Final Results

Barr(A.G.) PLC 30 March 2005 30 March 2005 A.G.BARR p.l.c. PRELIMINARY RESULTS FOR THE YEAR ENDED 29th JANUARY 2005 A.G.BARR p.l.c. the Scottish based manufacturer of soft drinks including the popular Irn-Bru, Tizer and Orangina brands, announces its preliminary results today for the 12 months to 29th January 2005. Key Points • Profit on ordinary activities before tax increased by 13% to £15.6 million (2004 - £13.8 million). • Turnover of £127.2 million. An increase on a like for like 52 week basis of 3%. • An increased final dividend of 19.5p per share to give a total dividend for the year of 28.75p, an increase of 12.7% over the previous year. • Core brands perform strongly in a difficult market. • Cash flow remaining strong with £35 million cash at bank. • Major investment programme in Scottish operations planned to facilitate future growth and efficiency. • Portfolio development continues with strong performances from new Simply products and further exciting development planned for 2005/06. Commenting on the results Chairman, Robin Barr, said: 'I am delighted to report continued strong growth in profits at A.G.Barr, further demonstrating the good progress the business is making. This performance is all the more pleasing against a backdrop of difficult trading conditions relating largely to the poor weather of 2004.' Commenting Roger White, the Chief Executive, said: 'The progress we have made across the last 12 months is reflected in our excellent financial performance. The resilience and flexibility of the business has been tested in what has been a difficult year for many - I am pleased to report we have continued to build on our previous year's performance across all areas of the business. The announcement today of our development and investment plans for the business in Scotland signal the strong belief we have in the opportunity to develop our business further in the short, medium and long term. Business performance for the first 8 weeks of the current financial year is in line with our plans.' For further information, please contact: A.G.Barr Tel : 0141 554 1899 Roger White, Chief Executive Iain Greenock, Finance Director Buchanan Communications Tel : 020 7466 5000 Tim Thompson / Nicola Cronk CHAIRMAN'S STATEMENT Review of results I am pleased to report that profit on ordinary activities before tax was £15.6 million for the 52 weeks to January 2005 - an increase of 13% over the previous 53 week period. Turnover for the year to January 2005 was £127.2 million, an increase of 1.5% over the turnover achieved in the previous financial year but the increase was 3% if adjustment is made for the extra week last year. On the back of an earnings per share rise from 49.90p to 56.56p, your directors have been able to recommend a final dividend of 19.5p per share to give a total for the year of 28.75p, an increase of nearly 13%. These figures are all the more pleasing as they have been achieved despite the poor summer weather of 2004 which contributed to a particularly competitive market place later in the year. Our people Our strong performance, particularly during the second half of the year, would not have been possible without the continuing contributions from our employees and I would like to thank them all, on behalf of our external shareholders, for the excellent results. I am pleased to record that we have completed the move in January this year of our regional headquarters staff from traditional office facilities within our long-standing Atherton factory to a purpose-built open plan environment within leasehold offices at a nearby Bolton development. Already we are seeing improved efficiencies resulting from these enhanced working conditions. The A.G.BARR p.l.c. 1995 Savings Related Share Option Scheme reached the end of its ten year life in March this year. Under the scheme we have made four offers to employees. Almost half of our employees currently participate in one or more of the offers. The scheme has therefore proved to be a very successful vehicle through which to encourage employees to increase their shareholdings in the company and thereby align their ambitions more closely with external shareholders. Your directors are keen to continue this incentive and you will therefore see the proposal for a renewal of the scheme for a further ten years as part of the agenda for this year's Annual General Meeting. Corporate governance This Annual Report & Accounts contains the appropriate additional information required in terms of the 2003 revised Combined Code on Corporate Governance. Subsequent to the end of the financial year we have standardised the contracts of all executive directors by introducing a basic one year's notice on termination by the company. Full details of the changes are contained in the directors' remuneration report. Relative to the proposal at the forthcoming Annual General Meeting to re-elect James Espey for a third term of three years as a non-executive director, I am pleased to confirm that his contribution to board discussions and overall commitment to the company's affairs continue to be highly valued by both myself and other board members. Prospects Cash flow was particularly strong last year and our balance sheet shows £35 million cash at bank at January 2005. Next year