Final Results

RNS Number : 0118A

Barr(A.G.) PLC

26 March 2012

 



26 March 2012

A.G. BARR p.l.c.

FINAL RESULTS for the year ended 28 January 2012

A.G. BARR p.l.c. ("A.G.BARR"), the branded soft drinks group, announces its final results for the 12 months to 28 January 2012.

Key Points

·       Total turnover increased by 6.6% to £237.0m (2011: £222.4m)

o  a cumulative 27.6% increase in turnover over the last 3 years

·       Profit on ordinary activities before tax and exceptional items increased by 6.2% to £33.6m (2011: £31.6m)

·       Post exceptional items, profit increased by 16.4% to £35.4m

·       Basic earnings per share increased by 24.8% to 73.43p whilst underlying EPS increased by 9.1%

·       All core brands performed well, with particularly strong growth in our exotic juice brands, Rubicon and KA

·       Strong underlying financial fundamentals

o  Balance sheet strengthened with ROCE increasing to 22.8%

o  free cash flow of £20.2m

o  strong cash generation has reduced net debt by 59.5% to £6.7m

·       New production and warehouse facility in Milton Keynes area in final stages of contractual discussions

·       Proposed final dividend of 20.65p per share (2011: 18.66p) to give a proposed total dividend for the year of 27.95p per share, an increase of 10.0% over the prior year

Roger White, Chief Executive, commented:

"A.G. BARR has demonstrated its resilience in the face of challenging market conditions, in particular coping with substantial raw material cost headwinds while achieving revenue growth based on brand development, innovation and improved focus on execution.

Our operational performance improved substantially in the final quarter of last year and we are now beginning to see the benefits of our investment in our production assets.  We are further reinforcing our confidence in our future growth prospects with the confirmation of our plans to invest in a new site, with substantial future capacity, in the Milton Keynes area.

We anticipate 2012 will be another challenging year in the U.K., with household disposable incomes remaining under pressure. Despite this, we remain confident that our financial strength, backed up with strong sales momentum across our core brands, excellent innovation and our anticipated capital investment programme will facilitate further good progress."

For more information, please contact:

A.G. BARR	Tel: [phone]
Roger White, Chief Executive
Alex Short, Finance Director
College Hill	Tel: [phone]
Justine Warren
Matthew Smallwood

Chairman's Statement

I am pleased to report another excellent financial performance in what has been a challenging year.  The business has delivered further growth in revenue, volume and profit in a climate of continued economic uncertainty. The additional pressure of significant increases in raw materials costs has required strenuous management efforts to minimise the impact on margins.  Despite these challenges, profit before tax and exceptional items increased by 6.2% reflecting the positive sales performance of our core brands and continued focus on cost control.  Underlying earnings per share increased by 9.1% to 66.84p.

In the year under review, sales continued to outperform the soft drinks market and grew 6.6% to £237.0m (2011: £222.4m).

Throughout the year, we have continued to invest in building our brands and driving innovation to meet consumers' needs.  Operationally, much of our attention has been on the completion of our production investment at Cumbernauld and its full commissioning.  Following some difficulties related to late commissioning across the summer, I am pleased to advise that our Cumbernauld site is now performing well.

In this fast moving business and in this difficult environment our management teams have been very focussed on delivering bottom line performance.

Future Prospects

We remain committed to our strategy of profitably building brands and ensuring that we have an efficient asset base capable of supporting the Group's future growth ambitions.  In late 2011, we announced our intention to invest in additional production capacity in the south of the U.K.  We can confirm that we are currently in advanced discussions with a developer to construct a new production and warehousing facility at Magna Park in Milton Keynes.

The U.K. economic outlook remains difficult.  While we need to remain flexible, our fundamental objectives and approach remain constant - to drive value, improve efficiency, compete effectively at the point of purchase as we build awareness and distribution of our brands further across the market. To achieve this, we will continue to develop our organisation, capability, people and asset base.

The business is in good shape and our balance sheet and finances are strong despite the difficult macro-economic environment.  As before we believe that, the combination of well invested iconic brands, together with motivated teams across the business, will enable us to achieve further growth, both in the immediate and longer term.

Dividend

The board is pleased to recommend a final dividend of 20.65p to give a total dividend for the year of 27.95p per share, a full year increase of 10.0% on the prior year.

Ronald G. Hanna

CHAIRMAN

Business Review

In the 52 weeks to 28 January 2012, A.G. BARR has grown revenue and volume ahead of the soft drinks market to produce a strong profit performance despite operating in a challenging environment.  Turnover grew by 6.6%, taking sales revenue to £237.0m.  This represents an organic growth of 27.6% over the last three years.

Cost inflation accelerated at the end of 2010 and into 2011/12, which created margin challenges for consumer goods businesses including the soft drinks sector. A.G. BARR has risen to this challenge by driving costs out wherever possible, employing appropriate risk management processes and increasing prices to ensure that margins are protected from the full impact of significantly increased raw material costs.

Pre-tax profits, excluding exceptional items, increased by 6.2% to £33.6m reflecting the benefits of sales volume and value enhancing revenue growth and strong cost containment measures.

We delivered growth across both the carbonates and stills segments. Our performance was particularly encouraging in stills, which grew revenue by 9.4% against a market performance of 3.8%.  This was primarily driven by growth and innovation in our exotic juice drinks brands - Rubicon and KA.  Our strategy of concentrating investment around the core brands IRN-BRU, Barr, Rubicon and KA continues to set our trading agenda, drive our executional plans and focus our consumer and customer activities.

Our growth performance in the 52 weeks to 28 January 2012 is pleasing given tough comparatives in the first half of the year and relatively poor summer weather, as well as increasing levels of competitor promotional activity.  Across the summer months, our ability to compete in this environment was hampered by the previously reported operational challenges specifically related to the performance at our Cumbernauld production facility, where the final stages of new line commissioning were delivered late.

Despite these challenges, we have accelerated our growth, with sales in the second half of the year growing at twice the rate of the first half.  The business responded well to the operational difficulties experienced across the summer months and has now fully recovered with the Cumbernauld facility producing in line with and in some instances ahead of our original output expectations.

