Barr (A.G.) Regulatory News (BAG)

IMMEDIATE RELEASE 27 September 2022

A.G. BARR p.l.c.

("A.G. BARR" or "the Group")

A.G. BARR produces and markets some of the UK's leading drinks brands, including IRN-BRU, Rubicon and Funkin.

INTERIM RESULTS FOR THE 26 WEEKS ENDED 31 JULY 2022

Strong first half performance

Financial summary

Highlights

○ Strong sales momentum across both business units : **

○ Barr Soft Drinks : Up 12.3%

○ Funkin : Up 21.4%

○ Trading benefited from year-on-year Covid-19 recovery, particularly in the on-trade and out of home sectors, as well as good summer weather

○ Core brand growth highlights our portfolio strength, our ability to flex price and promotions, the value we offer to consumers and customers, alongside the positive impact of brand innovation

○ Operating margin, while impacted by cost inflation, has been supported by sales growth, cost control and our pricing approach

○ Continued progress across "No Time To Waste" environmental sustainability programme including the approval of our near and long-term science-based emissions reduction targets with the Science Based Target initiative (SBTi). 

○ Strong balance sheet with £61.3m of cash and cash equivalents

○ Interim dividend of 2.5 pence per share representing an increase on the prior year of 25%

Roger White, Chief Executive, commented:

"We made a very strong start to the year and continue to see good momentum across our business and brands. That said, the UK's high level of inflation has accelerated across the summer and is creating a well documented cost of living crisis for many consumers, alongside increasing challenges for industry. 

We continue to take action to mitigate the cost pressures we face both in the short term across the balance of the current financial year and where possible into 2023. 

We anticipate in the coming months that the current economic environment will impact consumer purchasing behaviour, however we currently remain confident that our strategy and actions will allow us to deliver a full-year profit performance ahead of the prior year."

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Interim statement

We are pleased to report a strong performance in the first half of our 2022/23 financial year. 

Revenue was £157.9m representing year on year growth of :

● 20% on a like-for-like basis*, excluding both the 27th week in prior year** and the revenue contribution from MOMA Foods in the current reporting period

● 17% on a reported revenue basis (27 weeks** to 1 August 2021 : £135.3m) 

Reported profit before tax in the period was £24.7m (2021/22 H1 : £24.4m). This strong profit performance was supported by revenue growth across all of our core brands.

The prior year first half profit performance benefited from a number of one-off factors, as reported at the time, and therefore this year's strong H1 profit delivery is all the more positive.

Adjusted profit* in the period was £25.3m an increase of 22.8% on the prior year first half (2021/22 H1 : £20.6m). This takes into account the following :

● H1 2021/22 : the impact of the additional week and the gain on sale of property

● H1 2022/23 : the time value adjustment related to the MOMA deferred consideration

Inflation continued to accelerate across the UK in the reporting period. Against this backdrop we have actively managed our position through ongoing cost management actions and the successful execution of our pricing and promotional strategies across all our markets and channels.

Market context

Soft drinks : We maintained our value share of the total UK soft drinks market which increased by 8.1% across the period, while volume fell by 3.0%. Market performance was driven by broad-based consumer price inflation leading to significant value growth but reduced volumes. The soft drinks market also experienced year-on-year recovery in "drink now" out of home consumption in the more difficult to measure impulse channel. These dynamics are consistent across both carbonates and stills. 

(Source : IRI Marketplace data for the 26 weeks to 30 July 2022)

Cocktails : The value of GB cocktails across the ontrade continues to grow and is now worth £664m, up 13.2% year on year, while ready to drink (RTD) cocktails grew 24%, four times the rate of the RTD category as a whole.

(Source: Nielsen pre-mixed alcoholic drinks total coverage MAT 30/07/2022 ; CGA Q1 2022)

Oat milk : Across the UK grocery market, oat milk is growing 16% year on year, with one in three British consumers now drinking plant based milk. 

(Source: Kantar May 22, Nielsen 52 w/e July 2022, Mintel Sept 2021)

Business performance

Trading has been strong across both our business units with a 12.3% revenue increase across Barr Soft Drinks and Funkin's sales up 21.4%. 

The addition of the MOMA business has also supported our overall revenue performance. While, as anticipated, there is no positive impact on profit at this early stage, growth potential in this sector continues to be exciting. 

Growth across the Group has been driven by ongoing brand investment and the successful execution of our pricing and promotional activity. Trading performance further benefited from the year-on-year Covid-19 recovery across the market, particularly in the on-trade and out of home sectors, as well as good summer weather. The positive revenue growth in our core brands highlights the strength of our portfolio, our ability to flex price and promotions, the value we offer to consumers and customers as well as the positive impact of brand innovation - this includes further growth in Rubicon RAW Energy and Funkin nitro cocktails.

