FINAL RESULTS for the year ended 24 January 2021

30 March 2021

 

 

A.G. BARR p.l.c.
 

FINAL RESULTS for the year ended 24 January 2021

 

 

A.G. BARR p.l.c., ("A.G. BARR" or the "Group"), which produces and markets some of the UK's leading drinks brands, including IRN-BRU, Rubicon, Barr Flavours and Funkin Cocktails, announces its final results for the 52 weeks ended 24 January 2021.

 

Financial summary

 

	2021	2020	Change
Revenue	£227.0m	£255.7m	(11.2)%
Profit before tax (before exceptional items)*	£32.8m	£37.4m	(12.3)%
Statutory profit before tax	£26.0m	£37.4m	(30.5)%
EBITDA margin*	20.5%	20.0%	+50bps
Net cash from operating activities	£50.7m	£40.1m	26.4%
Basic earnings per share (before exceptional items)*	22.31p	26.50p	(15.8)%

 

Overview
 

·      A year of clear strategic progress and resilient financial performance, despite a challenging backdrop

●    Swift and decisive response to Covid-19 challenges

○    Successful prioritisation of safety and wellbeing

○    Maintained continuity of supply and service to customers and consumers

○    Actions taken to control costs, conserve cash and underpin our financial stability

●    Ended the financial year with a stronger balance sheet than previous year, with £50.0m net cash at bank* (2019/20: £10.9m)

 

Strategic highlights

●  Resilient brand performance, supported by continued investment in brand building, and with exciting innovation pipeline for 2021

●    Business re-engineering projects completed - right-sized for 2021 return to growth

●    Environmental sustainability roadmap in progress with net zero carbon ambition of 2040

●    Increasing drive towards a multi-beverage operating model

○    Funkin cocktails strong growth in take home and direct to consumer channels

○    Strong innovation pipeline for 2021

●    Energy market strategy further developed

○    IRN-BRU Energy in growth and gaining momentum

○    Launch of Rubicon RAW Energy

●    Digital development

○    Developing and utilising digital platforms to meet changing market dynamics
 

Roger White, Chief Executive, commented :

"We delivered a resilient financial performance in a year that was difficult for all.  I am extremely proud of everyone in our business for their commitment and flexibility, which allowed us to remain fully operational throughout the pandemic.

 

Across the year, we continued to focus on our key strategic initiatives.  We have significantly progressed our multi-beverage strategy, extended our reach into new channels and accelerated our roadmap towards net zero, which we aim to deliver by 2040.  We closed the year in strong financial health, with our brands and business poised for growth on a like for like basis, and with the clear intention to recommence dividend payments in 2021.

 

Whilst there now appears to be a route out of lockdown, the immediate future remains uncertain.  Notwithstanding this current backdrop, our strategy for the year ahead is to support our core growth initiatives with significant investment.

We have exciting plans to deliver across the Group and are confident of continuing to make further progress in the coming year."

 

For more information, please contact :

 

A.G. BARR  0330 390 3900                                 Instinctif Partners  020 7457 2010/05

Roger White, Chief Executive                                          Justine Warren

Stuart Lorimer, Finance Director                                      Matthew Smallwood

           

Next trading update - July 2021

 

 

* Items marked with an asterisk are non-GAAP measures.  Definitions and relevant reconciliations are provided later in this announcement.

 

 

 

 

 

Chairman's Introduction

 

In the Chairman's statement last year I described how we were responding to the early stages of a global pandemic.  I did so without fully appreciating the severity and duration of what we were facing.  As I write this report a year later, we are still in the grip of a crisis which has touched the lives of us all, whether directly or indirectly.  2020 will be a year that will be remembered with sadness by all those who lost family members and loved ones, and praise for those who endeavoured to keep wider society moving throughout the past long 12 months.

 

The A.G. Barr Board has continued to support the executive team and the wider business to navigate through this extraordinary period and I would like to register our thanks to everyone across the employee, supplier and partner base, all of whom have worked hard to deliver continuity of supply and service to all our customers and consumers.

 

The variable and fast-moving impacts of the Covid-19 pandemic have led to a volatile and unpredictable 12 months.  Against this backdrop I am pleased to report that A.G. Barr delivered a resilient financial performance, with revenue of £227.0m (2019/20 : £255.7m).

The executive team responded with decisiveness in the face of events that no-one could have predicted and we ended the year with profit before tax and exceptional items* of £32.8m.  Swift actions were taken to control costs, conserve cash and underpin our financial stability.

 

The safety and wellbeing of our employees is always our top priority and never was this more the case than in the past 12 months.  Decisions taken in this area in turn supported our secondary objective of maintaining operational resilience.  Thanks to the commitment and adaptability of our teams, particularly across our supply chain, we remained safe and operational throughout the full year and continued to deliver a high level of service and quality.

As lockdowns and social restrictions were implemented, eased and then reinstated across the year, both our Barr Soft Drinks and Funkin businesses felt the effects.  The severity of the impact on our business lessened as the year progressed and we became more adept at dealing with the challenges we faced, taking timely action to mitigate the financial, operational and consumer changes we experienced.

 

Our flexibility, alongside the resilience of our business model and the strength of our brands, were key to delivering a robust performance in these testing times.

 

I am pleased to report that following the considerable management actions to protect our financial stability the business ended the year with an even stronger balance sheet than this time last year.