will however see the start of a period of higher investment as we develop facilities which will both deliver increased efficiencies and provide structures within which to achieve future growth. Despite the UK volume decline caused by last year's poor summer weather, it is still anticipated that the soft drinks industry will show long-term growth - albeit across a wider portfolio of products than hitherto. We will require to continue to adjust, as appropriate, our own range to remain competitive but I believe that we will have the brands, the facilities and the people to enable us to continue as a successful independent company. Robin Barr, Chairman CHIEF EXECUTIVE'S STATEMENT Business performance figures for the year to January 2005, as highlighted by the chairman, reflect the continuing strong overall progress of the company. This success is the result of a simple and clear strategy, focusing on the basics, coupled to strong execution across the business as a whole. The sales growth and profit improvement were achieved in a difficult market. They reflect the implementation of the strategic agenda set in previous years for evolutionary change in the areas of core brand, market and portfolio development and innovation, route to market, partnerships and improvement of operational efficiency. These results provide the company with a solid platform for future growth and success. Opportunities for growing our business remain plentiful. Incremental growth, including the development of a more diverse range of products, extensions of existing brands and investment in the efficiency of our operations, will improve our ability to increase sales and future profits. At the same time as delivering this organic growth strategy we remain alive to the opportunity for acquisition of the right brands and businesses, but only when they offer true long-term value and enhance the prospects of our company. The continued strong generation of cash and management's control of costs ensure that we have the financial ability to act decisively when the right openings occur to grow our business through either investment or acquisition. Principal aim We have successfully maintained our principal aim of building long-term value rather than going for short-term gain. The investment in our key brands has not only delivered a 3% increase in comparable sales revenue over the last year, but has also put us on a strong footing for future growth. Lacklustre consumer demand in the soft drinks category across the year created competitive trading conditions, leading many in the industry to focus increasingly on price promotion as their main source of sales growth. During this period we have improved our promotional efficiency while maintaining competitive pricing. We have also considerably increased our spending on marketing across our core brands, in particular the exciting Irn-Bru Phenomenal campaign. Our sales performance in the year saw uniform growth across all channels, further highlighting the strength in and the diversity of our various customer sectors and routes to market. I am pleased to report that our core brands have gained market share over the course of the year, particularly in Scotland, reflecting our decision to invest disproportionately in the Scottish market. Irn-Bru has delivered strong growth in Scotland with market share by value as recorded by Nielsen Scantrak showing Irn-Bru for the first time with a market share in excess of 20% of total carbonates in Scotland. This further strengthens our number position in our key market. Ongoing and fundamental changes in consumer attitudes and preferences relating to health and well-being have increased the demand for diet drinks, water and health-based products. Having recognised these changes at an early stage, we have been able to offer people what they want, namely choice. Our product portfolio and the strength of our brands has to date left us undamaged by the shifts in consumer requirements, but we are acutely aware of the need to broaden our portfolio further to ensure future growth. We realise this can only be achieved by meeting the changing demands of consumers. Value over volume This was a tough year in soft drinks. In the year to January 2005 the UK carbonates market, as measured by Nielsen, experienced in total a 7% volume decline and a 5% value decline with our most relevant sector, other flavoured carbonates, performing even more poorly at a 10% year on year decline in both volume and value. This performance was due largely to the poor summer weather and resulted in increased competition, mostly in the form of aggressive price promotion. However, we have adhered to our objective of continuing to drive value, even at the expense of volume. Our margins have continued to improve as a consequence of the combination of this strategy and our strong management of operating costs across the whole business. The relentless consolidation of the retail market has proved as challenging as we had expected. We have endeavoured to ensure that all changes, no matter how significant, had a minimal effect on our overall business. Once again our customer mix and diverse routes to market helped to safeguard our business against the potentially significant negative short-term effects of retailer consolidation