Irn-Bru maker AG Barr share price rises on profit growth in 2016, but the firm warns it will increase prices because of Brexit

 
Courtney Goldsmith
Follow Courtney
Roger White, the boss of AG Barr, said the devaluation of sterling has hit the business
Roger White, the boss of AG Barr, said the devaluation of sterling has hit the business (Source: AG Barr)

Profit lifted last year for AG Barr, the maker of Irn-Bru and Rubicon, and the company confirmed most of its products won't be hit by the so-called sugar tax.

However, the firm has warned it will increases prices following the devaluation of sterling since June's Brexit vote.

The figures

For the year to 28 January, the drink manufacturer said profit before tax and exceptional items increased 2.7 per cent to £42.4m while revenue fell 0.6 per cent to £257.1m.

The company's core brands performed well, with underlying sales of Irn-Bru lifting 3.2 per cent and of Rubicon rising 4.9 per cent.

AG Barr increased its proposed total dividend for the year by eight per cent to 14.4p per share.

Due to the strength of the firm's balance sheet, the drinks maker announced a £30m share buyback programme starting in spring of 2017 and running two years.

The FTSE 250 firm's shares edged up 2.03 per cent at 558.64p.

Why it's interesting

The sugary drinks levy, which is set to go into effect from April 2018, will add an 18p tax on drinks with a total sugar content of five grams or more per 100 millilitres while those with eight grams or more per 100 millilitres will be taxed at 24p per litre.

Chancellor Philip Hammond previously said revenue for his tax will be lower than forecast because producers have already worked to reduce the amount of sugar in their drinks.

AG Barr is one of those ahead of the curve as it has worked to reduce sugar content in line with changing customer preferences. The firm plans for 90 per cent of company-owned brands to sit outside the the tax structure by autumn of this year.

Meanwhile, the devaluation of sterling following the Brexit vote increased costs for the company, which said customers should expect to see changes to pricing.

"To tackle [the devaluation of sterling], we've taken costs out of our business, but in tandem with that we've talked to customers about sharing the burden," chief executive Roger White told City A.M.

What AG Barr said

White said: "The UK consumer environment remains uncertain, however we are confident that our great brands, effective business model, clear strategy and strong team ensure we are well placed to realise the full potential of our business and to deliver consistent long-term shareholder value."

What analysts said

Sahill Shan, analyst at N+1 Singer, said the main news of the day was the share buyback programme.

Shan added: "Cynically, one can argue that given top-line challenges this is one way of augmenting earnings growth. Given the strong free cash flow dynamics of the model and much of the investment in manufacturing complete, the group clearly has the capacity to go down this route."

Phil Carroll, analyst at Shore Capital, said: "We highlight that the buyback programme does not leave the group without the appropriate flexibility to look at potential acquisition opportunities should they arise."

Related articles