 

Dividend

In April 2020, given the unprecedented circumstances arising from Covid-19, we communicated our decision to temporarily suspend dividend payments, one of a number of important actions we took to conserve cash and maintain balance sheet flexibility.  We kept this position under review and, on the basis of our underlying assumptions related to the UK's Covid-19 recovery, confirmed at our Interim Results in September 2020 that we expected to resume dividend payments in the 2021/22 financial year.

Subsequent to this announcement the pandemic has accelerated, along with the associated lockdowns and societal interventions.  However, we are positive that the rapid UK vaccination response will provide a route through, and out of, the current crisis and we remain committed to our plan to recommence dividend payments during the course of this financial year ending January 2022.

 

Board
Our desire to further develop and strengthen our Board's skills, refresh capabilities and increase diversity continues.  We will seek to add to our Board this year as part of our normal Independent Non Executive Director succession planning.

 

In addition, as I move towards the conclusion of my tenure as Chairman, a formal search process has been initiated to find a suitable candidate to succeed me in due course, with an update expected later this year.

 

Responsibility

The Board and executive team have put considerable incremental efforts during the year into defining our roadmap and plans across the Environmental, Social and Governance (ESG) agenda.  This will become an increasing focus for the Board and business in the coming years.  The Chief Executive Statement, and our Responsibility and Governance Reports, will set out our progress and further plans in these areas.

People and culture

The Covid-19 pandemic has put a considerable strain on us all, both personally and professionally, and our business has not been immune from the effects.  During the course of the year, facilitated via the Independent Director responsible for employee engagement, the Board has reviewed and discussed a range of people and culture matters, such as wellbeing, mental health and employee engagement.  

 

Despite the trying times, teams have pulled together and the positive, results-driven and supportive A.G. Barr culture has shone through.  I would like to take this opportunity to extend my thanks on behalf of the Board to the full team at A.G. Barr, for their contribution and commitment which have once again been invaluable.

 

Prospects

Looking ahead, it is clear that 2021 will not be an entirely "normal" year, however there are many reasons to be positive as we look to the future.  The Board remains confident in our value driven strategy and I believe we have navigated the crisis well.  The resilience of our teams, business model and brands have been highlighted in this most unusual and difficult year.  We have gained considerable insight and experience in 2020 which will remain important for at least the early months of 2021, however as we now plan for recovery the Board is confident that our strategy will drive growth and value for all our shareholders and key stakeholders.

 

John Nicolson

CHAIRMAN
 

Chief Executive's review

 

Our key financial metrics for the year were as follows :

●    Group revenue £227.0m (2020 : £255.7m)

●    Profit before tax and exceptional items* £32.8m (2020 : £37.4m)

●    Profit before tax and after exceptional items £26.0m (2020 : £37.4m)

●    Operating margin before exceptional items* 14.8% (2020 : 14.9%)

●    Strong balance sheet with net cash at bank* of £50.0m

Statutory profit before tax of £26.0m reflects a net exceptional charge of £6.8m.  Total exceptional costs of £14.4m related to the completion of our business re-engineering programme, the previously communicated £10.0m impairment of our Strathmore brand and assets and a £1.3m Funkin goodwill adjustment. These costs were partially offset by an exceptional credit of £7.6m, related to a one-off contractual payment following the early termination of the Rockstar franchise.

 

I had anticipated the 2020/21 financial year to be a period of strong recovery for the Group.  In the later part of 2019/20 we initiated a number of actions to support our return to growth, building blocks that saw us exit 2019/20 with strong momentum.  This momentum carried into the first 6 weeks of the new financial year, however the balance of the year that followed these early weeks was dominated by Covid-19 and the significant impact it has had on our collective health, wellbeing, economy and a raft of associated wider societal issues.

Notwithstanding the challenges we faced, 2020/21 was a year of action and progress for A.G. Barr. Across the Group we executed our strategy with the agility and pragmatism necessary in these volatile times.  

Covid-19

Since the onset of the Covid-19 pandemic we have followed a simple approach in dealing with the crisis focusing on 3 key areas :

1.   Putting our people and safety first

We have always worked hard to create a culture in which safety and wellbeing are our top priorities.  Building on these strong foundations we successfully introduced an enhanced range of safety and hygiene measures across all our operations in response to the challenges of the pandemic.  This ensured we had the safest working conditions possible across our sites whilst seamlessly and effectively transitioning to technology-enabled home-working for as many colleagues as possible. 

Wellbeing has been at the top of our agenda throughout the year and our 2020 Responsibility Report details some of the specific initiatives we have introduced to support our people, such as increasing the number of employees trained as Mental Health first aiders who are equipped to provide support in these difficult times.

2.   Supporting Group operating resilience

Along with our fellow food and drink manufacturers we have worked hard to successfully maintain continuity of the food and drink supply chain across the past 12 months.  I am extremely proud of everyone in our business for the grit, determination and resilience they have demonstrated.  I am especially proud of our wider supply chain teams who have kept our factories, warehouses and logistics operational and delivered a high level of quality and service to our customers and consumers throughout the year, supported by our key suppliers and partners.  

3.   Ensuring our financial security and stability                                                                      

Entering the 2020/21 financial year with £10.9m net cash at bank*, the Group had the benefit of a very strong financial base and balance sheet.  However, given the uncertainty associated with the pandemic, we took early and decisive action to protect liquidity, conserve cash and reduce costs. This included the suspension of dividends, a short period when we made use of the government's Coronavirus Job Retention Scheme, voluntary executive salary reductions and ultimately a restructuring plan which commenced in the summer months and completed in January 2021, ensuring we right-sized the business.