or under-performance. Furthermore, our brands are proving strong enough to compete in this consolidated market and the quality of our service offering is acknowledged as second to none throughout our customer base. Cost inflation has been severe in recent months, particularly in oil-based commodities and utilities. While last year we actively managed much of the risk associated with this issue, the prospects for the new financial year remain challenging. Sustained increases of many of our input costs will have a negative cost impact on our operations. Therefore, to ensure our margins are stabilised, we need to improve cost control measures and efficiencies, alongside achieving price inflation in the category as a whole. Plans to deliver this margin stabilisation are well progressed. Investment planning While we have sought to maximise the use of all our assets, our capital expenditure has remained modest. However, as the chairman has commented in his statement, we are now in a position to launch a significant asset development programme. Plans have been drawn up to invest in our sales, distribution and storage activities in Scotland. These plans include the centralisation of our warehousing from multiple off-site storage facilities to a single consolidated manufacturing and storage facility at our existing Cumbernauld factory site. Subsequently we will also improve our sales execution and efficiency with the centralisation of our direct-to-store sales, distribution and administration teams from the existing five locations across Scotland to the new facility at Cumbernauld. Our Head Office, currently based at Parkhead, will also be relocated to new offices on the Cumbernauld site. These proposals will, of course, be subject to full consultation with all affected employees and, at the time of writing, are subject to receipt of planning approvals. The capital expenditure programme is expected to be of the order of £17 million over a period of 3 years. Receipts from property sales will offset some of this capital spend. Once the investment is completed, efficiency improvements are expected to be of the order of £2.5 million annually. This exciting investment programme in our core market is the outcome of rigorous planning and would herald a 2-3 year period of development which will provide the company with a modern, flexible and efficient selling, administration and supply chain operation, capable of sustained growth. Core brands Last year we set out to improve the already strong market position of Irn-Bru, focusing much of our efforts on our key market in Scotland. Having developed the new brand positioning and associated campaigns, we significantly increased our media spend on Irn-Bru. The Phenomenal campaign has delivered well in Scotland, improving all our key brand indicators of penetration, frequency and loyalty and with our planned activities in 2005-06 we look forward to making real progress in the significantly bigger but more challenging UK market outside Scotland. Diet Irn-Bru has performed strongly over the last year showing value growth of 5%. This year the brand will receive a full makeover, including exciting new packaging and new consumer communication activity. Diet Irn-Bru has now for the first time been entirely separated from Irn-Bru in terms of marketing execution. New dedicated Diet Irn-Bru TV, radio and outdoor advertising campaigns are just some of the activities designed to improve the market potential and performance of this key brand. Following the relaunch of Tizer and the subsequent introduction of the Tizer Colourz range we realised significant revenue improvements in the course of last year. Not only has the Colourz range introduced some sparkle into a somewhat uninspired market but it has also reinvigorated Tizer, a traditional brand, giving it a more contemporary personality and appeal across the whole UK market. The Orangina brand changed owners in the UK during the course of 2004. Cadbury Schweppes' purchase of Orangina in October 2004 now provides this brand with a brighter future outlook. Orangina's volume and value performance during the course of 2004/05 suffered a significant decrease as the promotional and marketing plans were altered considerably prior to the change in ownership. We are now working with Cadbury Schweppes to determine the long-term positioning of the brand and we foresee the potential development of a long term partnership with Cadbury Schweppes. Findlays Natural Mineral Water has shown itself capable of occupying a premium position at the higher end of the water market while generating good growth regardless of poor weather and strong competitor activity. Meanwhile the home office delivery (HOD) business in water coolers continues to make steady progress despite aggressive competition from multinational competitors. The HOD market, whilst price sensitive, is largely a service-driven market and we have made real progress in acquiring new business based on our service offering. Following exploratory drilling we have established a further potential supply of significant quantities of natural mineral water for our Findlays business and are now considering our long-term investment options in this sector. Lipton Ice Tea continued to perform well however volumes were impacted