The company now expects that up to 99% of its portfolio will escape the Soft Drinks Industry Levy: up from its original target of 90%.
However, it highlights that sugar reduction efforts ‘should not be underestimated’, highlighting additional costs incurred and the need for an agile business model and skilled workforce.
Releasing its results this morning for the year ending January 27, 2018, A.G. Barr reported statutory profit before tax increased by 4.2% to £44.9m / $64m (£43.1m in 2017) on revenue up 8.0% to £277.7m / $393m (£257.1m in 2017).
Reformulation efforts reshape portfolio
The UK’s sugar tax will come into effect on April 1 with two tiers: a lower rate for drinks with 5g sugar per 100ml and a higher rate for those with 8g/100ml.
While the sugar tax is now expected to raise less income than previously expected, the government had previously stated that the focus on the levy was to drive reformulation.
A.G. Barr says the effort required to reformulate on a large scale should not be underestimated, adding that it is ready to respond to changes in the marketplace over the coming months.
“In response to changing consumer requirements we have extended our innovation and reformulation program such that we have exceeded our original commitment on sugar reduction,” said John Nicolson, chairman, A.G. Barr.
“These actions have been taken in advance of the implementation of the soft drinks industry levy in April this year. The effort required across the whole business to deliver this commitment should not be underestimated and is testament to both the skill and commitment of our people, as well as the agility and effectiveness of our business model.”
Roger White, chief executive, added: “As the implementation of the soft drinks sugar levy now approaches we will ensure that we remain focused on the consumer and responsive to the changes we anticipate in the soft drinks market dynamics.”
A.G.Barr has spent £1.4m ($2m) on its sugar reduction and reformulation program over the last year: but notes this is a one-off cost that will position it well for the future.
“Costs in relation to the sugar reduction and reformulation program have significantly exceeded the level of expenditure that would ordinarily be incurred in the course of new product development or reformulation. Costs of this level are not expected to recur in future periods.”
A.G. Barr’s flagship IRN-BRU brand enjoyed 8% growth in sales in the year ending over the last year: a record year for the brand.
The company has reformulated its original IRN-BRU recipe to contain 50% less sugar (reducing sugar content from 10.3g per 100ml to 4.7g), and insists the brand will continue its successful trajectory despite a backlash from some consumers over the change.
“As anticipated, the sugar reduction in regular IRN-BRU in early January 2018 was met with widespread media interest. Our extensive research and testing gave us confidence that we had an excellent taste match and, whilst it is still early days, the consumer response to the new product has so far been encouraging.”
The IRN-BRU brand now also offers IRN-BRU Sugar Free and IRN-BRU XTRA (also sugar free).
“Innovation has remained central to our strategy and last year’s new product launches have enjoyed continued success. IRN-BRU XTRA sold the equivalent of 60 million cans across the UK last year and is now a third of the size of IRN-BRU Sugar Free.”