We finish this financial year in an even stronger financial position - our balance sheet is in good shape, with net debt of £6.7m, a decrease of £9.9m on the prior year.  In addition, our financial strength is further underpinned by our robust pension position which following the recent triennial valuation will lead to a cessation of the £2.7m per annum deficit reduction payments previously paid, therefore improving our operating cash flow further in the financial year 2012/13.

The board has proposed a final dividend of 20.65p per share, which represents an increase in total dividend of 10.0% on the previous year, reflecting the continued financial strength of the business and the board's confidence in its future prospects.

The Market

The U.K. take home soft drinks market, as measured by Nielsen continued to demonstrate its resilience and saw volume growth of 1% in the year to 28 January 2012 making this the third consecutive year of positive volume growth.  The rate of growth in the market slowed down last year with the combined impact of poor weather across the summer and changing consumer purchasing habits driven by increasingly stretched household budgets.

Carbonates continued to drive the category as a whole, growing by 3.3% in volume terms and by a significant 9.1% in value terms.  All sub-sectors of carbonates performed well, with the driving forces continuing to be cola; and the energy category, which grew by 13.1% in volume terms and 16.4% in value terms.  Still drinks by contrast were down 1.3% in volume terms although 3.8% up in value terms.  Fruit juice, fruit drinks and dilutes were all negative in volume terms although positive in value terms.  Sports drinks and water were both positive in terms of both volume and value.

In the U.K. grocery market, soft drinks, despite headwinds, was the fastest growing major category across much of the year.  Looking forward, we forecast that the soft drinks market will continue to gain both customer and consumer support in 2012, suggesting that growth in the overall market is likely to continue albeit at the lower end of long term volume performance.

Strategy

Our strategy is designed to deliver long term sustainable growth in value and relies on the continued development of the following:

●    Core brands and markets;

●    Brand portfolio;

●    Route to market;

●    Partnerships;

●    Efficient operations;

●    People development; and

●    Sustainability.

Our business model - brand owners with a full service multi channel asset backed operation - gives us real competitive advantage.  We are close to our consumers, customers and the market and can move quickly to take advantage of opportunities whilst seeking to minimise risk in all that we do.

Core Brands, Markets and Innovation

Our core brands continue to drive growth for the Company.  Over the 2011/12 financial year we have seen balanced growth across our key geographical markets, with growth in Scotland of 3.4% and growth in England and Wales of 8.4%.  Our continued marketing and brand development activities in the north of England delivered growth of 13.0% in the last year, as our core brands became more firmly established with consumers in this important area of geographical focus.

We made good progress across both of our major reporting segments, carbonates and still drinks (including water), with continued growth in volume and value in both segments.  In the period, we have taken further steps through innovation and growth in penetration and distribution of our still brands to ensure we have an increasingly balanced portfolio.  Our revenue growth in carbonates was 5.8% and in stills was 9.4%, resulting in stills (including water) accounting for 23.0% of our total sales mix.

The market for stills declined in volume terms but grew by 3.8% in revenue terms.  Our key still brands performed exceptionally well in the period, outperforming the market in both volume and value terms.  The exotic brands, Rubicon and KA, delivered a combined 15.7% year on year revenue growth.  Within this performance we benefited from the highly successful launch of the KA brand into still drinks at the end of Q1 2011 thereby following a similar strategy to the Rubicon brand, which was originally launched as a carbonated drink and a number of years later successfully transitioned to a still and carbonated brand. KA is now successfully straddling both these sub-sectors.  The combination of authentic flavours, striking packaging and an increasingly wide range of brand loyal consumers has allowed KA, as a brand in its entirety, to grow by an impressive 66.6% in the period.

IRN-BRU:

IRN-BRU performance was particularly strong in the second half of the year - growing sales by over 7% to end the full year with growth of 2.7%.  After a slow start to 2011, impacted by significant competitor promotional activity to which we chose not to respond, IRN-BRU delivered growth in regular, Sugar Free and through its first ever limited edition - Fiery IRN-BRU.  IRN-BRU maintained its leading position in the Scottish market, supported by a brand building programme designed to further drive loyalty and build brand affinity.  The year started with the successful re-branding of Diet IRN-BRU to IRN-BRU Sugar Free.  During the course of the year, a real highlight was the television backed on-pack "BRU Jet" promotion, which saw consumers being given the chance to win seats on our very own chartered flight and an all inclusive holiday.  The brand continued to make good progress in the north of England as we moved into the second year of our regional growth strategy.  In this region, IRN-BRU grew revenue by 13%, with notable success in the impulse channel where IRN-BRU's share of flavoured carbonates increased to 11.5%.  In support of our growth ambitions, we invested further in the brand through television and outdoor advertising, as well as through further leverage of our successful sponsorship with Rugby League and our continued association with Rugby League on Sky Television.

In the second half of 2011 we launched the first ever limited edition IRN-BRU product - Fiery IRN-BRU, which sold over 3.5m units and helped to further build IRN-BRU brand equity.  In addition to our product innovation, the IRN-BRU brand has increased innovation in consumer communication with the use of the digital communication platform, which expanded significantly over the course of 2011/12.  We have always endeavoured to ensure that the IRN-BRU brand maintains its relevance to consumers and communicates through a wide range of mediums and technologies.  2011/12 saw a step change for the brand in our use of digital technology to meet our objectives.  Across the year, we invested in a range of digital activities for the brand which now has a presence across all key social media sites, including Facebook, Twitter and You Tube.  Going forward, we will continue to develop our use of new and emerging technology to ensure IRN-BRU is at the very forefront of consumer communication platforms.

Rubicon:

Rubicon continued to grow as distribution and awareness levels developed.  Rubicon grew in every region across the U.K. - posting a total growth of 6.9%, with core Rubicon, excluding the Sun Exotic sub brand, growing at 9%.  Our long term brand development ambitions were supported by a full year of marketing activities, in particular, through the use of a broad promotional campaign based on cricket to build brand awareness.  The combination of cricket sponsorship, on-pack offers associated with cricket and the use of key Rubicon brand ambassadors, Muttiah Muralitharan and Graeme Swann, proved to be a successful mix of brand building activity.  Innovation also played its part in further building the Rubicon brand, with the successful launch of Rubicon light and additional pack / flavour extensions.