Many of the actions we took across 2020 were not easy decisions to make, impacting shareholders and employees.  However we believe we did what was required to safeguard our business, to mitigate as far as possible the risks arising from Covid-19 and to ensure our business is well positioned to benefit from the recovery phase when it arrives.

 

Soft drinks market

Once again the soft drinks market has demonstrated its resilience.

 

The 2020 soft drinks market was characterised by the migration of out of home consumer demand into the home environment.  In addition to the well understood challenges faced by the hospitality sector, the high street and travel also suffered as a consequence of significantly less footfall.  Conversely the grocery multiple channel benefited from the shift in shopping dynamics and there was also some positive spill-over for soft drinks purchasing into online and neighbourhood convenience stores.  

 

As we have commented previously, the data across the market reflects the changes in purchase behaviour of consumers but does not capture the impact as accurately on out of home, general hospitality and the on-trade markets.  The switch of consumer purchase habits and the data read in take home will reflect reality but will not reflect the impact of reduced consumption in the less measured but materially impacted channels.

 

IRI Marketplace data for the 52 weeks to 24 January 2021 recorded the total UK soft drinks retail market as increasing in value by 1.8% and in volume by 2.4%.  Volume grew ahead of value driven by a move to bigger pack formats with unit sales down 6% while average pack size grew by 9%.

 

Carbonates grew in value by 7.8%, buoyed by those sub categories with historic strength in out of home channels, while the value decline in stills (down 5.1%) reflected the drop in "on-the-go" consumption of bottled water, sports drinks and to a lesser extent fruit drinks.

 

Cocktail market

Pre-lockdown cocktails in the GB on trade grew in value by 6.4%, outlets stocking cocktails increased by 3.7% and the number of consumers enjoying cocktails rose by 13% year on year to 10.3m. 

(Source : CGA Mixed Drinks Report Q1 2020).

 

However from the end of March 2020 out of home cocktail consumption was significantly impacted as a result of the UK-wide lockdown.  The Q3 2020 CGA Mixed Drinks Report reported GB cocktails value down 34%, albeit with cocktails' share of total spirits down only 1 percentage point at 6.5%.

 

In the off trade, there was clear evidence however that cocktail consumption at home has risen dramatically.  Prior to Covid-19, only a third (37%) of people who consumed mixed drinks in pubs and bars did so at home, but the first national lockdown saw that figure rise to half (50%), with young adults especially engaged.  The Funkin brand capitalised on this increase in demand with its range of premium ready to drink (RTD) cocktails and is now the UK's No.1 RTD cocktail brand and a Top 5 RTD grocery brand, leading the growth of the RTD category.

(Sources : CGA Mixed Drinks At Home Report 2020 ; Nielsen GB Total Grocery Value 12 weeks to 16 January 2021)

 

Performance impact summary

We started the year with strong momentum however the Covid-19 pandemic began to have an impact at the end of March, most significantly on our hospitality and convenience channels with a material reduction in the "out of home" consumption of soft drinks combined with a consumer shift towards larger, less frequent take-home purchasing.  As such Q1 revenue declined 9.1%.

 

While these shopping and consumption patterns continued throughout the "full lockdown" period across April, May and June, we believe sales benefited from the favourable weather during this time.  As lockdown measures eased somewhat from July, we saw sales in the hospitality and 'on the go' consumption segments beginning to recover, albeit slowly. Q2 revenue declined 6.4% resulting in H1 revenue down 7.6%

 

In the first 4 months of the second half trading was at the upper end of our scenario plans with Q3 trading down 0.5%.  However, Covid-19 developments since early December 2020, in particular increased social restrictions across the UK and the entry into full lockdown in January 2021, had a significant effect, most notably in the hospitality and "drink now" categories.  This, alongside the end of the Rockstar partnership at the end of October 2020, resulted in H2 revenues down 14.6%. 

 

Performance across major retail has been robust with a broadly flat performance relative to the prior year and our online and direct to consumer trading has been very strong, albeit from a small but growing base.  "Out of home" channels continue to be impacted by trading restrictions with social distancing measures reducing in-store capacity, and people continuing to work from home.   We will continue to support affected customers through the current challenges, to ensure both we and they are well-placed for the recovery as it unfolds.

 

Strategy execution

We remain committed to our strategic priorities - connecting with consumers, building brands, driving efficiency and building trust.   Within this framework the evolution of our strategy execution continued across 2020 despite the difficulties of the pandemic.  We continued to invest for growth and made progress in some key strategic focus areas such as environmental sustainability, digital development and our increasing drive towards a multi-beverage operating model.

 

Connecting with consumers

Despite the obvious challenges of almost a full year dominated by the impact of the global pandemic we have continued to support and develop innovative ways to connect with consumers.  Keeping our brands front of mind in challenging times and providing a little light relief to consumers has been our objective, especially during the key summer trading months. 

 

IRN-BRU has continued to provide consumers small moments of pleasure during uncertain times, both through the enjoyment of the product itself and through strengthening consumers' long-standing emotional connections with the brand. 

 

Excluding the benefit of the limited edition IRN-BRU 1901, IRN-BRU sales declined 6.5%, a robust performance in the circumstances, with IRN-BRU Energy and IRN-BRU XTRA both in growth.

 

During the course of the year we increased the brand's presence, particularly across social media and digital, supporting brand affinity and awareness, giving us confidence in IRN-BRU's brand equity strength as we now deliver our 2021 plans.

