Cumbernauld-based Irn Bru maker A.G. Barr on Tuesday unveiled the moves it is making to protect its profits following UK finance minister George Osborne’s announcement of a proposed new sugar levy on the soft drinks industry during his recent budget statement.
Osborne said the levy could raise up to £520 million and that money would be used to double the funding for sport in primary schools.
Barr said it is now focusing its UK marketing efforts on its lower sugar and no sugar products and is reducing the sugar content of its portfolio of drinks which include Irn Bru, Rubicon, Strathmore and Funkin.
The company said that by the time any levy is introduced, it expects at least two thirds of its portfolio of drinks will be lower sugar or no sugar, “and would therefore be levy-free at that time.”
Barr said although details of the levy are still to be consulted upon, it believes its combination of “brand strength, ongoing product reformulation and consumer driven innovation” will allow it to “minimise the financial impact on the business at the proposed point of implementation of the levy in April 2018.”
Barr’s announcement came as it said its statutory profit before tax increased by 7% to £41.3 million and net revenue fell to £258.6 million from £260.9 million in the 53 weeks to January 30, 2016.
“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,” said Roger White, chief executive.
“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.”
White added: “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.
“We will, of course, play an active role in the consultation between the Government and the soft drinks industry on the proposed levy, and are fully committed to working towards an outcome that benefits consumers, shareholders and other stakeholders.”
Barr said it is proposing a total dividend for the year of 13.33p per share, an increase of 10%.
Reported earnings per share increased by 14% to 29.63p.
White said Barr delivered a “creditable financial performance” in what was a successful but challenging year.
He said information from Barr’s data provider IRI Marketplace showed the impact of general price deflation, poor summer weather and retail competition feeding through into soft drinks performance — the market was down in value terms by 1.8% with volume flat.
“The growth driver in overall soft drinks was once again water, offset by significant value declines in fruit juice, dilutables, sports drinks and some areas of carbonates,” said White.
“The market has seen growth in brands which appeal to consumers’ changing lifestyles and preferences — sugar free products, lower sugar brands and premium products, such as those within mixers, have continued to outperform the overall category.”
White said that for markets outside of the UK, Barr had created “a select and differentiated portfolio to develop in our chosen international focus markets and we expect to see continued growth in this area of the business.”
“During the period our international business grew revenue by almost 30% on last year and would have grown by over 40% if measured on a constant currency basis.
“Our push to develop outside the UK core market is also allowing us to build stronger, more significant relationships with our chosen partners, Rockstar and Dr Pepper Snapple Group.
“We expect to create increasingly significant growth opportunities in both our core UK market and in our selected international territories as we go forward.”