Annual Report and Accounts / Notice of AGM

RNS Number : 7090W

Barr(A.G.) PLC

27 April 2021

 

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

27 April 2021

Annual Report and Accounts and Notice of Annual General Meeting

Following the release on 30 March 2021 of the Company's financial results for the year ended 24 January 2021 (the "Final Results Announcement"), the Company announces it has today published its annual report and accounts for the year ended 24 January 2021 (the "Annual Report and Accounts").

The Annual Report and Accounts contains the notice convening the Company's one hundred and seventeenth annual general meeting (the "AGM") (the "Notice of AGM"). The AGM will be held at the Company's head office, Westfield House, 4 Mollins Road, Cumbernauld G68 9HD on Friday 28 May 2021at12.00p.m.

In light of the ongoing Government restrictions in response to the Coronavirus (COVID-19) outbreak in the United Kingdom, shareholders will not be permitted to attend the AGM in person and are encouraged to vote in advance using their proxy form, further details of which are contained in the Notice of AGM.

This year's AGM will be convened with the minimum necessary quorum of two shareholders.

A copy of the Annual Report and Accounts, which includes the Notice of AGM, and form of proxy for use at the AGM are 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 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 104):

Directors' statement pursuant to the disclosure and transparency rules

Each of the directors, whose names and functions are set out on pages 52 to 53 of this report, confirm that, to the best of their knowledge:  

· The financial statements, prepared in accordance with IFRSs adopted pursuant to regulation (EC) no. 1606/2002 as it applies in 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.

· 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 43 - 51):

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 enhance our 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 at least once 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 page 67 to 70.

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.

COVID-19

As the COVID-19 crisis continued during the past year, our primary concern has remained the welfare of our employees, their families and the communities in which we operate. Since the start of the COVID-19 pandemic, we have followed the advice from the Government and the NHS at all times as a minimum and will continue to do so. We have taken action as appropriate to protect our employees and our operations. We continue to monitor the situation closely and take appropriate actions to minimise the impact on our business, with the health and safety of our employees being paramount. The ongoing impact on our business will depend on the severity and duration of the COVID-19 pandemic. There is the ongoing potential for an adverse impact on our operations and on the demand   for our products and we continue to take action to mitigate possible consequences. We will continue to follow developments closely and will take further action to protect our employees 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 13, and the viability disclosures on page 50.

Brexit

The volatile and uncertain economic environment created by the UK's decision to leave the European Union ("EU") continued over much   of the past financial year. Overseen by the Risk Committee, the Company's Brexit Steering Group continued to monitor the potential impact   of Brexit on the Group and took appropriate actions to ensure that the business was as well prepared as possible for Brexit on 31 December   2020. The Brexit Steering Group prepared for a range of Brexit outcomes, including "no deal". With the Trade and Cooperation Agreement   having been agreed between the EU and the UK, and the fact that the Group is a UK-based Group whose sales are predominantly made   in the UK, our assessment is that Brexit has not had and will not have a significant impact on the Group. Therefore, as before, we do not   consider Brexit-related risks to represent a principal risk for the business. Key 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 worked closely with relevant suppliers to ensure that we had appropriate stock levels of key raw materials and finished products in place in preparation for Brexit and will continue to monitor the situation closely to ensure that any supply impact from border disruption is minimised.

· The introduction of trade tariffs for certain imports to the UK from the EU and vice versa could have potentially impacted the Group - we have assessed the Group's exposure to trade tariffs post-Brexit and consider this impact to be manageable.

· Brexit's impact on the free movement of people - we worked closely with our key third party logistics supplier and, having undertaken a detailed risk assessment of EU nationals at our key sites, do not consider 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 post-Brexit and adapt our strategy accordingly.

The gross risk movement from the prior year for each principal risk is presented on pages 46 to 50.

