owned, said yesterday: “Irn-Bru Energy has started well for us and gives us a bit more coverage. It was always our plan to put a bit more focus behind the product. This [Rockstar] change doesn’t do anything other than speak positively towards us doing that.”
Advice Hold
Why Prudent management means AG Barr is well placed to survive lockdown and loss of Rockstar. Weak share price may attract others in sector
Ted Baker
A lot of companies have been talking about the “new normal”, but Ted Baker has gone further, imploring investors to “love a life less ordinary” (Ashley Armstrong writes).
Not that life at the fashion brand has been “ordinary” of late. In less than two years it has managed to squeeze in a misconduct scandal, a boardroom clear-out, an accounting error and a record loss. And that was before Covid-19.
At the start of the month Ted Baker launched an emergency cash-call as part of a plan to put the business on a stronger footing, raising £105 million. The fundraising came on the heels of a sale and leaseback of its Ugly Brown Building headquarters, which raised net proceeds of £72 million.
Just under half the new cash is being used to reduce debt, £6 million is being used for a new ecommerce platform and the rest is being split evenly between capital spending, restructuring costs and working capital.
Ray Kelvin, the company’s founder who left under a cloud of forced-hugging allegations, which he denies, supported the placing, but had his stake diluted to 15 per cent, down from 35 per cent. While this reduces the likelihood of Mr Kelvin mounting a takeover to seize back control of the business, investors should welcome signs that the company is putting its past behind it.
Ted Baker’s board is now led by John Barton, 75, its chairman, and the highly regarded Rachel Osborne, 55, as chief executive. The directors are candid about the troubles that the company had got into — the retail brand lacked cost discipline, while its board lacked control — and also have blamed the management exodus for blowing its creative direction off-course.
Concerns linger about whether Ted Baker’s brand is tarnished, particularly with younger “woke” shoppers, but the company points to its recent online sales surge, with sales up 20 per cent before the coronavirus outbreak and jumping by three quarters since lockdown. Customers, therefore, still seem to like the brand and Ted Baker has taken tough action to clear up a mess of its own making and to get ready for the future, ordinary or not.
Advice Hold
Why Retail is tough, but Ted Baker might be over the worst
