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

23 September 2013

 A.G. BARR p.l.c.

INTERIM RESULTS

A.G. BARR p.l.c. (A.G. BARR), the soft drinks Group, which produces and markets some of the U.K.'s leading brands, including IRN-BRU, Rubicon and Strathmore water, announces its interim results for the 6 months ended 28 July 2013.

Key Points

● Total turnover increased by 5.8% to £128.7m (2012: £121.6m restated)

● Profit on ordinary activities before tax and exceptional items increased by 12.3% to £16.6m (2012: £14.8m restated)

● *Underlying earnings per share increased by 12.6% to 11.34p (2012:10.07p)

● Continuing financial strength

○ Net assets increased to £147.5m

○ ROCE at 21.5% on a rolling 12 month basis

○ Strong underlying free cash flow of £18.1m for the 6 month period

● Net debt of £15.8m; annualised net debt/EBITDA ratio is below 0.4 times

● IRN-BRU, Barr and Rubicon maintained strong market positions

● New production and distribution site at Milton Keynes has already commenced commercial production with further commissioning continuing for the balance of the year

● Agreement to implement Asset Backed Funding arrangement with Pension Trustees

● Interim dividend of 2.825p per share (2012: 2.616p), an increase of 8% on the prior year

Commenting on the results, Roger White, Chief Executive said:

"We have made good progress across all fronts in the year to date. We successfully navigated the challenging market conditions in the early part of 2013 and have accelerated our growth in the second quarter.

Our brands, assets and people are all performing well, benefiting from continued high levels of investment. We remain very confident in the long term growth potential of our brands and business."

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*Underlying earnings per share exclude the effect of exceptional items after tax on the basic earnings per share calculation. In the 6 months to 28 July 2013 these exceptional items after tax represented a charge of £3,035,000 (2012: nil).

The term "underlying" is not defined in IFRS and therefore may not be comparable with similarly titled measures reported by other companies. Underlying measures are not intended as a substitute for, or a superior measure to, IFRS measures.

Reconciliations of underlying measures to IFRS measures for earnings per share in respect of each period are provided in the earnings per share note.

Interim Statement

We are pleased to report further excellent progress in sales and profit performance. A.G. BARR has continued to grow well ahead of the market, benefiting from its strong brands, excellent execution and balanced focus on costs and investment.

The operating environment, whilst benefiting from positive weather in the last 6 weeks of the reporting period, was in general challenging as competitors fought for share in the early months of the year when poor weather held back the overall market.

Trading

Total revenue in the 6 months to 28 July 2013 increased by 5.8% and volume increased by 4.2%, compared to the same period in the prior year. In value terms, carbonates grew by 7.0% and still drinks by 2.0%.

The total soft drinks market, as measured by Nielsen, grew by 4.5% in revenue terms, with volume growth of 3.1% in the 26 weeks to 27 July 2013. The market growth rate in the second quarter was more than double that of the first quarter, as the much improved year on year weather impact was felt. The market performance in the period was slightly stronger in England and Wales particularly in stills and in the multiples channel.

We have continued to invest in the development of our brands for the long term, investing more in marketing and brand development, as well as executing a number of important brand initiatives during the period. We also benefited from a less volatile cost environment, aided by good levels of forward foreign exchange cover. In overall terms, we have seen an improvement in underlying gross margins of 90 basis points and operating margins have improved by 43 basis points.

A pre-exceptional profit before tax of £16.6m was delivered, representing an increase of 12.3% on the prior year.

The soft drinks market has benefited from the excellent summer weather, however competition remains intense. Price promotion in the category has continued to accelerate, with the largest brands increasing the depth and quantum of price promotion. In carbonates, our average price per litre has grown ahead of our major competitors.

Our growth strategy, focussing on developing strong brand equity combined with positive revenue management and driving product distribution into the market, continues to work well. Our core brands have benefited from increased levels of marketing support and growing distribution.

The IRN-BRU "Gets You Through" campaign, now into its second year, proved to be a huge hit with consumers, with new creative execution on television and a very successful summer "BRU-SKIES" value added consumer promotion ensuring that the brand is capable of growing even in the most price competitive of markets.

