TIDMBAG
RNS Number : 3336K
Barr(A.G.) PLC
21 April 2020
A.G. BARR p.l.c. (the "Company")
21 April 2020
Annual Report and Accounts
Following the release on 8 April 2020 of the Company's financial
results for the year ended 25 January 2020 (the "Final Results
Announcement"), the Company announces it has today published its
annual report and accounts for the year ended 25 January 2020 (the
"Annual Report and Accounts").
A copy of the Annual Report and Accounts is available to view on
the Company's website: www.agbarr.co.uk
In accordance with Disclosure and Transparency Rule 6.3.5(2)(b),
additional information is set out in the appendices to this
announcement.
The Final Results Announcement included a set of condensed
financial statements and a fair view of the development and
performance of the business and the position of the Company.
A copy of the Annual Report and Accounts will be submitted to
the National Storage Mechanism and will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Appendices
Where used in the following appendices, the term "Group" means
the Company together with its subsidiaries.
Appendix A: Directors' responsibility statement
The following directors' responsibility statement is extracted
from the Annual Report and Accounts (page 101):
Directors' statement pursuant to the disclosure and transparency
rules
Each of the directors, whose names and functions are set out on
pages 48 to 49 of this report, confirm that, to the best of their
knowledge:
-- the financial statements, prepared in accordance with IFRSs
as adopted by the EU, give a true and fair view of the assets,
liabilities and financial position of the Group and parent Company
and of the consolidated profit;
-- the Annual Report and Accounts includes a fair review of the
development and performance of the business and the position of the
Group and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties faced by the Group; and
-- they consider the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
Appendix B: A description of the principal risks and
uncertainties that the Company faces
The following description of the principal risks and
uncertainties that the Company faces is extracted from the Annual
Report and Accounts (pages 42 - 47):
Risk management approach
The Board is responsible for the Group's risk management and
internal control systems and for reviewing their effectiveness,
supported by the Audit and Risk Committee (the "ARC") and the Risk
Committee. A risk management framework is in place which sets out
the ongoing processes for the identification, assessment and
management of risks, and for their ongoing monitoring and review.
The Board has defined its risk appetite in a number of key areas
for the business - this sets out the relative level of risk that
the Group is prepared to seek or accept in the pursuit of its
long-term strategic objectives. The aim is to ensure that the risks
taken by the Group fall within its defined risk appetite.
Effective risk management is essential to enable us to achieve
our operational and strategic objectives and deliver long-term
value creation. During the reporting period we have continued to
focus on embedding a culture of risk management throughout the
organisation which will contribute towards the successful execution
of the Group's long-term strategy.
Robust risk assessment
The risk management framework sets out a systematic approach to
risk management which is designed to identify risks to the
business, regardless of source. Once identified, risks are assessed
according to the likelihood and impact of the risk occurring and an
appropriate risk response is determined in line with the Group's
risk appetite. Risks are re-assessed based on the strength of the
mitigating controls implemented. The implementation of risk
mitigation plans is subject to ongoing monitoring and review. A
risk scoring matrix is used to ensure that a consistent approach is
taken across the business at both a corporate and functional level.
This risk assessment and review process is documented in the
appropriate risk register. Risks are reviewed on an ongoing basis;
the Group's risk register is formally reviewed by the Risk
Committee every two months and by the Board and the ARC twice each
year.
The Board and the ARC carry out a robust assessment of the
Group's emerging risks twice each year using a horizon scanning
approach together with internal and external insights. The purpose
of these assessments is to identify key emerging risks for further
evaluation, monitoring and action planning. Emerging risks are
captured on the Group's emerging risk register and are subject to
ongoing review. Emerging risks are also assessed at a functional
level and captured on the relevant function's risk register, and
are also subject to ongoing review. The Risk Committee assesses
emerging risks at a Group level and reviews the Group's emerging
risk register on a bi-monthly basis. The Risk Committee has annual
oversight of emerging risks at a functional level. Emerging risks
remain on the relevant emerging risk register until they are
captured on an appropriate risk register or are no longer deemed to
be an emerging risk. The Board has completed a robust assessment of
the Group's emerging risks, including those related to climate
change and technology, during the period.
