A.G. BARR Annual Report 2017

Plain-text annual report

A . G . B A R R p . l . c . A n n u a l R e p o r t a n d A c c o u n t s J a n u a r y 2 0 1 7 Unquenchable thirst for improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement improvement A.G. BARR p.l.c. Annual Report and Accounts January 2017 We are a growth driven, branded consumer goods business, delivering long-term sustainable value. We build great tasting brands that people love, offering them choice and enjoyment. Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable Unquenchable thirst for value value value value value value value value value value value value value value value value value value value value value value value value value value value Strategic Report Corporate Governance Accounts Performance at a glance Our business and brands Chairman’s Introduction Business Model Chief Executive’s Review Strategy Key Performance Indicators Strategy in Action Financial Review Risk management 01 02 04 06 08 12 13 14 26 31 Board of Directors Directors’ Report Corporate Governance Report Audit Committee Report Directors’ Remuneration Report Directors’ Statement 36 38 43 48 51 77 Independent Auditor’s Report to the Members of A.G. BARR p.l.c. only Consolidated Income Statement Statement of Comprehensive Income Statement of Changes in Equity Statements of Financial Position Cash Flow Statements Notes to the Accounts Review of Trading Results Glossary Notice of Annual General Meeting Auditor’s Statement of Circumstances 78 81 82 83 85 86 87 129 130 133 142 Strategic Report Corporate Governance Accounts 01 We have made considerable progress across the business over the last 12 months and delivered a solid financial performance in volatile and uncertain market conditions. Strategic Report I am pleased to present A.G. BARR p.l.c.’s Annual Report for the year ended 28 January 2017. The report provides an overview of our business model and a comprehensive review of our strategy, its execution, our ﬁnancial performance and information on how we govern our business. We have made considerable progress across the business over the last 12 months and delivered a solid ﬁnancial performance in volatile and uncertain market conditions. We will continue to seek opportunities to grow our business and I believe we are well placed to continue to deliver consistent long-term shareholder value. Revenue Proﬁt before tax £257.1m (0.6)% £43.1m +4.4% Roger White Chief Executive EBITDA margin* 20.1% +0.6% Net cash Earnings per share Full year dividend per share* £9.7m 30.78p +3.9% 14.40p +8.0% * Items marked with an asterisk are non-GAAP measures. Deﬁnitions and relevant reconciliations are provided in the Glossary on pages 130 to 132. The term “underlying” has been used to improve comparability between the 52 week reporting period ended 28 January 2017 and the 53 weeks ended 30 January 2016. In the 53 week reporting period ended 30 January 2016 the Group received non-recurring income associated to the termination of the Orangina franchise and incurred one-off transaction fees associated to corporate development activities including Funkin Limited. The underlying ﬁgures for the 53 week reporting period ended 30 January 2016 have been adjusted for the revenue and proﬁt associated to week 53 and the non-recurring Orangina franchise and one-off corporate development transaction fees. The underlying ﬁgures for the period ended 28 January 2017 are the reported ﬁgures before exceptional items as disclosed in the consolidated income statement. See page 14 for our Strategy in Action€ A.G. BARR p.l.c. Annual Report and Accounts 2017 02 Strategic Report Our business and brands Excellence in taste Established over 140 years ago in Scotland, we are a FTSE 250 business operating across the UK and with a growing international presence. IRN-BRU XTRA launched Equivalent number of cans sold: 20 million Rubicon Light & Fruity launched Sugar content reduced by: 50% Rubicon Spring launched Bottles sold: 7.6 million A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 03 At our core, we are a successful branded soft drinks business, building a diverse and differentiated portfolio of great tasting brands that people love. We make it our business to understand what our consumers want. Whether it’s our iconic IRN-BRU, launched in 1901 and still going strong today, our market leading RUBICON exotic fruit juice drinks, or our pure, clear Scottish spring water STRATHMORE, our brands offer people a choice of great tasting products and bring exciting innovation to the market. Enhancing our portfolio, we also operate long-term successful partnerships, complementing our own range of products with global brands ROCKSTAR and SNAPPLE in the UK and beyond. But we’re not just about soft drinks – with the addition of FUNKIN we have moved into the cocktail mixer segment, broadening and strengthening our portfolio with a unique and exciting market leading brand in a growing market. Employing around 900 people across 10 UK locations, we are proud to be a sustainable business that listens to our consumers, builds lasting customer relationships, takes care of our employees, gives something back to our communities and works to minimise our environmental impact. OMJ launched Sales exceeded: £1 million Funkin performing well Sales up: 27% Snapple relaunch Sales up: 20% A.G. BARR p.l.c. Annual Report and Accounts 2017 04 Strategic Report Chairman’s Introduction A strong platform for the future Over the past 12 months we have seen some extremely signiﬁcant events unfold across the UK and beyond. The announcement of a soft drinks sugar tax in the Chancellor’s budget in March 2016, and the devaluation of sterling following the UK’s referendum vote to leave the European Union in June, added additional external headwinds in a soft drinks market already impacted by price deﬂation. Despite these macro external inﬂuences, the business has retained a clear focus on the execution of its strategy and in particular on internal improvement actions. sugars per 100ml by the autumn of 2017 is an extremely positive demonstration of how the business is responding with both pace and commitment. Our key partnerships with Rockstar and Dr Pepper Snapple Group continued to progress, complementing our own portfolio both in the UK and increasingly on an international basis, where we have delivered further growth, extending our international footprint and our franchise territory agreements. Financially, the business has delivered another solid performance with proﬁt before tax and exceptional items* of £42.4m, an increase of 2.7% on the prior year (£41.3m), and exits the year with a strong balance sheet. The Funkin business, acquired in 2015, continues to exceed our acquisition expectations, and we remain highly encouraged by the continued growth momentum of the Funkin brand and business. We maintained our market share across the period and continued to invest in our brands, with the key brands, IRN-BRU and Rubicon, delivering good growth. Innovation has been a key strategic focus across the year and the launches of IRN-BRU XTRA and Rubicon Spring in particular, both no added sugar products, have proven successful. As consumer tastes and preferences continue to change, and the demand for great tasting, reduced sugar products increases, the recent announcement that 90% of our Company owned brands will contain less than 5g of total Our drive for improvement across the business has not abated. We have continued to invest in our asset base, including the installation of a new glass ﬁlling line at Cumbernauld, and are in the process of adding new PET capability in our Milton Keynes facility. In addition, we have successfully completed a Company-wide business reorganisation that has both enhanced our organisational capability and reduced our overhead base. We exit the year with a strong balance sheet, and are well placed to exploit growth opportunities as and when they arise. * Items marked with an asterisk are non-GAAP measures. Deﬁnitions and relevant reconciliations are provided in the Glossary on pages 130 to 132. A.G. BARR p.l.c. Annual Report and Accounts 2017 Dividend The Board is pleased to be in a position to maintain its commitment to a progressive dividend policy and recommend a ﬁnal dividend of 10.87p per share to give a total dividend for the full year of 14.40p per share, a full year increase of 8% on the prior year. The ﬁnal dividend is payable on 9 June 2017 to shareholders on the Register of Members at the close of business on 12 May 2017. The ex-dividend date is 11 May 2017. Share repurchase programme Given the strength of the balance sheet and the cash generative nature of the business, the Board has decided to return up to £30m to shareholders via an on-market share repurchase programme. This programme is anticipated to commence in the spring of 2017 and complete within 24 months. The AGM in May 2017 will be requested to approve the renewal of the authority granted in June 2016 for the Board to repurchase up to 10% of the Company’s own shares. We do not believe that the repurchase programme will have any material impact on our ability to secure acquisition opportunities should these be identiﬁed. People The continued success of the business is testament to the commitment and skills of the whole team and I would like to take this opportunity to extend a thank you to each and every team member for their efforts across this year of change and reorganisation. “The business has achieved a great deal in the past year, building a strong platform for the future while sustaining current financial performance.” John Nicolson, Chairman The Board continues to operate effectively, with a complementary mix of skills and experience providing solid and effective governance controls. We will continue to review how to enhance both the governance model and the advisory aspect of the Board. Prospects The business has achieved a great deal in the past year, building a strong platform for the future while sustaining current ﬁnancial performance. With great brands, an effective business model, a clear strategy and a strong team in place to deliver it, the business remains well placed to develop further and realise its long-term potential. John Nicolson Chairman Strategic Report Corporate Governance Accounts 05 A.G. BARR p.l.c. Annual Report and Accounts 2017 06 Strategic Report Business Model Simple, effective, profitable We make We move We pride ourselves on our effective manufacturing capabilities, producing high quality products across our well-invested and efficient production sites, in Cumbernauld, Forfar and our new state of the art facility at Milton Keynes. From sourcing our raw materials across the globe, to designing our packaging materials, we strive for continuous improvements, keep safety at the forefront of all we do, and invest accordingly to ensure we produce the best tasting products as efficiently as possible. With a ﬂeet of more than 100 vehicles, and long- standing relationships with our key distribution partners, we strive to deliver a great service to all our customers, from the biggest food service customer to the smallest local shop. Operating across multiple routes to market, we have a well established and efficient distribution network, with our Direct Store Delivery channel in particular setting us apart, by offering a tailored and personal service to thousands of independent retailers across the UK. A.G. BARR p.l.c. Annual Report and Accounts 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 07 We are a growth driven, branded consumer goods business, delivering long-term sustainable value. We build great tasting brands that people love, offering them choice and enjoyment. This simple but effective approach is supported by strong partnerships, talented people and responsible actions. Our business model has proven successful for more than 140 years and continues to create and deliver value in all that we do. Our business model is simple, effective and proﬁtable. We market We sell Listening carefully to our consumers is paramount and by doing so we have developed a diverse and differentiated brand portfolio of great tasting products to satisfy their needs and offer choice. And when it comes to marketing and building our brands we like to have some fun, appealing to our broad range of consumers, whether that’s through national TV campaigns, digital media, sponsorship or supporting local community events. Building long lasting relationships with our customers across all our key markets is fundamental to our business. Whether it’s a multiple grocer, a wholesaler, a regional restaurant group or a local independent retailer, we work collaboratively with all our customers to understand their businesses and ﬁnd winning consumer propositions in a practical, fun and proﬁtable way. A.G. BARR p.l.c. Annual Report and Accounts 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 08 Strategic Report Chief Executive’s Review Clarity of purpose During the past 12 months our thirst for improvement has continued, despite the numerous external challenges that we have had to overcome. – Our deﬁned beneﬁt pension scheme was closed to future accrual further reducing our corporate risk proﬁle. – Beneﬁts from our Fit for the Future enabling programme began to ﬁlter through as planned, including signiﬁcantly better customer service, tighter inventory management and the implementation of a Company- wide reorganisation. – Strong cash ﬂow resulted in a net cash position of £9.7m. Soft drinks market performance The UK soft drinks market has performed robustly across the last 12 months, with growth of 1.2% in value and 1.6% in volume. This total market position masks a higher degree of volatility than in prior years, both in terms of monthly market movements and individual sub-category performance. As we previously forecast, deﬂation has eased across the latter part of the year. However, the more structural element of this deﬂation, related to the continued growth of the lower value water category, has continued to impact the total market. Stills experienced volume growth of just over 3% and value growth of 1%, with water growth continuing to be the driving force. In contrast, the carbonates sector experienced modest inﬂation, growing value by just over 1% versus a ﬂat volume position. We have delivered signiﬁcant business improvement across our brands, assets, infrastructure, organisation and our teams, to support the successful long-term development of the Company. The unexpected and unwelcome announcement of a new punitive tax regime associated with the manufacture of soft drinks with added sugar had the potential to be a major business distraction. However, I am pleased to report that we have continued to place consumers at the heart of our business, not regulators, and have responded positively to changing consumer tastes and preferences across our portfolio. We will of course continue to work with the various government bodies involved in the new regime to ensure that this new regulatory environment is deployed appropriately and with as much common sense as possible. In this reporting period: – We maintained overall market share in UK soft drinks with total Group revenue of £257.1m, an underlying* increase of 1.5% on the previous year. – Proﬁt before tax increased 4.4% on the prior year to £43.1m. – Statutory proﬁt before tax and exceptional items* increased 2.7% on the prior year to £42.4m. – Operating margin before exceptional items* improved 50bps to 16.8% following our continued tight cost control. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 09 “We have made considerable progress across the business over the last 12 months and delivered a solid financial performance in volatile and uncertain market conditions.” Roger White, Chief Executive A.G. BARR p.l.c. Annual Report and Accounts 2017 10 Strategic Report Chief Executive’s Review continued The past year has seen a number of material changes to the macro environment in which we operate – the soft drinks sugar tax, the UK’s decision to leave the EU, the devaluation of sterling and increased geopolitical volatility. However, perhaps most important to our business are the continuing development of UK consumer preferences in soft drinks, the further consolidation and development of our customer environment and ﬁnally, the advances across the digital communication landscape we operate in. We have continued to respond positively and with pace to these changes, focusing on the opportunities that arise. Our long-standing reformulation and product development programme has seen our portfolio develop signiﬁcantly across the past year. In March 2017 we announced our intention to meet consumers’ changing tastes and preferences with a number of further signiﬁcant portfolio developments. The successful development and launch of Rubicon Spring and IRN-BRU XTRA have contributed to our forward development plans, giving us the insight and conﬁdence to announce our intention that over 90% of Company owned brands will contain less than 5g of total sugars per 100ml by the autumn of 2017. This is a signiﬁcant and positive move which supports our consumer- focused strategy, at the same time as reducing our overall exposure to regulatory changes. During the course of the last ﬁnancial year our key brands have beneﬁted from continued investment and innovation. IRN-BRU and Rubicon in particular exit the full year with strong momentum based on positive brand fundamentals. Strategy In times of elevated uncertainty, clarity of purpose and consistency of approach yield the best outcome in our experience. We have remained consistent to our approach and principles across the past year, focusing on: – – – strongly differentiated brands; effective and ﬂexible operations; innovation based on consumer understanding; – growth driven partnerships; and leveraging the strength and – commitment of our teams. In each of these areas we have invested effort and resources to drive improvement and thus increase competitiveness. Our innovation has been instrumental in building our portfolio into the lower and no sugar consumer space and our technical developments in this area are critical to our future success. Our investment in our assets and infrastructure has continued with the introduction of new glass ﬁlling capability at Cumbernauld and the announcement of our intention to extend PET capability to our Milton Keynes site. This gives us a ﬂexible platform to improve our service, control our costs and ensure we are capable of adapting our operations to meet the portfolio needs of the future. Our core partnerships, with Rockstar and the Dr Pepper Snapple Group, have continued to develop across the period, with notable extensions to the territories covered under our Rockstar agreement. In September 2016 we signed a further exclusive extension with Rockstar for a further seven territories, including the Russian Federation. The Snapple brand has enjoyed growth of over 20% across 2016/17, with signiﬁcant product innovation, packaging advancements A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 11 and further distribution growth in the UK and internationally. The expansion of these selective partnerships remains an important part of our long-term growth strategy. We have enjoyed an excellent performance from our Funkin cocktail business building on the strong progress made last year, our ﬁrst year of ownership. The Funkin team has continued to deliver excellent opportunities to customers to access cocktail market growth with simplicity, authenticity and excitement. We anticipate continued growth for the Funkin business in the traditional on-trade environment and also from our planned launch into retail, with a new ready to mix cocktail product format which has exciting brand development and growth potential for the future. It has been a very busy, and at times unsettling, year for many of our colleagues as we have implemented signiﬁcant levels of change, culminating in a Company-wide reorganisation programme in the ﬁnal quarter. Following our prior year investment in assets and systems, the reorganisation has allowed us to streamline and improve our organisational structure, reducing employee numbers by around 10% whilst improving operating effectiveness and ﬂexibility. I would like to thank all our teams across the business who have responded positively to the challenges we face and have now helped to create a stronger business, more capable of delivering against our long-term potential. Summary We have made considerable progress across the business over the last 12 months and delivered a solid ﬁnancial performance in volatile and uncertain market conditions. The growth drivers of our core brands, innovation, partnerships, Funkin and International remain at the heart of our future plans. We are operating from a well-invested and sustainable asset base, with our new organisational structures established to support growth. We will continue to seek opportunities to grow shareholder value by utilising our full suite of options – our organic growth potential, our strong balance sheet, our core competencies and our strong culture – and I believe we are well placed to continue to deliver consistent long-term shareholder value. Roger White Chief Executive * Items marked with an asterisk are non- GAAP measures. Deﬁnitions and relevant reconciliations are provided in the Glossary on pages 130 to 132. A.G. BARR p.l.c. Annual Report and Accounts 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 12 Strategic Report Strategy Delivering long-term sustainable value Our overarching business strategy is to deliver long-term sustainable value in all that we do. Connecting with consumers Building brands Understanding our customers Consumer insight drives our business. Our consumers are growing in number, location and diversity and we ensure that we take the time to listen, to understand their needs and to offer them a choice of great tasting, high quality products. We are brand owners and builders, offering a diverse and differentiated portfolio of products that people love. With our own powerful brands, complementary franchise partner brands and a strong track record of bringing successful innovation to the market, we seek to build brand awareness, grow our brand equity and outperform the market. Building and maintaining long-lasting and successful customer relationships, across multiple routes to market, is central to our business. We work closely with our customers to develop joint plans which allow us to share in success. We pride ourselves on our ability to turn these shared plans into effective actions, supporting our customers with excellent in-store activation of our brand led activities and delivering the highest possible levels of service. Developing partnerships Driving efficiency Acting responsibly With strong ambitions, both within the UK and internationally, we recognise the advantages that working in partnership can deliver. By working closely with others, whether that be brand franchise partners, international distributors or 3rd party logistics providers, we develop complementary relationships that deliver shared beneﬁts and support our growing business. We continually strive for efficiency across our business, ensuring strong ﬁnancial controls are in place while also investing for growth. As our business develops, we are committed to driving continuous improvement across our processes and technology. As an asset backed business we drive operational improvements, ﬂexibility and efficiency through our expansionary capital investment programme, equipping us with some of the industry’s most advanced operational capability. We believe that how we act reﬂects who we are. We take our responsibilities seriously and aim to be a sustainable and responsible business that listens to our consumers, takes care of our people, works to minimise our environmental impact and gives something back to the communities we serve. A.G. BARR p.l.c. Annual Report and Accounts 2017 Key performance indicators Strategic Report Corporate Governance Accounts 13 Revenue Gross margin Proﬁt before tax Operating margin before exceptional items £257.1m (0.6)% 46.9% +10bps £43.1m +4.4% 16.8% +50bps £258.6m £257.1m 46.8% 46.9% £41.3m £43.1m 16.3% 16.8% 2016 2017 2016 2017 2016 2017 2016 2017 The increase in value of revenue recorded in the period relative to the prior period. Gross proﬁt divided by revenue. Proﬁt before tax and after exceptional items. Operating proﬁt before exceptional items and before the deduction of interest and taxation, divided by revenue. EBITDA margin Free cash ﬂow Return on Capital Employed (ROCE) 20.1% £43.2m 20.2% 19.5% 20.1% £43.2m 18.8% 20.2% £28.2m Dividend per share 14.40p 13.33p 14.40p 2016 2017 2016 2017 2016 2017 2016 2017 EBITDA (deﬁned as proﬁt on ordinary activities before tax less exceptional items, adding back interest, depreciation, amortisation and impairment) divided by revenue. Net cash ﬂow excluding the movements in borrowings, expansionary capex, shares, dividend payments and non-cash exceptional items. Dividend payable in respect of the ﬁnancial year. Operating proﬁt before exceptional items as a percentage of invested capital. Invested capital is deﬁned as period end non-current plus current assets less current liabilities excluding all balances relating to any provisions, ﬁnancial instruments, interest- bearing liabilities and cash or cash equivalents. A.G. BARR p.l.c. Annual Report and Accounts 2017 1414 14 Strategic Report Strategy in Action Connecting with Connecting with Connecting with Connecting with consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers consumers Consumers’ tastes and behaviours have continued Consumers’ tastes and behaviours have continued Consumers’ tastes and behaviours have continued to evolve and change over the past 12 months and we have responded positively and with pace. Innovation continues to play a central role in our portfolio development, satisfying our consumers’ needs for great tasting and exciting products, and we delivered a strong innovation programme across 2016/17. As consumer tastes and preferences continue to change and the demand for great tasting, reduced sugar products increases, the recent announcement that 90% of our Company owned brands will contain less than 5g of total sugars per 100ml by the autumn of 2017 is an extremely positive demonstration of how the business is responding to consumers. 90% of our Company owned brands will contain less than 5g of total sugars per 100ml by the autumn of 2017. 20m 7.6m Equivalent number of IRN-BRU XTRA cans sold in its first six months. Rubicon Spring bottles sold since launch. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 15 NEW IRN-BRU XTRA Launched in August 2016, IRN-BRU XTRA is the ﬁrst permanent new product from IRN-BRU in 35 years. In the making for over a year, IRN-BRU XTRA includes even more of the IRN-BRU taste that consumers love but leaves out the sugar for a new ﬂavour experience. Supported by an impactful outdoor marketing campaign, the equivalent of 20 million cans of IRN-BRU XTRA were sold in its ﬁrst 6 months. NEW Rubicon Spring Launched in the summer of 2016, Rubicon Spring is an exciting development for our Rubicon brand extending the brand reach. Offering consumers a tasty, healthy and hydrating drink, in four great fruit ﬂavours, Rubicon Spring contains no added sugar and less than 15 calories in every bottle. Supported by a national TV advertising campaign, Rubicon Spring has sold more than 7.6 million bottles since its launch. A.G. BARR p.l.c. Annual Report and Accounts 2017 16 Strategic Report Strategy in Action continued Building Building Building Building Building Building Building Building Building brands We have maintained our market share across the period and have continued to invest in the long-term health of our brands. IRN-BRU, Rubicon and Funkin in particular exit the full year with strong momentum based on positive brand fundamentals. Funkin grew revenue by an impressive 27% across the year, while, on an underlying* basis, IRN-BRU delivered growth of 3.2% and Rubicon grew by 4.9%. Funkin grew revenue by IRN-BRU delivered growth of Rubicon sales grew by 27% 3.2% 4.9% * Items marked with an asterisk are non-GAAP measures. Deﬁnitions and relevant reconciliations are provided in the Glossary on pages 130 to 132. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 17 Funkin brand development Our Funkin brand delivered a very successful innovation programme across the year, responding with speed and agility to meet fast-evolving consumer tastes in the cocktail market. A total of 10 new products were launched in 2016, a new digital platform went live and Funkin products were included in excess of 85 million individual cocktails across the year. NEW IRN-BRU brand identity April 2016 saw the new IRN-BRU identity revealed with a 3 month outdoor advertising campaign reaching over 8 million adults, ﬁrmly establishing the new iconic design. NEW Rubicon Light & Fruity Our core Rubicon brand was a key area of focus across 2016 with exciting innovation at the core of our plans. Rubicon Light & Fruity brings 3 reduced sugar variants to the market, packed with exotic fruit ﬂavour but with 50% less sugar. 18 Strategic Report Strategy in Action continued Understanding Understanding our our our our our our our our customers our We have taken a number of actions across the year to facilitate and enhance our customer relationships, working with our customers to develop winning strategies and to ensure the highest possible levels of service. These actions, combined with our pride in our in-market execution and a genuine desire to work in partnership with our customers, are essential components in our objective to deliver shared success and to be a key partner and supplier. £12m Business Process Redesign project now delivering improved customer service. c.250 strong sales team now more closely aligned to changing customer dynamics. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 19 Sales team reorganisation As the UK retail landscape has continued to undergo a considerable amount of change, we made some signiﬁcant changes to our sales team structures across the year as part of our Fit for the Future Company-wide reorganisation. Our c.250 strong sales team is now more closely aligned to changing customer dynamics across our channels, providing greater ﬂexibility and agility, and allowing us to better deliver shared success with our customers. A.G. BARR p.l.c. Annual Report and Accounts 2017 Improved customer service Following the delivery of our £12m Business Process Redesign project in 2015 and the associated implementation of a new ERP system, we have made signiﬁcant progress in realising some of the beneﬁts the improved platform and processes provide. Customer service in particular has been optimised with signiﬁcant improvements delivered across the year. 20 Strategic Report Strategy in Action continued Developing partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships partnerships We have further developed and enhanced our partnerships across 2016, working collaboratively to deliver shared success. Our key partnerships with Rockstar and Dr Pepper Snapple Group continued to progress, complementing our own portfolio both in the UK and increasingly on an international basis, where we have delivered further growth, extending our international footprint and our franchise territory agreements. Snapple sales grew by over Rockstar agreement to include a further seven territories 20% 7 A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 21 Snapple success Snapple sales grew by over 20% across the year with a number of key brand developments delivered. The brand artwork was updated for the ﬁrst time in 10 years, Iced Tea was reformulated to contain no sugar and we launched a new “on the go” resealable carton. The sugar content of the Snapple juice range is now being reduced and production has been brought in-house following the installation of new glass ﬁlling capability at our Cumbernauld factory. Rockstar innovation and territory expansion Innovation continues to play an important role in the energy drink category, with consumers energised and engaged by new and exciting product development. Rockstar continues to more than meet this demand with its strong innovation programme launching great new products including Rockstar Pure Zero Guava, that offers all the great Rockstar Punched Guava taste but with zero sugar and zero carbs. In September 2016 we signed an extension to our Rockstar agreement to include a further seven territories, including the Russian Federation, which will see Rockstar entering new international territories for the ﬁrst time. A.G. BARR p.l.c. Annual Report and Accounts 2017 22 Strategic Report Strategy in Action continued Driving efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency efficiency Our drive for operational efficiency and continuous improvement continued across 2016, delivered through a series of business improvement projects. Our capital investment programme continued across the year with the installation of a £5m new glass ﬁlling line at Cumbernauld and the announcement that we are investing a further £10m in new PET capability at Milton Keynes. Across our Fit for the Future enabling programme we began to see many of the efficiency beneﬁts ﬁltering through as planned, including signiﬁcantly better customer service and tighter inventory control and, as the programme entered its ﬁnal phase, we successfully implemented a Company-wide reorganisation that has both enhanced our organisational capability and reduced our overhead base. Investment in new high speed glass ﬁlling line Reorganisation and efficiencies are reducing overhead base by around £5m £3m A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 23 Business reorganisation NEW Glass filling capability Our Fit for the Future business improvement programme entered its ﬁnal phase in the second half of 2016 culminating in the successful implementation of a Company-wide business reorganisation that has both enhanced our organisational capability and is reducing our overhead base by around £3m. Our Commercial teams are now more closely aligned to the changing retail landscape, our Supply Chain resources have been rebalanced across all of our factories and our Central teams are now better structured to further realise the beneﬁts of our Business Process Redesign investment. We have invested over £5m in new glass ﬁlling capability at our Cumbernauld facility. Faster and more ﬂexible, the fully installed and commissioned new glass line produces our iconic 750ml glass range, provides us with additional “hot ﬁll” technology for fruit based products, and has facilitated the in-house production of our partnership brand, Snapple. This signiﬁcant investment also offers exciting opportunities to support our innovation programme and offer new glass formats. A.G. BARR p.l.c. Annual Report and Accounts 2017 24 Strategic Report Strategy in Action continued Acting responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly responsibly Our responsibility agenda is not a standalone area of focus, it is integral to how we do business. We have always been driven to do the right thing, whether for our consumers, our people, our environment or our communities, a value ﬁrmly embedded in all our activities. Some highlights across our 2016 responsibility agenda include: 90% of our Company owned brands will contain less than 5g of total sugars per 100ml by the autumn of 2017. 3-year partnership with Macmillan Cancer Support. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 25 Consumers People 90% of our Company owned brands will contain less than 5g of total sugars per 100ml by the autumn of 2017 – an extremely positive demonstration of how the business is responding with both pace and commitment to consumers’ changing tastes and preference. Living Wage accreditation conﬁrmed. New occupational health provision for employees.. Gender split Board and Company Secretary Senior Managers All Employees Male Female Total 9 2 11 68 24 92 668 259 927 Environment Community New employee chosen charity 3-year partnership agreed with Macmillan Cancer Support, already generating high levels of employee fundraising activity and engagement. The installation of a brand new glass ﬁlling production line at our Cumbernauld site allowed us to decommission the returnable glass line bottle washing equipment which accounted for more than 80% of the previous glass line’s carbon footprint. A.G. BARR GHC Emissions in tonnes CO2e Scope 1 Scope 2 Intensity ratio (Note 1) 2015/16 (Note 2) 5,419 10,676 2016/17 5,420 8,947 36.15 33.78 Note 1: Intensity ratio is kg of CO2e per 1,000 litres of product produced. Note 2: The 2015/16 ﬁgures have been corrected and restated. A.G. BARR p.l.c. Annual Report and Accounts 2017 26 Strategic Report Financial Review Underlying resilience The following is based on results for the 52 weeks ended 28 January 2017. Comparatives, unless otherwise stated, are for the 53 weeks ended 30 January 2016. Overview Revenue Revenue (underlying basis)* Gross margin* Operating margin before exceptional items* Proﬁt before tax before exceptional items* Proﬁt before tax before exceptional items (underlying basis)* Free cash ﬂow* Net cash Basic earnings per share (EPS) down (0.6)% to £257.1m up 1.5% to £257.1m up 10 bps to 46.9% up 50 bps to 16.8% up 2.7% to £42.4m up 7.1% to £42.4m up £15.0m to £43.2m up £21.0m to £9.7m up 3.9% to 30.78p Proposed ﬁnal dividend of 10.87p per share (2016: 9.97p) to give a proposed total dividend for the year of 14.40p per share, an increase of 8% over the prior year. Reconciliation of underlying measures 52 weeks to 28 January 2017 Revenue £m Gross proﬁt £m Operating proﬁt £m Proﬁt before tax £m 257.1 120.7 – – 257.1 120.7 43.8 (0.7) 43.1 43.1 (0.7) 42.4 Revenue £m Gross proﬁt £m Operating proﬁt £m Proﬁt before tax £m 258.6 (4.2) (1.2) – 121.1 (2.2) (0.3) – 42.1 (2.2) (0.3) 0.8 41.3 (2.2) (0.3) 0.8 253.2 118.6 40.4 39.6 2016/17 as reported 52 week period ended 28 January 2017 Exceptional items Underlying 53 weeks to 30 January 2016 2015/16 as reported 53 week period ended 30 January 2016 Week 53 Orangina franchise Corporate development Underlying A.G. BARR p.l.c. Annual Report and Accounts 2017 This is a positive set of results in a challenging environment and reﬂects the combined beneﬁts of strong brands, successful innovation and much improved customer service. It is particularly pleasing to recognise that we have put behind us the supply chain and system implementation challenges that constrained performance in 2015/16. The strong second half, which recorded both top and bottom line growth, followed a period of soft drinks market volatility in the ﬁrst half and provides conﬁdence that we enter 2017/18 with positive momentum. Reported revenue declined (0.6)%, the result of a 53 week prior year comparator. Our underlying revenue* from the business improved 1.5%, driven by growth from innovation across two of our key brands (IRN-BRU and Rubicon) and an operating margin improvement beneﬁt from the impact of the organisational review that we announced in September 2016. The year was not without its challenges. The commercial environment, while always competitive, was particularly testing this year with customer range rationalisations and deﬂationary pricing pressures impacting the business, most evidently across Rockstar and our regional brands. These customer challenges were compounded by the reappearance of inﬂationary headwinds from the commodity and currency markets during the second half of 2016/17. While the increased levels Strategic Report Corporate Governance Accounts 27 “This is a positive set of results in a challenging environment.” Stuart Lorimer, Finance Director A.G. BARR p.l.c. Annual Report and Accounts 2017 28 Strategic Report Financial Review continued of volatility and uncertainty were unhelpful, we took decisive management action which beneﬁted us in the second half, and we expect will continue to underpin our performance going forward. On an underlying basis* our business delivered revenue growth (+1.5%), gross and operating margin* expansion (+10bps and +80bps respectively), increased proﬁt before tax and exceptional items (+7.1%) and improved overall free cash ﬂow (+£15.0m). We continue to drive for improved efficiency in all aspects of the business, whether it is through zero-based budgeting, promotional evaluation or our programme of supply chain excellence. We believe this committed approach to growth, productivity and cash generation will drive further sustainable value creation for shareholders. We have accomplished much in the year: – The investment in our Business Process Redesign programme is now entering its second year of operation and tangible progress in efficiency and ﬂexibility is being made across the network. This is already delivering improved customer service and will provide a solid platform for future proﬁtability. – A Company-wide reorganisation was announced in September 2016. Our employee base reduces by around 100 at a one-off cost of £3.3m and will generate ongoing savings in the region of c.£3m per annum. The majority of the employee changes have taken place and an element of the savings has been delivered in 2016/17. – Our Deﬁned Beneﬁt (“DB”) pension scheme was closed to future accrual during the year. We continue to offer our employees market-leading pension arrangements, however the DB closure to future accrual has provided us with signiﬁcant pension de-risking. – Our banking arrangements were successfully renegotiated in February 2017 to provide longer term more cost effective revolving credit facilities: £40m over 3 years and £20m over 5 years. A.G. BARR p.l.c. Annual Report and Accounts 2017 – We undertook a competitive tender process for our external audit mandate. As a result we will be recommending to shareholders at the AGM in May 2017 that we appoint Deloitte LLP as our Group external auditors for the year 2017/18. Segment performance We have successfully maintained market share in a challenging market environment. Our core carbonates business has performed well, with both our IRN-BRU and Rubicon brands growing through a combination of innovation and distribution gains. Our portfolio carbonates, including Barr Flavours, Tizer and KA have been impacted by retailer range reduction activity. The Rockstar brand delivered lower revenues as we maintained our focus on margin and value in the face of competitor deep discounting and distribution reductions in several of the supermarkets. The second year of our Snapple partnership has seen considerable success both in the UK and internationally, with our new branding and reduced sugar offerings being well received by consumers. Our stills and water business performed well, led by our new lower sugar Rubicon Light & Fruity range. Our continued focus on value over volume improved margins, however there were continued market-wide challenges in fruit juices and fruit drinks, with water remaining a very price competitive subcategory. The international business has delivered double digit revenue growth* through brand development in our established core markets, new distributor arrangements in existing markets and the opening up of new markets. Our Funkin business has performed very strongly, with sales growth of 27% (reported within our “Other” segment). The key on-trade business has grown in each of its product segments (syrups, mixers and purees) and the Funkin team is on track to launch the ﬁrst Funkin branded consumer retail product in spring 2017. On the basis of the audited results, and the achievement of agreed ﬁnancial performance targets, there will be an associated cash “earn-out” payment in 2017/18 which has been fully provided for at the year end. Margins Modest price deﬂation impacted carbonates gross margins*, slightly down (30bps), however a combination of tight cost control and favourable mix limited the impact. Stills and water delivered gross margin improvement as growth was driven from the higher margin core brands and innovation. Operating expenses beneﬁted from a net £0.7m exceptional credit and a continued focus on cost control, supply chain efficiencies and some early beneﬁts from the organisational review which has been successfully implemented slightly ahead of plan. Financial performance beneﬁted from the stabilisation of our infrastructure and systems, the continued growth in both our international business and Funkin partially offset by negative movements on foreign exchange and the return to a 52 week year (2015/16 – 53 weeks). Operating margin before exceptional items* increased from 16.3% to 16.8%. Interest Net ﬁnance charges, totalling £0.7m, largely comprise the notional interest on the pension deﬁcit. Debt interest charges continued to reduce, reﬂecting our improved debt proﬁle as we successfully paid down our debt and transitioned to a net cash position. The constituent elements of the interest charge comprised: Finance income Finance costs Interest related to Group borrowings Finance costs related to pension Net ﬁnance costs 2016/17 £m 2015/16 £m – (0.2) 0.1 (0.2) (0.2) (0.1) (0.5) (0.7) (0.7) (0.8) Strategic Report Corporate Governance Accounts 29 Taxation The tax charge of £7.5m is £0.5m higher than the prior year and represents an effective tax rate of 17.4%. This is an increase of 0.3% from the prior year and primarily reﬂects the impact of the reduction in the deferred tax rate from 18% to 17% this year compared to the reduction from 20% to 18% included in the charge last year. Balance sheet and cash ﬂow The Group’s balance sheet continues to strengthen, with net asset growth* of £1.7m to £181.8m over the 52 weeks ended 28 January 2017 despite a £14.5m increase in the pension deﬁcit under IAS19. The key balance sheet highlights can be summarised as: – Non-current assets increased slightly – to £195.4m (up £2.6m) after several years of sustained investment in assets and infrastructure. We are now in the favourable position of having a modern, well-invested asset base capable of accommodating growth. Inventories have increased by £1.7m, driven by the deliberate decision to secure favourable mango pricing following a good 2016 harvest by purchasing much of our 2017/18 requirements in advance. Finished goods inventories are down in volume, value and days. – Trade payables have, as expected, increased substantially due to the timing of the year end and the phasing of monthly payment runs. Trade payables, at £15.8m, were up £7.4m on the prior year. – Trade and other receivables were broadly ﬂat at £51.4m (2015/16: £52.7m). We continue to beneﬁt from good customer relationships and strong credit controls and, as a result, have modest aged debt and experienced no bad debts during the ﬁnancial year. – ROCE* improved from 18.8% in 2015/16 to 20.2% in 2016/17 largely driven by working capital phasing. The movement from a net debt position as at January 2016 (£11.3m) to a net cash position as at January 2017 (£9.7m) reﬂects the strong cash generative nature of our business, working capital Free cash ﬂow statement Operating proﬁt before exceptional items Depreciation and amortisation EBITDA (Increase)/Decrease in inventories Decrease in receivables Increase/(Decrease) in payables Movement in pension liability Share-based payment costs Exceptional cash items Loss on sale of property, plant and equipment Net operating cash ﬂow Net interest Taxation Cash ﬂow from operations Maintenance capex Capex proceeds Free cash ﬂow Expansionary capex* Dividends Acquisition of subsidiary (net of cash acquired) Acquisition of intangible assets Net sale/(purchases) of shares by employee beneﬁt trusts Loans (repaid)/received (incl arrangement fees) Cash ﬂow from ﬁnancing 2016/17 £m 2015/16 £m 43.1 8.6 51.7 (1.7) 1.3 10.2 (2.2) 0.9 (4.2) – 56.0 (0.2) (7.2) 48.6 (5.5) 0.1 43.2 (6.9) (15.6) – – 0.3 (17.5) (39.7) 3.5 6.2 9.7 – 9.7 42.1 8.4 50.5 1.8 0.6 (15.8) (0.7) 0.5 (1.0) 0.2 36.1 (0.2) (6.8) 29.1 (1.8) 0.9 28.2 (12.9) (14.3) (15.7) (4.8) (2.0) 2.4 (47.3) (19.1) 25.3 6.2 (17.5) (11.3) Net increase/(decrease) in cash Opening cash and cash equivalents Closing cash and cash equivalents Borrowings Closing net cash/(debt) phasing and lower capital expenditure requirements as we come out of a period of sustained capital investment. In the year ahead we will continue to invest in the fabric of the business and to support our growth agenda. Capital expenditure* in 2017/18 is anticipated to be at a slightly higher level than in 2016/17 primarily driven by the phasing of our new £10m PET bottling line at Milton Keynes. This expansionary capital will deliver logistics cost savings and provide production ﬂexibility to support our innovation pipeline. A strong balance sheet and accessibility to cost effective and ﬂexible debt facilities provide optionality and ensure we have the ability and the agility to take advantage of any opportunities that may be identiﬁed. Our recently renegotiated banking facilities ensure that we have sufficient headroom at our disposal to meet expected future requirements. The business remains highly cash generative. Operating cash ﬂow before movements in working capital has increased £2.1m to £53.3m. We believe that EBITDA* and Free Cash Flow* permit a more meaningful analysis of the underlying performance of the Group. EBITDA* increased to £51.7m (up 2.4%), representing an EBITDA margin* of 20.1% and a strong cash generating performance, with EBITDA to free cash ﬂow conversion* of 83.6%. The Group utilises its cash appropriately and with care. More than £12m was invested in long-term assets and almost £16m was distributed in dividends to our shareholders. A.G. BARR p.l.c. Annual Report and Accounts 2017 30 Strategic Report Financial Review continued Shares with a net value of £0.3m were disposed of on behalf of various employee beneﬁt trusts to satisfy the ongoing requirements of the Group’s employee share schemes. Given the current net cash position, the relatively benign outlook for short-term interest rates and the expectation of continued strong free cash generation, no interest rate hedging activity has taken place during the year. Exceptional items We have undergone signiﬁcant reorganisation during 2016/17, the scale and nature of which made it appropriate that the related costs be recognised as exceptional items for reporting purposes. We believe that this permits a more meaningful analysis of the underlying performance of the Group. A net credit of £0.7m pre-tax (£0.6m post tax) for exceptional items included: Net gain arising on closure of DB pension scheme to future accrual £(5.5)m Reorganisation and capability refresh programme £ 3.3m Redundancy costs relating to direct sales reorganisation £ 0.6m Costs in relation to a strategic review of e-commerce capabilities Professional fees relating to corporate development Net exceptional credit £ 0.5m £ 0.4m £(0.7)m UK referendum and exit from the European Union The level of uncertainty and volatility in the external environment is unprecedented. Given the largely UK focus of our commercial activities, our current assessment is that the speciﬁc issue of the UK’s future exit from the European Union will not have a signiﬁcant impact on our business other than through its effects on foreign exchange. The current value of sterling has created an inﬂationary pressure on our commodity cost base, primarily Euro or US dollar denominated. We have a well developed risk management framework in place at both functional and corporate levels of the business and we will continue to closely monitor political and commercial developments and react accordingly to these. Post balance sheet events Certain events and decisions have taken place between the ﬁnancial year end and the approval of these accounts that merit highlighting. Debt ﬁnance During the ﬁnancial year we entered into discussions on our longer term debt cover. These discussions concluded in February 2017, with the Board approving three revolving credit facilities over periods of 3 to 5 years with Royal Bank of Scotland plc, Bank of Scotland plc and HSBC Bank plc. These facilities provide £60m of sterling debt facilities to 2020, reducing to £20m for the period to 2022. Our long-term ﬁnancial modelling indicates signiﬁcant ﬁnancial headroom with these facilities in place. Share repurchase programme The Board has approved a share repurchase programme of up to £30m, as part of the Group’s approach to capital allocation and under the authority to repurchase up to 10% of its own shares granted at the AGM in June 2016. This programme is anticipated to commence in the spring of 2017 and complete within 24 months. The AGM in May 2017 will be requested to approve the renewal of the authority for the Board to repurchase up to 10% of the Company’s own shares. We do not believe that the repurchase programme will have any material impact on our ability to secure acquisition opportunities should these be identiﬁed. Asset sale The disposal of our Walthamstow site (sale proceeds £3.8m; gain on sale £2.5m) was concluded in February 2017. We have entered into a short term lease of the premises as we ﬁnalise our long-term plans for direct customer deliveries in the area. 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 (“the scheme”) has been closed to new entrants since 5 April 2002 (and to new executive entrants since 14 August 2003). During the year, after employee consultation, and with the support of the Pension Trustee, the scheme was closed to future accrual. Despite these actions, the scheme deﬁcit continued to grow during the year as gilt yields and interest discount rates remained low. The deﬁcit (on an IAS19 valuation basis) increased from £12.9m at the end of 2015/16 to £27.4m at the balance sheet date. The increase in the deﬁcit in the current ﬁnancial year is primarily as a result of a lower net discount rate being used to value the scheme’s liabilities in the year. The Company 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 is comfortable that the overall pension deﬁcit is supportable. Share price and market capitalisation At 28 January 2017, the closing share price for A.G. BARR p.l.c. was £5.02, a reduction of 4.9% on the closing January 2016 position. The Group is a member of the FTSE 250, with a market capitalisation* of £586m at the year end. Stuart Lorimer Finance Director * Items marked with an asterisk are non- GAAP measures. Deﬁnitions and relevant reconciliations are provided in the Glossary on pages 130 to 132. A.G. BARR p.l.c. Annual Report and Accounts 2017 Risk management Strategic Report Corporate Governance Accounts 31 Identifying, evaluating and managing risk Risk management approach The Board is responsible for the Group’s risk management and internal control systems and for reviewing their effectiveness, supported by the Audit Committee and the Risk Committee. A risk management framework is in place which sets out the ongoing processes for the identiﬁcation, assessment and management of risks, and for their ongoing monitoring and review. The Board has deﬁned its risk appetite in a number of key areas for the business – this sets out the relative level of risk that the Group is prepared to seek or accept in the pursuit of its strategic objectives. The aim is to ensure that the risks taken by the Group fall within its deﬁned risk appetite. Effective risk management is essential to enable us to achieve our operational and strategic objectives and deliver long-term value creation. During the reporting period we have continued to focus on embedding a culture of risk management throughout the organisation which will contribute towards successful strategy execution. Robust risk assessment The risk management framework sets out a systematic approach to risk management which is designed to identify risks to the business, regardless of source. Once identiﬁed, risks are assessed according to the likelihood and impact of the risk occurring and an appropriate risk response is determined in line with the Group’s risk appetite. Risks are re-assessed based on the strength of the mitigating controls implemented. The implementation of risk mitigation plans is subject to ongoing monitoring and review. A risk scoring matrix is used to ensure that a consistent approach is taken across the business at both a corporate and functional level. This risk assessment and review process is documented in the appropriate risk register. Risks are constantly reviewed on an ongoing basis; the Group’s risk register is formally reviewed by the Risk Committee quarterly and by the Board and the Audit Committee twice each year. Risk control assurance Internal audit work is undertaken by an independent organisation which develops an annual internal audit plan having reviewed the Group’s risk register and following discussions with the external auditors, management and members of the Audit Committee. During the year the Audit Committee has reviewed reports covering the internal audit work. This has included assessment of the general control environment, identiﬁcation of any control weaknesses and quantiﬁcation of any associated risk, together with a review of the status of mitigating actions. The Audit Committee has also received reports from management in relation to speciﬁc risk items together with reports from external auditors, who consider controls to the extent necessary to form an opinion as to the truth and fairness of the ﬁnancial statements. The Group’s internal control and risk management systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable but not absolute assurance against material misstatement or loss. The report of the Audit Committee can be found on page 48. A.G. BARR p.l.c. Annual Report and Accounts 2017 32 Strategic Report Risk management continued Principal risks and uncertainties The Board has carried out a robust, systematic assessment of the principal risks facing the Group during the period, including those which would threaten its business model, future performance, solvency or liquidity. The principal risks as determined by the Board are listed in the table below, together with corresponding mitigating actions. This is not intended to be an exhaustive list of all risks and uncertainties that may arise. The UK’s decision to leave the European Union has created a volatile and uncertain economic environment. Like many other businesses, we are closely following developments in this area. We believe that it is still too early to quantify or determine with any certainty the impact on the Group of the UK leaving the European Union. However, given that the Group is a UK based group whose sales are predominantly made in the UK, our current assessment is that Brexit will not have a signiﬁcant impact on the Group, other than through its effect on foreign exchange rates to which it is exposed through the purchase of certain commodities. We will continue to monitor developments and adapt our strategy as the impact of the UK exit from the European Union becomes clear. Principal risks and uncertainties Risks relating to the Group Risk Impact Mitigating actions Changes in consumer preferences, perception or purchasing behaviour Consumers may decide to purchase and consume alternative brands or spend less on soft drinks. The Group offers a broad range of branded products across a range of ﬂavours, subcategories and markets which offer choice to the end consumer. Changing consumer attitudes and behaviours are monitored on an ongoing basis and inform our brand plans and new product development. Changing consumer attitudes towards sugar/ further government intervention on sugar Consumers may decide to purchase and consume alternative brands or spend less on sugared soft drinks. The Group offers a broad range of branded products, many of which are low sugar or sugar free. We announced on 1 March 2017 that we will accelerate our long-standing sugar reduction programme so that over 90% of our Company owned soft drinks portfolio by volume will contain less than 5g of total sugars per 100ml by the autumn of 2017. Our new product development activity is focused on development of lower calorie products and our marketing programmes incorporate our lower calorie choices. We are working constructively with the government in relation to the proposed sugar tax, with the aim of ensuring the optimal outcome for the Group. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 33 Risk Impact Mitigating actions Adverse publicity in relation to the soft drinks industry, the Group or its brands Adverse publicity in relation to the soft drinks industry, the Group or its brands could have an adverse impact on the Group’s reputation, consumer consumption patterns, sales and operating proﬁts. Our risk management process is designed to identify and monitor events that may impact the Group as a result of adverse publicity and to ensure that controls are in place to manage these risks. We liaise with relevant industry bodies who work with government and policy makers. Nutritional information is shown on all of our products and we have signed up to the UK Government’s voluntary front-of-pack nutritional labelling scheme. Processes are in place to ensure compliance with health and safety legislation and ethical working standards and these are regularly reviewed by the Board and management committee. Quality standards are well deﬁned, implemented and monitored. A Corporate Social Responsibility Committee is in place, with a clearly deﬁned and communicated Corporate Social Responsibility Policy. The Group maintains and develops ISO 9001 and 14001 systems and BRC standards which are subject to annual external audits, with any non-conformances addressed in a timely manner. Failure to maintain customer relationships or take account of changing market dynamics Failure to maintain appropriate customer relationships or a reduction in the customer base could have an adverse impact on the Group’s sales and operating proﬁts. The Group offers a broad range of brands that it manufactures and distributes through a variety of trade channels and customers. Performance is monitored closely by the Board and management committee by trade channel and customer as appropriate. This includes monitoring of metrics which review brand equity strength, ﬁnancial and operational performance. Inability to protect the Group’s intellectual property rights Failure of the Group’s operational infrastructure Failure to protect the Group’s intellectual property rights could result in a loss of brand value. A catastrophic failure of the Group’s major production or distribution facilities could lead to a sustained loss in capacity or capability. The Group focuses on delivering high quality products and invests heavily in building brand equity. We work closely in partnership with our customers on an ongoing basis. Members of the senior management team meet with key customers throughout the year. The Group invests considerable effort in proactively protecting its intellectual property rights, for example through trademark and design registrations and vigorous legal enforcement as and when required. Assets within the Group are proactively managed and maintained. Risk assessments are carried out on a regular basis and appropriate actions taken. Robust business continuity plans are in place and are regularly tested. A.G. BARR p.l.c. Annual Report and Accounts 2017 34 Strategic Report Risk management continued Principal risks and uncertainties continued Risks relating to the Group continued Risk Impact Mitigating actions Loss of continuity of supply of major raw materials The loss of continuity of supply of major raw material ingredients and/or packaging materials could impact our ability to manufacture, with an adverse impact on the Group’s sales and operating proﬁts. Loss of product integrity A loss of product integrity Failure of critical IT systems Financial risks in the manufacturing supply chain could lead to a product withdrawal or recall. A failure of critical IT systems could result in a loss of key systems, business interruption, lost sales or lost production. The Group’s activities expose it to a variety of ﬁnancial risks which include market risk (including medium term movements in exchange rates, interest rate risk and commodity price risk), credit risk and liquidity risk. There is a robust supplier selection process in place. Supplier performance is monitored on an ongoing basis and audits are undertaken for major suppliers. Multiple sources of supply are sourced wherever possible. Commodity risks are managed by the procurement team and reviewed by the Treasury and Commodity Committee. Contingency measures are in place and are tested regularly. Appropriate risk assessments are carried out on a regular basis and robust quality controls and processes are in place to maintain the high quality of our products. Product recall procedures are tested regularly. IT assets within the Group are proactively managed and procedures exist that support rapid and clean recovery. Robust business continuity plans and contingency measures are in place and are regularly tested. Our underlying objective is to secure budgeted exchange rates and thereby reduce the volatility through our cost of goods. Financial risks are reviewed and managed by the Treasury and Commodity Committee, which seeks to minimise adverse effects on the Group’s ﬁnancial performance through hedging known currency exposures throughout the year. The Group’s ﬁnance team reviews cash ﬂow forecasts throughout the year, with headroom against banking covenants assessed regularly. The ﬁnance team uses external tools to assess credit limits offered to customers, manages trade receivable balances vigilantly and takes prompt action on overdue accounts. The Group’s ﬁnancial control environment is subject to review by both internal and external audit. Internal audit’s focus is to work with and challenge management to ensure an appropriate control environment is maintained. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 35 Viability statement In accordance with provision C.2.2 of the UK Corporate Governance Code 2014, the directors have assessed the viability of the Company over a three year period to January 2020, taking account of the Group’s current position and the Group’s principal risks, as detailed in the Strategic Report. Based on this assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to January 2020. In making this statement, the directors have considered the resilience of the Group in severe but plausible scenarios, taking account of its current position and prospects, the principal risks facing the business and how these are managed. This assessment has considered the potential impact of these risks on the Company’s business model, future performance, solvency and liquidity over the three year period. The following four principal risks were selected for enhanced stress testing: changing consumer preferences, loss of product integrity, major raw material supply disruption and the sugar tax. These are the principal risks assessed to have the highest probability of occurrence or the most severe impact; they were stress tested both individually and in combination, taking account of the Group’s current position, the Group’s experience of managing adverse conditions in the past and the mitigating actions available to the business. A reverse stress test was also performed, allowing the Board to assess scenarios and circumstances that would render its business model unviable and enabling the identiﬁcation of potential business vulnerabilities and the development of appropriate mitigating actions. The Board selected the period of three years as an appropriate period for the Company’s viability statement for the following reasons: – – management currently use three year forecasts as part of the business planning process and capital investment cycle. the Company operates on a three year business cycle; and By order of the Board J.A. Barr Company Secretary 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 36 Corporate Governance Board of Directors John R. Nicolson B.A. (Hons) Chairman Roger A. White M.A. (Hons) Chief Executive Stuart Lorimer BAcc. (Hons), C.A. M.C.T. Finance Director Jonathan D. Kemp B.A. (Hons) Commercial Director John’s career was spent with ICI, Unilever, Fosters Brewing Group, Scottish & Newcastle PLC, and latterly as President Americas for Heineken NV and Deputy Chairman of CCU SA (Chile). He held various positions in Marketing and Sales before moving into Corporate Development and then General Management. Roger is a member of the Board of Management and Executive Council and is a past President of the British Soft Drinks Association. Previously held numerous senior positions in food group Rank Hovis McDougall. Scottish PLC Chief Executive of the year in 2010. Honorary Doctorate University of Edinburgh 2014. Term of Office Joined the Company in 2013 as a Non-Executive Director. Appointed Chairman January 2015. Term of Office Joined the Company in 2002 as Managing Director. Appointed Chief Executive in 2004. Stuart was with Diageo for 22 years in a range of roles and countries, ultimately as the FD for Diageo’s Global Supply Operation. Jonathan has had a successful career in various commercial roles within Procter and Gamble. Term of Office Joined the Company as Finance Director in January 2015. External Appointments Trustee Community Integrated Care. Term of Office Joined the Company in 2003 as Commercial Director. External Appointments Non-Executive Director Cricket Scotland. External Appointments Non-Executive Director of Troy Income & Growth Trust. External Appointments Non-Executive Director of Stocks Spirits Group PLC, Non-Executive Director of North American Breweries Inc and Non-Executive Director of PZ Cussons PLC. Committee Membership Nomination Committee (Chair) Remuneration Committee. A.G. BARR p.l.c. Annual Report and Accounts 2017 Andrew L. Memmott BSc, MSc. Supply Chain Director Andrew joined the Company following three years with Cooperative Wholesale Society. Term of Office Joined the Company’s Project Engineering Team in June 1990. Appointed Operations Director in 2008. External Appointments None. Strategic Report Corporate Governance Accounts 37 Martin A. Griffiths L.L.B. (Hons), C.A. Senior Independent Non-Executive Director W. Robin G. Barr C.A. Non-Executive Director Pamela Powell B.A., M.B.A. Non-Executive Director David J. Ritchie B.A. (Hons), A.C.A. Non-Executive Director Robin is a past President of the British Soft Drinks Association. Term of Office Joined the Company in 1960. Appointed Director in 1964 and Chairman in 1978. Retired as Chairman and appointed Non- Executive Director in 2009. External Appointments None. Committee Membership Audit Committee Nomination Committee Remuneration Committee. Pam was formerly Group Director of Strategy and Innovation at SABMiller plc, SVP Global Personal Care at Coty Beauty Inc, and VP Skincare and Global Brand Director Dove at Unilever plc. Term of Office Joined the Company in 2013 as a Non-Executive Director. External Appointments Non-Executive Director of Premier Foods plc. Committee Membership Audit Committee Nomination Committee Remuneration Committee. David is a qualiﬁed Chartered Accountant and former Chief Executive of Bovis Homes Group PLC (Bovis). He joined Bovis in 1998 from KPMG as Group Financial Controller becoming Group Finance Director in 2002 and Chief Executive in 2008. Term of Office Joined the Company in April 2015 as Non- Executive Director. External Appointments None. Committee Membership Audit Committee Nomination Committee Remuneration Committee (Chair). A Chartered Accountant, Martin is a former Chairman of the Scottish Finance Directors Group and a former Director of Troy Income & Growth Trust plc, Trainline Holdings Limited, RoadKing Infrastructure (HK) Limited and Citybus (HK) Limited. He is also a former Senior Independent Non- Executive Director of Robert Walters plc and past Chairman of Rail Delivery Group Limited and was young Scottish Finance Director of the year in 2004. Term of Office Joined the Company in 2010 as a Non-Executive Director. External Appointments CEO of Stagecoach Group, Co-Chairman of Virgin Rail Group Holdings Limited and Virgin Trains East Coast. Committee Membership Audit Committee (Chair) Nomination Committee Remuneration Committee. A.G. BARR p.l.c. Annual Report and Accounts 2017 38 Directors’ Report The directors present their report and the audited consolidated financial statements of the Group for the 52 weeks (2016: 53 weeks) ended 28 January 2017. Strategic Report The Companies Act 2006 requires the directors to present a review of the business during the year to 28 January 2017 and of the position of the Group at the end of the financial year, together with a description of the principal risks and uncertainties faced. The Strategic Report can be found on pages 01 to 35 and is incorporated by reference into this Directors’ Report. Corporate Governance Statement The Disclosure and Transparency Rules require certain information to be included in a corporate governance statement in the Directors’ Report. Information that fulfils the requirements of the corporate governance statement can be found in the Corporate Governance Report on pages 43 to 47 and is incorporated by reference into this Directors’ Report. Results and dividends The Group’s profit after tax for the financial year ended 28 January 2017 attributable to equity shareholders amounted to £35.6m (2016: £34.3m). An interim dividend for the current year of 3.53p (2016: 3.36p) per ordinary share was paid on 21 October 2016. The final proposed dividend of 10.87p (2016 final dividend: 9.97p) per ordinary share will be paid on 9 June 2017 if approved at the Company’s annual general meeting on 31 May 2017 (“AGM”). The directors have taken advantage of the exemption available under s408 of the Companies Act 2006 and have not presented an income statement for the Company. The Company’s profit for the year was £25.7m (2016: £22.8m). J.R. Nicolson Directors The following were directors of the Company during the financial year ended 28 January 2017: – – R.A. White – S. Lorimer – J.D. Kemp – A.L. Memmott – W.R.G. Barr – M.A. Griffiths – P. Powell – D.J. Ritchie Subject to the Company’s Articles of Association (the “Articles”) and any relevant legislation, the directors may exercise all of the powers of the Company and may delegate their power and discretion to committees. The Articles give the directors power to appoint and remove directors. Under the terms of reference of the Nomination Committee, any appointment must be recommended by the Nomination Committee for approval by the Board. The Articles require directors to retire and submit themselves for election at the first annual general meeting following appointment and to retire no later than the third annual general meeting after the annual general meeting at which they were last elected or re-elected. However, in order to comply with the UK Corporate Governance Code, all directors will submit themselves for re-election at the AGM. Biographical details of the Board are set out on pages 36 and 37 of this report. Directors’ interests Information regarding the directors’ interests in ordinary shares of the Company is provided in the Directors’ Remuneration Report on page 51. No director has any other interest in any shares or loan stock of any Group company. Other than service contracts, no director had a material interest in any contract to which any Group company was a party during the year. There have been the following changes notified in the directors’ shareholdings between 28 January 2017 and 28 March 2017: S. Lorimer an increase in beneficial holding of 74 shares and a decrease in non-beneficial holding of 8,699 shares, R.A. White an increase in beneficial holding of 76 shares, A.L. Memmott an increase in beneficial holding of 75 shares, J.D. Kemp an increase in beneficial holding of 75 shares and W.R.G. Barr an increase in beneficial holding of 75 shares. A.G. BARR p.l.c. Annual Report and Accounts 2017Corporate GovernanceStrategic Report Corporate Governance Accounts 39 Directors’ indemnity provisions As at the date of this report, indemnities are in force between the Company and each of its directors under which the Company has agreed to indemnify each director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out their role as a director of the Company. The directors are also indemniﬁed against the costs of defending any criminal or civil proceedings or any claim in relation to the Company or brought by a regulator as they are incurred provided that where the defence is unsuccessful the director must repay those defence costs to the Company. The Company’s total liability under each indemnity is limited to £5.0m for each event giving rise to a claim under that indemnity. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006. In addition, the Company maintained a Directors’ and Officers’ liability insurance policy throughout the ﬁnancial year and has renewed that policy. As at the date of this report, indemnities are in force between the Company and each of the directors of the corporate trustee of the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme under which the Company has agreed to indemnify each director, to the extent permitted by law, in respect of certain liabilities incurred in connection with the corporate trustee’s activities as a trustee of such scheme. Research and development The Group undertakes research and development activities in order to develop its range of new and existing products. Expenditure during the year on research and development amounted to £1.1m (2016: £1.1m). Political donations and political expenditure No Group company made any political donations or incurred any political expenditure in the year (2016: £nil). Post balance sheet events Relevant post balance sheet events requiring disclosure are included in note 33 to the accounts. Employee involvement The Group is committed to engaging employees at all levels regarding matters which affect them and the performance of the Group. This is achieved in a number of ways, including the use of regular brieﬁng procedures, which twice yearly include a report on trading results. Regular communication meetings are held to keep employees up to date with Group performance. Consultation meetings also take place when the Company is making decisions that are likely to affect employees’ interests, at which employee representatives’ views are taken into account. In addition to this, the Group’s intranet site provides up-to-date information regarding the Group’s activities. All qualifying employees are entitled to join the Savings Related Share Option Scheme (“SAYE”) and the All-Employee Share Ownership Plan (“AESOP”). Details of these share schemes are provided below. AESOP The AESOP is HMRC approved and the executive directors participate in both sections of the scheme, which is open to all qualifying employees. The partnership share element provides that for every three shares a participant purchases in the Company, up to a current maximum contribution of £150 per month, the Company will purchase one matching share. The matching shares purchased are held in trust in the name of the individual. There are various rules as to the period of time that the shares must be held in trust but after ﬁve years the shares can be released tax free to the participant. The free share element allows participants to receive shares to the value of a common percentage of their earnings, related to the performance of the Group. The maximum value of the annual award is currently £3,600 and the shares awarded are held in trust for ﬁve years. Under the terms of the AESOP rules, any award of free shares to employees is made by the Trustee of the AESOP subject to the Company’s consent. Under the terms of this scheme, unless they are a good leaver the matching shares will be forfeited if the participant leaves the employment of the Company within three years of the award. All partnership, matching and free shares must be removed from the trust if employment with the Company ceases. A.G. BARR p.l.c. Annual Report and Accounts 2017 40 Directors’ Report continued SAYE The SAYE is HMRC approved and is available to all qualifying employees, including executive directors. It is based on a five year savings contract which provides the participant with an option to purchase shares after five years at a discounted price fixed at the time the contract is taken out, or earlier as provided by the scheme rules. No performance conditions require to be met by any participant in order to exercise their option under the SAYE. Employment of disabled persons Applications for employment by disabled persons are always fully considered bearing in mind the qualifications and abilities of the applicants concerned. In the event of employees becoming disabled every effort is made to ensure that their employment will continue. The Group’s policy is that the training, career development and promotion of disabled persons are, as far as possible, identical to those of other employees. Substantial shareholdings As at 28 January 2017, the Company had been notified under Rule 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules of the following interests in the Company’s ordinary share capital: Lindsell Train Limited (discretionary clients) Caledonia Investments plc Troy Asset Management Number of shares % of voting rights Type of holding 15,115,319 8,157,500 6,553,311 12.94 6.99 5.61 Indirect Direct Direct The position remains the same as at 28 March 2017 as it did at 28 January 2017. Relations with shareholders The Company has regular discussions with and briefings for analysts, investors and institutional shareholders. The Chief Executive and Finance Director normally meet with major shareholders twice annually in order to develop an understanding of their views and brief the next Board meeting on their discussions. All directors have the opportunity to attend these meetings. At the AGM, all shareholders, including private investors, have an opportunity to participate in questions and answers with the Board on matters relating to the Company’s operation and performance. Share capital As at 28 January 2017 the Company’s issued share capital comprised a single class of ordinary shares of 4 1/6 pence each. All of the Company’s issued ordinary shares are fully paid up and rank equally in all respects. The rights attaching to the shares are set out in the Articles. Note 28 to the financial statements contains details of the ordinary share capital. On a show of hands at a general meeting of the Company every holder of ordinary shares present in person or by proxy and entitled to vote shall have one vote and, on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held. The Notice of AGM gives full details of deadlines for exercising voting rights in relation to resolutions to be passed at the AGM. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the AGM and published on the Company’s website after the meeting. Subject to the relevant statutory provisions and the Articles, shareholders are entitled to a dividend where declared and paid out of profits available for such purposes. There are no restrictions on the transfer of ordinary shares in the Company other than: – those which may from time to time be applicable under existing laws and regulations (for example, insider trading laws); and – pursuant to the Listing Rules of the Financial Conduct Authority, whereby certain directors and employees of the Company require the approval of the Company to deal in the Company’s ordinary shares and are prohibited from dealing during closed periods. At 28 January 2017 the Company had authority, pursuant to the shareholders’ resolution of 1 June 2016, to purchase up to 10% of its issued ordinary share capital. This authority will expire at the conclusion of the 2017 AGM. It is proposed that this authority be renewed at the 2017 AGM, as detailed in the Notice of AGM. A.G. BARR p.l.c. Annual Report and Accounts 2017Corporate GovernanceStrategic Report Corporate Governance Accounts 41 At 28 January 2017 Robert Barr Limited, as trustee of the General Employee Beneﬁt Trust, the Savings Related Beneﬁt Trust and the All-Employee Share Ownership Plan Trust (the “RBL Trustee”), held 0.88% of the issued share capital of the Company in trust for the beneﬁt of the executive directors and employees of the Group. As at 28 January 2017, Equiniti Share Plan Trustees Limited (the “AESOP Trustee”) held 1.23% of the issued share capital of the Company in trust for participants in the AESOP. A dividend waiver is in place in respect of the RBL Trustee’s holdings under the Savings Related Beneﬁt Trust. A dividend waiver is in place in respect of shares held by the AESOP Trustee and the RBL Trustee under the AESOP which have not been appropriated to participants. The voting rights in relation to the RBL Trustee’s shareholdings are exercised by the RBL Trustee, who may vote or abstain from voting the shares as it sees ﬁt in respect of shares which are unvested or have not been appropriated to employees. Under the rules of the AESOP, eligible employees are entitled to acquire shares in the Company. Details of the AESOP are set out above. AESOP shares which have been appropriated to participants are held in trust for those participants by the AESOP Trustee. Voting rights in respect of shares which have been appropriated to participants are exercised by the AESOP Trustee on receipt of participants’ instructions. If a participant does not submit an instruction to the AESOP Trustee, no vote is registered in respect of those shares. In addition, the AESOP Trustee does not vote any unappropriated shares held under the AESOP as surplus assets. The Executive Share Option Scheme (“ESOS”) was approved by shareholders at the 2010 AGM. Approved Long Term Incentive Plan (“ALTIP”) awards comprising both a tax-approved option granted under the ESOS and a Long Term Incentive Plan award have been granted to executive directors. ALTIP awards enable the participant and the Company to beneﬁt from HMRC tax-approved option tax treatment in respect of part of the award, without increasing the pre-tax value delivered to participants. Other than to enable the grant of ALTIP awards, the Company has not granted awards to executive directors under the ESOS. Details of the ALTIP awards granted to executive directors are set out on page 75. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities or on voting rights. Change of control As disclosed in the Directors’ Remuneration Report, under certain conditions the notice period for R.A. White, J.D. Kemp and A.L. Memmott may increase from one year to two years in the event of a takeover of or by the Company or a Company reconstruction. All of the Company’s share incentive plans contain provisions relating to a change of control of the Company. The Company’s banking facilities may, at the discretion of the lender, be repayable upon a change of control. Articles of association The Company’s Articles may only be amended by a special resolution at a general meeting of shareholders. No amendments are proposed to be made to the existing Articles at the 2017 AGM. Greenhouse gas emissions Disclosures regarding greenhouse gas emissions required by The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 are included in the Strategic Report on page 25. This information is incorporated by reference into this Directors’ Report. Financial risk management Information on the exposure of the Group to certain ﬁnancial risks and on the Group’s objectives and policies for managing each of the Group’s main ﬁnancial risk areas is detailed in the ﬁnancial risk management disclosure in note 26. Contracts of signiﬁcance There were no contracts of signiﬁcance as deﬁned by Listing Rule 9.8 in existence during the ﬁnancial year. Disclosure of information under Listing Rule 9.4.3R The information required under Listing Rule 9.4.3R is provided in the Directors’ Remuneration Report on page 68 and 69. A.G. BARR p.l.c. Annual Report and Accounts 2017 42 Directors’ Report continued Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 01 to 35. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review on pages 26 to 30. After making the appropriate enquiries, the directors have concluded that the Group will be able to meet its financial obligations for the foreseeable future and therefore have a reasonable expectation that the Company and the Group overall have adequate resources to continue in operational existence for the foreseeable future (being at least one year following the date of approval of this annual report) and, accordingly, consider it appropriate to adopt the going concern basis in preparing the financial statements. The Company’s viability statement is set out on page 35 of the Strategic Report. Directors’ statement as to disclosure of information to auditor So far as each director is aware, there is no relevant audit information (as defined by the Companies Act 2006) of which the Company’s auditor is unaware. Each director has taken all steps that ought to be taken by a director to make themselves aware of and to establish that the auditor is aware of any relevant audit information. Auditor The Audit Committee has responsibility delegated from the Board for making recommendations on the appointment, reappointment, removal and remuneration of the external auditor. Following a competitive tender for the external audit, KPMG LLP has indicated its intention to resign as auditor and Deloitte LLP will be appointed to fill the casual vacancy arising. A resolution to appoint Deloitte LLP as auditor of the Company and its subsidiaries, and to authorise the Audit Committee to fix their remuneration, will be proposed at the 2017 AGM. Annual General Meeting The Company’s AGM will be held at 11.00am on 31 May 2017 at the offices of Deloitte LLP, 110 Queen Street, Glasgow, G1 3BX. The Notice of the AGM is set out on pages 133 to 135 of this report. A description and explanation of the resolutions to be considered at the 2017 AGM is set out on pages 136 to 141 of this report. Recommendation to shareholders The Board considers that all the resolutions to be considered at the AGM are in the best interests of the Company and its shareholders as a whole and unanimously recommends that you vote in favour of them. By order of the Board J.A. Barr Company Secretary 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017Corporate GovernanceCorporate Governance Report Strategic Report Corporate Governance Accounts 43 Chairman’s Introduction Dear Shareholder I am pleased to present our Corporate Governance Report, which describes how the main principles of the 2014 UK Corporate Governance Code have been applied during the year. Information about the Board, its members and committees, and an overview of the Company’s system of internal controls are also included. There were no changes to the Board during the year. Details of the Board’s composition are given on pages 36 and 37. John R. Nicolson Chairman 28 March 2017 The Board The Company is led by a strong and experienced board of directors (the “Board”) which brings a depth and diversity of expertise to the leadership of the Company. The Board has an appropriate balance of skills, experience and knowledge of the Group to enable it to discharge its responsibilities effectively. The Board currently has nine members, comprising four executive directors, the non-executive Chairman, three independent non-executive directors and one non-independent non-executive director. Biographical details of the directors are set out on pages 36 and 37. The roles of Chairman and Chief Executive are separate and there is a clear division of responsibilities between those roles. The Chairman leads the Board and ensures the effective engagement and contribution of all non-executive and executive directors. The Chairman also ensures that Board meetings are underpinned by a culture of openness and challenge, with sufficient time made available to debate issues arising. The Chief Executive has responsibility for all Group businesses and acts in accordance with the authority delegated from the Board. The senior independent non-executive director, M.A. Griffiths, is available to shareholders if they have concerns which have not been resolved via the normal channels of Chairman, Chief Executive, or the other executive directors, or where communication through such channels would be inappropriate. The Board considers that M.A. Griffiths, P. Powell and D.J. Ritchie are independent for the purposes of provision B.1.1 of the UK Corporate Governance Code, issued by the Financial Reporting Council in September 2014 (the “Code”), and that the relationships and circumstances set out in that provision which may appear relevant to the determination of independence do not apply. The Board considers that, on appointment, the Chairman was independent for the purposes of provision A.3.1 of the Code. M.A. Griffiths fulﬁlled the role of senior independent director during the year to 28 January 2017. In addition to his role as Chairman of the Company, J.R. Nicolson is a director of Stocks Spirits Group plc, director of North American Breweries Inc and director of PZ Cussons plc. The Board does not consider that J.R. Nicolson’s other commitments have any impact on his ability to discharge his duties as Chairman of the Company effectively. The Articles require directors to retire and submit themselves for election at the ﬁrst annual general meeting following appointment and to retire no later than the third annual general meeting after the annual general meeting at which they were last elected or re-elected. However, in order to comply with the Code, all directors will submit themselves for re-election at the AGM. A.G. BARR p.l.c. Annual Report and Accounts 2017 44 Corporate Governance Corporate Governance Report continued Details of directors’ remuneration and interests in shares of the Company are given in the Directors’ Remuneration Report on pages 51 to 76. Role of the Board The Board is responsible for the long term success of the Group, determines the strategic direction of the Group and reviews operating, ﬁnancial and risk performance. There is a formal schedule of matters reserved for the Board, including approval of the Group’s annual business plan, the Group’s strategy, acquisitions, disposals and capital expenditure projects above certain thresholds, the ﬁnancial statements, the Company’s dividend policy, transactions involving the issue or purchase of Company shares, borrowing powers, appointments to the Board, alterations to the memorandum and articles of association, legal actions brought by or against the Group above certain thresholds, and the scope of delegations to Board committees, subsidiary boards and the management committee. Responsibility for the development of policy and strategy and operational management is delegated to the executive directors and a management committee, which as at the date of this report includes the executive directors and nine senior managers. Board performance evaluation Every year the performance and effectiveness of the Board, its committees and individual directors is evaluated. In line with the Code, during the year Independent Audit Limited (“Independent Audit”) conducted a formal, externally-facilitated review of the effectiveness of the Board and its committees. Independent Audit is an independent adviser with no other connection to the Company. The evaluation was conducted by the completion by all Board members of detailed and comprehensive written survey questionnaires. Independent Audit agreed the questionnaires with the Company Secretary and the Chairman. The Board questionnaire covered such themes as strategy and risk taking, leadership and accountability, how the Board works, Board culture, line of sight and risk management, with a similar degree of coverage for each of the committees. Independent Audit provided a full, written report based on the responses to the survey, which they discussed with the Chairman. The full report was shared with and discussed by the Board and each of the committees. Overall, the review found that the Board and its committees were functioning in an effective manner and performing satisfactorily, with no major issues identiﬁed. The non-executive directors, led by the senior independent director, carried out a performance evaluation of the Chairman, taking into account the views of the executive directors. The Chairman is pleased to conﬁrm that, following performance evaluation of the directors, all of the directors’ performances continue to be effective and all of the directors continue to demonstrate commitment to the role of director, including commitment of time for Board meetings and committee meetings and any other relevant duties. Independent professional advice Directors can obtain independent professional advice at the Company’s expense in the performance of their duties as directors. None of the directors obtained independent professional advice in the period under review. All directors have access to the advice and the services of the Company Secretary. The non-executive directors have access to senior management of the business. Training and development On appointment to the Board, directors are provided with a full, formal and tailored programme of induction, to familiarise them with the Group’s businesses, the risks and strategic challenges the Group faces, and the economic, competitive, legal and regulatory environment in which the Group operates. A programme of strategic and other reviews, together with the other training provided during the year, ensures that directors continually update their skills, their knowledge and familiarity with the Group’s businesses, and their awareness of sector, risk, regulatory, legal, ﬁnancial and other developments to enable them to fulﬁl effectively their role on the Board and committees of the Board. Meetings and attendance Board meetings are scheduled to be held seven times each year. Between these meetings, as required, additional Board meetings (and/or Board committee meetings) may be held to progress the Company’s business. A part of each Board meeting is dedicated to the discussion of speciﬁc strategy matters. In advance of all Board meetings the directors are supplied with detailed and comprehensive papers covering the Group’s operating functions. Members of the management team attend and make presentations as appropriate at meetings of the Board. The Company Secretary is responsible to the Board for the timeliness and quality of information provided to it. The Chairman holds meetings with the non-executive directors during the year without the executive directors being present. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 45 The attendance of directors at scheduled Board and committee meetings in the year to 28 January 2017 was as follows: Executive R.A. White* S. Lorimer** J.D. Kemp A.L. Memmott Non-executive J.R. Nicolson W.R.G. Barr M.A. Griffiths D.J. Ritchie P. Powell Board Maximum 8 Audit Committee Maximum 4 Remuneration Committee Maximum 5 Nomination Committee Maximum 4 8 8 8 8 8 8 8 8 8 – 4 – – – 4 4 4 4 5 – – – 5 5 5 5 5 4 – – – 4 4 4 4 4 * R.A. White attended Board committee meetings during the year by invitation. ** S. Lorimer attended Audit Committee meetings during the year by invitation. Conﬂicts of interest The Articles allow the Board to authorise potential conﬂicts of interest that may arise from time to time, subject to certain conditions. The Company has established appropriate conﬂicts authorisation procedures, whereby actual or potential conﬂicts are regularly reviewed and authorisations sought as appropriate. During the year, no such conﬂicts arose and no such authorisations were sought. Committees of the Board The terms of reference of the principal committees of the Board – Audit, Remuneration and Nomination – have been approved by the Board and are available on the Company’s website, www.agbarr.co.uk. Those terms of reference have been reviewed in the current year and are reviewed at least annually. The work carried out by the Nomination Committee in discharging its responsibilities is summarised below. The work carried out by the Audit Committee is described within the Audit Committee’s Report on pages 48 to 50. The work carried out by the Remuneration Committee is described within the Directors’ Remuneration Report on pages 51 to 76. The Board has established a Market Disclosure Committee which comprises R.A. White, S. Lorimer and the Company Secretary. The Market Disclosure Committee meets only when required and is responsible for overseeing the disclosure of information by the Company to meet its obligations under the Market Abuse Regulation and the Financial Conduct Authority’s Listing Rules and Disclosure Guidance and Transparency Rules. Nomination Committee The Nomination Committee comprises J.R. Nicolson, W.R.G. Barr, M.A. Griffiths, P. Powell and D.J. Ritchie. The Nomination Committee is chaired by J.R. Nicolson. The Nomination Committee leads the process for making appointments to the Board and ensures that there is a formal, rigorous and transparent procedure for the appointment of new directors to the Board. The remit of the Nomination Committee also includes reviewing the composition of the Board through a full evaluation of the skills, knowledge and experience of directors and ensuring plans are in place for orderly succession for appointments to the Board. The Nomination Committee also makes recommendations to the Board on the membership of its committees. The Nomination Committee is required, in accordance with its terms of reference, to meet at least once per year. The Nomination Committee met four times during the year and, amongst other matters, considered the recruitment of an additional non-executive director. A.G. BARR p.l.c. Annual Report and Accounts 2017 46 Corporate Governance Corporate Governance Report continued The Board recognises the importance of diversity to the success of the business and is ﬁrmly committed to giving due consideration to all aspects of diversity, including gender diversity. Appointments to the Board are made on merit, against objective criteria, and with due regard for the beneﬁts of diversity on the Board. Whilst no formal measurable objectives have been set for female representation at Board level, the Board remains committed to the principles of gender diversity. The disclosure relating to gender diversity within the Company is included in the Strategic Report on page 25. Treasury Committee The Treasury Committee consists of R.A. White, S. Lorimer and senior members of the ﬁnance, legal and procurement departments. The Treasury Committee reviews purchase requirements in foreign currencies and implements strategies, including the use of foreign exchange hedges, in order to reduce the risk of foreign exchange exposure and provide certainty over the value of non-domestic purchases in the short to medium term. The Treasury Committee’s remit also includes the ability to utilise certain ﬁnancial instruments in order to hedge the Group’s exposure to interest rate ﬂuctuations. Internal control The Board has overall responsibility for the Group’s internal control systems and annually reviews their effectiveness, including a review of ﬁnancial, operational, compliance and risk management controls. The implementation and maintenance of the risk management and internal control systems are the responsibility of the executive directors and other senior management. The systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss. The Board has reviewed the effectiveness of the Group’s risk management and internal control systems, including ﬁnancial, operational and compliance controls, in accordance with the Code for the period from 31 January 2016 to the date of approval of this annual report. No signiﬁcant failings or weaknesses were identiﬁed from this review during the year. Had any failings or weaknesses been identiﬁed then the Board would have taken the action required to remedy them. At the Audit Committee meeting on 18 January 2017, following a review and evaluation of the Group’s risk management and internal control systems in place, the Audit Committee concluded that the Group has a sound system of risk management and internal controls in place. The Board conﬁrms that there is an ongoing process, embedded in the Group’s integrated internal control systems, allowing for the identiﬁcation, evaluation and management of signiﬁcant risks, as well as a reporting process to the Board. This risk management process has been in place throughout the year ended 28 January 2017 and up to the date of the approval of this annual report. The Board has carried out a robust, systematic assessment of the principal risks facing the Group during the period, including those which would threaten its business model, future performance, solvency or liquidity. Information on the Group’s risk management framework is set out in the Strategic Report on pages 31 to 35. The three main elements of the Group’s internal control system are as follows: The Board The Board has overall responsibility for the Group’s internal control systems and exercises this through an organisational structure with clearly deﬁned levels of responsibility and authority as well as appropriate reporting procedures. The Board has a schedule of matters that are brought to it, or its duly authorised committees, for decision, aimed at maintaining effective control over strategic, ﬁnancial, operational and compliance issues. This structure includes the Audit Committee which, with the Finance Director, reviews the effectiveness of the internal ﬁnancial and operating control environment. Financial reporting There is a comprehensive strategic planning, budgeting and forecasting system with an annual operating plan approved by the Board. Monthly ﬁnancial information, including trading results, cash ﬂow statement, statement of ﬁnancial position and indebtedness, is reported. The Board and the management committee review their business and ﬁnancial performance against the prior year and against annual plans approved by the Board. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 47 Audits and reviews The key internal risks identiﬁed in the Group are subject to regular audits or reviews by the internal auditors. This role is fulﬁlled by an external professional services ﬁrm which is independent from the Board and the Company. The review of the internal auditors’ work by the Audit Committee and monitoring procedures in place ensure that the ﬁndings of the audits are acted upon and subsequent reviews conﬁrm compliance with any agreed action plans. The Board conﬁrms that there has been an independent internal audit function in place for the year. Share capital structure The share capital structure of the Company is set out in the Directors’ Report. UK Corporate Governance Code compliance The Company is committed to the principles of corporate governance contained in the Code. A copy of the Code is available on the Financial Reporting Council’s website, www.frc.org.uk. Each of the provisions of the Code has been reviewed and, where necessary, steps have been taken to ensure that the Company is in compliance with all of those provisions as at the date of this report. The directors consider that the Company has complied throughout the year ended 28 January 2017 with the provisions of the Code, except as set out below. During the year the Board comprised four executive directors, the non-executive Chairman and three independent non- executive directors. In addition, W.R.G. Barr was a non-executive director during the year although he is not considered by the Board to be independent. Accordingly, during the year to 28 January 2017 the composition of the Board did not, at any time, comply with provision B.1.2 of the Code. The Board considers that, despite this non-compliance, the Board has an appropriate balance of skills, knowledge and experience to enable it to discharge its duties and responsibilities effectively. No concerns regarding the Board’s non-independent majority were raised as part of the Board performance evaluation carried out during the year and referred to above. Provision D.1.5 of the Code recommends that executive directors’ contracts contain a maximum notice period of one year. As disclosed in the Directors’ Remuneration Report, the service contracts with R.A. White, J.D. Kemp and A.L. Memmott provide for a notice period of 12 months except during the six months following either a takeover of or by the Company or a Company reconstruction. Under these conditions and certain circumstances the directors are entitled to a liquidated damages payment equal to the director’s basic salary at termination plus the value of all contractual beneﬁts for a two year period. Given the size of the Company and the sector dynamics at the time these directors were recruited, the Remuneration Committee considered this provision appropriate in order to attract and retain high calibre executive directors. As disclosed in the Directors’ Remuneration Report, this provision will continue to be honoured as a contractual commitment made to these directors; however this provision was not included in S. Lorimer’s service contract and will not be included in service contracts with other new executive directors appointed in future. A copy of the ﬁnancial statements has been placed on the Company’s website, www.agbarr.co.uk. The maintenance and integrity of this website is the responsibility of the directors. Legislation in the UK governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. By order of the Board J.A. Barr Company Secretary 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 48 Corporate Governance Audit Committee Report Composition The Audit Committee comprises four non-executive directors: M.A. Griffiths, W.R.G. Barr, P. Powell and D.J. Ritchie. The Audit Committee is chaired by M.A. Griffiths. The Board is satisﬁed that M.A. Griffiths has recent and relevant ﬁnancial experience as required by provision C.3.1 of the Code. The Board has determined that the current composition of the Audit Committee as a whole has competence relevant to the sector in which the Company operates. Biographical details relating to each of the Committee members are shown on page 37. Meetings The Audit Committee met four times during the year. The meetings are attended by the Committee members and, by invitation, the Finance Director, the Central Financial Controller, the Company Secretary and representatives from the external and internal auditors. The Audit Committee regularly meets with executive directors and management, as well as privately with the external and internal auditors. Role and responsibilities The primary role of the Audit Committee is to assist the Board in fulﬁlling its oversight responsibilities. This includes: – monitoring the integrity of the annual and interim ﬁnancial statements and formal announcements relating to the Group’s ﬁnancial performance and reviewing any signiﬁcant ﬁnancial reporting judgements and disclosures which they contain; if requested by the Board, providing advice on whether the Annual Report and Accounts are fair, balanced and understandable; reporting to the Board on the appropriateness of the Group’s accounting policies and practices; reviewing and monitoring the effectiveness of the Group’s internal control and risk management systems; reviewing and monitoring the effectiveness of the internal audit function and management’s responsiveness to any ﬁndings and recommendations; approving the appointment and removal of the internal auditor; reviewing and monitoring the appropriateness of the Group’s whistle-blowing and anti-bribery procedures; – – – making recommendations to the Board in relation to the appointment and removal of the external auditor and approving – – – – its remuneration and terms of engagement; reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process; reviewing the policy on the engagement of the external auditor to supply non-audit services; and reporting to the Board on how it has discharged its responsibilities. – – – Activities of the Audit Committee During the year the Audit Committee has: – reviewed and discussed with the external auditor the key accounting considerations and judgements reﬂected in the Group’s results for the six month period ended 30 July 2016; reviewed and agreed the external auditor’s audit strategy memorandum in advance of its audit for the year ended 28 January 2017; – – – discussed the report received from the external auditor regarding its audit in respect of the year ended 28 January 2017, which report included comments on its ﬁndings on internal control and on the disclosure of risks and a statement on its independence and objectivity; received and reviewed reports from management regarding their approach to key accounting considerations and judgements in the half year and full year ﬁnancial statements; reviewed the half year and full year ﬁnancial statements; received reports on the operation of the Group’s Risk Committee; reviewed the Group’s risk register and the Group’s principal risks, together with the systems and processes for mitigating those risks; – – – – discussed and agreed the nature and scope of the work to be performed by the external and internal auditors; – – reviewed the results of this audit work and the response of management to matters raised; reviewed the effectiveness of the Group’s risk management and internal control systems (including ﬁnancial, operational, compliance and risk management controls); reviewed the appropriateness of the Group’s whistle-blowing procedures; reviewed the effectiveness of the Group’s anti-bribery systems and controls; received reports from internal audit covering various aspects of the Group’s operations, controls and processes; reviewed the Group’s delegated authority limits; approved the reappointment of the internal auditor; conducted a competitive tender process for the external audit for 2017/18 onwards, made recommendations to the Board on the appointment and remuneration of the external auditor and monitored the performance of the incumbent auditor; – monitored and reviewed the performance of the internal auditor and the effectiveness of the Group’s internal audit activities; – reviewed its policies on the supply of non-audit services by the external auditor and on the employment of former employees of the Group’s external auditor; – – – – – – A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 49 – – reviewed the non-audit services provided to the Group by the external auditor and monitored and assessed the independence of both the external and internal auditors; and reviewed the performance of the Audit Committee and its terms of reference. At the request of the Board, the Audit Committee also considered whether the Annual Report and Accounts for the year ended 28 January 2017, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. Following review of management’s processes in this regard and consideration of the draft Annual Report and Accounts, the Audit Committee recommended to the Board that it could make the required disclosure as set out in the Directors’ Responsibilities Statement on page 77. Signiﬁcant areas The signiﬁcant matters and key accounting judgements considered by the Audit Committee during the year were: – The carrying value of brand support accruals: judgement is required when ascertaining the level of accrual required in relation to promotions and brand support campaigns that span the year end, or where settlement has not been fully and ﬁnally settled by the year end, or which relate to prior years. During the year the Audit Committee received a report from the management team on the commercial investment process. It also received and considered reports from management on the level of accruals at the half year and at the year end. The Audit Committee was content that there were no issues arising. – The valuation of inventory: the valuation of inventory is judgemental due to the volatile nature of raw material commodity prices and, as the Group uses standard costing, changes in production levels can lead to purchase price variances which require to be accounted for correctly. During the year the Audit Committee considered and was satisﬁed with reports from the internal auditor and management regarding the controls operating in relation to inventory management at the Milton Keynes site. The Audit Committee discussed and challenged management’s judgements in relation to inventory valuation and considered reports from the external auditor on this area and were satisﬁed that inventory valuations were reasonable. Other areas Other matters considered by the Audit Committee during the year were: – Exceptional items: the Audit Committee considered reports received from management in relation to the classiﬁcation and presentation of certain items as exceptional and was satisﬁed with the treatment and presentation of various items which arose during the year as exceptional, the majority of which related to the closure of the deﬁned beneﬁt pension scheme to future accrual and the Company-wide reorganisation. – Deﬁned beneﬁt pension scheme: during the year the Audit Committee considered and was satisﬁed with reports received from the Group’s external auditor and management relating to the accounting for the closure of the deﬁned beneﬁt pension scheme to future accrual. – The presentation of adjusted performance measures. – Accounting for the Funkin acquisition: during the year the Audit Committee considered and was satisﬁed with the Company’s approach to accounting for the Funkin acquisition. The Audit Committee receives regular presentations from members of the senior management team. During the year, the Audit Committee has considered presentations from representatives of the management team on the Company’s franchise arrangements, the purchase to pay process and the Finance Service Centre. External audit The Group’s external auditor is KPMG LLP. The Audit Committee reviews the external auditor’s performance, independence and objectivity annually. The Audit Committee ensures that procedures are in place to safeguard the external auditor’s independence and objectivity. The external auditor reports regularly to the Audit Committee on the actions that it has taken to comply with professional and regulatory requirements and current best practice in order to maintain its independence and objectivity. The Group has a policy in place which ensures that the provision of non-audit services by the external auditor does not impair the auditor’s independence or objectivity. Where fees for any non-audit project are expected to exceed £50,000, the prior approval of the Chairman of the Audit Committee and the Finance Director is required. Where fees for non-audit projects are in aggregate expected to exceed £150,000, the prior approval of the Audit Committee is required. This policy was complied with during the year. The Audit Committee has reviewed and amended this policy in preparation for the new EU regulation on non-audit services. The revised policy states that the external auditor should not be engaged in respect of services prohibited by the FRC’s Ethical Standard 2016. Any other non-trivial non-audit services provided must be pre-approved by the Audit Committee, unless the engagement is urgent, in which case the Finance Director can agree the work with the Chairman of the Audit Committee and report to the next Audit Committee meeting. A.G. BARR p.l.c. Annual Report and Accounts 2017 50 Corporate Governance Audit Committee Report continued Details of the amounts paid to the external auditor during the year for audit and non-audit services are set out in note 3 to the ﬁnancial statements. The ratio of fees for non-audit services to those for audit services for the year was 2.6:1. The Audit Committee considered the nature and level of non-audit services provided and was satisﬁed that the objectivity and independence of the external auditor were not affected by the non-audit work undertaken. A signiﬁcant proportion of the non-audit fees during the year were for pension advisory services, and the remainder related to the provision of tax advisory, tax compliance and corporate ﬁnance transaction services. The level of fees for non-audit services was considered by KPMG who concluded that they did not present a threat to KPMG’s independence. KPMG Audit Plc was appointed as the Group’s external auditor in May 2009 following a competitive tender process. A resolution proposing the appointment of KPMG LLP, KPMG Audit Plc’s parent entity, as the Group’s external auditor was approved by shareholders at the 2014 AGM. There are no contractual obligations which restrict the Audit Committee’s choice of external auditor. The senior statutory auditor rotates every ﬁve years to ensure independence; an audit partner rotation took place at the end of the 2013/14 ﬁnancial year and the Audit Committee took steps to ensure that a new appropriately qualiﬁed and independent senior statutory auditor became responsible for the audit of the Group’s ﬁnancial statements with effect from 2014/15. The Audit Committee acknowledges the requirement under the Code to tender the external audit contract at least every ten years. Following the introduction of the new EU regulation on non-audit services, the Audit Committee has taken the opportunity to re-assess the role of various providers of such services to ensure full compliance with the new regulation in relation to the provision of such services going forward. As a consequence, during the year, the Audit Committee conducted a competitive tender process for the audit for 2017/18 onwards. Three audit ﬁrms (not including the incumbent auditor KPMG LLP) were invited to tender by the Audit Committee. Each ﬁrm prepared a formal written proposal which was considered by the Audit Committee. The proposed audit partners and key members of the audit teams of each of the tendering ﬁrms attended a meeting with the Chairman of the Audit Committee, the Finance Director and certain members of senior management where they presented their proposals and answered questions thereon. The Audit Committee considered the proposals and recommended the appointment of Deloitte LLP. The Board approved the Audit Committee’s preferred ﬁrm for recommendation to shareholders. The Company will seek shareholder approval of the appointment of Deloitte LLP at the Company’s 2017 AGM. The Company conﬁrms that it has complied with the provisions of the Competition and Markets Authority’s Statutory Audit Services Order in respect of the ﬁnancial year under review. The Audit Committee carried out a review of the effectiveness of the external audit process during the year. This review included an externally facilitated detailed and comprehensive evaluation of the Group’s external auditor by means of a written survey questionnaire completed by Audit Committee members and certain members of senior management, including the executive directors. The results of the evaluation were shared with the Group’s external auditor. The Audit Committee reviewed comprehensive papers from both management and the Group’s external auditor, which set out the planning and execution of the conduct of the audit. The Audit Committee held a meeting with the Group’s external auditor in the absence of management to discuss further. Following this review, the Audit Committee was satisﬁed with KPMG LLP’s performance during the year, that it was objective and independent, and that the external audit process was effective. Internal audit At the beginning of each year, an internal control plan is developed by the internal auditor following meetings with directors and senior managers within the business and with reference to the signiﬁcant risks contained within the Group’s risk register and identiﬁed controls. The Audit Committee receives updates on progress against the internal control plan throughout the year. Martin A. Griffiths Chairman of the Audit Committee 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 Directors’ Remuneration Report Strategic Report Corporate Governance Accounts 51 Remuneration Committee – Chairman’s Statement On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 28 January 2017, which sets out the future Directors’ Remuneration Policy intended to take effect from the close of the 2017 AGM, and the Annual Report on Remuneration. Our previous Policy was approved by a binding vote at the 2014 AGM and became effective for three years from the close of that meeting. The future Policy will be subject to a binding vote and the Annual Report on Remuneration will be subject to an advisory vote at the 2017 AGM. I am delighted to report on the strong level of support received from shareholders, as evidenced by the voting outcome at the 2016 AGM. The resolution seeking approval of the Annual Report on Remuneration was supported by over 99.8% of the votes cast. Directors’ Remuneration Policy The Remuneration Committee considers that the Company’s current remuneration framework continues to effectively support the delivery of our business strategy (as set out in the Strategic Report on pages 01 to 35) and the creation of shareholder value. Consequently, the Remuneration Committee has decided to make minor changes only to the Policy to take account of developments in best practice and to ensure that the Policy continues to provide sufficient ﬂexibility to support potential changes to business needs over the next three years. A summary of the minor changes to the Policy are set out on page 52. 