Operating margins in the period have been supported by sales growth, cost control and our pricing approach. We anticipate that this level of margin will not be sustained across the second half of the financial year given the impact of increasing costs, our continued brand investment and the volume impact of reduced consumer confidence. Therefore we anticipate our full year adjusted operating margin to be around 14%.

Cash flow and balance sheet

Net cash from operating activities was £11.4m, a decrease of £5.5m compared to 2021/22 (£16.9m). Cash generated from the growth in operating profit was offset by the impact of an increase in debtors associated with strong summer trading and increased inventory from a combination of inflation and higher stock cover.

Capital expenditure in the first half of the year was £7.0m (2021/22 H1 : £1.4m). This reflects investment in production capacity and capability, including new canning capacity at our Milton Keynes site and the commencement of our asset refresh programme at our Cumbernauld factory. Full year capital expenditure is estimated at £16-20m (2021/22 : £5m) and expected to be maintained at this level for at least two further years.

The Group closed the period with cash balances of £61.3m (2021/22 H1 : £65.6m), which was £7.4m less than the period opening position (£68.7m). Cash generated from operations funded the final 2021/22 dividend (£11.1m) paid in June, our capital investment programme and ongoing corporation tax payments (£3.4m).

Adjusted earnings per share* were 19.52p (2021/22: 9.36p). This significant increase on the prior period reflects the improved trading performance and the one-off impact in the prior period from the deferred tax adjustment arising from the change in corporation tax rate due in 2023. Excluding the one-off impact adjusted earnings per share grew by 35%.

Responsibility

We have continued to make good progress across our responsibility agenda, particularly with our "No Time To Waste" environmental sustainability programme. Highlights during the period include increased use of recycled material across our packaging as well as the approval of our near and long-term science-based emissions reduction targets with the Science Based Target initiative (SBTi) and an SBTi verified science-based net-zero target across our value chain of 2050. These targets are aligned with the SBTi's new Net-Zero Standard. ***

Dividend The Board has declared an interim dividend for the 26 weeks ended 31 July 2022 of 2.5 pence per share (2021/22 : 2.0 pence) payable on 28 October 2022 to shareholders on the register on 7 October 2022. 

Outlook

The UK's high level of inflation continued across the summer and is not expected to abate in the short-term, leading to challenging economic conditions for both consumers and industry.

We will continue to invest behind our brands to support long-term growth while at the same time taking appropriate mitigating action to limit the full year impact of cost inflation. 

Our brands are performing well and our business and people have continued to demonstrate both their resilience and flexibility. We anticipate in the coming months that the economic environment will impact consumer purchasing behaviour. However we currently remain confident that our portfolio of strong brands and our established strategy will allow us to deliver a full-year profit performance ahead of the prior year.

* Items marked with an asterisk are non-GAAP measures. Definitions and relevant reconciliations are provided at the end of this announcement

** 2021/22 was a 53-week financial year with a 27-week first half. 2022/23 reverts to a 52-week year with a 26-week first half

*** Full details of our science-based emissions reduction and science-based net-zero targets can be found at https://www.agbarr.co.uk/responsibility/no-time-to-waste/

Notes to the Consolidated Condensed Financial Statements

1. General information

A.G. BARR p.l.c. (the "Company") and its subsidiaries (together the "Group") manufacture, market, distribute and sell soft drinks and cocktail solutions. The Group has manufacturing sites in the UK and sells mainly to customers in the UK with some international sales.

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

This consolidated condensed interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 January 2022 were approved by the Board of directors on 29 March 2022 and delivered to the Registrar of Companies. The comparative figures for the financial year ended 30 January 2022 are an extract of the Company's statutory accounts for that year. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

This consolidated condensed interim financial information is unaudited but has been reviewed by the Company's Auditor.

2. Basis of preparation

This consolidated condensed interim financial information for the 26 weeks ended 31 July 2022 has been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. The interim report does not include all of the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 January 2022, which has been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006.

Going concern basis

The directors have adopted the going concern basis in preparing these accounts after assessing the principal risks.

This assessment was undertaken through modelling a number of severe but plausible downside scenarios that could impact the business (both individually and cumulatively) over the period until January 2025. These scenarios include a global pandemic and associated restrictions, significant disruption to our supply chain, a cyber attack, significant energy cost inflation, and the impact of significant inflationary pressures on consumers. In each the Group continues to be cash generative throughout the forecast horizon, resulting in our liquidity headroom being maintained.

Our experience through the Covid-19 pandemic has given us confidence that the Group can remain profitable and cash-generative through prolonged disruption.

The most significant potential financial impact would be due to a significant reduction in sales. The revenue and operational leverage impact of such a volume loss would have a negative impact on Group profitability, however the scenario modelling would indicate that the Group would remain profitable over the next 12 months and we would anticipate a recovery in the following years.

