AG Barr plc (LON:BAG) reported a 4.4% increase in full year profit as the maker of Irn Bru restructured the business to contend with higher sugar taxes and deflationary pressures.
The company, which also owns the Rubicon and Funkin drinks brands, posted statutory pre-tax profit of £43.1mln in the year to 28 January, compared to £41.3mln a year earlier.
Profits were supported by tight cost control measures, which also helped improve operating margins by 50 basis points to 16.8%. As part of the reorganisation, announced in September, the company is cutting 100 jobs.
Revenue fell 0.6% to £257.1mln from £258mln, partly due to tough competition and a weaker pound placing deflationary pressures on the market.
Chairman John Nicholson said the devaluation of sterling following the UK's vote to leave the European Union in June and the government’s announcement of a sugar tax on soft drinks in the Chancellor’s budget in March 2016 had added external headwinds to the drinks market.
AG Barr also blamed a shorter annual reporting period of 52 weeks compared to 53 weeks in the prior year.
Before the sugar tax comes into force in April 2018, the company has launched a range of sugar-free products including IRN-BRU XTRA and Rubicon Spring.
The group also made headway in plans to reduce sugar content across its other products. It said 90% of its company-owned brands will contain less than 5g of total sugar per 100ml by the autumn of 2017.
"We have made considerable progress across the business over the last 12 months and delivered a solid financial performance in volatile and uncertain market conditions,” said chief executive Roger White.
Outlook and dividend...
White warned the UK consumer environment remains uncertain but said he was confident that its brands, business model and strategy mean AG Barr is well placed to withstand any impact.
The group proposed a final dividend of 14.40p per share, an 8% increase on the previous year, as it ended the year with a strong cash position.
Net cash stood at £9.7mln, compared to net debt of £11.3mln, as free cash flow rose to £43.2mln from £28.2mln.
Pension scheme deficit..
During the period, the company closed its defined benefit (DB) pension scheme to future accrual and replaced with a defined contribution pension scheme and its AG Barr Pension and Life Assurance Scheme.
However, the DB scheme deficit continued to grow during the year as gilt yields and interest discount rates remained low. The deficit increased to £27.4mln from £12.9mln at the end of the prior year.
The company said it will continue to work proactively with the Pension Trustee to de-risk the pension liabilities.
Shares in AG Barr rose 1.74% to 557.0p in morning trading.
Full year meets forecasts...
Chris Wickham, analyst at Whitman Howard, said the full year results were in line with expectations.
“Overall, these were in line to slightly positive results, which tend to confirm the benefits of having strong UK soft drinks brands in both carbonates and stills,” said Wickham.
“Moreover, investors should take comfort that A G Barr’s ongoing move southwards gives ample headroom for organic growth and a commitment to rewarding shareholders. “