Risk control assurance
Internal audit work is undertaken by an independent organisation
which develops an annual internal audit plan having reviewed the
Group's risk register and following discussions with the external
auditors, management and members of the ARC.
During the year the ARC has reviewed reports covering the
internal audit work. This has included assessment of the general
control environment, identification of any control weaknesses and
quantification of any associated risk, together with a review of
the status of mitigating actions. The ARC has also received reports
from management in relation to specific risk items, together with
reports from the external auditors, who consider controls to the
extent necessary to form an opinion as to the truth and fairness of
the financial statements.
The Group's internal control and risk management systems are
designed to manage rather than eliminate the risk of failure to
achieve business objectives and can provide only reasonable but not
absolute assurance against material misstatement or loss.
The report of the ARC can be found on pages 62 to 65.
Principal risks and uncertainties
The Board has carried out a robust, systematic assessment of the
principal risks facing the Group during the period, including those
which would threaten its business model, future performance,
solvency or liquidity. The table below sets out the Group's
principal risks as determined by the Board, the gross risk movement
from the prior year and examples of corresponding controls and
mitigating actions. This represents the Group's current risk
profile and is not intended to be an exhaustive list of all risks
and uncertainties that may arise.
The volatile and uncertain economic environment created by the
UK's decision to leave the European Union ("EU") has continued over
the past twelve months. Like many other businesses, we have
continued to monitor developments in this area. Overseen by the
Risk Committee, the Company's Brexit Steering Group has continued
to monitor the potential impact of Brexit on the Group and to take
appropriate actions to ensure that the business is as well prepared
as possible for Brexit on 31 December 2020. The Brexit Steering
Group has continued to prepare for a range of Brexit outcomes,
including "no deal". Given the continuing uncertainty regarding the
final outcome of Brexit, it is challenging to quantify or determine
the impact of Brexit on the Group. However, given that the Group is
a UK-based Group whose sales are predominantly made in the UK, our
ongoing assessment continues to be that Brexit will not have a
significant impact on the Group. We do not therefore consider
Brexit to be a principal risk. Key potential Brexit-related impacts
on the business and mitigating actions taken are as follows:
-- Brexit's impact on foreign exchange rates to which the Group
is exposed through the purchase of certain commodities - this risk
is closely monitored and managed by the Treasury and Commodity
Committee, which has a hedging strategy in place to manage the
Group's exposure to foreign currency fluctuations.
-- Border disruption, which could impact the supply of certain
raw materials and finished products - we continue to work closely
with relevant suppliers to understand their Brexit plans and will
ensure that we have appropriate stock levels of key raw materials
and finished products in place in preparation for Brexit.
-- The introduction of trade tariffs for imports to the UK from
the EU could impact the Group - we have assessed the Group's
potential exposure to trade tariffs and expect this impact to be
manageable.
-- Brexit's impact on the free movement of people - working with
our key third party logistics supplier we have undertaken a
detailed risk assessment of EU nationals at our key sites and do
not expect this impact to be significant.
-- Brexit's impact on regulation - the extent to which the UK
may diverge from EU regulations post-Brexit remains unclear. We
will monitor the situation ongoing and determine the likely impact
on the Group in the event of specific regulatory divergence.
We will continue to monitor developments and adapt our strategy
as the impact of Brexit becomes clear.
Coronavirus
As the situation around the COVID-19 virus outbreak continues to
evolve, our primary concern is for the welfare of our people, their
families and the communities in which we operate. Since the news of
the virus broke in February, we have followed the advice from the
Government and the NHS at all times and will continue to do so. We
have taken action as appropriate to protect our people and our
operations. We are following the situation closely, however at this
time it is unclear how the outbreak will develop and it is
therefore difficult to fully assess the potential impact on our
business. The impact on our business will depend on the severity
and duration of the COVID-19 pandemic. There is the potential for
an adverse impact on our operations and on the demand for our
products and we are taking action to mitigate possible
consequences. We will continue to follow developments closely and
will take further action to protect our people and business as
appropriate.