 

The Rubicon brand's positioning and communication strategy was given a full refresh with the launch of the "Make the unboring choice" campaign across TV, outdoor, social and digital channels.  This multi-year campaign is designed to support the growth of the brand as an aspirational mainstream range of exciting fruity drinks aimed at a broad range of consumers.

 

Rubicon gained market value share within both the fruit drinks and flavoured water sub categories however total sales fell 9.8% against a Covid-19 backdrop which impacted both the brand's performance in impulse and during the key Ramadan trading period.

 

We are confident in the refreshed brand positioning, innovation pipeline and consumer marketing strategy in the long term.

 

Building brands

Our drive to build a multi-beverage portfolio has made positive progress across the last year with Funkin's ready to drink (RTD) cocktails gaining traction within the grocery channel, where the Funkin brand has grown by over 100%.  While Funkin was materially affected by the difficulties experienced across the hospitality sector, this was partially offset by take home opportunities.  Funkin grasped these opportunities, through both traditional retail and direct to consumer channels, as consumers tried to vary their drinks consumption at home.  We are expecting to retain and grow RTD cocktail distribution in these channels whilst we also anticipate a strong return to growth in the on trade in due course.  We have supported our hospitality customers where possible, appreciating the challenges they face, and will continue to work in partnership, particularly as we look ahead to the reopening of this vital trade channel.

 

In addition we have developed a range of hard seltzers to sit within the Funkin masterbrand, which although only available towards the end of 2020/21, will factor in our growth plans in the year ahead.

 

We have underpinned our relationship with Elegantly Spirited Limited (ESL) further investing in the business and supporting the STRYKK brand via our distribution agreement.  The low and no alcohol market has continued to grow at pace over 2020 culminating in an increased uptake of "dry January".  This is a positive partnership and we look forward to playing our part in the STRYKK brand's future growth. 

 

Driving efficiency

We continue to drive for greater efficiency and stronger financial returns.

 

We initiated our business re-engineering programme in the second half of 2019 and this 2-year programme completed in 2020/21.  We reviewed and re-scoped the programme in light of the Covid-19 impact and the confirmation of the termination of our Rockstar partnership.   The programme delivered a significant number of simplification actions alongside a reorganisation and refocusing of our ways of working.  We now have the right capabilities and organisational structures in place to support our growth through the recovery phase.

 

We have also made a number of digital improvements across our technology and systems driving efficiency and flexibility for our customers, suppliers and our own operations.  This has proven even more important given the challenges we are all now dealing with, as remote working and reliable technology continue to be more important than ever.

 

We have now turned our attention to value optimisation which is creating and delivering a continuous pipeline of product optimisation actions which we expect to add considerable value for some time to come.  

 

Building trust

Trust needs to be earned over time.  We have worked hard to build trust over many decades however we are acutely aware that this cannot be taken for granted, and is something we must continually seek to enhance and build upon through our responsible actions.

Across the past year we have sought to play a small part in supporting those who have done so much for us all during the pandemic, distributing over 500,000 drinks to hospitals, care staff and our communities throughout the UK as a gesture of our thanks.

A key focus across the last 12 months has been on our environmental sustainability agenda.  Working with independent experts we are accurately assessing our current carbon footprint such that we can build a deliverable and realistic decarbonisation roadmap - with an ambition to be net zero by 2040, if not sooner.  We plan to share our net zero roadmap during the course of 2021.

While this important assessment is underway, and building on our move to 100% renewable electricity at all our sites in 2020, we are now accelerating many of the actions we had already identified to help us on our net zero journey.  We have increased both the quantum and the pace of our recycled plastic (rPET) ambition - our IRN-BRU and Rubicon plastic bottles will be made from 100% recycled material by early 2022 and all our plastic bottles will be 100% rPET by the end of 2023.  We're also one of the first businesses in the UK to start using 100% recyclable packaging film made from 100% recycled content, which will be on all our consumer multipacks by the end of 2021.

We are actively involved in finding solutions to address packaging waste and believe that a deposit return scheme (DRS) for drink containers in the UK will lead the way for food and drinks packaging to become part of a truly circular economy.  Over the past year we have worked closely with fellow drinks producers in Scotland, along with other key stakeholders, taking the lead in the establishment of a Scottish DRS scheme administrator.  The legislation permits producers to appoint a not-for-profit Scheme Administrator to collectively discharge their DRS obligations and designed correctly, we believe the DRS scheme can be a sustainable solution to packaging waste that is positive for the environment and practical for consumers and business.  

These are just some of the actions we are taking to ensure we play our part in reducing the effects of climate change on our planet.  We are a business that prides itself on acting with integrity and building trust so we will only confirm our net zero commitment as and when we have a robust and deliverable plan in place to deliver it.

Outlook

We closed the year in strong financial health and with our brands and business poised for growth, albeit without the Rockstar brand which accounted for over 8% of Group revenue in 2020/21.  The past 12 months have taught us a great deal about how to manage uncertainty.  The uncertainty related to Covid-19 continues, however we have taken steps to ensure that our planning for the year ahead gives us as much flexibility as possible to minimise the likely impact on our short-term financial performance.  Our focus beyond this uncertainty is to capitalise on the growth potential of our brands in the recovery phase that will come in due course.  I am confident that we have the agility, ambition and strategy to deliver against our potential in the short, medium and long term.