Our combination of exotic brands now give us a differentiated and powerful growth opportunity to build on in future years.

Barr brands:

The Barr range of traditional flavoured carbonates grew by over 12%, with distribution gains, innovation and further growth in the north of England all reinforcing the +80% growth achieved in the previous three years.  The range continues to develop, with the launch of new flavour Appleade during 2011 and the focus on Cola in the impulse channel, including the use of the 500ml can format all of which continue to support the development of the brand.  The Barr brand will remain a key source of growth into the future, as we seek to exploit further the positioning of the brand as one of quality and value.

Innovation 2012:

Our brand portfolio, which covers all sub-sectors of the soft drinks category, with the exception of dairy, provides us with a strong platform for growth throughout the U.K. and within many of the growing and diverse communities across the country.  Our core brands are also growing in terms of consumer awareness and developing a meaningful position within many consumers' soft drinks repertoires.  Our objective of building our brands for the long term is backed up by our innovation pipeline, where much of the output from our efforts throughout 2011 will come to market across the course of the 2012/13 financial year.  Our development plans include further focus on our exotics portfolio and will include format and flavour developments, as well as the exciting initial steps to take the Rubicon brand outside its core soft drinks position.  Following a considered development process, we will launch Rubicon into the frozen category in March 2012 with a range of Rubicon tub ice creams for the take home market and frozen "push-ups" for impulse consumption.  We believe this will further support the long term development of the brand by delivering a new way for consumers to enjoy the delicious exotic flavours and taste of the Rubicon brand.  This will be done via outsourced production but all commercial activities including marketing and selling will be carried out by A.G. BARR.

Route to Market

We have continued to develop our organisation and competency to build on the strength of our diverse route to market.  The retail market has fragmented further rather than consolidated over the past 12 months, with shoppers increasingly purchasing from a variety of outlets.  The well documented growth in discounters and the increasingly important value retailers channel, as well as a competitive impulse market and highly promotionally driven multiple retailers' environment, all require our focus.  We have further organised our business to respond to changes in shopper habits and this, together with our relentless focus on execution in combination with improving systems and processes, give us the ability to compete for every consumer sale across all key channels both now and in the future.

Partnerships

We have worked hard with our franchise partners to deliver our key objectives across the 2011/12 financial year.

Rockstar grew by 18.7% in the period, ahead of a buoyant carbonated energy market which grew by 16.4%.  The Rockstar brand benefited from further innovation and a great rate of sale across its distribution base.  The combination of the brand's consumer position and market leading innovation coupled with our strong executional capabilities gave the brand great growth momentum, especially in the second half of the year.  The launch of the 'Xdurance' range in late 2011 and planned format developments for 2012 will ensure that we can continue to deliver strong growth in this increasingly important sector of the category.  In the final quarter of 2011 we also agreed to the March 2012 launch of Barr Strike energy drink, with our energy partner Rockstar, enabling us to compete more aggressively in the mid tier, smaller format size sector of the energy market.

The Orangina brand continued to make good progress with its agreed value based strategy and celebrated 75 years as a successful brand in 2011.

Our export business delivered further good performance, growing by 13.4% in the period.  We are pleased to have agreed a new long term contract with PepsiCo for the manufacture and distribution of IRN-BRU across Russia.  We have experienced continued growth in sales of Rubicon across Europe and Scandinavia and we plan to further step up growth in our export business across 2012, building on the solid platform which currently exists.

Efficient Operations

The underlying growth momentum of our brands and the additional impact of increasing numbers of formats and related levels of packaging complexity, in addition to the relentless drive for efficiency meant that 2011/12 was a challenging year from an operational perspective.  The planned closure of our Mansfield site in March 2011 and its subsequent sale was successfully achieved.  The completion of our capacity extension at Cumbernauld and the full commissioning of the equipment proved to be somewhat more challenging than we initially forecast.  The combination of late delivery of equipment and commissioning challenges in relation to production packaging equipment in tandem with the increased complexity of our production requirements led to capacity shortfalls and consequential cost inefficiencies across the summer of 2011.  The team worked hard to minimise the effect on both customers and from a financial perspective, however our performance was inevitably impacted.  We have learned numerous lessons and, importantly, we made very good progress across the final quarter of the year to improve our outputs, planning and customer service levels.  We are pleased to report that the Cumbernauld site's performance is now meeting and in some cases exceeding our output expectations and helping to support the growth we anticipate looking forward.

During the course of the year we also made good progress across our supply chain to improve flexibility, capacity and efficiency.

Capital Plans

Our growth trajectory and brand development plans mean we now have the confidence, opportunity and requirement to invest in the long term provision of additional capacity to support the future growth of the business.  We announced our intention to invest in production facilities in the south of the U.K. in late 2011 and can now confirm that we are currently in detailed discussions with developers Gazeley UK Limited regarding the development of a production and warehouse facility to be constructed at Magna Park, Milton Keynes. The new site will initially support a canning facility and then PET capacity and it is anticipated that the site will be operational in the summer of 2013.  Currently we envisage leasing the land and buildings and investing c£20m in the equipment and fit out.  This is a significant investment which the board believes will support the future growth potential of the business and will allow us to maintain, develop and support the successful business model that we currently operate.

People and Sustainability

The team at A.G. BARR have faced numerous challenges across the financial year 2011/12 - it has been a tough year with substantial cost headwinds, operational difficulties and a testing consumer and trade environment.  It is therefore a huge credit to everyone that we have continued to deliver against our expectation of growth in sales and profit at the same time as we continued to invest in future innovation and growth in our brands, assets and people.

We have also invested in building the organisation and developing teams across the business.  We achieved our Investors in People (IIP) status across the Company in 2010 and have developed this further, with several sites moving from bronze accreditation to silver, reflecting the improvement actions which have taken place across the business.

Our health and safety performance has continued to improve over the year.  The development of a safety culture across the business has progressed further, with notable success in our direct sales teams and continued strong positive performances across our operational base.  We have also initiated a wide-ranging external benchmarking approach to safety and expect to see more improvements in this area in coming years.