Rubicon and Barr brands continued to demonstrate good growth on the back of increased availability, as we continue to drive improved levels of distribution. Distribution growth was also supplemented by further pack and flavour development. In addition to our core soft drinks portfolio, the launch of Rubicon into the ice cream category last summer has provided a platform to further develop the brand, during the period of excellent weather in July 2013 in particular.

The Rockstar brand has continued its growth trajectory benefiting from the ongoing growth momentum in the energy market and the exciting development of 'flavours' within the category. We launched the Rockstar Super Sours range in January 2013 - now amongst the strongest performing flavours in this portfolio - highlighting the importance of innovation in this sub category.

We will continue to invest behind and develop our core brands across the balance of the financial year.

Operationally our focus for the last 6 months has been the completion of the building work and the initial commissioning of our new facility at Magna Park, Milton Keynes. Having completed the build and installation phase of the project ahead of plan we are now in commercial production. The commissioning phase will however continue for the balance of this calendar year as we optimise our new processes and technology. Magna Park is performing ahead of expectations and we have already been able to utilise the new facility to alleviate production pressure in respect of canned products and anticipate the site making a good contribution to our second half plans.

Exceptional charges amounting to £3.4m were incurred in the period relating to three categories of expenditure. During the year ended January 2013, A. G. BARR p.l.c. and Britvic plc worked together on a proposed all-share merger which was referred to the Competition Commission and subsequently aborted following clearance. Professional and legal costs incurred in the 6 months to July 2013 in relation to the merger and consequent Competition Enquiry which together amount to £2.0m, have been treated as exceptional costs. The cumulative costs associated with the merger, which have been recognised in this and prior periods amount to £4.9m. Also included within exceptional items, in the 6 month period, is £0.9m of site set up, training, plant commissioning and recruitment costs which were incurred as part of the Milton Keynes project. Finally, £0.5m of redundancy costs have been recognised ahead of a telesales and distribution reorganisation which although announced is not planned to take place until the second half of the year.

Balance Sheet

Over the 12 month period to 28 July 2013 the Group's balance sheet strength increased significantly. Overall net assets grew from the July 2012 position of £125.0m to £147.5m, an increase of 18.0%.

Property, plant and equipment assets increased by £21.0m, predominantly due to the development of the production and distribution facility at Milton Keynes. This expenditure has been funded through debt, with borrowings over the 12 month period increasing by £18.7m.

The second contributing factor to the improved net asset position was within the area of pensions. The combination of strong equity and bond performance, together with improved bond yield assumptions, has resulted in the reported IAS19 deficit of £7.1m, as at July 2012, improving to a £6.5m surplus in July 2013. Over the 12 month period, equity values have performed ahead of expectation, increasing on average by 25%, whilst the impact of changing actuarial assumptions has reduced the expected liability by £4.7m.

Throughout the year, the defined benefit pension scheme trustees have reviewed opportunities to reduce risk, acknowledging the long term nature of pension arrangements. The trustees have agreed with the Company to implement an Asset Backed Funding arrangement. This arrangement will improve both the funding and the level of security provided to the scheme, bringing an immediate improvement of £20.4m to the pension scheme's funding position. This will enable the implementation of a more prudent investment strategy whilst providing the Company with accelerated tax relief on the pension contribution. The structure has been disclosed to and has received clearance from HMRC.

Current assets increased by £19.0m over the 12 month period. The excellent weather in July which contributed towards the strong turnover performance in the second quarter resulted in inventories reducing by 22% (£4.5m) relative to the prior year. Trade and other receivables increased by £8.4m whilst the balance of cash and cash equivalents increased to £14.2m.

Offsetting the growth in current assets, total liabilities increased by £23.8m. This related mostly to increased borrowings of £18.7m drawn to fund the Milton Keynes facility. At the end of July 2013 the Group's net debt position stood at £15.8m, equating to an annualised net debt/EBITDA position of just 0.4 times. Overall our Return on Capital Employed is 21.5% on a rolling 12 month basis.

Free cashflow of £18.1m was generated in the 6 month period, this was £13.9m stronger than in the comparable period in the prior year, arising from increased EBITDA, reduced working capital and lower levels of maintenance capital expenditure. Expansionary capital expenditure in the period equated to £7.7m.

Dividend

The board has declared an interim dividend of 2.825 pence per share, payable on 18 October 2013. This represents an increase on the prior year of 8%, reflecting the board's confidence in the current financial position and the future financial performance of the Group.