For more details on the Board's consideration of the impact of
COVID-19, please refer to the Chief Executive's statement on page
15, and the viability disclosures on page 47.
The gross risk movement from the prior year for each principal
risk is presented as follows:
Movement
No change Increased Decreased New risk
Principal risks and uncertainties
Risks relating to the Group
Risk Impact Controls and mitigating actions Movement
======================= ===================================== ========================================= ===========
Changes in consumer Consumers may The Group offers a broad No Change
preferences, decide to purchase range
perception or and consume alternative of branded products across a
purchasing behaviour brands or spend range of flavours,
less on soft subcategories
drinks. and markets which offer
choice
to the end consumer.
Changing
consumer attitudes and
behaviours
are monitored on an ongoing
basis
and inform our brand plans
and
new product development.
Through
investment in both
reformulation
and innovation across the
year
we have adapted our
portfolio
to align with these changing
consumer needs.
======================= ===================================== ========================================= =========
Consumer rejection Consumers may Over a number of years we No Change
of reformulated decide to purchase have
products and consume alternative implemented our extensive
brands or spend innovation
less on soft and reformulation programme,
drinks. which was completed prior to
the introduction of the Soft
Drinks Industry Levy in
April
2018. We reached the
position
of 99% of our Barr Soft
Drinks
portfolio produced by volume
containing less than 5g of
total
sugars per 100ml. As
disclosed
last year, we recognised the
risk of consumer rejection
of
our reformulated products.
We
continue to closely monitor
consumer
acceptance levels and brand
performance
across our total portfolio
and
take appropriate action, and
consumer rejection of our
reformulated
products therefore remains a
principal risk.
The risk of further
government
intervention on sugar
remains,
however we do not currently
consider
this to be a principal risk.
======================= ===================================== ========================================= =========
Loss of product A loss of product Appropriate risk assessments No Change
integrity integrity in are carried out on a regular
the manufacturing basis and robust quality controls
supply chain and processes are in place to
could lead to maintain the high quality of
a product withdrawal our products. Product recall
or recall. procedures are tested regularly.
======================= ===================================== ========================================= =========
Loss of continuity The loss of continuity There is a robust supplier selection No Change
of supply of of supply of process in place. Supplier performance
major raw materials major raw material is monitored on an ongoing basis
ingredients and/or and audits are undertaken for
packaging materials major suppliers. Multiple sources
could impact of supply are sourced wherever
our ability to possible.
manufacture,
with an adverse Commodity risks are managed by
impact on the the procurement team and reviewed
Group's sales by the Treasury and Commodity
and operating Committee. Contingency measures
profits. are in place and are tested regularly.
Brexit's potential impact on
the supply of certain raw materials
is referred to above.
======================= ===================================== ========================================= =========
Adverse publicity Adverse publicity Our risk management process is No Change
in relation in relation to designed to identify and monitor
to the soft the soft drinks events that may impact the Group
drinks industry, industry, the as a result of adverse publicity
the Group or Group or its and to ensure that controls are
its brands brands could in place to manage these risks.
have an adverse
impact on the Processes are in place to ensure
Group's reputation, compliance with health and safety
consumer consumption legislation and ethical working
patterns, sales standards and these are regularly
and operating reviewed by the Board and Executive
profits. Committee. Quality standards
are well defined, implemented
and monitored. Corporate Social
Responsibility champions are
in place and we have clearly
defined sustainability commitments.
The Group maintains and develops
ISO 9001 and 14001 systems and
BRC standards which are subject
to annual external audits, with
any non-conformances addressed
in a timely manner.
Nutritional information is shown
on all of our products and we
have signed up to the UK Government's
voluntary front-of-pack nutritional
labelling scheme.
