Annual Report and Accounts and Notice of AGM

RNS Number : 1306M

Barr(A.G.) PLC

25 April 2018

 

A.G. BARR p.l.c. (the "Company")

25 April 2018

Annual Report and Accounts and Notice of Annual General Meeting

Following the release on 27 March 2018 of the Company's financial results for the year ended 27 January 2018 (the "Final Results Announcement"), the Company announces it has today published its annual report and accounts for the year ended 27 January 2018 (the "Annual Report and Accounts").

The Annual Report and Accounts contains the notice convening the Company's one hundred and fourteenth annual general meeting (the "AGM") (the "Notice of AGM"). The AGM will be held at the offices of Ernst and Young LLP, 5 George Square, Glasgow, G2 1DY on Wednesday, 30 May 2018 at 11.00 a.m.

A copy of the Annual Report and Accounts, which includes the Notice of AGM, 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, including the Notice of AGM, together with a copy of the proxy form in relation to the AGM will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm 

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 77):

Directors' statement pursuant to the disclosure and transparency rules

Each of the directors, whose names and functions are set out on pages 38 to 39 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 34 - 37):

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 Committee 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 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 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 constantly reviewed on an ongoing basis; the Group's risk register is formally reviewed by the Risk Committee quarterly and by the Board and the Audit Committee twice each year.

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 Audit Committee.

During the year the Audit Committee 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 Audit Committee 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 Audit Committee can be found on page 45.

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 opposite 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 UK's decision to leave the European Union created a volatile and uncertain economic environment which has continued over the past twelve months. Like many other businesses, we are closely following developments in this area. We have created a working group to monitor the potential impact of Brexit on the Group and to take appropriate actions, overseen by the Risk Committee. We believe that it is still too early to quantify or determine with any certainty 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 current assessment is that Brexit will not have a significant impact on the Group, other than through its effect on foreign exchange rates to which it is exposed through the purchase of certain commodities. The effect of Brexit on the free movement of people and the possible introduction of trade tariffs may also impact the Group, however we do not expect this impact to be significant. We will continue to monitor developments and adapt our strategy as the impact of Brexit becomes clear.

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 preferences, perception or purchasing behaviour	Consumers may decide to purchase and consume alternative brands or spend less on soft drinks.	The Group offers a broad range of branded products across a range of flavours, subcategories 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 increased focus and investment in both reformulation and innovation across the year we have adapted our portfolio to align with these changing consumer needs.	No change
Consumer rejection of reformulated products	Consumers may decide to purchase and consume alternative brands or spend less on soft drinks.	We announced on 1 February 2018 that, following an extension of our innovation and reformulation programme, we expect that up to 99% of our soft drinks portfolio by volume will contain less than 5g of total sugars per 100ml before the implementation of the Soft Drinks Industry Levy in April 2018. Hence the nature of the principal risk disclosed last year "Changing consumer attitudes towards sugar/further government intervention on sugar" has changed to become one of the risk of consumer rejection of our reformulated products. The risk of further government intervention on sugar remains, however we do not currently consider this to be a principal risk. We conducted an extensive research and testing programme in the years prior to the launch of our reformulated products to ensure that we have an excellent taste match for each reformulated product.	New risk
Loss of product integrity	A loss of product integrity in the manufacturing supply chain could lead to a product withdrawal or recall.	Appropriate risk assessments are carried out on a regular basis and robust quality controls and processes are in place to maintain the high quality of our products. Product recall procedures are tested regularly.	No change
Loss of continuity of supply of major raw materials	The loss of continuity of supply of major raw material ingredients and/or packaging materials could impact our ability to manufacture, with an adverse impact on the Group's sales and operating profits.	There is a robust supplier selection process in place. Supplier performance is monitored on an ongoing basis and audits are undertaken for major suppliers. Multiple sources of supply are sourced wherever possible. During the year a second supplier of carbon dioxide was appointed and additional carbon dioxide tanks were placed at Milton Keynes and Bellshill. Commodity risks are managed by the procurement team and reviewed by the Treasury and Commodity Committee. Contingency measures are in place and are tested regularly.	Decreased
Adverse publicity in relation to the soft drinks industry, the Group or its brands	Adverse publicity in relation to the soft drinks industry, the Group or its brands could have an adverse impact on the Group's reputation, consumer consumption patterns, sales and operating profits.	Our risk management process is designed to identify and monitor events that may impact the Group as a result of adverse publicity and to ensure that controls are in place to manage these risks. Processes are in place to ensure compliance with health and safety legislation and ethical working standards and these are regularly reviewed by the Board and Management Committee. Quality standards are well defined, implemented and monitored. A Corporate Social Responsibility Committee is in place, with a clearly defined and communicated Corporate Social Responsibility Policy. 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. During the year there has been an increased level of environmental lobbying in relation to packaging waste, particularly single use plastic bottles. We are working constructively with the British Soft Drinks Industry, 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 or the possible introduction of a single use plastics tax.	Increased
Failure to maintain customer relationships or take account of changing market dynamics	Failure to maintain appropriate customer relationships or a reduction in the customer base could have an adverse impact on the Group's sales and operating profits.	The Group offers a broad range of brands that it manufactures and distributes through a variety of trade channels and customers. Performance is monitored closely by the Board and Management 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 recent consolidation in the retail grocery market on the Group has increased the level of gross risk in this area. During the year a project was undertaken to determine the potential impact of this consolidation in the retail grocery market on the Group and to take appropriate actions; this will be a continued area of focus over the following year.	Increased
Inability to protect the Group's intellectual property rights	Failure to protect the Group's intellectual property rights could result in a loss of brand value.	The Group invests considerable effort in proactively protecting its intellectual property rights, for example through trademark and design registrations and vigorous legal enforcement as and when required.	No change
Failure of the Group's operational infrastructure	A catastrophic failure of the Group's major production or distribution facilities could lead to a sustained loss in capacity or capability.	Assets within the Group are proactively managed and maintained. Risk assessments are carried out on a regular basis and appropriate actions taken. Robust business continuity plans are in place and are regularly tested.	No change
Failure of critical IT systems	A failure of critical IT systems could result in a loss of key systems, business interruption, lost sales or lost production.	IT assets within the Group are proactively managed and procedures exist that support rapid and clean recovery. Robust business continuity plans and contingency measures are in place and are regularly tested. During the year an employee cyber training programme was implemented to increase employee cyber risk awareness.	No change
Financial risks	The Group's activities expose it to a variety of financial risks which include market risk (including medium term movements in exchange rates, interest rate risk and commodity price risk), credit risk and liquidity risk.	Our underlying objective is to secure budgeted exchange rates and thereby reduce the volatility through our cost of goods. Financial risks are reviewed and managed by the Treasury and Commodity Committee, which seeks to minimise adverse effects on the Group's financial performance through hedging known currency exposures throughout the year. Brexit is expected to continue to affect foreign exchange rates to which the Group is exposed through the purchase of certain commodities. 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.	No change
Third party relationships	Termination of existing partnerships or renewal on less favourable terms could result in lost brand contribution and under-recovery of supply chain infrastructure costs.	We have robust strong relationships with our various partners and proactively manage the effective building of our partners' brands. This risk has been introduced as a new principal risk this year, given the increasing scale of our partnership arrangements and their importance to the delivery of our strategy, particularly in light of our new recent partnerships with San Benedetto and Bundaberg.	New risk