Merger Discussion

In the period we received clearance from the Competition Commission for the potential merger of A.G. BARR p.l.c. and Britvic plc to take place. Suitable merger terms however could not be agreed and A.G. BARR did not make a further offer.

Current Trading and Outlook

We have delivered a robust performance in the period benefiting from well executed marketing, commercial and operating plans, a more stable cost environment and a great team effort. This was in spite of the distraction from the corporate challenges associated with the Competition Commission referral and merger discussions. We have a strong commercial plan in place for the balance of the year, however we expect general trading to remain challenging despite the benefit of a prolonged period of good summer weather. We have good visibility across our costs for the second half of the year and we are making excellent progress with the development of our new site at Milton Keynes, which we anticipate will continue to support further growth in the second half and beyond. As such, we remain confident of meeting our expectations for the full year.

Ronald G Hanna

Chairman

Roger A White

Chief Executive

23 September 2013

Consolidated Condensed Income Statement

Ex-div date: 2 October 2013

Record date: 4 October 2013

Consolidated Condensed Income Statement

Consolidated Condensed Statement of Comprehensive Income

Consolidated Condensed Statement of Changes in Equity

Consolidated Condensed Statement of Changes in Equity

Consolidated Condensed Statement of Financial Position

Consolidated Condensed Cash Flow Statement

1 . General information

The Company is a public limited company incorporated and domiciled in the U.K. The address of its registered office is A.G. BARR p.l.c., 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 26 January 2013 were approved by the board of directors on 21 March 2013 and delivered to the Registrar of Companies. The comparative figures for the financial year ended 26 January 2013 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 six months ended 28 July 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 Interim Financial Reporting as adopted by the EU. The consolidated condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 26 January 2013, which have been prepared in accordance with IFRSs as adopted by the EU.

Going concern basis

The Group meets its day-to-day working capital requirements through its bank facilities. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group's forecasts and projections, taking account of reasonable sensitivities, show that the Group should be able to operate within available facilities. The Group therefore continues to adopt the going concern basis in preparing its consolidated condensed interim financial statements.

3 . Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 26 January 2013, as described in those annual financial statements except as noted below.

Taxation

Taxes on income in the interim periods are accrued using the tax rate that is anticipated to be applicable to expected total annual earnings.

Changes in accounting policy and disclosures

 (a) New and amended standards adopted by the Group

Amendment to IAS 1: Presentation of financial statements - Presentation of items of other comprehensive income

The Group has applied this amendment retrospectively and the comparatives have been represented accordingly. Within the Group statement of comprehensive income, items are now separated into 'Items that will be or have been recycled to profit or loss' and 'Items that will not be recycled to profit or loss'.

IAS 19 (revised) Employee benefits

In June 2011, the IASB issued IAS 19 (revised) (IAS 19R). The Group is required to apply IAS 19R to financial statements commencing after 1 January 2013 and restate comparative amounts accordingly. The IAS 19R change that will have the most significant effect on the Group's reported profit is that the Group's annual expense for defined benefit pension schemes will be required to include net interest expense or income calculated by applying the discount rate to the net defined benefit asset or liability. Previously an expected rate of return was applied to each class of asset category.

This net interest expense or income will replace the finance charge on scheme liabilities and the expected return on scheme assets and has resulted in a higher annual expense. The effect of IAS 19R for the six months to 28 July 2012 is to reduce profit before tax and exceptionals by £115,000. Pension interest income of £105,000 has been eliminated and an interest cost of £10,000 has been charged to the profit and loss. The effect on the year to 26 January 2013 is to reduce profit before tax and exceptionals by £230,000. IAS 19R has no effect on the statement of financial position for either of the comparative periods presented.

IFRS 13 Fair value measurement

IFRS 13 measurement and disclosure requirements are applicable to financial statements commencing 27 January 2013. As a result of this, and consequential amendments to IAS 34, the Group has included disclosures required by IAS 34 for the first time in its interim financial statements in relation to financial instruments (see notes 5 and 14).

There are no other IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 27 January 2013 that have a material impact on the Group.

