Coronavirus Update

Barr(A.G.) PLC Final Results for the year ended 24th January 2021

This content has been sourced from: https://www.investegate.co.uk/barr-a.g.--plc--bag-...

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."

 

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.

 

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. 

 

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