 

Roger White

CHIEF EXECUTIVE

 

 

 

 

Financial review

 

The following is based on results for the 52 weeks ended 24 January 2021.  Comparatives, unless otherwise stated, are for the 52 weeks ended 25 January 2020.

 

Overview

Having entered the financial year with strong trading momentum, the impact of Covid-19 in March was as unexpected as it was unwelcome and significantly impacted performance thereafter.  The financial imperatives for the business were to secure liquidity, ensure continuity of operations, conserve cash and reset the cost base.  While we delivered against these priorities, trading was nonetheless disrupted, particularly in the hospitality and 'out of home' channels.  This resulted in an 11.2% reduction in reported net sales, down £28.7m to £227.0m, and a 12.3% reduction in profit before tax and exceptional items, down £4.6m at £32.8m.

 

Statutory profit before tax at £26.0m was down £11.4m, driven by the adverse trading performance and a net P&L charge of £6.8m arising from a number of exceptional items detailed below.

 

The impact of Covid-19 and the termination of the Rockstar franchise required prompt and decisive action to reduce costs and to right-size our operations, while ensuring we maintained appropriate capacity for growth.  All aspects of expenditure were reviewed including marketing investment, discretionary pay and organisational structural costs.  We re-focused our marketing on the channels where spend remained effective and pivoted our resources to those routes to market that remained open.  The combined impact of these actions enabled gross and operating margins, pre exceptional items, to be maintained at levels broadly in line with the prior year despite the impact of lower sales.

 

We entered the pandemic with strong financial fundamentals, a well maintained asset base and significant net cash.  At £50.7m (2019/20 : £40.1m) net cash generated from operating activities continued to be strong throughout 2020/21, reflecting the prompt action taken.  Disciplined cash management, combined with capital programme deferrals and dividend suspension, resulted in the Group closing the financial year with net cash at bank* of £50.0m. 

 

Despite the current pandemic challenges, our strategy remains steadfast.  We are a well invested asset-backed business with strong brands and varied, but balanced, routes to market.  We are intending to emerge from the pandemic as a simpler, more resilient and agile business with a clear path to value-creating growth.

 

Covid-19 response

During the year, the business responded quickly to the evolving Covid-19 circumstances.  Our first priority was to ensure the safety of our employees. 

 

A Covid-19 crisis management team was established immediately and oversaw a range of safety and wellbeing, operational, employee engagement and technology decisions and activities to support the Group.  The crisis management team continues to operate today with a senior leadership team, dynamic risk assessment protocols and regular group-wide communications ensuring best practices are identified and cascaded in what continues to be a fluid environment.

 

From a financial perspective, while cost conservation measures were taken in all business units we sustained investment in capital assets and marketing, where it made sense to do so.  We implemented multi-scenario financial planning to ensure we were equipped to react swiftly and course correct if required, as events unfolded. 

 

As part of our pandemic response, we participated in the government Coronavirus Job Retention Scheme (CJRS) from April to July 2020 when restrictions and consumer demand prevented a number of our employees from undertaking their roles.  Our participation in the Scheme ended in July 2020 at the conclusion of a group-wide organisational review.  In total the Company received £1.3m of CJRS funding.

 

Following the announcement of the termination of the Rockstar contract during the first lockdown, we spent time determining the right sustainable organisational structure that would facilitate a stronger business to emerge post pandemic.  Unfortunately this review resulted in the removal of a number of roles from across the Group.  The one-off costs associated with this programme are detailed below.  While the programme benefits accrued largely within the financial year there will be some continued savings in the first half of the financial year 2021/22.

 

The Group remained net cash positive throughout the year and all our financial forecasts predicted we would remain solvent under a range of severe but plausible scenarios.  We nevertheless took the precautionary step to draw down our total committed credit facility (£60m) in March 2020.  This action had the full support of our lending banks and all facilities were subsequently repaid in September 2020.  We remained profitable and cash generative across the financial year.  The scenario plans and viability work undertaken as part of the annual reporting process confirm that we continue to be a robust business with strong financial fundamentals.

 

Looking forward, we expect the pandemic will continue to impact the business in 2021/22.  While we now have a better understanding of the impact of lockdowns and social restrictions on our trading patterns, there remains considerable uncertainty over the duration.  We will continue to employ a scenario based approach to financial planning, with a range of possible projections built around a base plan.  Our viability modelling highlights that we have the financial resilience to withstand all severe but plausible scenarios and we have well developed plans to mitigate the adverse impact of longer-term consumer restrictions on revenue, profit and cash, should these be required.

 

Segmental performance

There are 3 reportable segments in our Group :

1.   Carbonated soft drinks

2.   Still soft drinks and water

3.   Funkin

 

Carbonated soft drinks

Our carbonates segment represents over 81% of our revenue and over 87% of gross profit.  A reported revenue decline of 6.2% in this segment is a creditable performance in a year clearly impacted by Covid-19 as well as the loss of the Rockstar franchise from 1 November 2020.  

 

The IRN-BRU brand reported net revenue down 9.7%, with a decline in out of home sales partially offset by growth in the take home category.  Recognising the importance of focusing on core trading activities, we chose not to launch any new brand innovation in the year, however recent innovations - IRN-BRU Energy and IRN-BRU XTRA - continued to deliver revenue growth.

 

Barr Flavours continued to grow, up 3.3%, on the back of sustained distribution gains, largely in England, despite the headwinds of the pandemic.  The brand has built a strong position as a great tasting value brand in symbols and independent stores, a sector that has held up relatively well during lockdown restrictions.

