AG BARR, the Scottish soft drinks giant, has hiked prices for trade customers “across the board” after coming under pressure from surging cost inflation.
The maker of Irn-Bru declared it had “initiated several cost control actions” as it lifted its profit guidance for the year ended January 30, following a higher-than-expected jump in revenue.
Barr hailed its “resilience” in “volatile” conditions as the company said it expects revenue to have grown by 17.5 per cent to around £267 million, “marginally ahead” of guidance issued in November, despite the “unexpected” introduction of restrictions to combat the Omicron variant in December. This would exceed the £255.7m revenue it posted in 2019/20, before the pandemic, which included £21m of revenue from the Rockstar energy drink; its sales and distribution deal with the brand ended in August 2020.
Profits before tax and exceptional items are also expected to be higher than guided in November when the company reports its full results on March 29; operating margin before one-off items is now expected to be 15.6%, up from 14.8% the year prior.
The Cumbernauld-based company told the City that the “inflationary pressures” it highlighted in November had come to fruition, “particularly across packaging and energy linked commodities”.
“We have initiated several cost control actions to reduce the impact of these rising costs and have adjusted our pricing with customers where appropriate,” Barr said. “With the published rate of inflation in the UK now above 5%, the highest level for 20 years, we will continue to seek opportunities across the coming year to offset the impact on our business.”
The move by Barr to increase prices comes amid forecasts that annual consumer price inflation will rise to around 6% in spring, with fears that household energy bills will double for many households when the current price cap is lifted in April.
Speaking to The Herald, AG Barr chief executive Roger White said the company had tried to “carry as much of the pain” as it could in terms of its rising costs, but reached the stage where it had to pass price rises on to its customers. He said Barr, which has applied the increases “across the board”, has been taking steps to reduce rising overheads through “cost controls, belt tightening, efficiency gains and value optimisation”. Much of the drive has focused on gaining efficiencies from technology.
“We have had a lot of reorganisation in the business in the last couple of years,” Mr White said. “Much of that has been about how we achieve more efficiencies.”
Asked what was driving costs higher, he said inflation was “rooted in a number of areas” but was notable on materials and services costs.
Mulling the performance in 2021, Mr White declared that “we have had a really good year”, with both Barr Soft Drinks and the Funkin cocktail ingredients arm trading well, especially during periods when restrictions were eased.
While he said it was too early to tell whether trading has been boosted by the lifting of restrictions in the hospitality trade last week, he said there was evidence people were keen to get out and socialise again.
Barr said it expects to end the year with £66m of net cash after acquiring a 60% stake in MOMA Foods, the porridge and oat milk maker, in December.
Asked if acquisitions were on the agenda, Mr White replied: “[We are] very much open to creating value for shareholders through organic growth, innovation and M&A (mergers and acquisitions) should the opportunity arise.”
Mr White noted in a statement to the City: “We have delivered an excellent financial performance against a volatile backdrop, whilst at the same time delivering on our strategic priorities, with particularly encouraging progress made across our No Time To Waste environmental sustainability programme.
“We plan to further invest in our business in 2022/23 and remain confident in our ability to deliver continued growth in both revenue and profit in the coming year.”
John Moore of Brewin Dolphin, said: “Today’s results underline the strength of AG Barr’s business, with revenues ahead of revised guidance and beyond even pre-pandemic levels. Inflation is a challenge, but the company is taking steps to mitigate that pressure and its operating margin is slightly better than last year’s, with profits expected to be ahead of guidance too. Although AG Barr has traditionally tended to err on the side of caution, with around £66m of net cash shareholders should expect to see rewards for their patience and you wouldn’t rule out further earnings-enhancing investments in other businesses to complement the recent equity stake in MOMA.”
Shares in AG Barr closed up 5p, or 1.01%, at 500p.