Company re-formulating drinks
Healthier Irn-Bru will help Barr largely avoid Osborne’s sugar levy
The company said today that by the time the levy is introduced in April 2018 two-thirds of its range of products will be sugar-free or low sugar as it re-formulates its drinks.
It also said that the impact on its balance sheet will be minimised by “brand loyalty” which will maintain demand for its remaining drinks.
Chief executive Roger White said in a statement: “Although the details of the Chancellor’s proposed soft drinks levy are still to be consulted upon, we believe our combination of brand strength, ongoing product reformulation and consumer driven innovation will allow us to minimise the financial impact on the business at the proposed point of implementation in April 2018.
“Based on the Government’s currently proposed metrics, should a levy be introduced, we expect at least two thirds of our portfolio will be lower or no sugar, and would therefore be levy-free at that time.
“For the balance of our portfolio, which would attract a levy, we anticipate that brand loyalty and consumer preference will drive continued demand. “
Mr White said the company will play “an active role” in the consultation between the Government and the soft drinks industry on the proposed levy, and is “fully committed” to working towards an outcome that benefits consumers, shareholders and other stakeholders.
“To ensure success in the UK market we are focusing our marketing efforts on our “lower” and “no” sugar products and are substantially reducing the sugar content of our portfolio to reflect consumers’ changing preferences.
“We have already made significant progress in this area, reducing the average calorific content of our company owned portfolio by 8.8% in four years, and we anticipate the scale of this change to accelerate over the next year as we reduce our overall exposure to high sugar products where appropriate.
“We remain convinced that our decisive actions, and the progress we have made to date, demonstrate that we are playing an important part in addressing the complex and very important UK consumer health issues.”
There was no mention in the company’s annual results statement of any proposed legal action by the drinks industry although it is believed to be among a number which have expressed concern that the sugar tax is selective because it does not include all sugary drinks, such as fruit juices.
George Osborne, who introduced the new tax in the Budget, said the new levy will add 24p to a litre in a move designed to combat childhood obesity.
The announcement sent shares in AG Barr tumbling ahead of today’s announcement that profits rose 7% to £41.3 million for the 53 weeks to 30 January, against £38.6m last time. Adjusted PBIT also increased by 7% to £42.6m (2015: £39.8m) with adjusted revenue increasing by 0.9% to £257.4m (2015: £255.2m).
After drinks firms threatened legal action, Mr Osborne told a meeting of MPs last week: “We are going to introduce a sugar tax, it’s not a threat or a promise, it’s the way it’s going to be.”
He said drinks companies would do better reformulating their products ahead of the implementation of the tax in 2018, rather than launching a legal challenge.
AG Barr said today it had maintained market share of total soft drinks in a challenging UK market and seen international business volume growth of 40%.
The company, which is a sponsor of Scottish and English senior football, proposes a final dividend of 9.97p per share (2015: 9.01p) to give a total dividend for the year of 13.33p per share, an increase of 10% over the prior year.
Commenting on the results, Mr White said: “We have delivered a creditable financial performance in difficult market conditions over the past 12 months through continued tight cost control, rigorous cash management, executional improvement and further investment in our brands, assets and people.
“We delivered a significant change programme across the year which has further strengthened our operational and process capability, providing a robust and flexible platform to underpin our long-term success.
“Market conditions in the core UK soft drinks market are not expected to substantially change as we look forward. Top-line growth remains under pressure and changes in consumer preferences offer challenges and opportunities in equal measure.
“We have, over many years, invested in our strong and flexible operating model and believe we are well placed to continue to deliver consistent long-term shareholder value.”