Annual Report and Accounts and Notice of AGM

RNS Number : 4784W

Barr(A.G.) PLC

17 April 2019

 

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

17 April 2019

Annual Report and Accounts and Notice of Annual General Meeting

Following the release on 26 March 2019 of the Company's financial results for the year ended 26 January 2019 (the "Final Results Announcement"), the Company announces it has today published its annual report and accounts for the year ended 26 January 2019 (the "Annual Report and Accounts").

The Annual Report and Accounts contains the notice convening the Company's one hundred and fifteenth 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 Friday, 31 May 2019 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 87):

Directors' statement pursuant to the disclosure and transparency rules

Each of the directors, whose names and functions are set out on pages 44 to 45 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 38 - 43):

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 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 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 52.

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 working 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. The Brexit working group has prepared for a range of Brexit outcomes, including "no deal". Given the continuing uncertainty regarding the 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 is 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 are working closely with relevant suppliers to understand their Brexit plans and have increased our stock levels of key raw materials and finished products 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, Eddie Stobart Limited, 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 do not expect any related 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.	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. 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 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.	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. 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. Last 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. Brexit's potential impact on the supply of certain raw materials is referred to above.	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 Management 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.	No Change
Government intervention on packaging waste	Government intervention on packaging waste, e.g. the introduction of a Deposit Return Scheme or a plastics tax, could have an adverse impact on consumer consumption patterns, sales and operating profits.	This risk has been introduced as a new principal risk this year, given the increased pace of change and level of environmental lobbying in relation to packaging waste during the year, particularly in relation to 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, the possible introduction of a DRS in England and Wales, and the possible introduction of a single use plastics tax. We have created a working group to proactively manage packaging related risks in a holistic manner ongoing, overseen by the Risk Committee.	New Risk
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 ongoing consolidation in the retail grocery market has increased the level of gross risk in this area. A project commenced last year 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.	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 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. The risk of cyber attacks increases on an ongoing basis. A cyber security maturity assessment was completed during the year by our internal auditor, who concluded that our approach is generally in line with industry practice. We have continued to improve our cyber security controls and have upweighted our internal cyber security resource. Employee awareness campaigns and training continued during the year to increase employee cyber risk awareness. A new Digital Governance Group was created during the year, overseen by the Risk Committee, the purpose of which is to manage the risks related to the Group's externally facing digital properties.	Increased
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. 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.	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.	No Change

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 2022, 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 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.

The directors have considered the impact of a number of severe but plausible scenarios associated with the principal risks, including significant changes in consumer preferences and governmental impact in relation to sugar and plastics, as well as the financial impact from a significant supply chain disruption (Brexit, technology or material supply). Within our Brexit scenario our considerations have included Supply Chain disruption and macroeconomic assumptions like FX. In addition, the directors measured the impact of a number of scenarios occurring together. These tests were then reviewed against the Group's current and projected future net cash/debt and liquidity position. Subsequent to the end of the financial year, the Group reached agreement on 18 March 2019 with its lenders to extend its current facilities, which expire in 2020 and 2022, by a further two years. This ensures the Group's facilities remain at the current level throughout the viability period. In each of the Group's downside scenarios, there is no indication that the Group will be required to obtain additional facilities above those recently extended. In addition, there is no breach of any covenants.

Finally a reverse "stress test" was performed, allowing the Board to assess scenarios and circumstances that would render its business model unviable.

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 2022.

Appendix C: Related party transactions

The following related party transactions are extracted from the Annual Report and Accounts (pages 142 - 143):

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
	2019 £m	2018 £m	2019 £m	2018 £m
Rubicon Drinks Limited	-	44.3	4.9	57.6
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. In the year to 26 January 2019 new trade terms were agreed between the Company and Rubicon Drinks Limited ('RDL'). The purchase and sale of goods and services with RDL has now been replaced with a royalty agreement for the use of the RDL trademarks.

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 17) and to subsidiary companies (Note 19) are balances due by and due to dormant subsidiary companies.

	Amounts owed by related parties		Amounts due to related parties
	2019 £m	2018 £m	2019 £m	2018 £m
Rubicon Drinks Limited	-	-	2.4	82.8
Funkin Limited	0.4	0.2	-	-

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:

	2019 £m	2018 £m
Salaries and short term benefits	5.3	4.2
Post employment benefits	0.5	0.6
Share-based payments	-	0.1
	5.8	4.9

The Directors' Remuneration Report can be found on pages 56 to 81.

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 (2018: £0.4m) for administration services in respect of the retirement benefit plans. At the year end £nil (2018: £nil) was outstanding to the service provider on behalf of the retirement benefit plans.

END.

 

END

 

 

ACSGGUMGCUPBURM