 

Our carbonated Rubicon drinks (Rubicon Spring and Rubicon Sparkling) represent over 2/3rds of the Rubicon range.  These brands, particularly Rubicon Spring, are predominately 'out of home' focused and while they performed strongly outside of lockdown (pre Covid-19 and late summer) they were disproportionately impacted when restrictions were in place.  Rubicon Spring net revenue was down 8.1% while Rubicon Sparkling revenues were flat year on year.

 

Overall, our carbonates pricing has been sustained and strong cost management activity has mitigated the impact of lower volumes on our largely fixed cost base.  However, the combination of stronger than average growth by Barr Flavours and the switch from 'out of home' formats to multi-packs and larger 'at home' formats, has resulted in a modest margin dilution on gross margin.

 

Stills and water

Segmental net revenue declined 36% driven by a 43.3% fall in volume, a direct reflection of the impact of pandemic restrictions on the brands in this segment.

 

The impact of a challenged fruit drinks sector combined with lockdown restrictions preventing the execution of key promotional activities during Ramadan (April/May 2020), resulted in Rubicon Stills revenue being down 18.2% versus the prior year. 

 

The other still brands in this segment, KA, Simply Fruity and Snapple, were also exposed to the 'out of home' trading challenges leading to year on year declines.

 

The closure of the crucially important hospitality sector for much of the financial year has had a severe impact on the Strathmore brand with sales down 80-90% during the lockdown periods. While we took immediate and significant remedial action to reduce costs, the extent of the sales reduction during lockdowns and the largely fixed cost nature of the single plant Strathmore operation had a material impact on gross profit.  With an uncertain medium-term outlook, we implemented a full review of the Strathmore business during Summer 2020.  The results of this review necessitated the impairment of the brand value and a reduction to a more efficient single shift manufacturing operation.  These actions, and the beneficial impact of brand mix, resulted in a gross margin improvement for the stills and water segment as a whole.

 

Funkin

Funkin entered the financial year as an on-trade focused brand with a track record of sustained, often double digit, growth.  Following the effective closure of the hospitality sector in March 2020, historically representing c.85% of revenue, we pivoted Funkin's focus towards branded ready to drink cocktails in the take home channels.  While total sales across the year were down 11.5%, and gross profits fell 31.5%, the underlying performance of the take home channel, currently representing c.50% of the business, was very strong.

 

Exceptional items

In the year to 24 January 2021 we incurred, and have separately disclosed, four items considered to be non-recurring and exceptional in nature.  The net P&L charge (pre-tax) of these items was £6.8m. 

 

The Board is of the opinion that the nature and materiality of these items makes it appropriate to classify them as 'exceptional' providing a more useful representation of the underlying performance of the Group. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors, such as the frequency or predictability of occurrence, as well as the size and nature of an item both individually and when aggregated with similar items, for example restructuring costs, product development or asset write offs. This presentation is consistent with the way that financial performance is measured and reported to the Executive Committee and to the Board, and assists in providing a meaningful analysis of our trading results. 

 

●     Strathmore brand and asset impairment (£10.0m non cash P&L charge). Strathmore is a highly regarded premium brand in a structurally low margin bottled water category. The brand is predominantly targeted on the hospitality sector which continues to be significantly challenged by lockdown measures. A review of the outlook for both the brand and the sector highlighted an impairment requirement which has resulted in a write-down of the Strathmore brand (£7.0m), goodwill (£1.9m) and tangible fixed assets (£1.1m).

 

●     Funkin Goodwill (£1.3m non cash P&L charge). A charge to the income statement relating to acquisition goodwill.

 

●     Business re-engineering programme (£3.1m P&L charge). In September 2019 the Group embarked on a 2 year change programme.  Phase 1, which delivered a number of portfolio simplification actions alongside an initial reorganisation and refocusing of our Commercial teams, completed on time and to budget during the first half of 2020/21.  Following the announcement of the termination of the Rockstar agreement, we reviewed and updated our Phase 2 plans, also taking into account pandemic related changes in operations.  Phase 2 regrettably led to further right-sizing decisions which resulted in a number of redundancies across the business, including both our Strathmore production and Funkin teams where Covid-19 has had the greatest impact. The programme is now complete

 

●     Rockstar compensation (£7.6m P&L credit). The early termination of the Rockstar franchise entitled the Group to a one-off contractual termination payment

 

The net cash impact of these exceptional items is £4.5m cash in-flow with the Strathmore impairment (£10.0m) and Funkin goodwill adjustment (£1.3m) being non cash.

 

In the prior year, a net zero exceptional expense was recognised. This represented the combination of year 1 of the simplification and standardisation programme costs offset by a £1.8m receipt for compensation in relation to the removal of our on-site wind turbine.  

 

Interest

Net finance charges, totalling £0.7m, comprise the interest relating to the drawdown of the revolving credit facilities between March and September 2020, lease interest costs under IFRS16 and notional finance costs associated with the defined benefit pension deficit under IAS 19. 

 

The constituent elements of the interest charge are:

 

	2020/21	2019/20
	£m	£m
Interest related to Group borrowings	(0.4)	(0.2)
Lease Interest	(0.1)	(0.1)
Finance costs related to pension	(0.2)	(0.3)
Net finance costs	(0.7)	(0.6)

 

Taxation

Our reported tax expense of £6.9m (2019/20: £7.6m) represents an effective tax rate of 26.8% (2019/20: 20.3%).  This is higher than the UK statutory rate of 19.0% and higher than the prior year primarily due to a one-off revaluation of deferred tax balances following the government decision to reverse the planned reduction in UK corporation tax rate from 19% to 17% and a non deductible element within exceptionals.  These have been partially offset by an over-provision of prior year tax charges.