The Group has £30m of committed and unutilised debt facilities, consisting of two revolving credit facilities from two individual banks, providing the business with a secure funding platform. One of these facilities (£10m) expires in April 2023, and will not be renewed given the Group's current liquidity headroom. The other facility (£20m) expires in February 2026. Throughout the above severe but plausible downside scenarios, the Group continues to have significant liquidity headroom on facilities and against revolving credit facilities financial covenants.

The directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, and have a reasonable expectation that the Group and parent Company will have adequate resources to continue in operation for at least 12 months from the signing date of these condensed consolidated financial statements. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing these financial statements.

3. Accounting policies

New standards and interpretations applied for the first time

There are no new or amended standards that became applicable for the current reporting period. The accounting policies set out in the annual financial statements for the year ended 30 January 2022 have been applied consistently to all periods presented in these Consolidated Condensed Interim Financial Statements.

New standards and interpretations not yet applied

There were no new or revised IFRS, amendments or interpretations in issue but not yet effective that are potentially material for the Group and which have not yet been applied.

4. Principal risks and uncertainties

The directors consider that the following principal risks and uncertainties could have a material impact on the Group's performance in the balance of the financial year. Further detail can be found on pages 52 - 56 of the Group's annual financial statements as at 30 January 2022, which are available on our website, www.agbarr.co.uk.

- Changes in consumer preferences, perception or purchasing behaviour

- Consumer rejection of enhanced sweeteners used in reformulated products

- Loss of product integrity

- Loss of continuity of supply of major raw materials

- Adverse publicity in relation to the soft drinks industry, the Group or its brands

- Government intervention on climate change and environmental issues e.g. packaging waste

- Failure to maintain customer relationships or take account of changing market dynamics

- Inability to protect the Group's intellectual property rights

- Failure of the Group's operational infrastructure

- Failure of critical IT systems or a breach of cyber security

- Financial risks

- Environmental Social and Governance (ESG) risks

- Cost inflation

The Group has reviewed its exposure to climate-related and other emerging business risks but has not identified any specific risks that would impact the financial performance or position of the Group at 31 July 2022.

5. Financial risk management and financial instruments

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest rate risk and price risk), credit risk and liquidity risk.

The condensed interim financial statements should be read in conjunction with the Group's annual financial statements as at 30 January 2022 as they do not include all financial risk management information and disclosures contained within the annual financial statements. There have been no changes in the risk management policies since the year end.

6. Segment reporting

The Board and senior executives have been identified as the Group's chief operating decision-makers, who review the Group's internal reporting in order to assess performance and allocate resources.

The performance of the operating segments is assessed by reference to their gross profit.

During the year ended 30 January 2022, the Group amended the composition of reportable segments to better reflect internal reporting. Accordingly, the Group has restated the previously reported segment information for the 6 months ended 1 August 2021.

There are no material intersegment sales. All revenue is in relation to product sales, which is recognised at point in time, upon delivery to the customer.

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

Included in revenues arising from the above segments are revenues of approximately £30.5m which arose from sales to the Group's largest customer. In the year ended 30 January 2022 and six months ended 1 August 2021, revenues of approximately £51.5m and £28m respectively arose from sales to the Group's largest customer. No other single customers contributed 10 per cent or more to the Group's revenue in the comparative period to August 2021 or January 2022.

All of the segments included within "Soft drinks" and "Cocktail solutions" meet the aggregation criteria set out in IFRS 8 Operating Segments.

10. Tax on profit

The interim period total tax charge of £3.8m (six months ended 1 August 2021: £10.2m; year ended 30 January 2022: £14.4m) is accrued based on the estimated annual effective tax rate of 15.4% (six months ended 1 August 2021: 41.8%; year ended 30 January 2022: 34.1%). The effective tax rate in the current year has decreased as a result of the remeasurement of deferred tax balances in the prior year and the increase in capital allowances available. In March 2021, the UK government announced that the corporation tax rate would increase from 19% to 25% effective from 1 April 2023 which was substantively enacted on 24 May 2021. The impact of this was a one-off increase in the deferred tax charge of £5.7m in the comparative reporting periods. Excluding the impact of the change in tax rate the effective tax rate for the six months ended 1 August 2021 was 17.6%. The Finance Act 2022, which received Royal Assent on 24 February 2022, will not have any impact on the corporation tax figures. However, in the September 2022 Mini Budget it was announced that the increase to 25% would now not occur and the Corporation Tax Rate would instead be held at 19%. This rate had not been substantively enacted at the balance sheet date, and as a result the deferred tax balances as at 31 July 2022 were measured using the 25% noted above. The estimated impact of the reversal of the corporation tax rate increase would be to reduce the deferred tax liability by around £5m.