BALLYGOWAN OWNER Britvic, which distributes Pepsi in the UK and Ireland, dropped 7.1 per cent in value on the London Stock Exchange yesterday, after it warned of a surge in its raw materials costs, writes Laura Slattery.

The plunge in the soft drinks company's share price was the sharpest one-day fall in more than two years for the company, which last year bought Ballygowan water and the Club soft drinks brands from cider-maker CC for €249 million.

Expenses for plastic and other raw materials will climb 4.5 per cent in the current fiscal year, "marginally" more than it had predicted, the company said, adding that the cost of raw materials "remains a significant challenge for the sector".

Britvic also projected further increases in raw material costs in its next financial year.

Surging commodity markets are forcing beverage makers to pay more for energy and raw materials, from plastic, which is derived from crude oil, to brewing malt.

Rising power and grain prices contributed to an unexpected drop in first-quarter profit at brewing giant InBev, while Guinness manufacturer Diageo announced on Thursday that it was considering an increase of up to 2 per cent on its wholesale prices as a result of the soaring cost of raw materials.

Britvic's Irish division added £147.2 million (€186.4 million) worth of revenue to its UK parent in the first nine months of the year.

The company said Irish sales rose 6.1 per cent in sterling terms, although this was in part due to exchange rate movements.

Underlying euro sales were 5.2 per cent lower and volumes down 2.9 per cent in the 40 weeks to July 6th.

"Britvic Ireland continues to maintain share in all of its key categories and achievement of the synergies within Ireland outlined at the time of the acquisition remain on track," the company said.

Britvic said economic conditions in Ireland had become markedly more challenging in the last three months, resulting in a low to mid-single digit decline in off-licence and pub sales.

The overall British soft-drinks market was still expanding, but at a "very low" pace in terms of store sales, and weakening further in pubs and bars, the company said.

Britvic said group sales rose 30 per cent to £690 million, boosted by the purchase of CC's soft drinks business last year.

Pub sales of soft drinks will "remain challenging", the company said. (Additional reporting: Bloomberg.)