Scottish soft drinks giant AG Barr said full-year profits are set to beat expectations, helped by price hikes and an initial contribution from its newly-acquired Boost Drinks brand.
The Irn-Bru maker said all four of its divisions – Barr Soft Drinks, Funkin, Boost and fellow recent acquisition MOMA – contributed to a strong second half performance amid steady demand for its cocktail mixes and beverages. Revenue growth is expected to continue in the coming financial year, though the group did issue a few words of caution to flatten expectations.
Along with the backdrop of continued high inflation, Barr also flagged the forthcoming introduction of the deposit return scheme (DRS) which will take effect in Scotland later this year. Both "have the potential to impact consumer behaviour", the company said.
Scotland's DRS is set to come into force on August 16, and will require consumers to pay a deposit of an additional 20p for every beverage purchased in a single-use container from a size of 50ml up to three litres. The deposit can be recovered after the empty container is returned to a collection point operated under the scheme.
READ MORE: AG Barr acquires energy drink Boost in deal worth up to £32m
Drinks manufacturers such as Barr will have to track their products with specialised labels as they will be required to report the number of containers they place on the Scottish market. It is claimed this will lead to significant additional costs.
"Our internal implementation planning for DRS is well advanced and we believe our strong brand portfolio and ongoing actions to mitigate inflation will support the delivery of our growth ambitions," Barr said in a trading update to investors.
"While we expect there to be an impact on operating margin as a result of inflationary cost pressures, and a short-term dilutive impact from the Boost acquisition, we will continue to invest in the long term growth of our brands."
The Cumbernauld-based company is forecasting revenues of £315 million for the year to January 28, with profits slightly ahead of market expectations. Analysts had previously been anticipating a pre-tax profit of £42.6m on turnover of £302m.
READ MORE: AG Barr completes full acquisition of porridge firm MOMA Foods
Barr raised prices last year to deal with surging costs as it benefitted from greater at-home consumption of food and drink. Pre-made cocktail brand Funkin saw a strong recovery in bar and restaurant sales while at-home sales also grew despite the lifting of Covid lockdown measures.
The company significantly increased its presence in the energy drinks market with last year's acquisition of Boost in a deal worth up to £32m. Boost specialises in the high-growth functional beverage category spanning energy, sport and protein, and has a strong position in the UK independent retail channel.
Barr acquired an initial 61.8% stake in MOMA in December 2021. It took over the business outright a year later, paying £3.4m for the remaining 32.2% that it didn't previously own.
"A strong balance sheet means the group has more firepower to pursue further non-organic growth opportunities if they arise," analysts at Hargreaves Lansdown said in a note to investors.
"We like Barr's focus on faster growing niche areas of the industry. MOMA, which AG Barr acquired in December 2021, is a producer of oat milk, (a sector growing at over 10% annually) with one in three British consumers now drinking plant-based milk."
READ MORE: AG Barr says it is 'confident' as profits top pre-pandemic levels
Chief executive Roger White said the group remains confident of delivering further profit growth.
"Thanks to the contribution from all our teams, we have performed strongly across the year," he said. "This positive performance has been supported by continued brand investment and great sales execution.
"We have accelerated the development of the business, further building our portfolio of differentiated brands with the acquisition of Boost and taking full ownership of MOMA. As we enter a new financial year we are well-placed to continue to develop and grow through our clear and consistent value-driven strategy."
The company will announce its full-year results on March 28. Shares in Barr closed yesterday's trading more than 4% higher, up 23p at 550p.
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