Our focus on corporate responsibility has increased across the past 12 months.  The roll out of our "Do the Right Thing" programme across all of our sites has built on the strong momentum of previous years.

Summary

We are operating in a challenging consumer environment where confidence remains fragile.  However, the soft drinks market remains a robust and growing sector.  We have once again successfully increased our share of this growth category, outperforming the market.

The belief in our brands' growth potential is supported by our continued investment in long term consumer equity building activity, innovation and our plans to invest in additional operating capacity to support this growth.

The financial position of the Group is robust and will afford us the potential to further develop our business where opportunities arise.  The immediate focus for the business is to deliver on our organic growth plans to provide consumers with great tasting brands that offer choice and value across the category and in all key channels.

Despite the challenges faced in our market, we remain confident that our proven operating model and our strong platform for growth will continue to allow us to execute our strategy of building long term sustainable value.

Roger A. White

CHIEF EXECUTIVE

Financial Review

Overview

Profit before tax for the financial year ended 28 January 2012 is reported at £35.4m, an increase on the prior year of 16.4%.  The reported position includes a net exceptional credit of £1.9m; excluding exceptional items, profit before tax increased to £33.6m, an increase of 6.2% on the prior year.  This is a very encouraging result given the tough comparative prior year trading position, which saw an increase in turnover of 10.4% and an associated increase in profit before tax and exceptional items in excess of 13%.

Our business continues to develop upon strong foundations.  In the financial period A.G. BARR continued to outperform the U.K. soft drinks market.  Within the context of a low growth retail environment, suppressed consumer confidence, significant competitor activity and some operational challenges, A.G. BARR achieved full year sales of £237.0m, an increase of 6.6% (£14.6m) on the prior year.  The core brands all performed well, growing particularly strongly within the north of England.

We have maintained our focus on delivering sales fundamentals, secured sales growth from our core brands, extended our penetration across new and existing distribution channels and introduced several new and exciting product developments.   

Despite increasing commodity costs our margins have been resilient, we have delivered strong cash flows and have once again increased investment behind our brands, infrastructure and internal capability.

Our balance sheet strength has improved, with the business generating a return on capital employed of 22.8% (prior year 21.4%).  Redundant assets have been sold, strong cashflow has reduced the net debt position in line with expectations and our small pension deficit is very manageable.

Segment Performance

During the financial period we delivered growth across both the carbonated and still drinks segments, overall turnover increased by £14.6m.

Our carbonates segment delivered volume growth of 3.5% with value growing more strongly at 5.8%.  In absolute terms the increase in carbonates equated to additional turnover of £10.0m, delivered through distribution increases across all our core brands.

We significantly outperformed the stills market delivering a year on year volume increase of 2.9% with turnover increasing by 9.4%, an increase of £4.7m.  Rubicon performed well in the face of strong prior year comparative performance and after significant retail pricing increases following the sharp rise in the cost of fruit pulp.  During the year we reviewed the promotional programme for the brand, reinforcing distribution within the impulse channel and growing awareness of the brand through its continued association with cricket.  However, by far the biggest success story during the year was the launch of KA stills which has added greatly to our exotic offering.

Across all segments our key brands delivered growth with one exception, being the sales of 19 litre water under the Findlays brand name.  Sales of this brand declined during the year following a review of the water cooler route to market and the subsequent decision to manage the brand for profit rather than volume, reinforcing our decision to impair the brand value in the prior year.

Margins

The volatile economic environment continued throughout the year and there are few signs of this abating.  The impact of increased VAT, poor consumer confidence and a low growth retail environment has led to a change in consumer purchasing behaviour, with value being a clear motivator.  Promotion across branded products has increased and combined with commodity cost inflation the impact has been to squeeze margins.

We have endeavoured to mitigate this impact by delivering price increases across our portfolio and managing raw material cost inflation through a series of operational and financial hedging activities, tight cost control and capital investment programmes focused at delivering improved efficiencies. 

Overall like for like (net of volume growth) our cost of goods increased by 5.5%.  Whilst price increases were secured, increases in the cost of sugar, fruit pulp and PET, together with a changing mix associated with still products growing at a faster rate than carbonates, led to a reduction in gross margin of 100 basis points.  Gross margins (pre exceptional items) reduced from 51.6% to 50.6%.  Carbonates gross margins were more resilient at 56.8% (previously 57.4%), whilst stills margins declined from 30.8% to 29.2% as the increased cost of fruit pulp fed through to a higher cost of goods. 

In the year ahead we expect input cost inflation to once again be in the region of 4-5%.  Current market pricing for PET is flat year on year, fruit pulp costs are lower but the cost of sugar continues to trend upwards.  We continue to manage the risks associated with our basket of commodity based items closely through a number of risk management activities and have appropriate levels of cover in place for the year ahead, which we manage through our commodity and treasury committees.

During the year we continued to drive the benefits of previous operational restructuring programmes and improvements within our manufacturing and distribution activities.  In 2011 these equated to reduced material requirements through light weighting of PET bottles, improved energy efficiency and following the cessation of manufacturing at Mansfield, a reduction in staffing of circa 35 people.  2011 was not however without its operational challenges.

Whilst the investment at our Cumbernauld facility implemented at the end of 2010 delivered tangible manufacturing filling and labelling speed improvements, installation of end of line packing equipment was delayed until the third quarter of 2011.  Additional levels of "dual running" were required as we outsourced production to meet our required levels of customer service.  The incremental cost of procuring this production has been treated as an exceptional cost within the financial period although we have not sought to estimate the negative impact that the associated internal inefficiencies had on margins.

Despite the various headwinds during the year the Group has not deviated from its strategy of continuing to invest and develop the business.  The Group continued to invest further in sales execution and brand building activities and is continuing to develop organisational capabilities across central functions.

An operating profit of £33.4m (before exceptional items) was reported during the year, representing an increase of 2% on the prior year.  Reported operating margins reduced from 14.7% to 14.1%.