as a consequence of the poor weather. Having worked closely with Unilever during the early years of introducing Lipton Ice Tea into the UK market, we are now moving forward to a new, simpler relationship with Unilever, more suited to the product life cycle as it moves from the successful introduction phase into early maturity. Our regional brands, which include KA, Red Kola, D n B and the Barr flavours range, continue to be among the most popular in their specific home territories - sometimes even outperforming global brands. These quality products match the tastes and preferences of regional consumers and have a strong future role to play in our business. The Barr returnable glass bottle range, which consists of typically impulse purchases and is therefore heavily dependent on the weather, started the year well but suffered as impulse consumption fell because of the poor summer weather. However, returnable glass is an environmentally sound and high quality packaging format which consumers continue to enjoy, and this range remains an integral part of our business. We will persist in our aim to stabilise the market for returnable glass bottles by improving marketing and sales execution with our key retail customers. Portfolio development The incremental development of our core brands has been complemented by development of new products such as the Simply range. These single serve products have been created specifically for the educational market and are available in a wide variety of different flavours and formats, all developed to meet the health requirements of this sector and to provide school children with exciting and tasty drinks. The Simply range proved extremely successful in a relatively short space of time, growing sales revenue by over 50%, and we believe that it has the potential of becoming a much larger part of our portfolio. During the course of the coming year we plan to launch further products in this range, add to our portfolio with more products in the water market sector and establish a presence in the areas of sports and energy drinks. Through product innovation A.G. Barr will also make further ground in the area of adult soft drinks or the 'Good for You' sector. Over the course of 2005 we have planned several new product launches and we will invest in developing more brands for this growing market. Route to market As noted earlier, our route to market diversity helped to insulate us from the short-term impact of consolidation in the retail market. With our business spread across all of the major multiple retailers and with strong trading relationships in the independent and wholesale trade, coupled with our extensive direct sales coverage in the impulse channel, we are achieving our planned balanced growth profile in each of these different trade channels. Having reviewed our execution support for the different routes to market and channels, we have reorganised much of our commercial operation over the last twelve months. Commercial resources have been upgraded and the focus on specific channels has been improved. For example, we have developed a specialist food service and catering sales team to speed up our penetration of this important and growing market. We continue to serve some 32,000 customers every week with our direct delivery service. We are constantly evaluating the service and the overall efficiency of the direct delivery operation. Over the course of the last year we have made further investments in new technology, improved in-store execution and increased people capabilities. Our capability in providing in-full, on-time delivery to all customers has been improved over the course of the last year, aided primarily by better forecasting, which has allowed us to ensure that all our customers receive the best possible service and that our products are always in stock and thereby available to consumers. Partnerships First and foremost we work in partnership with all our customers. Throughout our business we also aim at steadily improving our working relationships with all our other key partners, whether they are material or services suppliers, franchise or execution partners, or marketing and sales partners. All these relationships have improved, but we firmly believe we can better our business by continuing to focus on this objective. Our partnership with the Pepsi Bottling Group in Russia has made firm progress with the Irn-Bru brand receiving further investment over the course of the last twelve months. Performance in the Russian market sees Irn-Bru continuing to maintain a market share of around 1%. On a more disappointing note, the progress of Irn-Bru in other new markets has been frustratingly slow. However, there have been some positive market test results in a number of Eastern European countries and we hope that the Irn-Bru presence will be extended during the course of the current year. Operational and supply chain efficiency We have again improved our operational efficiency. Every employee is engaged in well established processes of continuous improvement which we intend to reinforce with an increasing emphasis on asset and technology driven change. Over the past year we have continued to invest in our supply chain and further opportunities exist to upgrade and improve in this area