Shares in AG Barr suffered this week despite the Irn-Bru maker posting stellar annual growth, as investors reacted to the impact of investment on margin recovery.

On Tuesday, the FTSE 250 drinks group said total revenues in the year to 29 January had surged by 18.2% on a reported basis to £317.6m – representing 15.9% growth on a like-for-like basis, discounting acquisitions.

This revenue jump was driven by a combination of “brand momentum”, “revenue management” and the contribution of its recent acquisitions – plant-based milk producer Moma and functional beverage player Boost Drinks. Its soft drinks division delivered strong top line revenue growth of 12.4%, driven by volume growth, “disciplined” pricing and promotional management as well as favourable brand and channel mix.

Irn-Bru itself grew by 6%, as a strong performance in the out-of-home channel more than compensated for lower take-home sales. Rubicon was up 8% in volume and over 20% in revenue. Meanwhile, its Funkin brand consolidated its position as the number-one take home UK cocktail brand, with sales up 16%.

Adjusted profit before tax was up 13.3% to £43.5m, which represented a reduction in operating margin to 13.6% from 14.9%.

This compression was driven by supply chain cost inflation, the group said, plus the expected short-term impact of lower margin Moma and Boost acquisitions and accelerated investment, including significant spend on marketing for Funkin and Moma.

Margins were expected to be constrained over the short term by this “investment phase” to “capitalise on the strategic growth opportunities ahead” in addition to ongoing cost pressures, it said. However, it also highlighted margin recovery as a longer-term aim.

Shares in the group dropped 6.1% on Tuesday back to 509p – its lowest level so far in 2023.

However, brokers were encouraged by the longer-term growth story. Liberum upgraded its forecasts, noting “the potential for more M&A as the group take advantage of the current economic climate”.

“Considering the cost challenges, the fact we are today upgrading is a sign of the quality of the business and how counter cyclical the group is,” it said.

Hargreaves Lansdown said the group was “trying to sow the seeds of growth now so it can harvest the rewards in years to come”.

It added: “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, margins are likely to come under pressure.”