Profit before tax of £33.6m (before exceptional items) was reported being an increase on the prior year of 6.2%, reflecting net finance income of £0.2m compared to a prior year net interest cost of £1.1m.

EBITDA (pre exceptional items) of £40.7m was generated in the period, with a reduced EBITDA margin of 17.2%, previously 18.2%.

Interest

A net interest income of £0.2m was reported in the financial period, £1.3m higher than the prior year.  This is best summarised in the table below:

	£000s		£000s
Finance income			59
Finance costs			(744)
Interest related to Group borrowings			(685)
Pension interest on defined benefits obligation	(4,357)
Expected return on scheme assets	5,234
Finance income related to pension plans			877
Total finance income			192

Finance income has benefited from the net expected return on scheme assets relative to the interest costs associated with the defined benefit pension scheme deficit of £0.9m.

The cash interest cost includes the full year interest charges of £0.7m, offset to a small extent by £0.1m of interest income on cash balances.  The reduced level of interest costs, when compared to the previous year, reflects the lower level of Group borrowings during the financial period and the unwinding of an interest rate hedge in July 2011, with interest costs reverting to a prevailing floating rate at that time.   Given the low level of net debt, the expected short term outlook on interest rate movements and the anticipated level of future free cash generation, the Group has not undertaken any further interest rate hedging activity.

The Group continues to operate its banking facilities through RBS and has facilities totalling £30.0m, of which £15.0m is the outstanding balance on a five year term loan maturing in July 2013, £10.0m is available through a three year revolving credit facility expiring in March 2014 and the balance being a £5.0m annual overdraft facility.

During the financial year borrowings of £10.0m were repaid in line with the five year facility agreement, with a further £10.0m due to be repaid in the financial year ending January 2013. 

Taxation

The tax charge of £7.3m represents an effective tax rate of 20.5%.  The effective tax rate, as reported in the accounts for the previous year was 25.8%.  The reduction results from a tax credit relating to the sale of properties together with the beneficial impact on deferred tax following the enactment of the 25% corporation tax rate, a 2% reduction from the prior year rate, combined with the reduced corporation tax rate applied to this year's profits.

Earnings Per Share (EPS)

Basic EPS for the period was 73.43p, up 24.8% on the same period last year.  Underlying EPS (i.e. excluding exceptional items) at 66.84p represents an increase of 9.1% on the prior year, benefiting from the reduced tax rate in the year.

Dividends

The board is recommending a final dividend of 20.65p per share to give a total dividend for the year ending 28 January 2012 of 27.95p.  This represents an increase of 10% compared to the prior year.  Over the past five years dividends have increased by 47% with a total of £41.6m having been paid to shareholders representing an average payout ratio of 40% of basic EPS.

Balance Sheet Review

The Group's balance sheet has continued to strengthen during the year, with net assets increasing from £116.7m to £127.0m.  This has mostly been driven by a reduction in current and non-current liabilities, notably reduced trade and other payables, reduced borrowings and lower deferred tax liabilities.

Three themes emerge from a review of the Group's balance sheet.  During the year redundant assets have been sold making the asset base more effective, our ratio of net debt to EBITDA of only 0.2 times has reduced in line with expectation and our defined benefit pension deficit at £0.4m is very manageable.

Return on capital employed for the period increased to 22.8% (previously 21.4%), reflecting the increase in pre exceptional profit of 6.2% relative to a slightly reduced asset base.

Non Current Assets

The residual value of intangible assets of £74.6m relates to the carrying value of the Strathmore and Rubicon brands, goodwill and customer lists.   This has reduced by £0.3m from the prior year, reflecting the amortisation of Groupe Rubicon acquired customer lists which now have a residual life of seven years.  In line with the relevant accounting standard intangible assets values were tested for impairment at the end of the year.  The test concluded considerable headroom was available with no impairment necessary.

Property, plant and equipment reduced by £3.7m in the year to £54.9m.  Whilst £6.6m of capital expenditure was undertaken during the period, this was offset by £3.3m of disposals, following the closure and subsequent sale of the Mansfield site and a further £7m of normal depreciation.  The majority of capital expenditure was invested in plant and equipment at Cumbernauld, commercial vehicles and commercial assets, which included branded vending machines and branded chiller equipment.

In the forthcoming year we anticipate normal capital expenditure to be circa £10.0m.  Included within this estimate is £2.0m for a proposed head office extension, £1.7m for IT related investment, which includes the first phase of an ERP replacement project, installation and commissioning of an effluent treatment plant and various infrastructure and normal operations based replacement projects.  It is now unlikely that we will be progressing with the outright purchase of a wind turbine, however, the Group is committed to embracing sustainable energy sources and reducing CO₂ emissions and is currently reviewing alternative routes that will optimise the use of capital.

In addition to our normal capital investment programme we have announced further details of the planned production and distribution facility to be located in the south of England.  At this stage we have not concluded our discussions with developers however we envisage leasing the associated land and buildings whilst incurring an incremental £20.0m on plant and equipment over the next five year period.  £2.1m of related capital expenditure is expected to fall in 2012/13.

Finally, within non-current assets, a retirement benefit surplus of £2.1m reported at the prior year end has reversed into a modest non-current pension liability of £0.4m.

Current Assets and Liabilities

Current assets remained flat over the period at £66.8m (previously £66.6m).  A reduction of inventories together with the sale of the Atherton site, an asset previously classified as held for sale, offset an increase in trade receivables.   The increase in receivables reflected strong trading over the Christmas and New Year period but also reflected the timing of the year end being the 28^th of the month, with receivables not becoming due until after the year end date.  The average number of trade receivable days has increased from 53 to 57.  We have experienced some ageing of the overdue debt position and a provision for the impairment for receivables has been increased to take account of this.  Cash balances were broadly flat at £8.3m.

Whilst inventories reduced by 8.8% from the prior year, they continue to be relatively high in order to support ongoing operational requirements.  The average inventory holding period equates to 59 days.  Prior to the year end, the Group began to increase inventories of canned products and mango pulp to benefit from reduced prices associated with the new harvest.

