AG Barr's full year revenues rose 15.9% on a like-for-like basis, with total sales in the year reaching £317.6m. That was driven by strong revenue growth across its core drinks brands; IRN-BRU, Rubicon and Funkin.
Underlying operating profit moved up from £38.9m to £43.3m. This comes as the margin fell from 14.9% to 13.6% reflecting cost inflation, significant marketing spend, and the impact from acquiring the lower margin MOMA and Boost brands.
Net cash fell from £68.4 to £52.9 mainly due to acquisitions made last year. Free cash flow fell from £39.5m to £22.9m as the group invested in the newly acquired businesses.
Barr says it is "now in an investment phase". It expects operating margins to fall in the short term as a result of continued investment, ongoing inflationary pressures, and the initial dilutive impact from the Boost acquisition. It then expects operating margin to recover over the medium term.
A final dividend of 10.6p per share brings the year's total up to 13.1p. That's a 9.2% increase on last year's dividend.
The shares fell 1.5% following the announcement.
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Our view
The IRN-BRU maker delivered some sweet full-year sales figures. Double digit like-for-like growth is impressive, especially given the challenging macro environment this year.
AG Barr's core brands have continued to perform well, and the group's leveraging those brands to spin out new products. The Rubicon name's been put on a new energy drink to sit alongside IRN-BRU energy, which it hopes will help capture more of the growing energy drinks market. And overall, Rubicon products have been sparkling performers this year.
The Funkin brand, which sells a range of pre-made cocktails to bars, restaurants and consumers at home, offers a genuine avenue for growth. Bar and restaurant sales made a strong recovery as restrictions eased last year. And 'at home' cocktail sales continued to grow despite bars reopening. But as demand heats up, the growth has presented its own challenges, causing some supply chain issues that'll need to be ironed out.
While the group is anticipating further revenue growth next year, it has issued a few words of caution to flatten expectations. It expects high inflation to continue, taking some of the fizz out of profit growth. For now, cost controls and price increases look to be keeping the impact low, but management have already voiced their expectations for margins to fall.
Despite the acquisitions of Boost and MOMA in recent years, the balance sheet's still in great shape, meaning it's got more firepower to pursue further non-organic growth opportunities if they arise. A net cash position underpins the group's investment plans to ramp up production and increase efficiencies in these new brands. This should help grow margins over the medium term, but in the short term while this investment is taking place, costs are likely to come under more pressure.
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.
Overall, we like Barr's plan. It's forfeiting short-term margins and profits now, to invest in what it sees as high-growth areas. This will hopefully help the group's long-term performance, but there is an element of risk involved. Execution of this investment will be key, and if the expected benefits are smaller or later than planned, the valuation could be punished. Only time will tell if the group can reap the expected benefits from this period of investment.
AG Barr key facts
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