(b) New standards, amendments and interpretations issued but not effective for the

financial year beginning 27 January 2013 and not adopted early

IFRS 10 Consolidated financial statements, IFRS 11 Joint arrangements, IFRS 12 Disclosures of interests in other entities, and subsequent revisions to IAS 27 Separate financial statements and IAS 28 Investments in associates and joint ventures are new and revised standards that are mandatory for adoption for accounting periods beginning on or after 1 January 2014 for EU endorsed IFRS reporters. The Group has not yet adopted these standards in these interim statements but is continuing to assess their impact.

Presentational changes and restatements

All restatements below relating to the six months to 28 July 2012 are consistent with the policy and approach taken in the annual accounts to 26 January 2013.

Revenue

Revenue has been restated to include certain customer invoiced promotional investment that was previously included within distribution costs and are now deducted from revenue. The change in policy reduces the revenue to include certain invoiced costs associated with promotional activities to bring the reporting to a basis consistent with the accounting policy adopted by our peer group. Our new policy reduces the revenue to the expected net amount that will be collected from customers following deductions and claims invoiced or expected to be invoiced for completed promotional activity. This restatement has no impact on the operating profit previously reported.

Cost of sales

Rockstar royalties

Royalties incurred under the Rockstar franchise agreement have been restated to cost of sales from administration costs. As sales of the Rockstar brand increase, this amendment has been made to give a more accurate reflection of the gross profitability of the Group. This restatement has no impact on the operating profit of the Group.

Foreign exchange

Foreign exchange gains and losses incurred on forward currency contracts have been restated to cost of sales from administration costs. The forward currency contracts are used to purchase raw materials from overseas, therefore this restatement more accurately reflects the cost of goods to the Group. This restatement has no impact on the operating profit of the Group.

Finance income

Pension interest income has been restated from administration costs to finance income. This amendment has been made to give a more accurate reflection of the operating profitability of the Group.

The effect on the financial statements to 28 July 2012 of the aforementioned presentational changes and restatements, together with the impact of the IAS 19R are shown below:

Consolidated Condensed Income Statement for 6 months ended 28 July 2012

Consolidated Condensed Statement of Comprehensive Income for 6 months ended 28 July 2012

Extract of Consolidated Condensed Cash Flow Statement for 6 months ended 28 July 2012

The effect of IAS 19R on the financial statements to 26 January 2013 is summarised as follows:

Extract of Consolidated Income Statement for the year ended 26 January 2013

Consolidated Statement of Comprehensive Income for the year ended 26 January 2013

Extract of Consolidated Cash Flow Statement for the year ended 26 January 2013

4. Principal risks and uncertainties

The directors consider that the principal risks and uncertainties which could have a material impact on the Group's performance in the remaining 26 weeks of the financial year remain substantially the same as those stated on pages 24-26 of the Group's annual financial statements as at 26 January 2013, which are available on our website, www.agbarr.co.uk.

5. Financial risk management and Financial instruments

Financial risk factors

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 26 January 2013 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 team or in any risk management policies since the year end.

6. 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 period (after aggregation). The performance of the operating segments is assessed by reference to their gross profit before exceptional items. Exceptional items are reported separately in note 8.

There are no intersegment 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, the sale of Rubicon ice-cream and other soft drink related items such as water cups.

The gross profit from the segment reporting is reconciled to the total profit before income tax as shown in the consolidated condensed income statement.

All of the assets 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 consolidated condensed statement of financial position has been disclosed for any of the periods presented.

7. Seasonality of operations

Approximately half the revenues and operating profits are usually expected in both of the first half and second half of the year.

8. Operating profit

The following items have been charged or credited to operating profit during the period:

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completing production and selling expenses.

During the six months to 28 July 2013, £80,000 of inventory has been written down in accordance with the Group's accounting policy.

In the current period £nil (six months ended 28 July 2012: £493,000) of fair value movements in financial instruments have been charged to finance costs as all forward foreign exchange contracts held at 28 July 2013 have been elected for hedge accounting with associated fair value movements going through the cash flow hedge reserve.

The following exceptional items have been charged before operating profit:

Construction of a new production site at Crossley in Milton Keynes commenced in July 2012 with plant commissioning and associated training costs treated as exceptional in the six months to 28 July 2013. In the year to 26 January 2013 project set up and recruitment costs were treated as exceptional. The site commenced manufacturing in July 2013.

During the year to 26 January 2013, A.G. BARR p.l.c. and Britvic plc worked together on a proposed all-share merger which was subsequently referred to the Competition Commission and following clearance, finally aborted. Professional, legal fees and certain employee related costs incurred in relation to the proposed merger and related Competition Commission enquiry have been treated as exceptional for the periods presented.