======================= ===================================== ========================================= =========
Government intervention Government intervention The increased pace of change Increased
on climate change on climate change and level of environmental
and environmental and environmental campaigning
issues, issues, e.g. in relation to climate
e.g. packaging the introduction change
waste of a Deposit and areas such as packaging
Return Scheme reported
or a plastics last year has continued
tax, could have during
an adverse impact the year, particularly in
on consumer consumption relation
patterns, sales to single use plastic
and operating bottles.
profits We have clearly defined
responsibility
commitments with regard to
waste,
water, energy and packaging.
We are working
constructively
with the British Soft Drinks
Association, the UK and
Scottish
governments, and other key
stakeholders
in relation to potential
interventions,
such as the planned
introduction
of a Deposit Return Scheme
("DRS")
in Scotland, the possible
introduction
of a DRS in England, and the
possible introduction of a
single
use plastics tax. During the
year we have completed
consultations
on a range of environmental
proposals,
including DRS, plastics tax
and
extended producer
responsibility.
We have created a working
group
to proactively manage
packaging
related risks in a holistic
manner
ongoing, overseen by the
Risk
Committee. Internally,
various
projects and environmental
initiatives
are being progressed to
mitigate
the potential impact of
government
intervention on packaging.
======================= ===================================== ========================================= =========
Failure to maintain Failure to maintain The Group offers a broad No Change
customer relationships appropriate customer range
or take account relationships of brands that it
of changing or a reduction manufactures
market dynamics in the customer and distributes through a
base could have variety
an adverse impact of trade channels and
on the Group's customers.
sales and operating Performance is monitored
profits. closely
by the Board and Executive
Committee
by trade channel and
customer
as appropriate. This
includes
monitoring of metrics which
review
brand equity strength,
financial
and operational performance.
The Group focuses on
delivering
high quality products and
invests
heavily in building brand
equity.
We work closely in
partnership
with our customers on an
ongoing
basis. Members of the senior
management team meet with
key
customers throughout the
year.
The ongoing consolidation in
channels and route to market
has increased the level of
gross
risk in this area. A project
commenced in 2018 to
determine
the potential impact of this
consolidation in the retail
grocery
market on the Group and to
take
appropriate actions; this
has
continued to be a focus area
during the year.
======================= ===================================== ========================================= =========
Inability to Failure to protect The Group invests considerable No Change
protect the the Group's intellectual effort in proactively protecting
Group's intellectual property rights its intellectual property rights,
property rights could result for example through trademark
in a loss of and design registrations and
brand value. vigorous legal enforcement as
and when required.
======================= ===================================== ========================================= =========
Failure of the A catastrophic Assets within the Group are proactively No Change
Group's operational failure of the managed and maintained. Risk
infrastructure Group's major assessments are carried out on
production or a regular basis and appropriate
distribution actions taken. Robust business
facilities could continuity plans are in place
lead to a sustained and are regularly tested.
loss in capacity
or capability.
======================= ===================================== ========================================= =========
Failure of critical A failure of IT assets within the Group No Change
IT systems or critical IT systems are
a breach of could result proactively managed and
cyber security in a loss of procedures
key systems, exist that support rapid and
business interruption, clean recovery. Robust
lost sales or business
lost production. continuity plans and
A cyber security contingency
breach could measures are in place and
lead to operational are
disruption, financial regularly tested.
loss and reputational
damage. The risk of cyber attacks
increases
on an ongoing basis. An
assessment
of our cyber security
maturity
against the UK Government's
"10
Steps to Cyber Security" was
completed during the year by
our internal auditor, which
showed
improvement in our cyber
security
controls since the previous
maturity
assessment carried out in
2018
and concluded that our
approach
is generally in line with
industry
practice. Employee awareness
campaigns and training
continued
during the year to increase
employee
cyber risk awareness. A
Digital
Governance Group is in
place,
overseen by the Risk
Committee,
the purpose of which is to
manage
the risks related to the
Group's
externally facing digital
properties
======================= ===================================== ========================================= =========
Financial risks The Group's activities Our underlying objective is No Change
expose it to to
a variety of reduce foreign currency
financial risks related
which include volatility through our cost
market risk (including of
medium term movements goods. Financial risks are
in exchange rates, reviewed
interest rate and managed by the Treasury
risk and commodity and
price risk), Commodity Committee, which
credit risk and seeks
liquidity risk. to minimise adverse effects
on
the Group's financial
performance
through hedging known
currency
exposures throughout the
year.