 

Earnings per share (EPS)

Basic EPS, before exceptionals, was 22.31p (2019/20: 26.50p), a decrease of 15.8%, based on a basic weighted average of 111,171,047 shares (2019/20: 112,452,517), reflecting the impact of the challenging trading environment and the increased tax charge following the revaluation of deferred tax.  Basic EPS post exceptionals was 17.18p (2019/20: 26.50p), a decrease of 35.2%.   Based on a diluted weighted average of 111,312,006 shares, diluted EPS was 17.16p (2019/20: 26.49p).

 

Dividends

The decision was taken in March 2020 to suspend dividend payments, with the aim of protecting liquidity at the onset of the Covid-19 pandemic.  We remain committed to our plan to recommence dividend payments during the course of our financial year ending January 2022.

 

The Group took the opportunity to review the dividend distribution strategy with the aim of creating a progressive and sustainable dividend policy that has regard to current performance trends including sales, profit after tax and cash, and satisfies certain guiding principles:

 

●    Dividend cover: targeting 2 times cover

●    Payout ratio: targeting 50% of free cash flow

●    Consistent with medium-term profit outlook

This framework will be reviewed on an ongoing basis to ensure it remains appropriate in the context of the Group's wider capital allocation objectives.

 

Balance sheet and cash flow

The Group balance sheet remains robust and in a cash positive position with £50m net cash at bank* as of 24 January 2021.  This is testament to the prompt and decisive action taken early in the pandemic to conserve cash and provides the Group with financial resilience and the flexibility to pursue our strategic objectives as we exit the crisis.  We entered the pandemic with a strong balance sheet and significant liquidity and we exit the year in a stronger financial position.

 

Net assets remain in line with the prior year with strong operating cash generation, supported by the suspension of dividends offsetting the impairment of assets relating to the Strathmore business.  This impairment, combined with lower capital spend and strong working capital management, enabled Return on Capital Employed (ROCE)* to be broadly maintained at 16.0% (2020: 16.1%) despite the lower Covid-19 impacted profit before tax.

 

We continued to apply a disciplined approach to cash management across the Group while supporting those customers experiencing temporary difficulties relating to lockdown restrictions.  Working capital cash flow was a net £11.5m inflow, with lower receivables more than offsetting lower payables, coupled with a small increase in inventories related to Brexit contingency stock-builds.  While much of the receivables benefit relates to sales phasing and the deferment of a quarterly VAT payment, the Group did avoid any significant trade debt write-off during the year and overdue debts were minimal at the year end.

 

We remain committed to a well-invested asset base. After several years of significant capital spend our cash capital expenditure in the year was always intended to reduce in 2020/21.  At £7.1m (2019/20: £14.8m), our spend reflects both our decision to conserve cash and the effect of operational restrictions put in place to protect our employees. We also took the decision to re-phase our multi-year process facility replacement programme at Cumbernauld, which had been originally planned to complete in 2020.  The project will now complete, within budgeted spend, in spring 2021. During the year we also took the decision to acquire the canning line in Milton Keynes which had come to the end of its primary lease.

 

Investment in associate - Elegantly Spirited Limited (STRYKK brand)

In June 2019, the Group made a 20% minority equity investment in Elegantly Spirited Limited (ESL), a business start-up in the emerging zero proof spirits market, and the owner of the STRYKK brand, a range of zero proof spirits products. The STRYKK brand has established itself as an important player in this small but growing market and is performing in line with expectations, having pivoted its strategy from an on-premise to a grocery channel focus. During the financial year the Group exercised its right to participate in further ESL funding through a £1m convertible loan note. ESL is recognised as an associate, with the equity investment accounted for under the equity method of accounting. The investment was originally recognised at the transaction investment price (£1.0m) and subsequently adjusted to reflect the Group's share of the loss since our investment (£0.2m). The Loan note (£1.0m) has been recognised on the balance sheet under loans and receivables. The Group has the right, but not the obligation, to participate in future equity funding initiated by ESL.

 

Financial risk management

The Group's risk management process is owned by the Board and operates at every level within the business to support the successful delivery of our strategic objectives.  The process is based on a balance of risk and reward, determined through assessment of the likelihood and impact of the risk and within the context of the Group's risk appetite as established by the Board.  Risks are monitored throughout the year with consideration to internal and external factors and the Group's risk appetite, and updates to risks and mitigation plans are made as required.  During the year the business undertook several dynamic risk assessments to ensure rapid and appropriate responses to the evolving Covid-19 pandemic and the impact of this on our operations. The principal risks that could potentially have a significant impact on our business have not changed since the end of the financial year.