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code 2016, the directors have assessed the viability of the Company over a three year period to January 2021, taking account of the Group's current financial 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 timeframe for the assessment given the dynamic nature of the FMCG sector and this is in line with the Group's strategic planning period. The starting point for the viability assessment is the strategic and financial plan, which makes assumptions relating to the economic climate, market growth, input cost inflation and growth from the Company's value 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 recent investment in production capability. This model was then subject to a series of theoretical "stress test" scenarios based on the materialisation of principal risks that included both the impact of severe but plausible scenarios for each principal risk and also scenarios that considered the impact should these principal risks occur at the same time. Some of the scenarios considered included a significant and sustained change in consumer preferences and the impact of a breakdown in the supply chain resulting in a disruption to supply. The assessment performed indicates that in certain extreme scenarios, there would be a need to extend the credit facilities, due to reduce in 2020, back to current levels. Given the Group's current net debt/EBITDA ratio and that forecast under these scenarios, the directors are confident this would be obtained.

The results of these tests were reviewed taking account of the Group's current position, the Group's experience of managing adverse conditions in the past and the mitigating actions available to the business. A reverse stress test was also performed, allowing the Board to assess scenarios and circumstances that would render its business model unviable and enabling the identification of potential business vulnerabilities and the development of appropriate mitigating actions. Based on this assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to January 2021.

Appendix C: Related party transactions

The following related party transactions are extracted from the Annual Report and Accounts (pages 132):

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:

	Sales of goods and services		Purchase of goods and services
	2018 £m	2017 £m	2018 £m	2017 £m
Rubicon Drinks Limited	44.3	41.1	57.6	53.4
Funkin Limited	0.9	-	-	-

The amounts disclosed in the table below are the amounts owed to and due from subsidiary companies that are trading subsidiaries. The difference between the total of these balances and the amounts disclosed as amounts due by (Note 19) and to subsidiary companies (Note 21) are balances due by and due to dormant subsidiary companies.

	Amounts owed by related parties		Amounts due to related parties
	2018 £m	2017 £m	2018 £m	2017 £m
Rubicon Drinks Limited	-	-	82.8	72.0
Funkin Limited	0.2	0.5	-	-

Compensation of key management personnel

The remuneration of the executive directors and other members of key management (the Management Committee) during the year was as follows:

	2018 £m	2017 £m
Salaries and short term benefits	4.2	3.2
Pension and other costs	0.6	0.5
Share-based payments	0.1	-
	4.9	3.7

The Directors' Remuneration Report can be found on pages 48 to 71.

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 £0.4m (2017: £0.4m) for administration services in respect of the retirement benefit plans. At the year end £nil (2017: £nil) was outstanding to the service provider on behalf of the retirement benefit plans.

END.

 

END

 

 

ACSPGURGCUPRGAA