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For AG Barr and others, Scottish bottle deposit scheme could be new normal

The Irn-Bru maker could see a permanent dent its profits by the scheme, which proposes adding 20p to the price of each bottle and can of soft drink that punters can claim back later for returning the container

AG Barr - Scottish bottle deposit scheme could be the new normal for firms like AG Barr

Plans to introduce a deposit return scheme for plastic, glass and aluminium drink containers in Scotland could become the new normal across the world for drinks makers such as AG Barr PLC (LON:BAG).

The scheme, which will see 20p added to the cost of drinks in disposable bottles that customers can then reclaim by returning the containers to shops or specialised reverse vending machines, could serve as a permanent handicap to profits for the Irn-Bru maker as the increased price stifles consumer demand.

READ: AG Barr upbeat as full-year profit slightly ahead of expectations

Analysts at Liberum are estimating that the Scottish government could implement the scheme in March 2021, which they predicted could be “painful” for the firm going forward, although more would become clear when the Holyrood government unveils its plans for ‘stage 2’ of the scheme, expected before March 2020.

Liberum’s Nico von Stackelberg told Proactive that while 20p may not sound much for a single bottle of ‘the Bru’, multipacks could see their prices increase “substantially”.

Von Stackelberg is predicting that AG Barr is likely to take a hit to its top-line growth in its 2022 financial year, when the scheme is likely to be introduced, although the overall cost to the company and the rest of the industry will depend on the depends on final details to be released in stage 2.

“The industry wants to see really high recycling rates, as then the system will nearly pay for itself. If there have poor recycling rates, it could be even more costly than current models”, he said.

He adds that costs to the firms could also be higher if they are forced to shoulder the costs of the scheme without government assistance, although this is deemed unlikely.

England next?

The prospect of an increase in the price of drinks in single-use containers isn’t confined to Scotland, with a consultation currently underway in England to introduce a similar 15p refundable deposit.

Von Stackelberg said that one of the beverages to be worst hit by the schemes will be bottled water, placing pressure on companies such as Britvic PLC (LON:BVIC), while Vimto maker Nichols PLC (LON:NICL) is also in the firing line.

However, the analyst said schemes such as the one in Scotland are part of a ‘new normal’ as governments place the burden of consumer’s waste on the companies to increase recycling rates and minimise plastic waste around the world.

With this in mind, he says that investors should not dump their shares in firms like AG Barr, as the outcome of such recycling schemes is already “reasonably priced in” to the shares.

“It’s not like investors are going to be blindsided by this. It is now part of doing business for these companies”, he said.

Quick facts: AG Barr

Price: 517 GBX

LSE:BAG
Market: LSE
Market Cap: £579.19 m
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