Movement
	No change	Increased	Decreased	Removed

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 investment in 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.	Over a number of years we have implemented our extensive innovation and reformulation programme, which was completed prior to the introduction of the Soft Drinks Industry Levy in April 2018. 98% of our current Barr Soft Drinks portfolio produced by volume contains less than 5g of total sugars per 100ml. We recognise that the risk of consumer rejection of the enhanced sweeteners used in our reformulated products remains. We continue to closely monitor consumer acceptance levels and brand performance across our total portfolio and take appropriate mitigating actions.	No change
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. A number of additional controls were implemented during the year to further mitigate product integrity and micro-related risks. Product recall procedures are tested regularly.	Decreased
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.  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. The continued potential impact of Brexit on the supply of certain raw materials is referred to above. During the year we worked closely with key raw material suppliers in relation to the likely impact of COVID-19 on their businesses.	No change
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 Executive Committee. Quality standards are well defined, implemented and monitored. Corporate Social Responsibility champions are in place and we have clearly defined environmental sustainability commitments. During the year a Sustainability Taskforce was established to progress various environmental sustainability related workstreams. 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 are long-standing users of the UK Government's voluntary front-of-pack nutritional labelling scheme. As noted above, the Group has followed the COVID-related advice from the Government and the NHS at all times throughout the crisis as a minimum and will continue to do so.	No change
Government intervention on climate change and environmental issues, e.g. packaging waste	Government intervention on climate change and environmental issues, e.g. the introduction of a Deposit Return Scheme and a plastics tax, could have an adverse impact on consumer consumption patterns, sales and operating profits.	The increased pace of change and level of environmental campaigning in relation to climate change and areas such as packaging reported last year has continued during the year, particularly in relation to single use plastic bottles. 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 introduction of a single use plastics tax. A working group is in place to proactively manage packaging related risks in a holistic manner ongoing, overseen by the Risk Committee. As noted above, a Sustainability Taskforce was established during the year to progress various environmental sustainability related workstreams. Internally, various other projects and environmental initiatives are being progressed to mitigate the potential impact of government intervention on packaging.	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 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. As reported last 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. During the year we engaged with customers in relation to control measures put in place to minimise COVID-related risks for our respective employees and the wider public. We also engaged with customers to ensure that all necessary preparations were in place for Brexit.	No change
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 or a breach of cyber security	A failure of critical IT systems could result in a loss of key systems, business interruption, lost sales or lost production. A cyber security breach could lead to operational disruption, financial loss and reputational damage.	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. Our internal auditor carried out a review of our IT disaster recovery plans during the year, which concluded that satisfactory processes and controls related to IT systems resilience and recovery capability are in place. 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 last 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; various further actions have been completed following that assessment, including the implementation of improved cyber risk monitoring controls. 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.	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 reduce foreign currency related 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. The continued potential impact of Brexit 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. During the year our internal auditor carried out a review of the operation of our key financial controls in light of the COVID-19 pandemic, which concluded that these controls had not been significantly impacted by COVID-19.	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.	As announced in June 2020, our sale and distribution agreement with Rockstar, Inc. was terminated on 23 August 2020, subject to the payment of a compensation sum. Various mitigating actions have been taken by the business in response thereto. This risk is therefore no longer considered to be a principle risk.	Removed

The net risk movement from the prior year for each principal risk is in line with the gross risk movement as set out above.

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 2024, 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 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 financial plan which makes assumptions relating to the economic climate, market growth, input cost inflation 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:

· The continuation of the COVID-19 pandemic and associated restrictions for a further 12 months, and a consequent channel shift and   reduction in consumer demand.

·   A reduction in sales due to significant adverse damage to one of the Group's principal brands (e.g. IRN-BRU) sustained over the duration   of the viability period.

· Significant 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 significant supply chain disruption (e.g. material supply, factory closure).

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 circumstances that would render its business model unviable.

Credit facilities

The outputs of these tests were then reviewed against the Group's current and projected future net cash/debt and liquidity position. The Group closed the financial year with net cash at bank of £50.0m*. In addition the Group had £60m of committed and unutilised debt facilities, consisting of 3 revolving credit facilities with 3 individual banks. During the viability period, 2 out of 3 of these facilities, totalling £40m, will expire. The revolving credit facilities have two financial covenants, relating to interest cover and leverage, and a material adverse change clause.

* This is a non-GAAP measure. A definition and reconciliation are provided in the Glossary on pages 165 to 167.

Result of stress tests

Under the most severe but plausible combined scenarios above, and with no cost mitigation, the Group would remain profitable throughout the plan. The Group would not require access to any debt facility. All bank covenants are satisfied throughout the planning horizon. Should the loss be worse than this scenario assumes, sizeable cost mitigation opportunities, such as those accessed in the year ended 24 January 2021, would be available to the Group to further preserve viability.

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 2024.

Appendix C: Related party transactions

The following related party transactions are extracted from the Annual Report and Accounts (pages 163 - 164):

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 services
			2021 £m	2020 £m
Rubicon Drinks Limited			3.8	4.2

The amounts disclosed in the table below are the amounts owed to and due from subsidiary companies that are trading subsidiaries.

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 23) are balances due by and due to dormant subsidiary companies.

	Amounts owed by related parties		Amounts due to related parties
	2021 £m	2020 £m	2021 £m	2020 £m
Rubicon Drinks Limited	-	-	8.6	5.6
Funkin Limited	1.2	0.5	-	-

The amounts disclosed in the table below are the amounts owed from investments in associates. The balance is an interest-free equity convertible loan note.

			Amounts due to related parties
			2021 £m	2020 £m
Loans to associates Loans advanced			1.0	-
Closing balance			1.0	-

Compensation of key management personnel

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

	2021 £m	2020 £m
Salaries and short term benefits	2.2	3.1
Post employment benefits	0.4	0.5
	2.6	3.6

The Directors' Remuneration Report can be found on pages 71 to 98.

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 (2020: £0.4m) for administration services in respect of the retirement benefit plans. At the year end £nil (2020: £nil) was outstanding to the service provider on behalf of the retirement benefit plans.

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