Brexit's potential impact on
foreign exchange rates to
which
the Group is exposed through
the purchase of certain
commodities
is referred to above.
The Group's finance team
reviews
cash flow forecasts
throughout
the year, with headroom
against
banking covenants assessed
regularly.
The finance team uses
external
tools to assess credit
limits
offered to customers,
manages
trade receivable balances
vigilantly
and takes prompt action on
overdue
accounts. The Group's
financial
control environment is
subject
to review by both internal
and
external audit. Internal
audit's
focus is to work with and
challenge
management to ensure an
appropriate
control environment is
maintained
======================= ===================================== ========================================= =========
Third party Termination of We have robust strong relationships No Change
relationships existing partnerships with our various partners and
or renewal on proactively manage the effective
less favourable building of our partners' brands.
terms could result
in lost brand
contribution
and under-recovery
of supply chain
infrastructure
costs.
======================= ===================================== ========================================= =========
Viability statement
In accordance with provision 31 of the UK Corporate Governance
Code 2018, the directors have assessed the viability of the Company
over a three year period to January 2023, taking account of the
Group's current nancial and market position, future prospects and
the Group's principal risks, as detailed in the Strategic
Report.
The directors have determined that a three year period is an
appropriate time frame given the dynamic nature of the FMCG sector
and given that this is in line with the Group's strategic planning
period. The starting point for the viability assessment is the
strategic and nancial plan which makes assumptions relating to the
economic climate, market growth, input cost in ation and growth
from the Group's performance drivers. The prospects of the Group
have been taken into account, including the size of the current
market, the strength of the Group's brands and past production
capacity investment. The model was then subject to a series of
theoretical "stress test" scenarios based on the materialisation of
principal risks, with input from the business functions.
The directors have considered the impact of a number of severe
but plausible scenarios associated with the principal risks,
including:
-- Signi cant changes in consumer preferences and governmental
impact in relation to sugar, plastics and the introduction of a
Deposit Return Scheme, specifically in Scotland.
-- Financial impact from a signi cant supply chain disruption
(Brexit, technology or material supply).
-- In addition the directors measured the impact of a number of scenarios occurring together.
-- Finally a reverse "stress test" was performed allowing the
Board to assess scenarios and circumstances that would render its
business model unviable.
These tests were then reviewed against the Group's current and
projected future net cash/debt and liquidity position. During the
viability period, 2 out of 3 of the Group's current facilities,
totaling GBP40m, will expire, however given the Group's current
covenant strength and that no current covenant breaches are
anticipated under the tests above, the Group anticipates it would
be able to renew or extend facilities if it was required or
desirable.
COVID-19
In addition to these scenarios due to the emergence of COVID-19
and the ongoing health emergency linked to the global pandemic, the
directors considered the impact of the current COVID-19 environment
on the business for the next 12 months, the viability period and
the longer term. Whilst the situation evolves daily, making
scenario planning difficult, we have considered a number of impacts
on sales, profits and cash flows. We have assumed that our
operations remain open and that we will continue to be able sell
our products to customers, consistent with DEFRA guidance. Whilst
the virus may impact across many functions of the business from
supply chain to the ability of our customers to service consumers,
it would most likely manifest itself in lost volumes and require
significant action in relation to operational cost reductions.
