Why AG Barr could afford a sweetener for investors

Furthermore, a combination of tightening cost controls and improved cash management was reflected in margin expansion and a 9 per cent uplift in operating profit to £42.1m. AG Barr's strategic drive to expand beyond its domestic markets is gaining impetus judging by a 40 per cent increase in volumes for its international business. The group also forged ahead with the acquisition of land and the subsequent warehouse build at Milton Keynes, while the integration of the Funkin cocktail business, acquired in 2015, has progressed according to plan.

Management felt able to fund a double-digit dividend increase despite a near one-third drop in free cash flow, although this was explicable in terms of the heavy phasing of supplier payments towards the end of its 2016 accounting year - overall, cash generation remains very strong.

Looking forward, market conditions in the core UK soft drinks market are expected to remain challenging, although management believes that changes in consumer preferences will open up opportunities in addition to putting pressure on top-line growth. Given that a 330ml can of AG Barr's iconic flagship drink Irn Bru contains nearly nine teaspoons of the white stuff, the proposed sugar tax presents something of a dilemma, although it's worth noting that similar tax legislation has been successfully challenged in Scandinavian courts. But marketing is now focused on the group's 'lower' and 'no' sugar products - about 40 per cent of the sales mix - and AG Barr anticipates this will be two-thirds of its sales by 2018. This is already borne out by an 8.8 per cent reduction in the average calorific content across its brand portfolio.

Broker Investec Securities gives adjusted earnings of £43.6m for the year to January 2017, leading to EPS of 29.6p, against £41.3m and 29.5p in FY2016.