AG Barr To Shift Away From Sugary Drinks
29 March 2016, 12:09
Irn Bru maker AG Barr has said it will move away from high sugar drinks in light of the surprise sugary drinks tax proposed by the Chancellor.
The Cumbernauld-based firm said it expects ``at least two thirds of our portfolio will be lower or no sugar'' by the time the levy is introduced in April 2018. Around 40% of the group's portfolio currently has a low sugar content.
The drinks sector was sent reeling by the announcement of the new tax in the Budget earlier this month, which aims to raise around #520 million a year to help fund sports for schools.
The FTSE 250 firm, which also makes Tizer and Snapple, said its annual pre-tax profits lifted by 7% to #41.3 million, although sales slipped just under 1% to £258.6 million in a ''difficult market'' in the UK.
Management at the soft drinks maker, led by chief executive Roger White, has had a number of meetings with the Treasury ahead of making its formal submission on the proposal.
Mr White has called the drinks levy plans ''extremely disappointing``.
He said: ''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.''
One can of Irn Bru contains around 34 grams of sugar, about 42% more than the World Health Organisation's recommended daily intake of about 24 grams for adults.
Irn Bru accounts for around 40% of the group's annual revenues.
Parts of the soft drinks industry are understood to be considering taking legal action against the Government through European courts on the basis that other types of food and drink, such as fruit juice and milkshakes, are not included.
Similar taxes in Scandinavia have been successfully challenged.
But AG Barr said it has no plans to join any legal action.
In a Treasury Select Committee hearing following the Budget, George Osborne told companies considering a legal challenge to ''bring it on'' as he said Government lawyers were convinced the new tax is legal.
AG Barr said across the UK the value of the soft drinks market fell 1.8% over the year, while volumes were flat in the same period.
The business said the growth area in the market was water, which offset significant declines in fruit juices and sports drinks.
The firm also makes Strathmore mineral water and St Clement's fruit juices.
Irn Bru bought the London-based cocktail business Funkin for up to £21 million last February. It said the purchase took the group into the cocktail mixer market for the first time, which has shown strong growth in recent years.
AG Barr said: ``The Funkin business acquired in 2015 continued its expected growth momentum under our ownership and we plan to further develop the Funkin brand to ensure it continues to meet our acquisition expectations.''
Analysts at N+1 Singer said AG Barr needed to ``rebalance its drinks portfolio to better mitigate the proposed sugar tax levy.''
But the broker added this move was ''deliverable''.