Frucor drops dividend in 2013 as profit gains on smaller royalty payment

Mark Callaghan, Frucor NZ CEO

Frucor Beverages won't pay a dividend to its Japanese parent for the first time since drinks giant Suntory Holdings bought the New Zealand bottler of Gatorade, V, Just Juice, h2go and Pepsi soft drinks in 2009.

The Auckland-based company didn't deliver a cash return to its shareholder for the 2013 calendar year, having paid dividends of $72 million in the 2010, 2011 and 2012 years, a period when it made a combined profit of $80.8 million. Suntory bought Frucor for $82.2 million in July 2009 from France's Danone, and went on to buy local orange juice manufacturer Simply Squeezed for $39.1 million in September of that year.

The suspended dividend came in a year net profit rose to $24.5 million from $22.6 million in 2012, outpacing a 3.2 percent increase in revenue to $437.6 million. The cost of sales rose 4.3 percent to $233.4 million, and Frucor spent $55.8 million on wages, salaries and expenses, up from $48.4 million in 2012. The drinks company had capital expenditure commitments of $5.5 million as at Dec. 31 for the construction of a research and development building, down from $13.5 million a year earlier.

The improved earnings came as Frucor trimmed operating expenses, largely from a drop in royalty payments to $42 million from $48.1 million a year earlier, and could have been bigger had the company not been hit by $12.6 million foreign exchange loss.

In its 2013 annual report, parent Suntory Holdings said Frucor reported growth in overall sales volume with a new product added to its V range of energy drinks, and on favourable sales of Pepsi and other brands in New Zealand. The Japanese company flagged plans to "strengthen the V brand" and an active "expansion of our brand portfolio" for the Frucor unit.

Frucor is still locked in a tax dispute with the Inland Revenue Department over the treatment of its optional convertible notes and at the time of its annual report being published was still awaiting allocation of a High Court hearing after the drinks maker filed papers in the High Court in January 2012.

The tax department disputes some $12.4 million of deductions claimed on interest on the notes between 2006 and 2009. In addition IRD has imposed a 'use of money interest' charge of about $6.5 million and shortfall penalties of $3.7 million, notes to the accounts show.

In 2012, it made a second, alternative assessment of non-resident withholding tax amounting to $8.3 million plus interest of $4.8 million and penalties of $4.2 million on Frucor. In making the second assessment, the tax department accepted both the income tax and NRWT assessment couldn't both stand, according to the accounts.

The High Court has not allocated a hearing date for either proceeding, and Frucor is still of the view the IRD is incorrect. The potential bill, of which certain amounts are subject to the terms of a tax indemnity under the sale and purchase agreement with former owner Danone, is flagged as a contingent liability.

Frucor is held within Suntory Beverage & Food, which went public last year after the parent sold down its holding in an initial public offering that raised almost US$4 billion. Suntory Holdings owns about 59 percent of the listed unit.

Frucor didn't respond to BusinessDesk inquiries.

(BusinessDesk)

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