Current Liabilities

Current liabilities have reduced by £3.8m, to £45.8m, of which £3.3m related to the reduction in trade and other payables.  The average time taken to settle trade payables has increased by 6 days to 28 days.  Other current liabilities have remained broadly in line with the prior year, with the exception of an outstanding Mansfield redundancy provision which has reduced from £0.8m to £0.1m.

Non Current Liabilities

The £12.4m reduction in non-current liabilities relates mostly to the reduction in borrowings of £10.0m, with the balance being movements in deferred tax liabilities.

Cash Flow and Net Debt

Our financial position has continued to improve as we have delivered growth in underlying trading performance, carrying that through to improved operating profits and strong cashflow generation, yielding a positive impact on the overall net debt position.

Whilst the timing of the year end, being two trading days before the month end, impacted the collection of receivables, a free cash flow of £20.2m was generated in the period (previously £15.7m).   The free cashflow benefited from reduced capital expenditure of £6.9m (previously £9.8m) which itself was offset by the proceeds from the sale of both the Mansfield and Atherton properties and some associated plant. 

The free cashflow generation facilitated a £10.0m dividend payment, additional pension deficit recovery contributions of £2.7m and funded the purchase of £2.0m (net) of shares on behalf of various employee benefit trusts to satisfy the ongoing requirements of new and maturing share schemes.  In addition, a further £10.0m repayment was made towards the 5 year term loan.

As at 28 January 2012, the Group's closing net debt position stood at £6.7m, being the closing cash position of £8.3m, net of the borrowings of £15.0m.  This represents a net debt: EBITDA ratio of just over 0.2 times and reflects a reduction of 59.5% on the prior year net debt position of £16.6m.

Exceptional Items

An exceptional credit of £1.9m was reported during the year, reflecting two major pieces of activity.  A net £0.6m of exceptional charges were incurred as we finalised the closure and sale of the production and distribution facility at Mansfield, offset by an exceptional credit of £2.5m following completion of a pension increase exchange exercise.

During the year the Group incurred "dual running" costs as we were required to outsource some PET production volume to an external party at a cost of £0.9m.  The required capacity is now on stream and the Group now has sufficient operating capacity at Cumbernauld to absorb all current PET packaged products from the Mansfield factory and allow for projected future growth.  These "dual running" costs were offset by a £0.5m pension curtailment credit following the departure of Mansfield employees from the business.  A minor gain on the sale of the Mansfield asset and other provision releases netted to an overall charge of £0.6m.

Also during the year in conjunction with the Pension Trustees, the Group undertook a pension increase exchange exercise.  This exercise involved offering current pensioner and retiring members of the defined benefit pension scheme an opportunity to receive a one-off increase to their pension in the short term, in return for giving up future inflationary non statutory increases on that part of their pension.  The offer was made in order to provide current pensioner and retiring members of the Scheme with greater flexibility and choice over their pension payments, whilst also managing the Scheme's funding position and the risks associated with its pension liabilities more effectively.  The impact on the pension scheme has been to reduce future liabilities by £2.6m which, in line with IAS 19, has been transacted as a one off credit through the income statement.

Pensions

The Company has continued to operate two pension plans, being the A.G. BARR p.l.c. (2005) Defined Contribution Pension Scheme and the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme.  The latter is a defined benefit scheme based on final salary, which also includes a defined contribution section for pension provision to executive entrants.  The assets of both schemes are held separately from those of the Company and are invested in managed funds. The main section of the defined benefit scheme was closed to new entrants on 5 April 2002 and the executive section closed on 14 August 2003.

The area of pensions has again seen tremendous volatility, with asset values being impacted by substantial falls in the equity markets and liabilities increasing on the back of historically low gilt yields, themselves distorted by quantitative easing.

Under IAS 19 the pension surplus of £2.1m recognised at the end of January 2011 has reduced to a small deficit of £0.4m at the year end.

Asset values have increased by 4.3% to £82.9m, mostly attributable to company contributions of £3.9m, with a smaller than expected return on assets broadly covering benefits paid.  However, despite the benefit of the combined pension curtailments of £3.1m, liabilities increased by 7.7% to £83.3m, the most significant aspect being the impact of reduced bond yields and increases in assumed life expectancy.  Life expectancy at 65 for a female currently aged 45 is now assumed to be 91.5 years. Changes in actuarial assumptions have increased liabilities by £6.2m.

More important is the result of the latest triennial valuation undertaken as at April 2011 which is now complete.  The result of this exercise, which at best reflects a moment in time of the health of the scheme, highlighted a defined benefit scheme that was £2.3m in surplus, sufficient to cover 103% of the scheme's liabilities.  This has in no small part been achieved through the payment of additional company contributions of £9.9m since April 2008.

Following these results, the pension scheme trustees and the Company have agreed to cease the pension deficit recovery payments, the intention being, until at least the next triennial valuation.  These payments historically amounted to £2.7m per annum.  The focus moving forward will be to continue the work undertaken during the last financial year to review the underlying investment strategy whilst continuing to seek to reduce the underlying risk associated with the scheme.

Summary

In summary, the Group has delivered performance ahead of a robust soft drinks market, increasing market penetration and continuing to build brand equity.  Against a tough environment the Group has delivered volume, turnover and profit growth and our strong operating margins have been extremely resilient.  Free cashflow has increased enabling a reduction in borrowings, whilst increasing dividends by 10%.  Our balance sheet strength has improved with redundant assets sold, return on capital employed is increasing and our net debt is at very low levels.  Our pension deficit is very manageable and the cessation of deficit recovery payments will further boost future cashflow, helping to fund future developments.  This is a very strong financial base upon which to develop the business.

Share Price and Market Capitalisation

At 28 January 2012 the closing share price for A.G. BARR p.l.c. was £12.30, an increase of 6% on the closing January 2011 position.  The Group is a member of the FTSE250, with a market capitalisation of £478.8m at the period end.

Alex Short

FINANCE DIRECTOR

A.G. BARR p.l.c.

Consolidated income statement for the year ended 28 January 2012

The following are the final results for the year to 28 January 2012. The Board recommends the payment of a final dividend of 20.65p per share which if approved will be posted on 31 May 2012. The total distribution proposed for the year amounts to 27.95p (2011: 25.41p).