to drive efficiency across our total business. The company is now beginning to reap the rewards of its investment in technology, in particular in terms of better operational planning, forecasting and increased flexibility. However, we are only scratching the surface of what technology can do for our company and it will play a major role in our future plans. The recent rise in energy costs has given another impetus to making better use of energy - something we do as a matter of course from an environmental standpoint. We have made some important steps forward in this area over the past twelve months, increasing both our spending and our efforts to meet our environmental objectives and ensure we remain fully compliant with the constantly changing legislation in this area. Our people Last but not least, the people of A.G. Barr are what makes our company so successful. They are experienced, well-motivated and highly knowledgeable individuals. Many have been with the company for more than 15 years. As the chairman has stated, we are actively working to encourage increased share ownership among all employees with the development of our Employee Share Schemes. Across the business we are also strengthening the link between employee performance and reward, as we roll out new performance management systems over the course of the current year. In addition, we aim to assist our people in other aspects of their work and create the best possible work-life balance, for example through the introduction of a child care voucher scheme last year. So that our people reach their full potential, we are improving their skills and knowledge through training. More than ever before, the company offers NVQ learning opportunities in almost all areas of our business, from the production line and administration to marketing and sales. Last year we saw an increase in uptake of practical and professional qualification courses across the business. Ultimately business success depends on people. With our blend of experience, skills and training, A.G. Barr is in a strong position to continue on the path of stable growth driven by our people. Roger White, Chief Executive A.G.BARR p.l.c. Consolidated profit and loss account for the year ended 29 January, 2005 The following are the unaudited results for the year to 29 January, 2005. The Board recommends the payment of a final dividend of 19.50p per share which if approved by the shareholders will be posted on 08 June, 2005. The total distribution proposed for the year amounts to 28.75p per share (2004 - 25.50p) Year ended Year ended 29.01.05 31.01.04 £000 £000 Turnover 127,222 125,235 Profit on ordinary activities before interest 14,323 13,198 Interest received 1,285 599 Profit on ordinary activities before tax 15,608 13,797 Tax on profit on ordinary activities 4,600 4,085 Profit on ordinary activities after tax 11,008 9,712 Earnings per share on issued share capital 56.56 p 49.90 p Basic earnings per share 58.89 p 51.98 p Fully diluted earnings per share 55.65 p 49.33 p Dividend per share 28.75 p 25.50 p Dividend (£000) 5,595 4,963 Record date: 06 May, 2005 Ex-div date: 04 May, 2005 The financial information set out in this announcement does not constitute statutory accounts. The financial information for the year ended 31 January, 2004 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors have reported on those accounts and their report was unqualified and did not contain a statement under S237 Companies Act 1985. Balance Sheets as at 29 January, 2005 GROUP COMPANY Restated Restated 2005 2004 2005 2004 £000 £000 £000 £000 Fixed assets Tangible assets 37,264 39,545 36,743 39,018 Investment in subsidiaries - - 205 205 37,264 39,545 36,948 39,223 Current assets Stocks 9,172 10,418 9,069 10,285 Debtors 20,991 20,126 20,405 19,720 Cash at bank 34,958 24,937 34,796 24,824 65,121 55,481 64,270 54,829 Creditors: Due within one year 29,177 27,225 29,361 27,522 Net current assets 35,944 28,256 34,909 27,307 Total assets less current liabilities 73,208 67,801 71,857 66,530 Provisions for liabilities and charges Deferred credit 619 628 619 628 Deferred taxation 4,819 4,757 4,804 4,745 5,438 5,385 5,423 5,373 67,770 62,416 66,434 61,157 Capital and reserves Called up share capital 4,865 4,865 4,865 4,865 Share premium account 905 905 905 905 Own shares held (2,809) (2,750) (2,809) (2,750) Profit and loss account 64,809 59,396 63,473 58,137 67,770 62,416 66,434 61,157 The 2004 figures have been restated to reflect the adoption this year of UITF38, Accounting for ESOP trusts. This has not affected profit. Cash Flow Statement For the year ended 29 January, 2005 2005 2004 £000 £000 £000 £000 Net cash inflow from operating activities 21,038 20,417 Returns on investments and servicing of finance Interest received 1,288 603 Interest paid (3) (4) Net cash inflow from returns on investments and servicing of finance 1,285 599 Tax Corporation tax paid (4,433) (3,873) Capital expenditure and financial investment Purchase of tangible fixed assets (2,959) (3,306) Sale of tangible fixed assets 215 274 (2,744) (3,032) 15,146 14,111 Dividends paid (5,108) (4,720) Increase in cash 10,038 9,391 This information is provided by RNS The company news service from the London Stock Exchange

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