A.G. Barr shrugs off sugar tax worries

A.G. Barr says that two-thirds of its portfolio will escape a sugar tax. Pic: iStock

Soft drinks company A.G. Barr says a combination of brand strength and ongoing product reformulation will minimize the financial impact of the UK’s sugar tax on its business.

Roger White, chief executive of A.G. Barr, says the company has already made ‘significant progress’ in reducing calories across its portfolio, adding that change will accelerate over the next year to further reduce the company’s reliance on high sugar beverages.

He aims for two thirds of the company’s portfolio to be levy-free by the time the tax is implemented in April 2018.

Emphasis on no- and low- calorie varieties

A.G. Barr produces and markets well-known UK brands such as Irn-Bru (carbonated soft drink), Rubicon (juice drink) and Strathmore (spring water).

Reporting its results for the year ending January 30, 2016, the company says bottled water has once again been the growth driver in the market.

Sugar-free products, lower-sugar brands and premium products (such as those within mixers) have continued to outperform the overall category, it adds.

The company also notes a growing cocktail consumption trend, which it says it is capitalizing on following its 2015 acquisition of cocktail mixer company Funkin.   

White says the company’s portfolio is realigning to respond to consumer attitudes and preferences.

“The development of our existing soft drinks portfolio will continue to be a key area of our strategic focus,” he said.

“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.”

Impact of sugar tax

Earlier this month the UK government announced a tax on sugar-sweetened beverages, which will come into effect in April 2018.

"We will play an active role in the consultation between the Government and the soft drinks industry on the proposed levy"

Roger White, chief executive, A.G. Barr.

The levy will have two bands: one for total sugar content above 5g per 100ml and one for drinks with more than 8g per 100ml. A.G. Barr’s flagship Irn-Bru brand is one of the many beverages that will fall into the higher band.

Shares in soft drinks companies plummeted following the announcement of a sugar tax.  

But White believes that a combination of brand strength, ongoing product reformulation and consumer driven innovation will allow the company to minimize the financial impact on the business.

“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 [by April 2018].

“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.”

Financial results for 2015

For the year ending January 30, 2016, A.G. Barr reported that statutory profit before tax increased 7% to £41.3m / $58.8m (2015: £38.6m / $54.9m) on net revenue of £258.6m / $368m (2015: £260.9m / $371.3m).

The company says it has delivered a creditable financial performance in difficult market conditions over the past 12 months thanks to tight cost control, rigorous cash management and investment in brands, assets and people.

It warns that, looking forward, market conditions in the core UK soft drinks market are not expected to substantially change.

Top-line growth remains under pressure and changes in consumer preferences offer challenges and opportunities in equal measure,” concluded White. 

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