	2012				2011
	Before exceptional items	Exceptional items	Total		Before exceptional items	Exceptional items	Total
	£000	£000	£000		£000	£000	£000
Revenue	236,998	-	236,998		222,366	-	222,366
Cost of sales	(117,142)	(1,111)	(118,253)		(107,656)	(331)	(107,987)
Gross profit	119,856	(1,111)	118,745		114,710	(331)	114,379
Operating expenses	(86,495)	2,975	(83,520)		(82,016)	(825)	(82,841)
Operating profit	33,361	1,864	35,225		32,694	(1,156)	31,538
Finance income	936	-	936		321	-	321
Finance costs	(744)	-	(744)		(1,423)	-	(1,423)
Profit before tax	33,553	1,864	35,417		31,592	(1,156)	30,436
Tax on profit	(7,933)	662	(7,271)		(8,084)	233	(7,851)
Profit attributable to equity holders	25,620	2,526	28,146		23,508	(923)	22,585
Earnings per share (p)
Basic earnings per share	66.84	6.59	73.43		61.24	(2.40)	58.84
Diluted earnings per share	66.47	6.55	73.03		60.90	(2.39)	58.51

Record date:  4 May 2012

Ex-div date:  2 May 2012

A.G. BARR p.l.c.

Consolidated Statement of Comprehensive Income for the year ended 28 January 2012

	2012		2011
	£000		£000
Profit after tax	28,146		22,585
Other comprehensive income
Actuarial (loss) / gain on defined benefit pension plans	(9,147)		4,598
Effective portion of changes in fair value of cash flow hedges	382		573
Deferred tax movements on items taken direct to equity	2,027		(1,350)
Other comprehensive income for the period, net of tax	(6,738)		3,821
Total comprehensive income attributable to equity holders of the parent	21,408		26,406

A.G. BARR p.l.c.

Consolidated Statement of Changes in Equity for the year ended 28 January 2012

		Share capital		Share premium account		Share options reserve		Cash flow hedge reserve		Retained earnings		Total
		£000		£000		£000		£000		£000		£000
At 29 January 2011		4,865		905		1,981		(382)		109,338		116,707
Cash flow hedge - recognition of fair value		-		-		-		382		-		382
Actuarial loss on defined benefit pension plans		-		-		-		-		(9,147)		(9,147)
Deferred tax on items taken direct to equity		-		-		(11)		-		2,038		2,027
Profit for the period		-		-		-		-		28,146		28,146
Total comprehensive income for the period		-		-		(11)		382		21,037		21,408
Company shares purchased for use by employee benefit trusts		-		-		-		-		(3,158)		(3,158)
Proceeds on disposal of shares by employee benefit trusts		-		-		-		-		1,123		1,123
Recognition of share-based payment costs		-		-		905		-		-		905
Transfer of reserve on share award		-		-		(647)		-		647		-
Dividends paid		-		-		-		-		(9,965)		(9,965)
At 28 January 2012		4,865		905		2,228		-		119,022		127,020
At 30 January 2010		4,865		905		1,595		(955)		94,099		100,509
Cash flow hedge - recognition of fair value		-		-		-		573		-		573
Actuarial gain on defined benefit pension plans		-		-		-		-		4,598		4,598
Deferred tax on items taken direct to equity		-		-		82		-		(1,432)		(1,350)
Profit for the period		-		-		-		-		22,585		22,585
Total comprehensive income for the period		-		-		82		573		25,751		26,406
Company shares purchased for use by employee benefit trusts		-		-		-		-		(4,197)		(4,197)
Proceeds on disposal of shares by employee benefit trusts		-		-		-		-		2,078		2,078
Recognition of share-based payment costs		-		-		956		-		-		956
Transfer of reserve on share award		-		-		(652)		-		652		-
Dividends paid		-		-		-		-		(9,045)		(9,045)
At 29 January 2011		4,865		905		1,981		(382)		109,338		116,707

 

A.G. BARR p.l.c.

Consolidated Statement of Financial Position as at 28 January 2012

	2012		2011
	£000		£000
Non-current assets
Intangible assets	74,613		74,940
Property, plant and equipment	54,873		58,570
Retirement benefit surplus	-		2,092
	129,486		135,602
Current assets
Inventories	18,971		20,809
Trade and other receivables	39,328		34,733
Derivative financial instruments	176		219
Cash and cash equivalents	8,289		8,411
Assets classified as held for sale	-		2,400
	66,764		66,572
Total assets	196,250		202,174
Current liabilities
Borrowings	5,000		5,000
Trade and other payables	36,235		39,562
Derivative financial instruments	309		416
Provisions	91		777
Current tax	4,195		3,920
	45,830		49,675
Non-current liabilities
Borrowings	9,849		19,814
Deferred income	-		72
Deferred tax liabilities	13,164		15,906
Retirement benefit obligations	387		-
	23,400		35,792
Capital and reserves attributable to equity holders
Called up share capital	4,865		4,865
Share premium account	905		905
Share options reserve	2,228		1,981
Cash flow hedge reserve	-		(382)
Retained earnings	119,022		109,338
	127,020		116,707
Total equity and liabilities	196,250		202,174

A.G. BARR p.l.c.

Consolidated Cash Flow Statement for the year ended 28 January 2012

	2012		2011
	£000		£000
Operating activities
Profit before tax	35,417		30,436
Adjustments for:
Interest receivable	(936)		(321)
Interest payable	744		1,423
Depreciation of property, plant and equipment	6,974		7,325
Amortisation of intangible assets	327		392
Fair value adjustment to financial instruments	352		(192)
Impairment of intangible assets	-		1,084
Share-based payments costs	905		956
Gain on sale of property, plant and equipment	(358)		(6)
Government grants released	(72)		(4)
Operating cash flows before movements in working capital	43,353		41,093
Decrease / (increase) in inventories	1,838		(4,893)
Increase in receivables	(4,595)		(4,576)
(Decrease) / increase in payables	(3,529)		6,038
Net decrease in retirement benefit obligation	(5,791)		(3,105)
Cash generated by operations	31,276		34,557
Tax on profit paid	(7,711)		(7,243)
Net cash from operating activities	23,565		27,314
Investing activities
Purchase of property, plant and equipment	(6,937)		(9,840)
Proceeds on sale of property, plant and equipment	6,086		281
Interest received	25		48
Net cash used in investing activities	(826)		(9,511)
Financing activities
New loans received	7,500		12,000
Loans repaid	(17,500)		(20,000)
Bank arrangement fees paid	(60)		-
Purchase of Company shares by employee benefit trusts	(3,158)		(4,197)
Proceeds from disposal of Company shares by employee benefit trusts	1,123		2,078
Dividends paid	(9,965)		(9,045)
Interest paid	(801)		(1,154)
Net cash used in financing activities	(22,861)		(20,318)
Net decrease in cash and cash equivalents	(122)		(2,515)
Cash and cash equivalents at beginning of period	8,411		10,926
Cash and cash equivalents at end of period	8,289		8,411