Redundancy costs in relation to the reorganisation of the telesales operation within England were incurred during the period and during the year to 26 January 2013 preliminary work in relation to the replacement of the existing Enterprise Resource Planning (ERP) system was undertaken.

9. Tax on profit

The interim period tax charge is accrued based on the estimated average annual effective income tax rate of 24.0% (six months ended 28 July 2012: 21.8%; year ended 26 January 2013: 19.7%).

The 2013 Budget on 20 March 2013 announced that the UK corporation tax rate will reduce to 20% by 2015. A reduction in the rate from 24% to 23% (effective from 1 April 2013) was substantively enacted on 3 July 2013 and substantive enactment of the rate of 21% with effect from 1 April 2014 took place on 3 July 2013.

The deferred tax liability at 28 July 2013 has therefore been calculated having regard to the rate of 21% substantively enacted at the balance sheet date. It has not yet been possible to quantify the full anticipated effect of the announced further 1% rate reduction, although this will further reduce the Company's future current tax charge and reduce the Company's deferred tax liability accordingly.

10. 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.

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 period. 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.

The basic and diluted earnings per share have been restated to reflect the impact of IAS 19R on the Group's profit for the six months to 28 July 2012 and year to 26 January 2013.

11. Dividends paid

An interim dividend of 2.825p per share was approved by the board on 19 September 2013 and will be paid on 18 October 2013 to shareholders on record as at 4 October 2013.

A second interim dividend was paid to shareholders on 18 January 2013 in lieu of the final dividend for the year ended 26 January 2013.

The dividend paid in the six months to 28 July 2013 represents a late payment of the final dividend to members of the employee share scheme.

12. Intangible assets

The amortisation charge for the six months to 28 July 2013 represents £126,000 (six months ended 28 July 2012: £126,000; year ended 26 January 2013: £253,000) of charges for the Rubicon customer list.

13. Property, plant and equipment

Included within the additions for the six months to 28 July 2013 is £85,000 of interest in respect of the £15,000,000 facility utilised for the building work at Crossley, Milton Keynes.

The closing balance includes £1,227,000 (as at 28 July 2012: £826,000; as at 26 January 2013: £10,046,000) of assets under construction.

14. Financial instruments

Non-current assets of £26,000 (at 28 July 2012: £23,000; 26 January 2013: £nil) relate to forward foreign currency contracts with a maturity of more than 12 months and are classified as fair value through the cash flow hedge reserve.

Current assets of £981,000 (at 28 July 2012: £34,000; 26 January 2013: £1,463,000) relate to forward foreign currency contracts with a maturity of less than 12 months and are classified as fair value through the cash flow hedge reserve.

Current liabilities of £15,000 (at 28 July 2012: £1,020,000; 26 January 2013: £nil) represents forward foreign currency contracts with a maturity of less than 12 months. All of the current liabilities are classified as fair value through the cash flow hedge reserve (at 28 July 2012: £346,000; 26 January 2013: £nil).

Non-current liabilities of £7,000 (at 28 July 2012: £nil; 26 January 2013: £nil) relate to forward foreign currency contracts with a maturity of more than 12 months and are classified as fair value through the cash flow hedge reserve.

Fair value hierarchy

IFRS 7 requires all financial instruments carried at fair value to be analysed under the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3: inputs for the asset or liability that are not based on observable market data

All financial instruments carried at fair value are Level 2.

Fair values of financial assets and financial liabilities

The table below sets out the comparison between the carrying amount and fair value of all of the

Group's financial instruments, with the exception of trade and other receivables and trade and other payables.

The fair value of the current trade and other receivables and the current trade and other payables approximates to their book value as none of the balances are interest bearing.

The carrying value of current borrowings is disclosed before the deduction of the unamortised arrangement fee of £25,000.

For the current borrowings, the impact of discounting is not significant as the borrowings will be paid within 12 months of the year end date. The carrying amount approximates their fair value.

The fair values of the non-current borrowings are based on cash flows discounted using the current variable interest rate charged on the borrowings of 1.50% and a discount rate of 1.50%.

15. Cash and cash equivalents

Cash and cash equivalents include the following for the purposes of the statement of cash flows:

16. Provisions for redundancy