Impact on the business
The major variables are the depth and the duration of COVID-19
measures. The 2 main divisions will be impacted differently, with
Barr Soft Drinks operating mainly in multiple retail (take home)
and convenience (out of home) outlets and Funkin mainly within the
on-trade and leisure sectors. Overall, we scenario planned several
out turns with volumes dropping significantly (in the range of
30-40%) and the impact lasting for a significant part of 2020. The
revenue and operational leverage impact of such a volume loss would
have a major negative impact on Group profitability however the
scenario modelling would indicate that the Group would remain
profitable over the next 12 months and we would anticipate a
recovery in the following years.
Impact on costs and potential mitigations
The test has been based on the most severe but plausible
scenario currently envisaged by the Board with a significant volume
reduction being mitigated with identifiable cost savings,
particularly discretionary spend but including government support
and longer term options that recognise the relatively fixed cost
nature of the soft drinks operation. While we have curtailed
capital investment in 2020 we have maintained our investment in our
asset base in line with current strategy over the medium term,
again we will look closely at all capital plans to ensure the spend
is realistic given the external environment.
Credit facilities
The Group has access to liquidity and has facilities to meet its
needs over the next 36 months as follows: 12-24 months GBP60m,
24-36 months GBP20m as 2 facilities expire. These take the form of
revolving credit facilities. As noted on page 15 since the year end
these have been fully drawn down. In addition the Group has access
to an overdraft facility which, as an on-demand facility, has been
ignored in relation to the viability testing. The revolving credit
facilities have two financial covenants, relating to interest cover
and leverage, and a material adverse change clause.
Result of stress test
The result of the stress test carried out as a response to
COVID-19 shows that the Group has adequate headroom over the next
12 and 36 months and does not breach any financial covenant. We
will closely monitor cash conversion and covenants over this
period.
Government support for business
We welcome the announcement made by the Chancellor of the
Exchequer on Tuesday 17th March 2020, pledging government support
which will go far to stabilise many businesses through this
troubled time. Given the significant impact of COVID-19 on our
business it would be our intention to access this support,
including, but not limited to, delaying payment of taxes and
employee cost support.
The results of these tests were reviewed taking into account the
Group's current position, the Group's experience of managing
adverse conditions in the past and mitigating actions available to
the Group. Based on this assessment, the directors have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the three
year period to January 2023.
Appendix C: Related party transactions
The following related party transactions are extracted from the
Annual Report and Accounts (page 159):
Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation. Details of transactions between the Company and
related parties are as follows:
Purchase of goods and
Sales of goods and services services
============================= =======================
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
======================= ============== ============= =========== ==========
Rubicon Drinks Limited - - 4.2 4.9
======================= ============== ============= =========== ==========
The amounts disclosed in the table below are the amounts owed to
and due from subsidiary companies that are trading subsidiaries. In
the year to 26 January 2019 new trade terms were agreed between the
Company and Rubicon Drinks Limited ("RDL").
The balances are unsecured and are due on demand. The difference
between the total of these balances and the amounts disclosed as
amounts due by (Note 20) and to subsidiary companies (Note 22) are
balances due by and due to dormant subsidiary companies.
Amounts owed by related Amounts due to related
parties parties
========================= ========================
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
======================= ============ =========== =========== ===========
Rubicon Drinks Limited - - 5.6 2.4
Funkin Limited 0.5 0.4 - -
======================= ============ =========== =========== ===========
Compensation of key management personnel
The remuneration of the management directors, non-executive
directors, non-management directors and other members of key
management (the Executive Committee) during the year was as
follows:
2020 2019
GBPm GBPm
================================= ===== =====
Salaries and short term benefits 3.1 5.3
Post employment benefits 0.5 0.5
3.6 5.8
================================= ===== =====
The Directors' Remuneration Report can be found on pages 66 to
95.
Retirement benefit plans
The Group's retirement benefit plans are administered by an
independent third party service provider. During the year the
service provider charged the Group GBP0.4m (2019: GBP0.4m) for
administration services in respect of the retirement benefit plans.
At the year end GBPnil (2019: GBPnil) was outstanding to the
service provider on behalf of the retirement benefit plans
END.
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END
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