A.G. BARR p.l.c.

General information

A.G. BARR p.l.c. ('the Company') and its subsidiaries (together 'the Group') manufacture, distribute and sell soft drinks.

The Group has manufacturing sites in the U.K. and sells mainly to customers in the U.K. but does have some international sales.

The Company is a public limited company incorporated and domiciled in Scotland. The address of its registered office is Westfield House, 4 Mollins Road, Cumbernauld, G68 9HD.

The Company has its listing on the London Stock Exchange.

Basis of preparation

The consolidated and parent Company financial statements of A.G. BARR p.l.c. have been prepared in accordance with International Financial Reporting Standards ('IFRS') as endorsed by the EU.  They have been prepared under the historical cost convention.

Segment reporting

The Group's management committee has been identified as the chief operating decision maker.  The management committee reviews the Group's internal reporting in order to assess performance and allocate resources.  The management committee has determined the operating segments based on these reports.                     

The management committee considers the business from a product perspective. This led to the operating segments identified in the table below.  There has been no change to the segments during the year (after aggregation).  The performance of the operating segments is assessed by reference to their gross profit before exceptional items. 

12 months ended 28 January 2012

				Carbonates	Still drinks and water	Other	Total
				£000	£000	£000	£000
Total revenue				182,340	54,078	580	236,998
Gross profit before exceptional items				103,560	15,779	517	119,856
12 months ended 29 January 2011
				Carbonates	Still drinks and water	Other	Total
				£000	£000	£000	£000
Total revenue				172,316	49,420	630	222,366
Gross profit before exceptional items				98,932	15,235	543	114,710

There are no inter-segment sales.  All revenue is from external customers.

Other segments represent income from water coolers for the Findlays 19 litre water business, rental income for vending machines and other soft drink related items such as water cups.

The gross profit from the segment reporting is noted before exceptional costs as the dual running exceptional costs allocated to cost of sales in the income statement relate to both carbonates and still drinks and water. The gross profit from the segment reporting is reconciled to the total profit before income tax, as shown in the consolidated income statement.

All of the assets and liabilities of the Group are managed by the management committee on a central basis rather than at a segment level.  As a result no reconciliation of segment assets and liabilities to the statement of financial position has been disclosed for any of the periods presented.

Each of the following items are included in the reportable segments results and balances, and no adjustments are required in arriving at the costs included in the consolidated primary statements:        

						2012	2011
						£000	£000
Capital expenditure						6,937	9,840
Depreciation and amortisation						7,301	7,717
Impairment of intangible assets						-	1,084

Capital expenditure comprises cash additions to property, plant and equipment.

All of the segments included within Carbonates and Still drinks and water meet the aggregation criteria set out in IFRS 8 Operating Segments.

Geographical information

The Group operates predominately in the U.K. with some worldwide sales.  All of the operations of the Group are based in the U.K.

						2012	2011 Restated
Revenue						£000	£000
U.K.						231,288	217,329
Rest of the world						5,710	5,037
						236,998	222,366

The Rest of the world revenue includes sales to Ireland and wholesale export houses.  Previously these were included within U.K revenue, therefore the prior year comparatives have been restated. In the year to 29 January 2011 they were reported as £218,620,000 and £3,746,000 for the U.K and the Rest of the world respectively.

All of the assets of the Group are located in the U.K.

Major customers

No single customer accounts for 10% or more of the Group's revenue in either of the periods presented. 

Earnings per share

Basic earnings per share have been calculated by dividing the earnings attributable to equity holders of the parent by the weighted average number of shares in issue during the year, excluding shares held by the employee share scheme trusts.

					2012	2011
Profit attributable to equity holders of the Company (£000)					28,146	22,585
Weighted average number of ordinary shares in issue					38,328,493	38,385,598
Basic earnings per share (pence)					73.43	58.84

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

				2012	2011
Profit attributable to equity holders of the Company (£000)				28,146	22,585
Weighted average number of ordinary shares in issue				38,328,493	38,385,598
Adjustment for dilutive effect of share options				213,992	216,127
Diluted weighted average number of ordinary shares in issue				38,542,485	38,601,725
Diluted earnings per share (pence)				73.03	58.51

Dividends
				2012		2011		2012	2011
				per share		per share		£000	£000
Paid final dividend				18.66	p	16.85	p	7,124	6,450
Paid interim dividend				7.30	p	6.75	p	2,841	2,595
				25.96	p	23.60	p	9,965	9,045

The directors have proposed a final dividend in respect of the year ended 28 January 2012 of 20.65p per share, amounting to a dividend of £8,038,000. It will be paid on 1 June 2012 to shareholders who are on the Register of Members on 4 May 2012.   

This dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability in these statements in line with the requirements of IAS 10 Events after the Balance Sheet Date.

Annual General Meeting

The Annual General Meeting will be held at 9.30am on 21 May 2012 at the offices of KPMG, 191 West George Street, Glasgow, G2 2LJ.

Statutory Accounts

The financial information set out above does not constitute the Company's statutory accounts for the years ended 28 January 2012 or 29 January 2011 but is derived from the 2012 accounts. Statutory accounts for 2011 have been delivered to the registrar of companies, and those for 2012 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified and (ii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

 

END

 

 

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