 

European Union withdrawal

The Company has had a Brexit Working Group in place since shortly after the 2016 UK Referendum with the objective of ensuring minimal disruption for the Group during the UK exit and transition period.  Alongside this it has put in place appropriate processes and procedures to enable effective and compliant trading under the new UK/EU arrangements.  The working group is chaired by the Head of Group Risk, with appropriate input from external advisors and representation from relevant business areas. As a result of actions undertaken by the working group, the business did not experience any significant disruption during or in the immediate aftermath after the end to the transition period on 31 December 2020.  As the majority of the Group's production and trading is domestically focused, we anticipate only a modest financial impact under the new EU/UK trade arrangements resulting from tariffs on a small group of raw materials and finished goods.  We continue to believe that the Group's overall risk remains largely around these tariffs, the potential for short-term foreign exchange volatility and possible temporary logistic disruption.  These risks are considered manageable and the withdrawal from the EU is not considered to be a principal risk.  Medium-term supply disruption risk is being managed through a targeted increase in inventories, close coordination with our logistics partners and continued monitoring of the cross border environment.  Foreign exchange requirements are not significant and exposure to exchange rate volatility is mitigated by our currency hedging programme.

 

Treasury and commodity risk management

The treasury and commodity risks faced by the Group continue to be identified and managed by a Group Treasury Committee whose activities are carried out in accordance with Board approved policies and subject to regular Audit and Risk Committee reviews.  No transaction is entered into for speculative purposes.  Key financial risks managed by this committee include exposures to foreign exchange rates, and the management of the Group's debt and liquidity positions.  The Group uses financial instruments to hedge against foreign currency exposures. 

 

As at 24 January 2021, in addition to the Group's cash position, the Group had £60m of committed and unutilised debt facilities, consisting of 3 revolving credit facilities with 3 individual banks, providing the business with a secure funding platform.  These facilities are continually reviewed to ensure they remain appropriate in terms of quantum, duration and cost effectiveness.  2 of these facilities (both £20m) expire in February 2022 with the other (£20m) expiring in February 2025.

 

We expect to shortly conclude the extension of one of the February 2022 facilities.  Our new arrangements will result in the Group maintaining three revolving credit facilities - a £20m facility expiring February 2025, a £10m facility with 2 years remaining and a £20m facility ending in February 2022.  These arrangements provide security in these volatile times and optionality should debt capacity be required to facilitate corporate opportunities.

 

The Group seeks to mitigate risks in relation to the continuity of supply of key raw materials and ingredients by developing strong commercial relationships with its key suppliers.  The Group manages commodity pricing risk actively and where commercially appropriate, will enter into fixed price supply contracts with suppliers to improve certainty.  We have not directly entered into commodity hedge contracts.

 

In addition, the Group enters into insurance arrangements to cover certain insurable risks where external insurance is considered by management to be an economic means of mitigating these risks.

 

Accounting policies

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the Listing Rules of the Financial Conduct Authority. 

 

There have been no changes to accounting policies applied this year other than the adoption of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.    All new or amended accounting standards that are applicable have been adopted with no material impact on the results for the current and prior reporting periods.

 

Pensions

The Group continues to operate two pension plans - 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 senior managers.

 

The defined benefit scheme has been closed to new entrants since 5 April 2002 (and to new executive entrants since 14 August 2003) and closed to future accrual for members in May 2016.  Existing and new employees have been invited to join the Company-wide defined contribution scheme. The defined benefit pension scheme triennial valuation was undertaken as at April 2020 and is with the Pension Scheme Trustee for approval.  The valuation identified a £7.3m deficit on a technical provisions basis as at that date reflecting the substantial reduction in the value of the Scheme's investments which occurred at the start of the Covid-19 crisis.  Subsequent to the valuation, the Company and the Pension Scheme Trustee have been in discussions to agree a deficit recovery plan intended to eliminate the deficit over the medium term. This plan, once finalised, will be submitted to the Pension Regulator for approval. The next triennial actuarial valuation will be as at April 2023.

 

On an IAS 19 valuation basis, which is before the benefit of the asset back funding arrangement, the deficit reduced from £10.5m as at 25 January 2020 to £7.9m as at the balance sheet date.  The fall in the deficit reflects changes in mortality assumptions to align with the 2021 triennial valuation and the benefit of additional contributions paid by the Company partially offset by small changes in underlying assumptions on inflation and discount rates.  The Group continues to work proactively with the Pension Trustee to de-risk the pension liabilities and secure the commitments to employee benefits as part of the Group's ongoing strategic risk management.  The Group remains of the view that the overall pension deficit is manageable.

 

Stuart Lorimer

Finance Director

 

 

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 24 JANUARY 2021
	2021			2020
	Before exceptional items	Exceptional items*	Total	Before exceptional items	Exceptional items*	Total
	£m	£m	£m	£m	£m	£m
Revenue	227.0	-	227.0	255.7	-	255.7
Cost of sales	(132.2)	(1.2)	(133.4)	(149.6)	(1.1)	(150.7)
Gross profit	94.8	(1.2)	93.6	106.1	(1.1)	105.0
Other income	-	7.6	7.6	-	1.8	1.8
Operating expenses	(61.2)	(13.2)	(74.4)	(68.0)	(0.7)	(68.7)
Operating profit	33.6	(6.8)	26.8	38.1	-	38.1
Finance costs	(0.7)	-	(0.7)	(0.6)	-	(0.6)
Share of after tax results of associates	(0.1)	-	(0.1)	(0.1)	-	(0.1)
Profit before tax	32.8	(6.8)	26.0	37.4	-	37.4
Tax on profit	(8.0)	1.1	(6.9)	(7.6)	-	(7.6)
Profit attributable to equity holders	24.8	(5.7)	19.1	29.8	-	29.8
Earnings per share (p)
Basic earnings per share			17.18			26.50
Diluted earnings per share			17.16			26.49
Basic earnings per share before exceptional items			22.31			26.50
*An explanation of exceptional items is provided in Note 4.