2016/17 key decisions and pay outcomes The Remuneration Committee remains committed to a responsible approach to executive pay and believes that variable pay should only be earned for achievement against stretching performance targets. As described in the Strategic Report, against challenging soft drinks market conditions, the Group delivered revenue for the year ended 28 January 2017 of £257.1m, a decrease of 0.6% on the prior year. The UK soft drinks market grew by 1.2% in value over the same period of time. Pre-tax proﬁt increased by 4.4% on the prior year. Against this background and taking into account executive directors’ performance against strategic objectives, an annual bonus of 23% was earned by R.A. White and S. Lorimer and an annual bonus of 18% was earned by J.D. Kemp and A.L. Memmott. Average EPS for the three years ended 28 January 2017 exceeded the average EPS for the three years preceding that period (both being adjusted for Consumer Price Index) by 15.6%. As a result, the Long Term Incentive Plan (“LTIP”) awards granted in June 2014 vested at 40.02%. Further details in relation to the annual bonus and LTIP vesting are included on pages 67 to 69. Director remuneration for 2017/18 In line with the range of salary increases across the Group, an increase of 1.8% will be made to the executive directors’ base salaries with effect from 1 April 2017. An increase of 1.8% will also be made to the Chairman’s fee and the other non-executive directors’ basic fee with effect from 1 April 2017. No changes are proposed to the annual bonus for the year ending 27 January 2018, with awards continuing to be subject to a combination of proﬁt before tax and strategic performance measures. Details of bonus award levels and performance measure weightings are provided on page 67. Performance targets for these bonus awards will be disclosed in the Annual Report on Remuneration for the year ending 27 January 2018. No changes are proposed to the LTIP for the year ending 27 January 2018, with awards continuing to be subject to an EPS performance measure. EPS is a key performance indicator for the Company and shareholders, and remains a highly credible measure of long term performance. The EPS targets for the next LTIP awards are still to be determined given ongoing assessment of the anticipated impact of the new Soft Drinks Industry Levy which will inﬂuence EPS during the vesting period. Details of the LTIP awards, which will be subject to a maximum of 125% of salary, and the EPS targets will be disclosed at the time the LTIP awards are granted and in next year’s Annual Report on Remuneration. The Remuneration Committee keeps long term performance metrics under review. The terms of reference of the Remuneration Committee are available on the Company’s website, www.agbarr.co.uk. David J. Ritchie Chairman of the Remuneration Committee 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 52 Corporate Governance Directors’ Remuneration Report continued Directors’ Remuneration Policy This part of the report sets out the Company’s Directors’ Remuneration Policy which, subject to shareholder approval at the 2017 AGM, shall take binding effect from the date of that meeting. The Policy for the executive directors has been determined by the Remuneration Committee. The Directors’ Remuneration Policy was ﬁrst approved at the 2014 AGM. No signiﬁcant changes have been made to the Remuneration Policy. Minor amendments have been made to ensure that the Remuneration Policy is appropriate for the next three years. In summary the changes made to the proposed Remuneration Policy as compared to the Remuneration Policy approved at the 2014 AGM are as follows: Minimum shareholding guidelines: In line with best practice, the minimum shareholding guidelines are included in the Remuneration Policy. Shareholding guidelines were previously included in the Annual Report on Remuneration. Clawback: In line with best practice, clawback provisions in respect of annual bonus and LTIP awards are included in the Remuneration Policy. Clawback provisions were previously included in the Annual Report on Remuneration. Pension: The Company’s maximum contribution under the URBS for R.A. White has been redeﬁned for clarity. For the avoidance of doubt, the Company’s maximum contribution under the URBS for R.A. White is consistent with the maximum contribution under the Remuneration Policy approved at the 2014 AGM. Recruitment: The ability for the Company to pay appropriate relocation, travel and subsistence costs for newly appointed directors where necessary has been clariﬁed. Executive directors The table below describes each of the elements of the remuneration package for the executive directors. Maximum opportunity Performance measures Not applicable. Although there is no overall maximum, salary increases are normally reviewed in the context of the salary increases across the wider Group. The Remuneration Committee may award salary increases above this level to take account of individual circumstances such as: – increase in scope and responsibility; increase to reﬂect the executive director’s development and performance in the role; or alignment to market level. Element Purpose and link to strategy Operation Base salary Core element Usually reviewed annually. of ﬁxed remuneration, reﬂecting the size and scope of the role. Purpose is to recruit and retain directors of the calibre required for the Company. Salary levels are determined by the Remuneration Committee taking into account a range of factors including: role, experience and individual – performance; – pay for other employees in the Group; – prevailing market conditions; and – external benchmarks for similar roles at comparable companies. – – A.G. BARR p.l.c. Annual Report and Accounts 2017 Element Beneﬁts Annual bonus Strategic Report Corporate Governance Accounts 53 Purpose and link to strategy Operation Maximum opportunity Performance measures Ensures the overall package is competitive. Purpose is to recruit and retain directors of the calibre required for the Company. Rewards performance against annual targets which support the strategic direction of the Group. Executive directors receive beneﬁts in line with market practice, which may include, for example, a car allowance or provision of a company car, a biennial health check, private medical insurance, life assurance and the ability to “buy” or “sell” holidays under the Company’s ﬂexible beneﬁts plan. Other beneﬁts may be provided based on individual circumstances. These may include, for example, relocation and travel allowances. Whilst the Remuneration Committee has not set an absolute maximum on the levels of beneﬁts executive directors receive, the value of the beneﬁt is at a level which the Remuneration Committee considers appropriate against the market and provides sufficient level of beneﬁt based on individual circumstances. Awards based on annual performance against key ﬁnancial and/or strategic targets and/or the delivery of personal objectives. Maximum bonus opportunity is 100% of base salary. Pay-out levels are determined by the Remuneration Committee after the year end based on performance against those targets. The Remuneration Committee has discretion to amend the bonus pay-out if, in its judgement, any formulaic output does not produce a fair result for either the executive director or the Company, taking into account overall business performance. For up to two years following the determination of a bonus pay-out, the Remuneration Committee has the right to recover some or all of the bonus pay-out in the event of a material misstatement of the Group’s ﬁnancial results or if the participant has been guilty of misconduct. Not applicable. Targets are set annually reﬂecting the Company’s strategy and aligned with key ﬁnancial, strategic and/ or individual objectives. Targets, whilst stretching, do not encourage inappropriate business risks to be taken. At least 80% of the bonus is assessed against key ﬁnancial performance metrics of the business and the balance may be based on non-ﬁnancial strategic measures and/or individual performance. Financial metrics There is no minimum payment at threshold performance, up to 50% of the maximum potential for this element of the bonus will be paid out for on-target performance and all of the maximum potential will be paid out for maximum performance. Non-ﬁnancial or individual metrics Payment of the non-ﬁnancial or individual metrics will apply on a scale between 0% and 100% based on the Remuneration Committee’s assessment of the extent to which a non-ﬁnancial or individual performance metric has been met. A.G. BARR p.l.c. Annual Report and Accounts 2017 54 Corporate Governance Directors’ Remuneration Report continued Directors’ Remuneration Report continued Element Long Term Incentive Plan 2014 (“LTIP”) Purpose and link to strategy Operation Incentivises executive directors over the longer term and aligns their interests with those of shareholders. Under the LTIP, awards of conditional shares, nil cost share options or other such form as has the same economic effect may be made with vesting dependent on the achievement of performance conditions set by the Remuneration Committee, normally over a three year performance period. Awards granted over shares may be settled in cash at the election of the Remuneration Committee. As described on page 62, awards may also vest in “good leaver” circumstances or on the death of a participant or on a change of control. The Remuneration Committee has the right to reduce unvested or unexercised awards and/or delay their vesting in the event of a material misstatement of the Group’s ﬁnancial results or if the participant has been guilty of misconduct. For up to two years following the determination of the vesting outcome of an award, the Remuneration Committee has the right to cancel the award if it has not been exercised, or require repayment of some or all of the award in the event of a material misstatement of the Group’s ﬁnancial results or if the participant has been guilty of misconduct. The Remuneration Committee may make a dividend equivalent payment (“Dividend Equivalents”) to reﬂect dividends that would have been paid over the period to vesting on shares that vest. This payment may be in the form of additional shares or a cash payment equal to the value of those additional shares. Maximum opportunity Performance measures The normal maximum award is 125% of annual base salary in respect of a ﬁnancial year. Under the share plan rules the overall maximum opportunity that may be granted in respect of a ﬁnancial year will be 200% of annual base salary. The normal maximum award limit will only be exceeded in exceptional circumstances involving the recruitment or retention of a senior employee. These limits do not include the value of shares subject to any tax-advantaged option granted as part of an ALTIP award. The vesting of awards is subject to the satisfaction of performance targets set by the Remuneration Committee. The performance measures are reviewed regularly to ensure they remain relevant but will be based on key ﬁnancial and/or strategic and/or total shareholder return related measures. The relevant metrics and the respective weightings may vary each year based upon Company strategic priorities. Performance measures and weightings will be set out in the Annual Report on Remuneration for the relevant ﬁnancial year. For achievement of threshold performance 20% of the maximum opportunity will vest. There will usually be straight line vesting between threshold and maximum performance. Where a tax-advantaged option is granted as part of an ALTIP award, the same performance conditions will apply to the tax-advantaged option as apply to the LTIP award. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 55 Purpose and link to strategy Operation Maximum opportunity Performance measures Element Long Term Incentive Plan 2014 (“LTIP”) continued All employee share schemes To encourage all employees to make a long- term investment in the Company’s shares in a tax efficient way. The Remuneration Committee may at its discretion structure awards as Approved Long Term Incentive Plan (“ALTIP”) awards comprising both a HMRC tax-advantaged option granted under the Executive Share Option Scheme (“ESOS”) and an LTIP award. ALTIP awards enable the participant and Company to beneﬁt from HMRC tax-advantaged option tax treatment in respect of part of the award, without increasing the pre-tax value delivered to participants. ALTIP awards would be structured as a tax-advantaged option and a LTIP award, with the vesting of the LTIP award scaled back to take account of any gain made on exercise of the tax- advantaged option. Other than to enable the grant of ALTIP awards, the Company will not grant awards to executive directors under the ESOS. Executive directors are entitled to participate in a HMRC tax- advantaged all-employee Savings Related Share Option Scheme (“SAYE”) under which they make monthly savings over a period of three or ﬁve years linked to the grant of an option over the Company’s shares with an option price which can be at a discount to the market value of shares on grant. Executive directors are also entitled to participate in a HMRC tax- advantaged All-Employee Share Ownership Plan (“AESOP”). The executive directors may participate in both sections of the AESOP, being the partnership and matching section and the free share section. Participation limits are those set by the UK tax authorities from time to time. No performance conditions are attached to awards in line with HMRC practice. A.G. BARR p.l.c. Annual Report and Accounts 2017 56 Corporate Governance Directors’ Remuneration Report continued Element Retirement beneﬁts Purpose and link to strategy Operation Maximum opportunity Performance measures Not applicable. Purpose is to recruit and retain directors of the calibre required for the Company. Provides market competitive post-employment beneﬁts (or cash allowance equivalent). Executive directors are eligible to participate in the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme (the “Scheme”), which comprises a deﬁned contribution section and a deﬁned beneﬁt section. The deﬁned beneﬁt section was closed to new entrants from 14 August 2003 and to future accrual from 1 May 2016. Details of the entitlements accruing to the two executive directors who are deferred members of the deﬁned beneﬁt section are detailed in the table on page 70. The contributions paid to the deﬁned contribution section in respect of three executive directors are disclosed on pages 69 and 70. Details of accruals under the URBS are disclosed on page 71. Executive directors may participate in the A.G. BARR p.l.c. Unfunded Retirement Beneﬁt Scheme (“URBS”) with the agreement of the Company. The URBS was established to satisfy the Company’s contractual obligations to provide retirement beneﬁts for the beneﬁt of the executive directors where either the annual or lifetime allowance has been exceeded whilst those individuals were members of the Scheme. Beneﬁts will be receivable in certain circumstances, including on retirement, death, change of control or cessation of employment in accordance with the rules of the URBS. In appropriate circumstances, executive directors may take a cash supplement instead of contributions into a pension plan. R.A. White ceased his accrual under the deﬁned beneﬁt section on 5 April 2011. For R.A. White, the Company’s maximum contribution under the URBS is equal to 26% of salary plus any contractual entitlement in respect of a shortfall in R.A. White’s deferred pension revaluation as a consequence of Fixed Protection 2012. The maximum combined Company contribution under the deﬁned contribution section and the URBS in respect of the remaining executive directors is 19% of salary (as deﬁned in the Scheme rules) rising to 26% of salary following the executive’s 50th birthday. The Remuneration Committee has discretion to vary the delivery mechanism for retirement beneﬁts, however the exercise of this discretion will not exceed the above limits for the provision of executive directors’ retirement beneﬁts. The Company has closed the deﬁned beneﬁt section of the Scheme to new members but the two executive directors who are deferred members will continue to receive beneﬁts in accordance with the terms of the Scheme, subject to separately agreed contractual arrangements, including those summarised below: A.G. BARR p.l.c. Annual Report and Accounts 2017 Element Retirement beneﬁts continued Strategic Report Corporate Governance Accounts 57 Purpose and link to strategy Operation Maximum opportunity Performance measures R.A. White’s deferred pension will be re-valued in line with RPI until his normal retirement date. In addition, R.A. White will continue to be entitled to receive life assurance beneﬁts as if he were in pensionable service under the Scheme until his normal retirement date notwithstanding the termination of his employment with the Company, but only in circumstances where he is a “good leaver”, as set out in his service contract. A.L. Memmott’s accrued beneﬁts retain a link to his ﬁnal pensionable salary. Chairman and non-executive directors The table below sets out an overview of the remuneration of non-executive directors: Purpose and link to strategy Approach of the Company Sole element of non-executive director remuneration, set at a level that reﬂects market conditions and is sufficient to attract individuals with appropriate knowledge and expertise. Fees are normally reviewed annually. The remuneration of the Chairman is determined by the Remuneration Committee. Fees are set at a level which reﬂects the skill, knowledge and experience of the individual, whilst taking into account appropriate market data. The Board is responsible for setting the fees of the other non-executive directors. Fees may include a basic fee and additional fees for further responsibilities (for example, chairmanship of board committees and senior independent directorship). Fees are set taking into account several factors, including the size and complexity of the business, appropriate market data and the expected time commitment and contribution for the role. Non-executive directors do not participate in any of the Company’s share schemes or bonus schemes nor do they receive any pension contributions. Non-executive directors may be eligible to receive beneﬁts such as the use of secretarial support, travel costs or other beneﬁts that may be appropriate. Actual fee levels are disclosed in the Directors’ annual remuneration report for the relevant ﬁnancial year. A.G. BARR p.l.c. Annual Report and Accounts 2017 58 Corporate Governance Directors’ Remuneration Report continued Explanation of performance metrics chosen and the target setting process Performance measures are selected that are aligned to the Company’s strategy. Stretching performance targets are set each year for the annual bonus and LTIP awards. When setting these performance targets, the Remuneration Committee will take into account a number of different reference points, which may include the Company’s business plans and strategy and the market environment. Full payment or vesting will only occur for what the Remuneration Committee considers to be stretching performance. The annual bonus performance targets have been selected to provide an appropriate balance between incentivising directors to meet ﬁnancial targets for the year and achieving strategic and/or personal objectives. The LTIP performance targets reﬂect the Company’s strategic objectives and therefore the ﬁnancial and strategic decisions which ultimately determine the success of the Company. The LTIP performance measures may be based on key ﬁnancial and/or strategic and/or total shareholder return related measures. LTIP performance is currently based solely on Earnings Per Share, which is a key measure of the Company’s proﬁtability. The Remuneration Committee retains the ability to adjust or set different performance measures if events occur (such as a change in strategy, a material acquisition and/or a divestment of a Group business or a change in prevailing market conditions) which cause the Remuneration Committee to determine that the measures are no longer appropriate and that amendment is required so that they achieve their original purpose. Awards and options may be adjusted in the event of a variation of share capital in accordance with the scheme rules. Policy for the remuneration of employees generally Remuneration arrangements are determined throughout the Group based on the same principle that reward should be achieved for delivery of the business strategy and should be sufficient to attract and retain high calibre talent. Under the rules of the ESOS and the LTIP, certain managers are eligible to participate in the ESOS and the LTIP; however there has been no such participation to date and there is no current intention to invite managers to do so. The annual bonus arrangements for the senior management team are similar to those for the executive directors in that targets are set annually dependent on ﬁnancial and/or non-ﬁnancial performance metrics. The key principles of the remuneration philosophy are applied consistently across the Group below this level, taking account of the seniority of employees. Approach to recruitment remuneration The policy aims to facilitate the appointment of individuals of sufficient calibre to lead the business and execute the strategy effectively for the beneﬁt of shareholders. When appointing a new director, the Remuneration Committee seeks to ensure that arrangements are in the best interests of the Company and in line with market practice. The Remuneration Committee will take into consideration a number of relevant factors, which may include the calibre of the individual, the candidate’s existing remuneration package, and the speciﬁc circumstances of the individual including the jurisdiction from which the candidate was recruited. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 59 The Remuneration Committee will typically seek to align the remuneration package with the Company’s Remuneration Policy (as set out in the policy table). The maximum level of variable remuneration which may be granted (excluding buy-out awards referred to below) is 300% of salary (in line with this policy). Subject to this overall maximum variable remuneration, incentive awards will only be granted above the normal maximum annual award opportunities where the Remuneration Committee considers there to be a commercial rationale, which may include but is not limited to circumstances where an executive director is recruited at a time in the year when it would be inappropriate to provide a bonus and/or LTIP award for that year as there would not be sufficient time to assess performance. The quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis. The Remuneration Committee will ensure that any such awards are linked to the achievement of appropriate and challenging performance targets and will be forfeited if performance or continued employment conditions are not achieved. The Remuneration Committee may also alter the performance measures, performance period and vesting period of the bonus and/or LTIP award, if the Remuneration Committee determines that the circumstances of the recruitment merit such alteration. The rationale would be clearly explained in the Directors’ Remuneration Report following grant. The individual will move over time onto a remuneration package that is consistent with the normal maximum annual bonus and LTIP award opportunities set out in the policy table. The Remuneration Committee retains discretion to include other remuneration components or awards which are outside the speciﬁc terms of the policy (but subject to the limit on variable remuneration) to facilitate the hiring of candidates of an appropriate calibre, where the Remuneration Committee believes there is a need to do so in the best interests of the Company. The Remuneration Committee would ensure that awards within the 300% of salary variable remuneration limit are linked to the achievement of appropriate and challenging performance measures. The Remuneration Committee will not use this discretion to make a non-performance related incentive payment (for example a “golden hello”). In some circumstances, the Remuneration Committee may make payments or awards to recognise or “buy-out” remuneration arrangements forfeited on leaving a previous employer. The Remuneration Committee will normally aim to do so broadly on a like-for-like basis, taking into account a number of relevant factors regarding the forfeited arrangements which may include the form of award, any performance conditions attached to the awards and the time at which they would have vested. These payments or awards are excluded from the maximum level of variable remuneration referred to above, however the Remuneration Committee’s intention is that the value awarded would be no higher than the expected value of the forfeited arrangements. Where considered appropriate, such payments or awards will be liable to “malus” and/or “clawback” on early departure. Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary, and subject to the limits referred to above, recruitment awards may be granted outside of these plans as currently permitted under the Listing Rules which allow for the grant of awards to facilitate, in exceptional circumstances, the recruitment of an executive director. Where a position is fulﬁlled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue according to the original terms. Where necessary, the Company will pay appropriate relocation, travel and subsistence costs. The Remuneration Committee will seek to ensure that no more is paid than is necessary. Fees payable to a newly-appointed Chairman or non-executive director will be in line with the fee policy in place at the time of appointment. A.G. BARR p.l.c. Annual Report and Accounts 2017 60 Corporate Governance Directors’ Remuneration Report continued Illustrations of application of Remuneration Policy The charts below set out an illustration of the Remuneration Policy for 2017/18 in line with the Remuneration Policy above and include base salary, pension, beneﬁts and incentives. The charts provide an illustration of the proportion of total remuneration made up of each component of the Remuneration Policy and the value of each component. R.A. White total remuneration (£000) S. Lorimer total remuneration (£000) 1,618.3 35% 28% 37% 939.6 12% 24% 64% 600.2 100% 341.2 100% 541.7 12% 25% 63% 942.8 35% 28% 37% Minimum performance Performance in line with expectations Maximum performance Minimum performance Performance in line with expectations Maximum performance J.D. Kemp total remuneration (£000) A.L. Memmott total remuneration (£000) 305.4 100% 483.3 12% 25% 63% 839.3 35% 28% 37% 289.3 100% 447.8 12% 24% 64% 764.8 35% 28% 37% Minimum performance Performance in line with expectations Maximum performance Minimum performance Performance in line with expectations Maximum performance Base salary, beneﬁts and pension Annual bonus LTIP A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 61 Three scenarios have been illustrated for each executive director: Minimum performance Performance in line with expectations Maximum performance Fixed pay Fixed elements of remuneration – base salary, beneﬁts and pension only. Base salary is the latest known salary (i.e. the salary effective from 1 April 2017) and the value for beneﬁts has been calculated as per the single ﬁgure table on page 64. Annual Bonus No bonus. 50% of salary awarded for achieving target performance. 100% of salary awarded for achieving maximum performance. LTIP No LTIP vesting. 20% of maximum award vesting (i.e. 25% of salary for achieving target performance). 100% of maximum award vesting (i.e. 125% of salary for achieving maximum performance). LTIP awards are included in the scenarios above at face value with no share price movement included. Service contracts Executive directors’ contracts are on a rolling basis and may be terminated on 12 months’ notice by the Company or on 6 months’ notice by the executive. Service contracts for new directors will generally be limited to 12 months’ notice by the Company. In line with the Remuneration Policy approved at the 2014 AGM, service contracts entered into prior to this date provide for a notice period of 12 months except during the six months following either a takeover of or by the Company or a Company reconstruction. Under these conditions and certain circumstances the executive directors are entitled to a liquidated damages payment equal to the executive director’s basic salary at termination plus the value of all contractual beneﬁts for a two year period. In the event this liquidated damages payment is triggered, the executive director will also be deemed to be a “good leaver” for the purposes of the Company’s share schemes. Given the size of the Company and the sector dynamics at the time the directors were recruited, the Remuneration Committee considered this provision appropriate in order to attract and retain high calibre executive directors. The Remuneration Committee is cognisant of the fact that these provisions do not reﬂect best practice. It has therefore previously considered the alternatives available to exit these contractual arrangements, including contractual buy-out. However, the Remuneration Committee concluded that it was not feasible to place a value on these rights, in order to remove them from the contracts, which would be acceptable to both parties. It therefore determined that the most appropriate approach would be to maintain the legacy provisions, however for all future appointments after the approval of the 2014 Remuneration Policy these provisions have not and will not apply. S. Lorimer’s service contract does not therefore include the legacy provisions. Non-executive directors are appointed for an initial period of three years, subject to annual re-election by shareholders in accordance with the Code. Their appointments are terminable by either the Company or the directors themselves upon three months notice without compensation. A.G. BARR p.l.c. Annual Report and Accounts 2017 62 Corporate Governance Directors’ Remuneration Report continued Payments for loss of office The principles on which the determination of payments for loss of office will be approached are set out below: Payment in lieu of notice Annual Bonus Policy Payments to executive directors upon termination of their service contracts will be equal to 12 months base salary or the highest annual rate earned by the executive during the preceding three years, whichever is higher (plus beneﬁts in kind and pension contributions at the discretion of the Remuneration Committee). This will be at the discretion of the Remuneration Committee on an individual basis and the decision as to whether or not to award a bonus in full or in part will be dependent upon a number of factors, including the circumstances of the individual’s departure and their contribution to the business during the bonus period in question. Any bonus amounts paid will typically be pro-rated for time in service to termination and will, subject to performance, be paid at the usual time. LTIP The extent to which any award under the LTIP will vest would be determined based on the leaver provisions contained within the LTIP rules. The Remuneration Committee shall determine when awards vest in accordance with those provisions. Awards will normally lapse if the participant leaves employment before vesting. However, awards may vest in “good leaver” circumstances, including death, disability, ill-health, injury, sale of the participant’s employer, or any other reason determined by the Remuneration Committee. Any “good leaver” awards will vest at the date of cessation of employment unless the Remuneration Committee decides they should vest at the normal vesting date. In either case, the extent to which an award vests will be determined by the Remuneration Committee taking into account the extent to which the performance conditions have been satisﬁed and, unless the Remuneration Committee determines otherwise, the period of time that has elapsed from the date of grant to the date of cessation of employment. The Remuneration Committee may vest the award on any other basis if it believes there are exceptional circumstances which warrant that. Options are exercisable for six months from leaving employment or six months from the normal vesting date as appropriate. Awards under the LTIP will generally vest early on a takeover, merger or other corporate reorganisation. The Remuneration Committee will determine the level of vesting taking account of performance conditions and, unless the Remuneration Committee determines otherwise, pro-rating for time, where applicable. Alternatively, participants may be allowed or required to exchange their awards for awards over shares in the acquiring company. Awards under all employee share schemes will be expected to vest on a change of control and those which have to meet speciﬁc requirements to beneﬁt from permitted tax beneﬁts will vest in accordance with those requirements. The executive directors’ service contracts do not provide for any reduction in payments for mitigation or for early payment. Payments may be made under the Company’s all employee share plans which are governed by HMRC tax-advantaged plan rules and which cover certain leaver provisions. There is no discretionary treatment of leavers under these plans. In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement and legal fees. Change of control Mitigation Other payments Where a buy-out award is made under the Listing Rules then the leaver provisions would be determined at the time of the award. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 63 The Remuneration Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a director’s office or employment. In doing so, the Remuneration Committee will recognise and balance the interests of shareholders and the departing executive director, as well as the interests of the remaining directors. Where the Remuneration Committee retains discretion it will be used to provide ﬂexibility in certain situations, taking into account the particular circumstances of the director’s departure and performance. Statement of consideration of employment conditions elsewhere in the Company The Remuneration Committee generally considers pay and employment conditions elsewhere in the Company when considering the executive directors’ remuneration. When considering base salary increases, the Remuneration Committee reviews overall levels of base pay increases offered to other employees. Employees are not actively consulted on directors’ remuneration. The Company has regular contact with union bodies on matters of pay and remuneration for employees covered by collective bargaining or consultation arrangements. Existing contractual arrangements The Remuneration Committee retains discretion to make any remuneration payments and payments for loss of office outside the policy in this report: – where the terms of the payment were agreed before the policy came into effect; – where the terms of the payment were agreed at a time when the relevant individual was not a director of the Company and, in the opinion of the Remuneration Committee, the payment was not in consideration of the individual becoming a director of the Company; or to satisfy contractual commitments under legacy remuneration arrangements. – For these purposes, the term “payments” includes the satisfaction of awards of variable remuneration and, in relation to an award over shares, the terms of the payment are agreed at the time the award is granted. The Remuneration Committee may make minor changes to this policy which do not have a material advantage to directors, to aid in its operation or implementation, taking into account the interests of shareholders but without the need to seek shareholder approval. Statement of consideration of shareholder views The Remuneration Committee is committed to an ongoing dialogue with shareholders and welcomes feedback on executive and non-executive directors’ remuneration. Shareholder guidelines In order to further align the executive directors’ long term interests with those of shareholders, the Remuneration Committee has updated its share ownership guidelines applicable from 2017/18. The guidelines require that, with effect from 2017/18, executive directors retain all shares acquired under Company sponsored share plans and retain half of any bonus pay-out after tax to purchase shares in the Company until the value of their shareholding is equal to 125% of gross basic salary. Until this shareholding is acquired, the executive directors may not, without Remuneration Committee approval, sell shares other than to ﬁnance any tax liabilities arising from the vesting of LTIP awards. Payments in relation to existing remuneration arrangements The Remuneration Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Remuneration Policy set out above where the terms of the payment were agreed: i. before the date of the 2014 AGM (the date the Company’s ﬁrst shareholder-approved Remuneration Policy came into effect); ii. after the date of the 2014 AGM and before the Remuneration Policy set out above came into effect, provided that the terms of the payment were consistent with the shareholder-approved Remuneration Policy in force at the time they were agreed; or iii. at a time when the relevant individual was not a director of the Company and, in the opinion of the Remuneration Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes “payments” includes the Remuneration Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted. A.G. BARR p.l.c. Annual Report and Accounts 2017 64 Corporate Governance Directors’ Remuneration Report continued Annual report on remuneration The following parts of the Remuneration Report are subject to audit, other than the elements explaining the application of the Remuneration Policy for 2017/18. Single ﬁgure table – audited information The aggregate remuneration provided to directors who have served as directors in the year ended 28 January 2017 is set out below, along with the aggregate remuneration provided to such directors for the year ended 30 January 2016. Year ended 28 January 2017 Director Executive R.A. White S. Lorimer J.D. Kemp A.L. Memmott Non-executive J.R. Nicolson W.R.G. Barr M.A. Griffiths P. Powell D.J. Ritchie* Total Year ended 30 January 2016 Director Executive R.A. White S. Lorimer J.D. Kemp A.L. Memmott Non-executive J.R. Nicolson W.R.G. Barr M.A. Griffiths P. Powell D.J. Ritchie* Total Salary/fees £000 Beneﬁts £000 Bonus £000 Long term incentives £000 Pension £000 Total remuneration £000 443 262 232 207 136 46 56 46 54 30 23 23 23 – – – – – 102 60 42 37 – – – – – 183 44 96 85 – – – – – 157 56 50 76 – – – – – 915 445 443 428 136 46 56 46 54 1,482 99 241 408 339 2,569 Salary/fees £000 Beneﬁts £000 Bonus £000 Long term‡ incentives £000 Pension £000 Total remuneration £000 434 256 227 203 133 45 55 45 44 41 19 36 34 – – – – – 1,442 130 – – – – – – – – – – 152 20 80 71 – – – – – 212 48 44 54 – – – – – 839 343 387 362 133 45 55 45 44 323 358 2,253 The total long term incentives ﬁgure of £323,000 for the year ended 30 January 2016 is the gain made by directors in the year ended 28 January 2017 on the LTIP awards that vested on 9 April 2016. No other long term incentive schemes were in place for the year to 28 January 2017. * D.J. Ritchie was appointed as a non-executive director on 1 April 2015. ‡ The long term incentives ﬁgure for the year ended 30 January 2016 has been restated to reﬂect the market value of the shares that vested on 9 April 2016 as at that date. The long term incentives ﬁgure for the year ended 30 January 2016 set out in the Annual Report 2015/16 used the average closing share price for the three months ended 30 January 2016 as an estimate of the market value of those shares. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 65 The ﬁgures in the single ﬁgure table above are derived from the following: (a) Salary and fees The amount of salary/fees received in the year. A salary sacriﬁce arrangement is operated by the Company. Employees who join this arrangement no longer pay contributions to the pension schemes but receive a lower taxable salary. Directors’ salaries are shown gross of salary sacriﬁce pension contributions. (b) Beneﬁts The value of beneﬁts received in the year. These include car allowance, fuel beneﬁt, the value of SAYE options vesting in the year, and AESOP free and matching shares awarded in the year. SAYE: option shares are valued at the market price of the option shares at the date of vesting less the option exercise price. AESOP: free and matching shares are valued at market value at the date of award. Details of the executive directors’ interests in the SAYE are set out on page 76. (c) Bonus A description of the annual bonus in respect of the year and Group performance against which the bonus pay-out was determined is provided on page 67. (d) Long term incentives The value of LTIP awards that vest in respect of the year. LTIP: the shares which will vest in respect of the year have been valued based on the average market value of the shares over the three month period ended 28 January 2017. The value of the shares which vested in respect of the prior year was the market value of the shares on the vesting date. Details of the executive directors’ interests in the LTIP are set out on page 75. (e) Pension The pension ﬁgure includes: – for individuals in the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme (the “Scheme”) deﬁned contribution section, the Company’s contributions to the deﬁned contribution section, excluding any pension contributions made in respect of an individual under the Company’s salary sacriﬁce arrangement; for individuals in the Scheme’s deﬁned beneﬁt section, the additional value achieved in the year calculated using the HMRC method (using a multiplier of 20); and the value of the accrued liability for the year in respect of the Company’s contribution for each director participating in the URBS. – – Further details of pension beneﬁts are set out on pages 69 to 71. Individual elements of remuneration Base salary and fees Base salaries for individual executive directors for the year ended 28 January 2017 and for the following year are set out in the table below: Executive director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Base salary for year ended 28 January 2017 £000 Base salary for year ending 27 January 2018 £000 443 262 232 207 451 267 237 211 Increase % 1.8% 1.8% 1.8% 1.8% A.G. BARR p.l.c. Annual Report and Accounts 2017 66 Corporate Governance Directors’ Remuneration Report continued Details of non-executive directors’ fees for the year ended 28 January 2017 and for the following year are set out in the table below: Non-executive director fee Chairman of the Company Basic fee Additional fee for chairing Audit Committee Additional fee for chairing Remuneration Committee Additional fee for Senior Independent Director Beneﬁts – audited information The beneﬁts ﬁgure for each of the executive directors is detailed as follows: Year ended 28 January 2017 Year ended 28 January 2017 £000 Year ending 27 January 2018 £000 Increase % 137 46 8 8 2 139 47 8 8 2 Executive Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total Year ended 30 January 2016 Executive Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total Car and fuel beneﬁt £000 SAYE £000 AESOP awards £000 26 19 19 19 83 – – – – – 4 4 4 4 16 Car and fuel beneﬁt £000 SAYE £000 AESOP awards £000 26 19 19 19 83 11 – 13 11 35 4 – 4 4 12 The value of the AESOP awards are the sum of the AESOP free and matching shares awarded to the directors in the year. A.G. BARR p.l.c. Annual Report and Accounts 2017 1.8% 1.8% 0% 0% 0% Total £000 30 23 23 23 99 Total £000 41 19 36 34 130 Strategic Report Corporate Governance Accounts 67 Annual bonus The maximum annual bonus award opportunity for each executive director in respect of the year ended 28 January 2017 was 100% of salary, with 80% of the bonus assessed against the achievement of proﬁt before tax, excluding exceptional items, compared against a set of proﬁt targets including a threshold and maximum level, and 20% based on non-ﬁnancial strategic measures. The executive directors earned a total of £241,000 as annual bonus for the year, representing 23% of R.A. White’s and S. Lorimer’s salary and 18% of J.D. Kemp’s and A.L. Memmott’s salary. The target for the proportion of the annual bonus based on proﬁt before tax and performance against that target is set out in the table below. 50% of this element of the bonus could be earned for on-target performance with zero paid for threshold performance and a linear scale through to full payment of this element of the bonus for performance at or above the maximum target. Proﬁt before tax excluding exceptional items £42.0m Threshold target On target £44.0m Maximum target Actual performance Maximum percentage of bonus Actual percentage of bonus £46.0m £42.4m 80% 8% Non-ﬁnancial strategic measure targets were set around the Company’s key areas of strategic focus. For R.A. White, these targets focused on business reaction to the Soft Drinks Industry Levy, brand innovation and distribution, plus leading the signiﬁcant change programmes in the year. Following strong progress across these targets, the Remuneration Committee considered it appropriate to pay a bonus equal to 15% of salary to R.A. White. For the other executive directors, their non- ﬁnancial strategic measure targets focused on areas including optimisation of the new Business Process Redesign systems launched in the second half of 2015, brand innovation, enhanced operational effectiveness, improved supply chain efficiency and further development of the Group’s governance and reporting processes. The Remuneration Committee assessed progress against the strategic targets for each of the other executive directors and considered it appropriate to pay a bonus of 15% of salary to S. Lorimer and 10% of salary to J.D. Kemp and A.L. Memmott. Annual bonus for 2017/18 For the 2017/18 ﬁnancial year, an element of the annual bonus (20% of basic salary) will continue to be assessed against strategic measures to align the reward structure with key strategic priorities and to encourage behaviours which facilitate proﬁtable growth and the future development of the business. The remainder of the annual bonus will continue to be assessed against growth in Group proﬁt before tax. Performance targets will be set at challenging levels in a similar manner to those of previous years, with 50% of this element of the annual bonus being earned for on-target performance. The actual performance targets are not disclosed as they are considered to be commercially sensitive at this time and should therefore remain conﬁdential to the Company. The Remuneration Committee will continue to disclose how the bonus earned relates to performance against the targets on a retrospective basis. No changes are proposed to the maximum annual bonus opportunity which will remain at 100% of salary. Long term incentives – audited information Awards vesting in respect of the ﬁnancial period LTIP awards granted in June 2014 were subject to the achievement of an average EPS growth performance condition over a three year period ended 28 January 2017. Three year average EPS growth in excess of CPI Threshold vesting at 20% of the maximum award Maximum vesting at 100% of the maximum award 10% 32.5% % linked to award 100% There is straight-line vesting between the points and no reward below threshold performance. A.G. BARR p.l.c. Annual Report and Accounts 2017 68 Corporate Governance Directors’ Remuneration Report continued Details of LTIP awards vesting in respect of the ﬁnancial period are set out below: Year ended 28 January 2017 Executive Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total Total shares Number Award rate % Shares awarded* Number‡ Share price** £ LTIP value £000 84,354 20,325 44,234 39,399 188,312 40.02% 40.02% 40.02% 40.02% 36,426 8,727 19,101 17,013 81,267 5.02 5.02 5.02 5.02 183 44 96 85 408 Shares vesting under the LTIP for the year ended 28 January 2017 include dividend equivalents from the award date for each Director. * ** The long term incentives ﬁgure for the year ended 28 January 2017 has been valued using the average closing share price for the three months ended 28 January 2017 as an estimate of the value of the incentive as the actual value of the award will not be ﬁnalised until the closing share price is known when the incentive vests in June 2017. ‡ With the exception of S. Lorimer, executive directors were granted ESOS awards in the form of market value options under the HMRC tax-efficient section of the ESOS. These ESOS awards were subject to the same performance measures as the LTIP awards and therefore 1,914 of the 4,784 ESOS awards granted will vest for each of the executive directors. If the ESOS awards are exercised at a gain then the LTIP awards will be scaled back to the same value to ensure that the total pre-tax value delivered to participants remains unchanged. Year ended 30 January 2016 Executive Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total Total shares Number Award rate % Shares awarded Number Share price at vesting* £ LTIP value £000 75,645 10,162 39,667 35,332 160,806 37.89% 37.89% 37.89% 37.89% 28,662 3,850 15,030 13,387 60,929 5.29 5.29 5.29 5.29 152 20 80 71 323 * The long term incentives ﬁgure for the year ended 30 January 2016 has been restated to reﬂect the market value of the shares that vested on 9 April 2016 as at that date. The long term incentives ﬁgure for the year ended 30 January 2016 set out in the Annual Report 2015/16 used the average closing share price for the three months ended 30 January 2016 as an estimate of the market value of those shares. Awards granted during the ﬁnancial period During the year ended 28 January 2017 the following LTIP awards were granted equating to 125% of salary. Executive Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Type of award Number of shares Market value at grant £000 LTIP award 105,636 LTIP award ESOS award* LTIP award LTIP award 62,416 5,703 55,394 49,339 557 329 30 292 260 % of award vesting at threshold % 20.0 20.0 20.0 20.0 20.0 Performance period Years 3 3 3 3 3 * ESOS awards were granted in the form of market value options under the HMRC tax-efficient section of the ESOS and are subject to the same performance measures as apply to the LTIP awards. If the ESOS awards are exercised at a gain then the LTIP awards will be scaled back to the same value to ensure that the total pre-tax value delivered to participants remains unchanged. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 69 The LTIP awards are subject to the following EPS performance measure: Cumulative EPS for 2016/17, 2017/18 and 2018/19 Threshold vesting at 20% of the maximum award Maximum vesting at 100% of the maximum award 90p 100.5p % linked to award 100% There is straight-line vesting between the points and no reward below threshold performance. The salary used in the calculation of the award is the individual director’s salary at 1 April 2016. Long term incentives for 2017/18 LTIP awards granted in 2017 will be subject to cumulative EPS performance for 2017/18, 2018/19 and 2019/20. 20% of the maximum award will vest for achieving threshold performance and 100% of the maximum award will vest for achieving maximum performance. There will be straight-line vesting between the points and no vesting below threshold performance. The EPS targets for these LTIP awards are still to be determined given ongoing assessment of the anticipated impact of the new Soft Drinks Industry Levy which will inﬂuence EPS during the vesting period. Details of the LTIP awards and the EPS targets will be disclosed at the time the LTIP awards are granted and in next year’s Annual Report on Remuneration. Awards made to the executive directors in 2017 will be subject to a maximum of 125% of salary. Total pension entitlements – audited information Executive directors are all members of the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme (the “Scheme”). The Scheme has a deﬁned beneﬁt section and a deﬁned contribution section. The deﬁned beneﬁt section was closed to new entrants from 14 August 2003 and to future accrual from 1 May 2016. R.A. White and A.L. Memmott are members of the deﬁned beneﬁt section. Company contributions (which exclude any pension contributions made in respect of an individual under the Company’s salary sacriﬁce arrangement) are detailed in the following table: Year ended 28 January 2017 Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total Deﬁned beneﬁt £000 Deﬁned contribution £000 URBS £000 Investment return on URBS £000 29 – – 19 48 – 10 10 10 30 130 46 40 47 263 (2) – – – (2) Total £000 157 56 50 76 339 A.G. BARR p.l.c. Annual Report and Accounts 2017 70 Corporate Governance Directors’ Remuneration Report continued Year ended 30 January 2016 Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total Deﬁned beneﬁt £000 Deﬁned contribution £000 URBS £000 Investment return on URBS £000 – – – 15 15 – 28 26 25 79 149 20 16 13 198 63 – 2 1 66 Total £000 212 48 44 54 358 The URBS is the A.G. BARR p.l.c. Unfunded Retirement Beneﬁt Scheme for executive directors. Please see below for further details. Details of the entitlements accruing to the two directors who are deferred members of the deﬁned beneﬁt section are detailed in the table below: R.A. White A.L. Memmott Accrued pension at 28 January 2017 £000 Normal Retirement Age 68 46 63* 63* * The normal retirement age speciﬁed in the Scheme rules for R.A. White and A.L. Memmott is age 63, however both are also entitled under the Scheme rules to retire at age 60 without an actuarial reduction to their pension beneﬁts and without any consent required. Early retirement can be taken at age 55 subject to Company consent. The accrued pension would be reduced relative to age 60 to take account of its early payment. R.A. White ceased his accrual under the deﬁned beneﬁt plan on 5 April 2011. Under the terms of his service contract, R.A. White is entitled to re-valuation of his deferred beneﬁts in line with RPI until his normal retirement date. The rules of the Scheme provide for revaluation increases in deferment in line with CPI. R.A. White elected for Fixed Protection 2012 to protect his beneﬁts accrued under the Scheme. To enable R.A. White to continue to beneﬁt from Fixed Protection 2012, his deferred beneﬁts are revalued in line with CPI and, to the extent that RPI exceeds CPI in any year, a corresponding additional contribution is made to his URBS. In the year ended 28 January 2017 this has resulted in an additional accrual of £14,680 being included in R.A. White’s URBS for that year and forms part of the £130,000 URBS ﬁgure included in the pension table above. In addition, R.A. White will continue to be entitled to receive life assurance beneﬁts as if he were in pensionable service under the Scheme until his normal retirement date notwithstanding the termination of his employment with the Company, but only in circumstances where he is a “good leaver”. A.L. Memmott ceased his accrual under the deﬁned beneﬁt plan on 1 March 2008. His accrued beneﬁts retain a link to his ﬁnal pensionable salary. Dependants of the executive directors are eligible for dependants’ pensions and the payment of a lump sum in the event of death in service. Where the Scheme provides a pension on a deﬁned beneﬁt basis, ﬁnal pensionable salary is used to determine the director’s pension entitlement. Where beneﬁts are provided on a deﬁned contribution basis, the beneﬁts depend on the director’s accumulated fund. Lump sum life assurance cover is provided at four or eight times pensionable salary dependent upon the date of joining the Scheme. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 71 The Company paid contributions to the deﬁned contribution section of the Scheme during the year in respect of J.D. Kemp, A.L. Memmott and S. Lorimer. These are shown in the Deﬁned Contribution column in the total pension entitlements table above. During the year ended 28 January 2017, R.A. White, J.D. Kemp, A.L. Memmott and S. Lorimer participated in the A.G. BARR p.l.c. Unfunded Retirement Beneﬁt Scheme (“URBS”) with the agreement of the Company. The URBS was approved by the Remuneration Committee and is an unfunded employer ﬁnanced retirement beneﬁts scheme. It was established to satisfy the Company’s contractual obligations to provide retirement beneﬁts for the beneﬁt of the executive directors. The maximum Company contribution under the URBS in respect of R.A. White is 26% of his salary. The maximum combined Company contribution under the deﬁned contribution section of the Scheme and the URBS in respect of the remaining executive directors is 19% of salary or 26% of salary following the executive’s 50th birthday. The URBS ﬁgure for the directors represents a Company contribution only. An accrued liability of £1,317,323 (2015/16: £982,272) is included in the closing balance sheet for the URBS. The liability has been accrued in respect of the directors as follows: Executive Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Total URBS liability Accrual at 28 January 2017 £ Accrual at 30 January 2016 £ 1,068,701 900,972 79,057 87,135 82,430 20,312 35,998 24,990 1,317,323 982,272 Payments to past directors There were no payments made to past directors during the year in respect of services provided to the Company as a director. Payments for loss of office No payments for loss of office were made during the year. Statement of directors’ shareholding and share interests – audited information The Remuneration Committee has updated its share ownership guidelines applicable from 2017/18 and these are disclosed in the Remuneration Policy on page 63. Prior to 2017/18, executive directors were required to retain all shares acquired under Company sponsored share plans until the value of their shareholding is equal to 100% of gross basic salary. At the year end, R.A. White, J.D. Kemp and A.L. Memmott met the 100% of gross basic salary requirement applicable for the year ended 28 January 2017. S. Lorimer was appointed to the Board on 5 January 2015 and is to build up a shareholding equal to 100% of his gross basic salary. A.G. BARR p.l.c. Annual Report and Accounts 2017 72 Corporate Governance Directors’ Remuneration Report continued The interests of each executive director of the Company as at 28 January 2017 (including those held by their connected persons) were as set out below. Exercised during the year Vested but unexercised during the year Owned outright Subject to performance conditions Not subject to performance conditions Total as at 28 January 2017 Unvested Director Type Executive R.A. White Shares 372,755 – LTIP shares ESOS shares SAYE options AESOP free shares AESOP matching shares – – – – – S. Lorimer Shares 4,294 LTIP shares ESOS shares SAYE options AESOP free shares AESOP matching shares Shares – non-beneﬁcial holding* – – – – – – J.D. Kemp Shares 151,249 ESOS shares LTIP shares SAYE options AESOP free shares AESOP matching shares – – – – – A.L. Memmott Shares 115,602 LTIP shares ESOS shares SAYE options AESOP free shares AESOP matching shares Non-executive W.R.G. Barr Shares Shares – non-beneﬁcial holding** M.A. Griffiths Shares J.R. Nicolson Shares P. Powell D.J. Ritchie Shares Shares – – – – – 12,468,965 – 5,400 5,500 – 1,000 28,662 – – 701 116 – 3,850 – – 701 117 – – – 15,030 – 701 116 – 13,387 – – 701 116 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 278,569 4,784 – – – – 135,078 5,703 – – – – – 4,784 146,077 – – – – 130,109 4,784 – – – – – – – – – – – – 4,771 – 492 – – – 372,755 278,569 4,784 4,771 – 492 4,294 135,078 – 4,232 4,232 – 135 – – – – – 135 1,032,233 151,249 4,784 146,077 4,564 4,564 – 492 – – – 4,771 – 494 – 492 115,602 130,109 4,784 4,771 – 494 – 12,468,965 – 10,128,708 – – – – 5,400 5,500 – 1,000 S. Lorimer’s non-beneﬁcial shareholding represents his position as director of Robert Barr Ltd, the trustee of various employee beneﬁt trusts. * ** W.R.G. Barr’s non-beneﬁcial shareholding represents his position as trustee of various family and charitable trusts. The “Owned outright” shares set out in the table above are the shares owned outright by the directors. These include any AESOP free shares awarded during the year and any shares retained during the year following the exercise of LTIP awards. A.G. BARR p.l.c. Annual Report and Accounts 2017 Strategic Report Corporate Governance Accounts 73 The number of AESOP free shares awarded and share options exercised under the LTIP in the year are included in the “Exercised during the year” column. The following sections of the Remuneration Report are not subject to audit. Performance graph and table The graph below shows the Company’s Total Shareholder Return (TSR) performance against the FTSE 250 excluding investment trusts over the past eight years. In the opinion of the Board, the FTSE 250 excluding investment trusts is the most appropriate index against which the TSR of the Company should be measured because it represents a broad equity market index of which the Company is a constituent member. Total shareholder return 400 350 300 250 200 150 100 50 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 ¢ A.G. BARR ¢ FTSE 250 Ex.Investment Trusts Year to January CEO remuneration for previous eight years The table below shows details of the total remuneration, annual bonus and LTIP paid out for R.A. White over the last eight ﬁnancial years. Year ended 28 January 2017 Year ended 30 January 2016 Year ended 25 January 2015 Year ended 26 January 2014 Year ended 26 January 2013 Year ended 28 January 2012 Year ended 29 January 2011 Year ended 30 January 2010 Total remuneration £000 915 839 1,075 989 1,086 1,070 1,204 951 Annual bonus as a % of maximum opportunity LTIP as a % of maximum opportunity % 23.0% 0% 75.5% 57.8% 50.0% 46.0% 75.0% 73.4% % 40.02% 37.89% 31.9% 38.2% 68.5% 99.3% 92.9% 45.0% Percentage change in CEO remuneration The table below sets out, in relation to salary, taxable beneﬁts (car allowance, fuel beneﬁt and AESOP awards only) and annual bonus, the increase between the pay for the year ended 30 January 2016 and the pay for the year ended 28 January 2017 for R.A. White compared to the wider workforce. For these purposes, the wider workforce includes all Group employees who were continuously employed by the Group during the two years ended 28 January 2017 but excludes executive and non-executive directors. A.G. BARR p.l.c. Annual Report and Accounts 2017 74 Corporate Governance Directors’ Remuneration Report continued Percentage change Salary Beneﬁts Annual bonus* CEO 2.1% 0.0% N/a Wider workforce 2.3% 7.3% N/a * No annual bonus was paid out in respect of the year ended 30 January 2016. This has meant that there is no comparative ﬁgure against which an increase can be measured. Relative importance of spend on pay The following table sets out the percentage change in dividends and the overall expenditure on pay (as a whole across the organisation). Dividends Overall expenditure on pay Year ended 30 January 2016 £000 Year ended 28 January 2017 £000 15,565* 16,815** % change 8.0% 43,600 35,500*** (18.6)% * Dividends payable in respect of the year ended 30 January 2016. ** Dividends payable in respect of the year ended 28 January 2017. *** Overall expenditure on pay for the year ended 28 January 2017 includes the effect of the closure of the deﬁned beneﬁt pension scheme to future accrual on 1 May 2016 and the subsequent reduction in pension costs for the remainder of the year. A full breakdown of staff costs for the Group for the year can be found in note 4 to the accounts. Consideration by the Directors of matters relating to Directors’ Remuneration The following directors were members of the Remuneration Committee during the year: D.J. Ritchie (Chairman), W.R.G. Barr, M.A. Griffiths, J.R. Nicolson and P. Powell. The Remuneration Committee meets at least twice a year and is responsible for determining, within agreed terms of reference, all aspects of the remuneration of the executive directors and such other members of senior management as it is designated to consider. The Remuneration Committee reviews the remuneration trends, pay levels and employment conditions across the Group. The Remuneration Committee is also responsible for recommending the remuneration of the Chairman of the Company to the Board. During the year, the Remuneration Committee received advice from R.A. White (CEO) in respect of the remuneration of the other executive directors, who was not in attendance when his own remuneration was being discussed. The Remuneration Committee received assistance from J.A. Barr (Company Secretary), who acts as secretary to the Committee, and from other members of management, who may attend meetings by invitation, except when matters relating to their own remuneration are being discussed. External adviser During the year, the Remuneration Committee was assisted in its work by the following external consultant: Adviser Details of appointment Deloitte LLP (Deloitte) Appointed by the Remuneration Committee in January 2014 following a competitive tender process. Services provided by the Adviser Review of LTIP metrics and calibration of performance targets. Assistance with the preparation of the Directors’ Remuneration Policy and Annual Report on Remuneration. Fees paid by the Company for advice to the Remuneration Committee and basis of charge Other services provided to the Company in the year ended 28 January 2017 £20,100 Share schemes advice. Charged on a time/cost basis or ﬁxed fee dependent on nature of project. Consulting services in relation to the implementation of the Enterprise Resource Planning system and Business Process Redesign. A.G. BARR p.l.c. Annual Report and Accounts 2017 Attendance at Remuneration Committee meetings. Strategic Report Corporate Governance Accounts 75 The Remuneration Committee is satisﬁed that all advice received was objective and independent. Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. Statement of voting at last AGM The following table sets out actual voting in respect of the resolutions to approve the 2015/16 Annual Report on Remuneration at the Company’s AGM on 1 June 2016 and the 2013/14 Remuneration Policy at the Company’s AGM on 27 May 2014. Resolution Votes for % of vote Votes against % of vote Votes withheld Approve 2015/16 Annual Report on Remuneration 73,218,572 Approve 2013/14 Remuneration Policy 73,348,375 99.88 96.83 88,075 2,401,469 0.12 3.17 2,353,086 34,666 Additional information Executive directors’ interests in the LTIP The individual interests of the executive directors under the LTIP are as follows: LTIP Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott Awarded Number Vested Number Lapsed Number At 28 January 2017 Number Exercisable from At 30 January 2016 Number Date of award 09 April 2013 75,645 03 June 2014 84,354 15 April 2015 88,579 – – – 07 April 2016 – 105,636 15 April 2015 10,162 15 April 2015 20,325 15 April 2015 52,337 – – – 07 April 2016 – 62,416 09 April 2013 39,667 03 June 2014 44,234 15 April 2015 46,449 – – – 07 April 2016 – 55,394 09 April 2013 35,332 03 June 2014 39,399 15 April 2015 41,371 – – – 07 April 2016 – 49,339 (28,662) (46,983) – 09 April 2016 – – – – – – 84,354 03 June 2017 88,579 15 April 2018 105,636 07 April 2019 (3,850) (6,312) – 09 April 2016 – – – – – – 20,325 52,337 03 June 2017 15 April 2018 62,416 07 April 2019 (15,030) (24,637) – 09 April 2016 – – – – – – 44,234 03 June 2017 46,449 15 April 2018 55,394 07 April 2019 (13,387) (21,945) – 09 April 2016 – – – – – – 39,399 03 June 2017 41,371 15 April 2018 49,339 07 April 2019 Executive directors’ interests in the ESOS The individual interests of the executive directors under the ESOS are as follows: ESOS Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott At 30 January 2016 Number Date of award Awarded Number Vested Number Lapsed Number 03 June 2014 4,784 – 07 April 2016 – 5,703 03 June 2014 03 June 2014 4,784 4,784 – – – – – – – – – – At 28 January 2017 Number 4,784 5,703 4,784 4,784 Exercisable from 03 June 2017 07 April 2019 03 June 2017 03 June 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 76 Corporate Governance Directors’ Remuneration Report continued Executive directors’ interests in the SAYE The individual interests of the executive directors under the SAYE scheme are as follows: SAYE Director R.A. White S. Lorimer J.D. Kemp A.L. Memmott At 30 January 2016 Number 1,089 3,682 4,232 670 3,894 1,089 3,682 Granted Number Exercised Number Lapsed Number At 28 January 2017 Number Option price Pence Exercisable from – – – – – – – – – – – – – – – – – – – – – 1,089 3,682 4,232 670 3,894 1,089 3,682 358 01 January 2018 567 01 October 2020 567 01 October 2020 358 01 January 2018 567 01 October 2020 358 01 January 2018 567 01 October 2020 AESOP free shares The following free share awards were made to the executive directors under the AESOP scheme: R.A. White S. Lorimer A.L. Memmott J.D. Kemp Date of award and vesting date 15 June 2016 15 June 2016 15 June 2016 15 June 2016 Share price on date of award Pence At 30 January 2016 Number Shares awarded Number Shares vested Number Shares lapsed Number At 28 January 2017 Number Value vested £000 513 513 513 513 – – – – 701 701 701 701 (701) (701) (701) (701) – – – – – – – – 4 4 4 4 Approval This Report was approved by the Board and signed on its behalf by: David J. Ritchie Chairman of the Remuneration Committee 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 Statement of Directors’ responsibilities in respect of the annual report and the ﬁnancial statements Strategic Report Corporate Governance Accounts 77 The directors are responsible for preparing the Annual Report and the Group and parent Company ﬁnancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parent Company ﬁnancial statements for each ﬁnancial year. Under that law they are required to prepare the Group ﬁnancial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent Company ﬁnancial statements on the same basis. Under company law the directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of affairs of the Group and parent Company and of the consolidated proﬁt or loss for that period. In preparing each of the Group and parent Company ﬁnancial statements, the directors are required to: – – make judgements and estimates that are reasonable and prudent; – – prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Group state whether they have been prepared in accordance with IFRSs as adopted by the EU; and select suitable accounting policies and then apply them consistently; and the parent Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the parent Company and enable them to ensure that its ﬁnancial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the parent Company and the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. A copy of the Group and parent Company ﬁnancial statements has been placed on the Company’s website, www.agbarr.co.uk. The directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. Directors’ statement pursuant to the disclosure and transparency rules Each of the directors, whose names and functions are set out on pages 36 to 37 of this report, conﬁrm that, to the best of their knowledge: – the ﬁnancial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities and ﬁnancial position of the Group and parent Company and of the consolidated proﬁt; the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the Group; and they consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. – – By order of the Board R.A. White Chief Executive 28 March 2017 S. Lorimer Finance Director A.G. BARR p.l.c. Annual Report and Accounts 2017 78 Independent Auditor’s Report to the Members of A.G. BARR p.l.c. only Opinions and conclusions arising from our audit 1 Our opinion on the financial statements is unmodified We have audited the financial statements of A.G. BARR p.l.c. for the year ended 28 January 2017 set out on pages 81 to 128. In our opinion: – the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 28 January 2017 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. – – – 2 Overview Audit coverage: 100% of pbt before exceptionals A summary of our approach: – Our audit covered 100% of the Group’s total revenue, profit before tax and total assets and was completed at Cumbernauld and in London. Materiality: 3% pbt (before exceptionals) Signiﬁcant areas: inventory and brand support accruals – Overall group materiality: £1.4m which represents 3% of profit before tax before exceptionals this year. – The accounting for the brand support accruals is a judgemental area. – Inventory is significant and raw materials are subject to price volatility so that is also a judgemental area. – There is no movement in the risk direction in either of these areas year on year. There has been no change in our assessment of significant risks year on year. 3 Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were as follows (unchanged from 2016): The area of focus Brand support discounts and costs accrual (£14.7 million, 2016: £13.0 million): Refer to page 49 (Audit Committee Report), pages 88 and 94 (accounting policy) and page 115 (financial disclosures) Our approach Risk direction: (unchanged) The group agrees sales discounts and other payments with certain of its customers and incurs costs in supporting and developing its brands. Accounting for such sales discounts and costs is judgmental where promotion and brand support campaigns either span the year end (where settlement has not been fully and finally agreed by the year end) or where prior year claims arise, as the year end accrual can depend on information not yet made available by the customer. Our procedures in relation to accounting for brand support discounts and costs included testing the group’s authorisation controls over such discounts and costs and inspecting the detail of such discounts and costs. In addition we agreed samples of specific items within accruals at the year end to supporting documentation to assess the accuracy of brand support discounts and costs and to ensure they are reflected in the correct period; we agreed a sample of post year end claims relating to the period prior to the year end to accruals at the year end, to give us comfort over the completeness of the year end accrual; and we considered and challenged the judgements formed by management in relation to any prior year claims from customers that remained within accruals at the year end or claims prior to the year end where there may not be an accrual for costs. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts79 The area of focus Valuation of inventories (£17.3 million): (2016: £15.6 million) Refer to page 49 (Audit Committee Report), pages 92 and 94 (accounting policy) and page 111 (financial disclosures) Our approach Risk direction: (unchanged) Inventory is a significant balance and the group’s main raw materials are commodities which are subject to price volatility. As the group uses a standard cost as its basis of inventory valuation, changes in price and production levels lead to purchase price or manufacturing variances which, if not accounted for correctly, may lead to the valuation of inventories being misstated. In this area, our procedures included testing of the controls in relation to purchases, comparing the valuation of inventories for a sample of items to supporting documentation (e.g., purchase invoices) and considering for reasonableness (by reference to historical data and commodity price movements) the variances arising from the group’s standard costing system and challenging management’s calculations as appropriate. In addition our procedures included testing whether the standard costs which form the basis of the inventory valuation were set appropriately (e.g., by comparing standard costs back to supporting purchase invoices and other supporting costings) and reflected normal production levels, having been adjusted appropriately for any capacity underutilisation; and agreeing the calculation of overheads absorbed into inventory to supporting analyses of production costs incurred during the time of production of year-end inventory. 4 Our application of materiality and an overview of the scope of our audit Materiality for the group financial statements as a whole was set at £1.4m (2016: £1.4m). Materiality is determined with reference to a benchmark of group profit before tax, normalised to exclude exceptional items. Materiality this year is based on profit before tax, normalized to exclude exceptional items, of £43.1 million, of which it represents 3% (2016: 3% of profit before tax). We have chosen profit before tax excluding exceptional items because it removes the non-recurring distorting impact of exceptional items. We report to the Audit Committee any corrected or uncorrected misstatements identified exceeding £250,000 (2016: £250,000), in addition to other identified misstatements that warranted reporting on qualitative grounds. This level was selected and agreed with the Audit Committee as, given the nature and scale of operations, adjustments under this level were not deemed to be of specific interest to them. Audits for group reporting purposes were performed for all three components by the group audit team in Cumbernauld and in London. These audits covered 100% of group turnover, profit before tax and total assets. The audits performed for group reporting purposes were all performed to materiality levels set individually for each component and ranged from £10,000 to £1.1 million. Materiality Group materiallity £1.4m £1.1m Component materiality range £10,000 to £1.1m £1.4m (3%) £43.1m Group materiallity PBT before exceptional items 5 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion: – the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Strategic Report and the Directors’ Report for the financial year is consistent with the financial statements. – A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance80 Independent Auditor’s Report to the Members of A.G. BARR p.l.c. only continued 5 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified continued Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic report and the Directors’ report: – we have not identified material misstatements in those reports; and – in our opinion, those reports have been prepared in accordance with the Companies Act 2006. 6 We have nothing to report on the disclosures of principal risks Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to: – the directors’ statement of risk factors that could affect financial performance on pages 31 to 34, concerning the principal risks, their management, and, based on that, the directors’ assessment and expectations of the group’s continuing in operation over the three years to 2020; or the disclosures in note 31 of the financial statements concerning the use of the going concern basis of accounting. – 7 We have nothing to report in respect of the matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if: – we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy; or the Audit Committee Report does not appropriately address matters communicated by us to the audit committee. – Under the Companies Act 2006 we are required to report to you if, in our opinion: – adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or – certain disclosures of directors’ remuneration specified by law are not made; or – we have not received all the information and explanations we require for our audit. – Under the Listing Rules we are required to review: – – the directors’ statements, set out on pages 35 and 42, in relation to going concern and longer-term viability; and the part of the Corporate Governance Statement on pages 43 to 47 relating to the company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review. We have nothing to report in respect of the above responsibilities. Scope and responsibilities As explained more fully in the Directors’ Responsibilities Statement set out on page 77, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. Alex Sanderson (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 319 St Vincent Street Glasgow G2 5AS 28 March 2017 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsConsolidated Income Statement for the year ended 28 January 2017 81 Revenue Cost of sales Gross profit Other income Operating expenses Operating profit Finance income Finance costs Profit before tax Tax on profit Profit attributable to equity holders Earnings per share (p) Basic earnings per share Diluted earnings per share 2017 Exceptional items £m 2016 Total £m Total £m – – – – 0.7 0.7 – – 0.7 (0.1) 257.1 (136.4) 120.7 0.7 (77.6) 43.8 – (0.7) 43.1 (7.5) 258.6 (137.5) 121.1 – (79.0) 42.1 0.1 (0.9) 41.3 (7.0) Adjusted £m 257.1 (136.4) 120.7 0.7 (78.3) 43.1 – (0.7) 42.4 (7.4) 35.0 0.6 35.6 34.3 30.78 30.57 29.63 29.51 Note 2 2 5 6,7 8 8 9 10 10 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance82 Statement of Comprehensive Income for the year ended 28 January 2017 Profit after tax Other comprehensive income Items that will not be reclassified to profit or loss Remeasurements on defined benefit pension plans Deferred tax movements on items above Current tax movements on items above Items that will be or have been reclassified to profit or loss Effective portion of changes in fair value of cash flow hedges Deferred tax movements on items above Other comprehensive income for the year, net of tax Note 27 24 9 16 24 Group Company 2017 £m 35.6 (21.9) 2.7 1.0 (1.4) 0.2 (19.4) 2016 £m 34.3 5.4 (2.5) 1.3 1.7 (0.3) 5.6 2017 £m 25.7 (21.9) 2.7 1.0 (1.4) 0.2 (19.4) 2016 £m 22.8 5.4 (2.5) 1.3 1.7 (0.3) 5.6 Total comprehensive income attributable to equity holders of the parent 16.2 39.9 6.3 28.4 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStatement of Changes in Equity for the year ended 28 January 2017 83 Group Share capital £m Share premium account £m Share options reserve £m Cash flow hedge reserve £m Retained earnings £m Total £m At 30 January 2016 4.9 0.9 1.4 Profit for the year Other comprehensive income Total comprehensive income for the year Company shares purchased for use by employee benefit trusts Proceeds on disposal of shares by employee benefit trusts Recognition of share-based payment costs Transfer of reserve on share award Deferred tax on items taken direct to reserves Dividends paid At 28 January 2017 At 25 January 2015 Profit for the year Other comprehensive income Total comprehensive income for the year Company shares purchased for use by employee benefit trusts Proceeds on disposal of shares by employee benefit trusts Recognition of share-based payment costs Transfer of reserve on share award Deferred tax on items taken direct to reserves Dividends paid At 30 January 2016 – – – – – – – – – – – – – – – – – – 4.9 4.9 0.9 0.9 – – – – – – – – – – – – – – – – – – 4.9 0.9 1.0 – (1.2) (1.2) – – – – – – (0.2) 171.9 180.1 35.6 (18.2) 17.4 35.6 (19.4) 16.2 (1.0) (1.0) 1.3 – 0.4 – (15.6) 174.4 1.3 0.9 – (0.1) (15.6) 181.8 – – – – – 0.9 (0.4) (0.1) – 1.8 2.3 (0.4) 148.8 156.5 – – – – – 0.5 (0.9) (0.5) – 1.4 – 1.4 1.4 – – – – – – 1.0 34.3 4.2 38.5 34.3 5.6 39.9 (5.1) (5.1) 3.1 – 0.9 – (14.3) 171.9 3.1 0.5 – (0.5) (14.3) 180.1 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance84 Statement of Changes in Equity for the year ended 28 January 2017 Company Share capital £m Share premium account £m Share options reserve £m Cash flow hedge reserve £m Retained earnings £m Total £m 1.0 – (1.2) (1.2) – – – – – – 112.2 120.4 25.7 (18.2) 7.5 25.7 (19.4) 6.3 (1.0) (1.0) 1.3 – 0.4 – (15.6) 1.3 0.9 – (0.1) (15.6) 112.2 (0.2) 104.8 (0.4) 100.6 108.3 – 1.4 1.4 – – – – – – 1.0 22.8 4.2 27.0 (5.1) 3.1 – 0.9 – (14.3) 112.2 22.8 5.6 28.4 (5.1) 3.1 0.5 – (0.5) (14.3) 120.4 At 30 January 2016 4.9 0.9 1.4 Profit for the year Other comprehensive income Total comprehensive income for the year Company shares purchased for use by employee benefit trusts Proceeds on disposal of shares by employee benefit trusts Recognition of share-based payment costs Transfer of reserve on share award Deferred tax on items taken direct to reserves Dividends paid At 28 January 2017 At 25 January 2015 Profit for the year Other comprehensive income Total comprehensive income for the year Company shares purchased for use by employee benefit trusts Proceeds on disposal of shares by employee benefit trusts Recognition of share-based payment costs Transfer of reserve on share award Deferred tax on items taken direct to reserves Dividends paid – – – – – – – – – 4.9 4.9 – – – – – – – – – – – – – – – – – – 0.9 0.9 – – – – – – – – – At 30 January 2016 4.9 0.9 – – – – – 0.9 (0.4) (0.1) – 1.8 2.3 – – – – – 0.5 (0.9) (0.5) – 1.4 A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts85 Company 2017 £m 2016 £m Statements of Financial Position as at 28 January 2017 Non-current assets Intangible assets Property, plant and equipment Pension prepayments Investment in subsidiary undertakings Current assets Inventories Trade and other receivables Derivative financial instruments Assets classified as held for sale Cash and cash equivalents Total assets Current liabilities Loans and other borrowings Trade and other payables Derivative financial instruments Provisions Current tax liabilities Non-current liabilities Loans and other borrowings Trade and other payables Deferred tax liabilities Retirement benefit obligations Capital and reserves attributable to equity holders Share capital Share premium account Share options reserve Cash flow hedge reserve Retained earnings Total equity and liabilities Note Group 2017 £m 13 14 15 17 19 20 16 14 18 21 22 16 23 21 22 24 27 28 106.0 89.4 – – 195.4 17.3 51.4 0.1 1.3 10.1 80.2 275.6 0.5 52.3 0.3 0.9 2.7 56.7 0.1 – 9.6 27.4 37.1 4.9 0.9 1.8 (0.2) 174.4 181.8 275.6 2016 £m 107.5 85.3 – – 192.8 15.6 52.7 1.1 – 6.8 76.2 18.8 89.2 17.9 84.3 210.2 16.7 52.4 0.1 1.3 6.0 76.5 269.0 286.7 0.7 37.4 – 0.1 3.6 41.8 17.5 4.5 12.2 12.9 47.1 4.9 0.9 1.4 1.0 171.9 180.1 269.0 1.7 123.7 0.3 0.9 0.1 126.7 19.5 – 0.9 27.4 47.8 4.9 0.9 1.8 (0.2) 104.8 112.2 286.7 20.0 85.3 18.3 84.3 207.9 15.2 54.1 1.1 – 4.4 74.8 282.7 1.9 101.9 – 0.1 0.9 104.8 37.2 4.5 2.9 12.9 57.5 4.9 0.9 1.4 1.0 112.2 120.4 282.7 Company Number: SC005653 The financial statements on pages 81 to 128 were approved by the Board of directors and authorised for issue on 28 March 2017 and were signed on its behalf by: Roger White Chief Executive Stuart Lorimer Finance Director A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance 86 Cash Flow Statements for the year ended 28 January 2017 Note 8 8 14 13 Operating activities Profit before tax Adjustments for: Interest receivable Interest payable Depreciation of property, plant and equipment Amortisation of intangible assets Share-based payment costs Loss on sale of property, plant and equipment Operating cash flows before movements in working capital (Increase)/Decrease in inventories Decrease in receivables Increase/(Decrease) in payables Difference between employer pension contributions and amounts recognised in the income statement Cash generated by operations Tax on profit paid Net cash from operating activities Investing activities Acquisition of subsidiary (net of cash acquired) Acquisition of intangible assets Purchase of property, plant and equipment Proceeds on sale of property, plant and equipment Interest received Net cash used in investing activities Financing activities New loans received Loans repaid Bank arrangement fees paid Movement in finance lease Purchase of Company shares by employee benefit trusts Proceeds from disposal of Company shares by employee benefit trusts Dividends paid Interest paid Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 18 A.G. BARR p.l.c. Annual Report and Accounts 2017 Group 2017 £m 43.1 – 0.7 7.1 1.5 0.9 – 53.3 (1.7) 1.3 11.0 (7.9) 56.0 (7.2) 48.8 – – (12.4) 0.1 – (12.3) 25.5 (43.0) – – (1.0) 1.3 (15.6) (0.2) (33.0) 3.5 6.2 9.7 2016 £m 41.3 (0.1) 0.9 7.3 1.1 0.5 0.2 51.2 1.8 0.6 (16.8) (0.7) 36.1 (6.8) 29.3 (15.7) (4.8) (14.7) 0.9 0.1 (34.2) 34.0 (31.5) (0.1) – (5.1) 3.1 (14.3) (0.3) (14.2) (19.1) 25.3 6.2 Company 2017 £m 31.0 (0.8) 1.5 7.1 1.2 0.9 – 40.9 (1.5) 1.7 18.3 (7.9) 51.5 (4.3) 47.2 – – (12.2) 0.1 0.8 (11.3) 25.5 (43.0) – (0.3) (1.0) 1.3 (15.6) (1.0) (34.1) 1.8 3.8 5.6 2016 £m 28.1 (0.8) 1.7 7.3 0.8 0.5 0.2 37.8 – 0.1 (4.5) (0.7) 32.7 (3.9) 28.8 (17.5) (4.8) (14.7) 1.4 0.1 (35.5) 34.0 (31.5) (0.1) 0.8 (5.1) 3.1 (14.3) (1.7) (14.8) (21.5) 25.3 3.8 AccountsNotes to the Accounts 87 1. Accounting policies General information A.G. BARR p.l.c. (“the Company”) and its subsidiaries (together “the Group”) manufacture, distribute and sell soft drinks. The Group has manufacturing sites in the 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. The financial year represents the 52 weeks ended 28 January 2017 (prior financial year 53 weeks ended 30 January 2016). Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The consolidated and parent Company financial statements of A.G. BARR p.l.c. have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union. They have been prepared under the historical cost accounting rules except for the derivative financial instruments and the assets of the Group pension scheme which are stated at fair value and the liabilities of the Group pension scheme which are valued using the projected unit credit method. The directors have adopted the going concern basis in preparing these accounts for the reasons set out in note 31. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed on page 94. The directors have taken advantage of the exemption available under s408 of the Companies Act 2006 and have not presented an income statement for the Company. Changes in accounting policy and disclosures (a) New and amended standards adopted by the Group The following revised IFRSs have been adopted in this consolidated financial information. The application of these revised IFRSs has not had any material impact on the amounts reported for the current and prior periods. – Disclosure Initiative – Amendments to IAS 1 – Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) – Annual Improvements to IFRSs 2012–2014 Cycle – IFRS 5, IFRS 7, IAS 19 and IAS 34 (b) New standards, amendments and interpretations issued but not effective for the financial year beginning 31 January 2016 and not adopted early A number of new standards and amendments to standards and interpretations are effective for future year ends, and have not been applied in preparing these financial statements. These standards and amendments are listed in the table below. Note this list is limited to those standards which are expected to impact the Group. International Accounting Standards and Interpretations Disclosure Initiative – Amendments to IAS 7 Statement of Cash Flows Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases* IFRS 9 Financial Instruments* * Standards not yet endorsed by the EU. Financial year beginning which standard becomes effective 29 January 2017 29 January 2017 28 January 2018 28 January 2018 27 January 2019 28 January 2018 Management have considered the potential impact of the implementation of IFRS 9, IFRS 15 and IFRS 16. It is expected that neither IFRS 9 nor IFRS 15 will have a material impact on the consolidated financial statements of the Group. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance88 Notes to the Accounts continued 1. Accounting policies continued Changes in accounting policy and disclosures continued (b) New standards, amendments and interpretations issued but not effective for the financial year beginning 31 January 2016 and not adopted early continued It is expected that IFRS 16 will materially affect the consolidated financial statements. As at the reporting date, the Group has non-cancellable operating lease commitments of £9.8m (refer to note 25), the vast majority of which relate to production equipment held at the Milton Keynes facility. Management have performed an analysis of these leases to assess the expected impact of IFRS 16. If IFRS 16 was implemented in the year to 28 January 2017, its effect would be to increase the net book value of property, plant and equipment by £9.6m, with a corresponding finance lease liability of £11.2m. The net impact on the income statement for the year ended 28 January 2017 would be immaterial. To date, £6.6m of operating lease rentals have been recognised in respect of the assessed leases. Under IFRS 16, £5.8m of depreciation would have been charged, plus a further £1.7m of interest charges. Consolidation – subsidiaries Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date over which control commences until the date on which control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group (and for acquisitions prior to 1 July 2009 costs directly attributable to the acquisition). Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Currently, there are no non-controlling interests in any of the entities within the Group. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired less liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised as a credit in profit or loss. Intercompany transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in net assets are also eliminated. Accounting policies of subsidiaries are consistent with those adopted by the Group. Revenue recognition Revenue is the net invoiced sales value, after deducting promotional sales related discounts invoiced by customers, including brand support costs, and exclusive of value added tax of goods and services supplied to external customers during the year. Brand support costs are investments in customer promotional activities. Sales are recorded based on the price specified in the sales invoices, net of any agreed discounts and rebates. Revenue is recognised when the goods have passed to the buyer and the amount can be measured reliably. Sales related discounts and rebates are calculated based on the expected amounts necessary to meet the claims of the Group’s customers in respect of these discounts and rebates. Brand support accruals are included in the statement of financial position in respect of these. Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components and for which discrete financial information is available. Segment results that are reported to the management committee (as chief operating decision maker) include items directly attributable to a segment as well as those which can be allocated on a consistent basis. Foreign currency translation (a) Functional and presentation currency Functional and presentation currency items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in £ Sterling which is the Company’s functional and the Group’s presentation currency. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts89 (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement in the same line in which the transaction is recorded. Exceptional items As permitted by IAS 1 Presentation of financial statements, an item is treated as exceptional if it is considered unusual by its nature and scale and is of such significance that separate disclosure is required for the financial statements to be properly understood. Intangible assets Goodwill Goodwill represents the excess of the consideration of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment charges. Impairment charges on goodwill are not reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. An intangible asset acquired as part of a business combination is recognised outside of goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Brands Separately acquired brands are recognised at cost at the date of purchase. Brands acquired in a business combination are recognised at fair value at the acquisition date. Brands acquired separately or through a business combination are assessed at the date of acquisition as to whether they have an indefinite life. The assessment includes whether the brand name will continue to trade, and the expected lifetime of the brand. All brands acquired to date have been assessed as having an indefinite life as they are expected to continue to contribute to the long term future of the Group. The brands are reviewed annually for impairment, being carried at cost less accumulated impairment charges. The fair value of a brand at the date of acquisition is based on the Relief from Royalties method, which is a valuation model based on discounted cash flows. Customer relationships Customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The customer relationships have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship. The closing balance in the current year represents the carrying value of the customer relationships acquired during the acquisitions of Groupe Rubicon Limited and Funkin Limited. The fair value of the customer relationships at the acquisition date was based on the Multiple Excess Earnings Method (“MEEM”) which is a valuation model based on discounted cash flows. The useful lives of customer relationships are based on the churn rate of the acquired portfolio and are up to 10 years corresponding to a yearly amortisation of between 10% and 33%. The useful lives of all intangible assets are reviewed annually and amended, as required, on a prospective basis. Internally generated software development costs Internally generated software development costs comprise of internal and third party consultancy costs incurred in relation to the Business Process Redesign project. Amortisation is charged from the date the software is available for use. This is calculated using the straight-line method over the expected useful life of the software, which is 10 years. Property, plant and equipment Land and buildings comprise mainly factories, distribution sites and offices. All property, plant and equipment is stated at historical cost less accumulated depreciation and impairments. Historical cost includes expenditure that is directly attributable to the acquisition of the assets. The purchase price of an asset will include the fair value of the consideration paid to acquire the asset. Borrowing costs directly attributable to acquisition, construction and or production of assets that take a substantial time to complete are capitalised. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance90 Notes to the Accounts continued 1. Accounting policies continued Property, plant and equipment continued Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Land is not depreciated. Depreciation is charged from the date that assets, other than land, are available for use. It is calculated using the straight-line method to allocate the cost to the residual values of the related assets using the following rates: Buildings – 1% Leasehold buildings – Term of lease Plant, equipment and vehicles – 10% to 33% Computer hardware – 20% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each year end date. The carrying value of the property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate that the recoverable amount may be less than the carrying value. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. An item of property, plant and equipment is derecognised on disposal or where no future economic benefits are expected to arise from the continued use of the asset. Gains and losses on disposals are determined by comparing the net proceeds with the carrying amount and are recognised within administration costs in the income statement. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The Group has two heritable properties held under operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognised in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use the estimated future cash flows are discounted to their present value using a pre-tax discount rate that is based on current market assessments of the time value of money and risks specific to the asset for which the future cash flow estimates have not been adjusted. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts91 A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the impairment loss was recognised although any reversal cannot result in a carrying amount that would exceed the carrying amount that would have been recognised, net of depreciation, had no impairment loss been recognised in prior years. Non-derivative financial instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade payables. Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the estimated cash flows. The carrying amount of the asset is reduced through the use of a bad debt provision account and the amount of the loss is recognised in the income statement within administration costs. When a trade receivable becomes uncollectable it is written off against the bad debt provision. Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. Investments Investments in subsidiaries are carried at cost less impairment in the parent Company accounts. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method. Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The gain or loss on re-measurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged. At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of the derivative instruments used for hedging purposes are disclosed in note 16. Movements on the hedging reserve in shareholders’ equity are shown in the statement of changes in equity. The full fair value of a hedging derivative is classified as non-current when the remaining maturity of the hedged item is more than 12 months from the statement of financial position date and as current when the remaining maturity of the hedged item is less than 12 months from the statement of financial position date. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance92 Notes to the Accounts continued 1. Accounting policies continued Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within administration costs. Amounts accumulated in equity are recycled through the income statement in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of forward foreign currency contracts hedging overseas purchases is recognised in equity. The gain or loss relating to the ineffective portion is recognised in the income statement within administration costs. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised within the income statement when the forecast transaction is ultimately recognised in the income statement. Inventories 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. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their primary distribution location and condition. This includes direct labour costs and an appropriate share of overheads based on normal operating activity. Company shares held by employee benefit trusts Company shares are purchased on behalf of employee benefit trusts to satisfy the liability of various employee share schemes. The amount of the consideration paid, including directly attributable costs, is recognised as a charge in equity. Purchased shares are classified as Company shares held by employee benefit trusts, and presented as a deduction from retained earnings. Current and deferred income tax Tax on the profit or loss for the year comprises current and deferred tax. Current tax is charged in the income statement except where it relates to tax on items recognised directly in equity, in which case it is charged to equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the year end date and any adjustment to tax payable in respect of previous years. Deferred tax is provided in full using the liability method, providing for temporary differences between the tax bases of assets and liabilities and their carrying amounts, in the consolidated financial statements. The following temporary differences are not provided for: – – differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. the initial recognition of goodwill; and Where the carrying value of an asset is to be recovered through both use and subsequent disposal, a single tax base is attributed to that asset resulting in a single temporary difference being recognised. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the year end date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Employee benefits Retirement benefit plans The Group operates two pension schemes as detailed in note 27. The schemes are generally funded through payments to trustee-administered funds. The Group has both defined benefit and defined contribution plans. Defined contribution pension plans A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Obligations for contributions are recognised as an expense in the income statement as they fall due. The Group has no further payment obligations once the contributions have been paid. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts93 Defined benefit pension plans A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the statement of financial position in respect of defined benefit pension plans is the present value of plan assets less the fair value of the defined benefit obligation. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. The gain or loss on a settlement is the difference between the present value of the defined benefit obligation being settled as determined on the date of settlement and the settlement price, including any plan assets transferred and any payments made directly by the Group in connection with the settlement. The Group’s defined benefit plan was closed to future accrual on 1 May 2016. Refer to note 27. Share-based compensation The Group grants equity settled share-based payments to certain employees. These are measured at fair value (excluding the effect of non market-based vesting conditions) at the grant date. The fair value of the equity settled share-based payment determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured using the Black-Scholes pricing model. The Group also provides employees with the ability to purchase the Company’s ordinary shares at a discount to the current market value through payroll. The Group records as an expense the fair value of the discount on the shares purchased by the employee as a charge to the income statement and a credit to the share options reserve. At each year end date, the entity revises its estimates of the number of options that are expected to vest based on the non market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to the share options reserve. Profit-sharing and bonus plans The Group recognises a liability and an expense for various bonuses based on formulae that take into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where there is a contractual obligation or where there is a past practice that has created a constructive obligation. Provisions A provision is recognised if, as the result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. A restructuring provision is recognised when the Group has approved a detailed and formal restructuring plan which has been either announced or has commenced. Future operating costs are not provided for. Dividend distributions Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance94 Notes to the Accounts continued 1. Accounting policies continued Key judgements and sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenues and expenses during the year. Due to the nature of estimation, the actual outcomes may well differ from these estimates. The principal estimates and judgements that have a significant effect on the carrying amounts of assets and liabilities are discussed below: Valuation of inventory judgement Inventory is a significant balance in the consolidated statement of financial position. The Group purchases commodities for use in the manufacture of soft drinks and these purchases are subject to price volatility. As the Group uses standard costing to value its inventory, management review price variances arising from the purchases of commodities to ensure that the closing inventory correctly reflects the costs incurred in bringing the inventory to its current state and location. Carrying value of brand support accruals judgement and estimation uncertainty The Group incurs significant costs in the support and development of the Group’s brands. Judgement is required in determining the level of closing accrual required at a year end for promotions and brand support campaigns that either span two financial years or where the costs have not been fully settled by the year end date. This includes sales related discounts which are included within revenue as disclosed in the revenue recognition policy above. At 28 January 2017 the closing brand support accrual was £14.7m (30 January 2016: £13.0m). In addition the following area of judgement had an effect on the carrying value of assets and liabilities: Retirement benefit obligations estimation uncertainty The determination of any defined benefit pension scheme surplus/obligation is based on assumptions determined with independent actuarial advice. The assumptions used include discount rate, inflation, pension increases, salary increases, the expected return on scheme assets and mortality assumptions. 2. 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 has led to the operating segments identified in the table below: there has been no change to the segments during the year (after aggregation). The performance of the operating segments is assessed by reference to their gross profit before exceptional items. The operating segments disclosed have been aggregated by the nature of the products and the production processes that they share in addition to similar long-term average gross margins for the operating segments. Year ended 28 January 2017 Total revenue Gross profit before exceptional items Year ended 30 January 2016 Total revenue Gross profit There are no intersegment sales. All revenue is from external customers. A.G. BARR p.l.c. Annual Report and Accounts 2017 Carbonates £m Still drinks and water £m 188.3 97.3 56.0 17.0 Carbonates £m Still drinks and water £m 189.7 98.6 57.1 16.9 Other £m 12.8 6.4 Other £m 11.8 5.6 Total £m 257.1 120.7 Total £m 258.6 121.1 Accounts95 “Other” segments represent income from the sale of Funkin cocktail solutions, the sale of ice cream and other soft drink related items. The gross profit from the segment reporting is stated before exceptional costs. There are no exceptional costs included within gross profit for either year presented. The gross profit from the segment reporting is reconciled to the total profit before income tax, as shown in the consolidated income statement. All of the assets and liabilities of the Group are managed by the management committee on a central basis rather than at a segment level. As a result no reconciliation of segment assets and liabilities to the statement of financial position has been disclosed for either of the periods presented. All of the segments included within “Carbonates” and “Still drinks and water” meet the aggregation criteria set out in IFRS 8 Operating Segments. Geographical information The Group operates predominately in the UK with some worldwide sales. All of the operations of the Group are based in the UK. Revenue UK Rest of the world The Rest of the world revenue includes sales to Ireland and wholesale export houses. All of the assets of the Group are located in the UK. Major customers No single customer accounted for 10% or more of the Group’s revenue in either of the years presented. 3. Profit before tax The following items have been included in arriving at profit before tax: Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Research and development costs Impairment of inventories Amortisation of intangible assets Cost of inventories charged in cost of sales Operating lease rentals payable – property Operating lease rentals payable – motor vehicles Operating lease rentals payable – plant Trade receivables impairment movement Acquisition costs (note 12) Share-based payment costs 2017 £m 246.6 10.5 257.1 2016 £m 249.4 9.2 258.6 2017 £m 7.1 – 1.1 0.6 1.5 136.4 0.4 1.1 2.0 (0.2) – 0.9 2016 £m 7.3 0.2 1.1 0.4 1.1 137.5 0.4 1.1 1.8 (0.4) 0.7 0.5 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance96 Notes to the Accounts continued 3. Profit before tax continued Included within administration costs (note 6) is the auditor’s remuneration, including expenses for audit and non-audit services. The cost includes services from the Company’s auditor and its associates: Statutory audit services Fees payable to the auditor of the parent Company and consolidated accounts Fees payable to the auditor for other services: Audit of the Company’s subsidiaries pursuant to legislation Non-audit services Audit related assurance services Other assurance services Pension advisory services Tax compliance services Tax advisory services Fees in respect of the Group’s pension plans Audit 4. Employees and directors Average monthly number of people employed by the Group (including executive directors) Production and distribution Administration Staff costs for the Group for the year Wages and salaries Social security costs Share-based payments Pension costs – defined contribution plans Pension costs – defined benefit plans Redundancy payments 5. Other income 2017 Exceptional items £m Adjusted £m 2017 £000 2016 £000 88 10 21 152 – 68 15 16 91 20 20 97 – 22 22 16 2017 2016 743 258 1,001 2017 £m 36.3 3.8 0.9 3.1 (4.8) 1.9 41.2 Total £m 745 287 1,032 2016 £m 37.9 4.0 0.5 2.8 2.4 – 47.6 2016 Total £m – Compensation received in respect of termination of distribution contract 0.7 – 0.7 Compensation of £0.7m was received by the Group during the year from a third party distributor who terminated their distribution arrangement before the contract was set to end. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts2017 Exceptional items £m 2.3 (3.0) (0.7) Adjusted £m 57.6 20.7 78.3 6. Net operating expenses before exceptional items Distribution costs (including selling costs) Administration costs 7. Exceptional items Abortive acquisition costs Investigation of online sales capabilities Redundancy costs – reorganisation of direct sales routes Redundancy costs for business reorganisation Other costs relating to business reorganisation Curtailment gain on closure of pension scheme to future accrual Other costs relating to pension scheme closure to future accrual Total exceptional net credit Items included in selling and distribution costs Redundancy costs – reorganisation of direct sales routes Costs relating to closure of pension scheme to future accrual Redundancy costs for business reorganisation Other costs relating to business reorganisation Total included in selling and distribution costs Items included in administration costs Abortive acquisition costs Investigation of online sales capabilities Curtailment gain Other costs relating to pension scheme closure to future accrual Redundancy costs for business reorganisation Other costs relating to business reorganisation Total included in administration costs Total exceptional net credit 97 2016 Total £m 59.9 17.7 77.6 2017 £m 0.4 0.5 0.6 2.7 0.6 (7.0) 1.5 (0.7) 2017 £m 0.6 0.2 1.2 0.3 2.3 0.4 0.5 (7.0) 1.3 1.5 0.3 (3.0) (0.7) Total £m 57.3 21.7 79.0 2016 £m – – – – – – – – 2016 £m – – – – – – – – – – – – – During the period, £0.4m of acquisition fees were incurred in relation to an unsuccessful acquisition. These costs included advisory and legal fees. £0.5m of advisory costs have been incurred as part of a strategic review of the market threats posed by new and emerging digital trading models. £0.6m of redundancy costs have been incurred, arising from a reorganisation of direct sales routes that was completed in the six months ended 30 July 2016. A further £2.7m of redundancy costs were incurred in the six months ended 28 January 2017, following the announcement of a Company restructuring in September 2016. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance98 Notes to the Accounts continued 7. Exceptional items continued Following the announcement of the business restructuring and reorganisation, a further £0.6m of costs were incurred, being mainly recruitment costs, accrual for unpaid holiday entitlement, business development consultancy fees, legal fees and termination costs for employee vehicles and mobile phone contracts. The Group’s defined benefit pension scheme closed to future accrual in May 2016. This resulted in a £7.0m curtailment gain. Offsetting the curtailment gain is a further £1.5m of costs incurred in relation to the closure of the defined benefit pension scheme. This includes the cost of £1.3m past service cost for one year’s additional service negotiated with the active members of the scheme and £0.2m of further costs relating to the closure of the scheme to future accrual. 8. Finance income and finance costs Finance income Interest receivable Finance costs Interest payable Finance costs relating to defined benefit pension plans (note 27) Amortisation of loan arrangement fees 9. Taxation Group Current tax Current tax on profits for the year Adjustments in respect of prior years Total current tax expense/(credit) Deferred tax Origination and reversal of: Temporary differences Adjustment for change in deferred tax rate Adjustments in respect of prior years Total deferred tax (credit)/expense (note 24) Total tax expense 2017 £m – 2017 £m (0.1) (0.5) (0.1) (0.7) Total £m 7.7 (0.4) 7.3 1.2 (0.9) (0.1) 0.2 7.5 2016 £m 0.1 2016 £m (0.1) (0.7) (0.1) (0.9) 2016 Total £m 9.0 (0.7) 8.3 0.3 (1.6) – (1.3) 7.0 2017 Exceptional items £m Adjusted £m 8.6 (0.4) 8.2 0.2 (0.9) (0.1) (0.8) 7.4 (0.9) – (0.9) 1.0 – – 1.0 0.1 In addition to the above movements in deferred tax, a deferred tax credit of £2.9m (2016: charge of £2.8m) has been recognised in other comprehensive income and a charge of £0.1m (2016: a charge of £0.5m) has been taken direct to reserves (note 24). A current tax credit of £1.0m (2016: a credit of £1.3m) has been recognised in other comprehensive income. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts99 The tax on the Group’s profit before tax differs from the amount that would arise using the tax rate applicable to the consolidated profits of the Group as follows: Profit before tax Tax at 20.0% (2016: 20.2%) Tax effects of: Items that are not deductible in determining taxable profit Current tax adjustment in respect of prior years Deferred tax adjustment in respect of prior years Deferred tax adjustment in respect of change of deferred tax rate Total tax expense The weighted average tax rate was 17.4% (2016: 17.1%). 2017 £m 43.1 8.6 0.3 (0.4) (0.1) (0.9) 7.5 2017 % 20.0 0.7 (0.9) (0.2) (2.1) 17.4 2016 £m 41.3 8.3 1.0 (0.7) – (1.6) 7.0 2016 % 20.2 2.4 (1.7) – (3.9) 17.1 The Chancellor announced in his Autumn Budget on 23 November 2016 that the main rate of corporation tax will be reduced to 19% from 1 April 2017 and 17% from 1 April 2020 and the future charges will reduce accordingly. Finance No.2 Bill 2016 became substantively enacted on 23 November 2016. The deferred tax liability at 28 January 2017 has therefore been calculated having regard to the rate of 17% substantively enacted at the balance sheet date. 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. Profit attributable to equity holders of the Company (£m) Weighted average number of ordinary shares in issue Basic earnings per share (pence) 2017 2016 35.6 115,664,757 34.3 115,714,487 30.78 29.63 For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Profit attributable to equity holders of the Company (£m) Weighted average number of ordinary shares in issue Adjustment for dilutive effect of share options Diluted weighted average number of ordinary shares in issue Diluted earnings per share (pence) 2017 2016 35.6 34.3 115,664,757 781,074 115,714,487 505,871 116,445,831 116,220,358 30.57 29.51 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance100 Notes to the Accounts continued 10. Earnings per share continued The underlying EPS figure is calculated by using Profit attributable to equity holders before exceptional items: Profit attributable to equity holders of the Company before exceptional items (£m) Weighted average number of ordinary shares in issue Underlying earnings per share (pence) 2017 2016 35.0 115,664,757 34.3 115,714,487 30.26 29.63 This measure has been included in the financial statements as it provides a closer guide to the underlying financial performance as the calculation excludes the effect of exceptional items. 11. Dividends Final dividend Interim dividend 2017 per share 2016 per share 9.97p 3.53p 13.50p 9.01p 3.36p 12.37p 2017 £m 11.5 4.1 15.6 2016 £m 10.4 3.9 14.3 The directors have proposed a final dividend in respect of the year ended 28 January 2017 of 10.87p per share, amounting to a dividend of £12.7m. It will be paid on 9 June 2017 to all shareholders who are on the Register of Members on 12 May 2017. Dividends payable in respect of the financial year were as follows: Final dividend proposed in respect of financial year Interim dividend paid 2017 per share 2016 per share 10.87p 3.53p 14.40p 9.97p 3.36p 13.33p 12. Acquisition of subsidiary On 2 February 2015, the Group acquired 100% of the share capital of Funkin Limited (“Funkin”), a company which offers a broad range of premium cocktail solutions including fruit purées, cocktail mixers and syrups. Consideration transferred The following table summarises the acquisition-date fair value of each major class of consideration transferred: Cash paid in the year ended 30 January 2016 Contingent consideration payable in the year ending 27 January 2018 Total consideration £m 17.5 4.5 22.0 Contingent consideration The Group has agreed to pay the former owners of Funkin a contingent consideration based on the achievement of certain financial targets by Funkin in the two years ending 28 January 2017. The fair value of the contingent consideration arrangement of £4.5m was estimated by assessing the expected growth of Funkin over the two years trading post acquisition. No discount rate has been applied to the fair value estimate of the contingent consideration due to the short time period the effect of discounting has a negligible effect on the fair value. Management believe that Funkin has achieved the financial targets and that the contingent consideration of £4.5m will be paid to the former owners before 29 July 2017. This will be subject to the audit of the Funkin statutory accounts for the year ended 31 January 2017, and completion of the necessary legal documentation relating to the acquisition. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts101 13. Intangible assets Group Cost At 25 January 2015 Acquisitions through business combinations Acquisitions At 30 January 2016 At 30 January 2016 Acquisitions At 28 January 2017 Amortisation and impairment losses At 25 January 2015 Amortisation for the year At 30 January 2016 Amortisation for the year At 28 January 2017 Carrying amounts At 28 January 2017 At 30 January 2016 Goodwill £m Brands £m Customer relationships £m Water rights £m Software development costs £m 23.3 15.7 – 39.0 39.0 – 39.0 0.4 – 0.4 – 0.4 38.6 38.6 50.3 6.8 – 57.1 57.1 – 57.1 0.3 – 0.3 – 0.3 56.8 56.8 3.5 0.4 – 3.9 3.9 – 3.9 2.6 0.3 2.9 0.3 3.2 0.7 1.0 0.7 – – 0.7 0.7 – 0.7 0.7 – 0.7 – 0.7 – – 7.1 – 4.8 11.9 11.9 – 11.9 – 0.8 0.8 1.2 2.0 9.9 11.1 Total £m 84.9 22.9 4.8 112.6 112.6 – 112.6 4.0 1.1 5.1 1.5 6.6 106.0 107.5 The acquisitions through business combinations for the year to 30 January 2016 represent the goodwill, brands and customer relationships obtained in the acquisition of Funkin Limited. Software development costs were incurred in the year to 30 January 2016, which represented internally generated software development costs and third party consultancy costs incurred in relation to the Business Process Redesign project. This project introduced a more effective, modern and robust Enterprise Resource Planning software. This project was completed during the year to 30 January 2016. The opening customer relationships balance represents intangible assets recognised on the acquisition of the Strathmore Water business and Groupe Rubicon Limited. The amortisation charge represents the spreading of the cost over the assets’ expected useful lives: the Strathmore customer relationships are fully amortised. The Rubicon asset has two years remaining and the Funkin asset has eight years remaining. These periods have been reviewed at the statement of financial position date and remain appropriate. The amortisation costs for the year ended 28 January 2017 have been included in the income statement as administration costs. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance102 Notes to the Accounts continued 13. Intangible assets continued Company Cost At 25 January 2015 Acquisitions At 30 January 2016 At 28 January 2017 Amortisation and impairment losses At 25 January 2015 Amortisation for the year At 30 January 2016 Amortisation for the year At 28 January 2017 Carrying amounts At 28 January 2017 At 30 January 2016 Goodwill £m Brands £m Customer relationships £m Water rights £m Software development costs £m 1.9 – 1.9 1.9 – – – – – 1.9 1.9 7.3 – 7.3 7.3 0.3 – 0.3 – 0.3 7.0 7.0 1.0 – 1.0 1.0 1.0 – 1.0 – 1.0 – – 0.7 – 0.7 0.7 0.7 – 0.7 – 0.7 – – 7.1 4.8 11.9 11.9 – 0.8 0.8 1.2 2.0 9.9 11.1 Total £m 18.0 4.8 22.8 22.8 2.0 0.8 2.8 1.2 4.0 18.8 20.0 All intangible assets noted above were either recognised on the acquisition of the Strathmore Water business or represent internally generated software development costs and third party consultancy costs incurred in relation to the Business Process Redesign project. At 28 January 2017, the Group and the Company had entered into contractual commitments for the acquisition of intangible assets amounting to £nil (2016: £nil). Impairment tests for goodwill and brands For impairment testing, goodwill and brands are allocated to the cash-generating unit (“CGU”) representing the lowest level at which goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill allocated to each CGU are: At 28 January 2017 Rubicon operating unit Funkin operating unit Strathmore operating unit Total Goodwill £m Brands £m Customer relationships £m 21.0 15.7 1.9 38.6 43.0 6.8 7.0 56.8 0.4 0.3 – 0.7 Total £m 64.4 22.8 8.9 96.1 A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts103 At 30 January 2016 Rubicon operating unit Funkin operating unit Strathmore operating unit Total Goodwill £m Brands £m Customer relationships £m 21.0 15.7 1.9 38.6 43.0 6.8 7.0 56.8 0.7 0.3 – 1.0 Total £m 64.7 22.8 8.9 96.4 The recoverable amount of a CGU is determined based on value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management which cover a three year period. Cash flows beyond the three years are extrapolated using the growth rates and other key assumptions as stated below: Key assumptions Rubicon operating unit Funkin operating unit Strathmore operating unit 2017 2016 Gross margin % Growth rate % Discount rate % Gross margin % Growth rate % Discount rate % 30.2 48.5 37.3 2.25 2.25 2.25 10.25 10.25 10.25 38.5 52.4 30.2 2.25 2.25 2.25 11.00 11.00 11.00 The budgeted gross margin is based on past performance and management's expectation of market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax. The discount rate reflects management's estimate of pre-tax cost of capital adjusted for the specific risks impacting on each operating unit. The estimated pre-tax cost of capital is a benchmark for the Group provided by an independent third party. Advertising and promotional costs are included in the analysis, using latest annual budgets for the year to 27 January 2018 and projected costs thereafter. Sensitivity analysis was carried out on the above calculations to review possible levels of impairment after adjusting discount rates. At a pre-tax rate of 15%, none of the CGUs were impaired. Whilst cash flow projections used within the impairment reviews are subject to inherent uncertainty, changes within reason to the key assumptions applied in assessing the value in use calculation would not result in a change in the impairment conclusions reached. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance104 Notes to the Accounts continued 14. Property, plant and equipment Group Cost or deemed cost At 25 January 2015 Additions Transfer from assets under construction Disposals At 30 January 2016 Additions Transfer from assets under construction Disposals Reclassified as held for sale Land and buildings Freehold £m Long leasehold £m Plant, equipment and vehicles £m Assets under construction £m 55.1 5.8 0.5 (2.4) 59.0 0.8 4.5 – (2.0) 0.5 – – (0.1) 0.4 – – – – 76.1 3.8 5.2 (2.0) 83.1 4.1 5.0 (1.3) – Total £m 138.4 14.1 – (4.5) 6.7 4.5 (5.7) – 5.5 148.0 7.7 (9.5) – – 12.6 – (1.3) (2.0) At 28 January 2017 62.3 0.4 90.9 3.7 157.3 Depreciation At 25 January 2015 Amount charged for year Disposals At 30 January 2016 Amount charged for year Disposals On assets reclassified as held for sale 5.7 1.0 (1.3) 5.4 0.6 – (0.7) 0.5 – (0.1) 0.4 – – – 52.6 6.3 (2.0) 56.9 6.5 (1.2) – At 28 January 2017 5.3 0.4 62.2 Net book value As at 28 January 2017 As at 30 January 2016 57.0 53.6 – – 28.7 26.2 – – – – – – – – 3.7 5.5 58.8 7.3 (3.4) 62.7 7.1 (1.2) (0.7) 67.9 89.4 85.3 The Walthamstow distribution site has been classified as held for sale at 28 January 2017. The site was sold on 1 February 2017 for £3.8m. The Group has entered into a 3 year operating lease to continue to operate from the site for the short term. The cost and accumulated depreciation in relation to the asset is detailed below: Cost Accumulated depreciation Net book value A.G. BARR p.l.c. Annual Report and Accounts 2017 2017 £m 2.0 (0.7) 1.3 AccountsProperty, plant and equipment includes the following amounts where the Group and Company is a lessee under a finance lease: 105 Cost-capitalised finance lease Accumulated depreciation Net book value Company Cost or deemed cost At 25 January 2015 Additions Transfer from assets under construction Transfer of assets from other Group companies Disposals At 30 January 2016 Additions Transfer from assets under construction Disposals Reclassified as held for sale 2017 £m 0.3 (0.1) 0.2 Land and buildings Freehold £m Long leasehold £m Plant, equipment and vehicles £m Assets under construction £m 54.7 5.8 0.5 0.1 (2.4) 58.7 0.8 4.5 – (2.0) 0.4 – – – (0.1) 0.3 – – – – 74.5 3.8 5.2 0.8 (2.0) 6.7 4.5 (5.7) – – 82.3 5.5 146.8 3.8 5.0 (0.8) – 7.7 (9.5) – – 12.3 – (0.8) (2.0) 2016 £m 0.2 – 0.2 Total £m 136.3 14.1 – 0.9 (4.5) At 28 January 2017 62.0 0.3 90.3 3.7 156.3 Depreciation At 25 January 2015 Amount charged for year Disposals At 30 January 2016 Amount charged for year Disposals On assets reclassified as held for sale 5.4 1.0 (1.3) 5.1 0.6 – (0.7) 0.4 – (0.1) 0.3 – – – 51.3 6.3 (1.5) 56.1 6.5 (0.8) – At 28 January 2017 5.0 0.3 61.8 Net book value As at 28 January 2017 As at 30 January 2016 57.0 53.6 – – 28.5 26.2 – – – – – – – – 3.7 5.5 57.1 7.3 (2.9) 61.5 7.1 (0.8) (0.7) 67.1 89.2 85.3 At 28 January 2017, the Group and the Company had entered into contractual commitments for the acquisition of property, plant and equipment amounting to £6.0m (2016: £6.1m). A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance106 Notes to the Accounts continued 14. Property, plant and equipment continued Property, plant and equipment includes the following amounts where the Group and Company is a lessee under a finance lease: Cost-capitalised finance lease Accumulated depreciation Net book value 2017 £m 23.5 (3.1) 20.4 2016 £m 23.3 (2.7) 20.6 The Walthamstow distribution site has been classified as held for sale at 28 January 2017. The site was sold on 1 February 2017 for £3.8m. The Group has entered into a 3 year operating lease to continue to operate from the site for the short term. 15. Pension prepayment The Company established the A.G. BARR p.l.c. (2008) Scottish Limited Partnership (“the Partnership”) in the year to 26 January 2014 and through the Partnership has entered into a long term pension funding arrangement with the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme. Non-current Current Prepayment of pension contributions Company 2017 £m 17.9 1.2 19.1 2016 £m 18.3 1.2 19.5 The element of the prepayment classified as current is included within the prepayments figure of £4.1m (2016: £3.8m), as set out in note 20. The Partnership is controlled by A.G. BARR p.l.c. and its results are consolidated by the Group. A “structured entity” is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate only to administrative tasks and the relevant activities are directed by means of contractual arrangements. As outlined in note 27, during a prior year, certain freehold properties were transferred to a limited partnership (a structured entity) established by the Group the main purpose of which is to lease these properties to a Group company and, as a result, to provide the Group’s pension scheme with a distribution of the profits of the Partnership. The distribution is subject to discretion exercisable by the Group in certain circumstances however, given that the Group has the ability to control the limited Partnership by making an additional contribution into the scheme, it is the view of the directors that the Group controls the limited Partnership and therefore it is treated as a consolidated entity. The carrying value of the properties sold to the Partnership and leased back to the Company remain included on the Group’s and Company’s balance sheet and continued to be depreciated in line with the Group’s and Company’s accounting policies with the Group and Company retaining full operational control over these properties. The Group has taken advantage of the exemption conferred by Regulation 7 of the Partnerships (Accounts) Regulations 2008 and has, therefore, not appended the accounts of this qualifying partnership to these financial statements. Separate accounts for the Partnership are not required to be, and have not been, filed at UK Companies House. As part of the funding arrangement the Company made a one off payment to the Pension Scheme of £20.4m to allow it to invest in the Partnership and this is treated as a prepayment of pension contributions. Further information on the asset backed funding arrangement is included within note 27. As the Partnership results are consolidated within the Group results no prepayment is recognised in the consolidated statement of financial position. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts107 16. Derivative financial instruments Group and Company 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. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. The fair value of the forward foreign exchange contracts is determined using forward exchange rates at the date of the statement of financial position, with the resulting value discounted accordingly as relevant. The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value. Group At 28 January 2017 Financial assets not measured at fair value Foreign exchange contracts used for hedging Trade receivables Cash and cash equivalents Financial liabilities measured at fair value Contingent consideration (note 12) Financial liabilities not measured at fair value Foreign exchange contracts used for hedging Finance lease liabilities Unsecured bank borrowings Trade payables Carrying amount Fair value Fair value – hedging instruments £m Loans and receivables £m Other financial liabilities at amortised cost £m Total £m Level 2 £m 0.1 – – 0.1 – – 0.3 – – – 0.3 – 48.3 10.1 58.4 – – – – – – – – – – – 4.5 4.5 – 0.2 0.4 15.8 16.4 0.1 48.3 10.1 58.5 4.5 4.5 0.3 0.2 0.4 15.8 16.7 0.1 48.3 10.1 58.5 4.5 4.5 0.3 0.2 0.4 15.8 16.7 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance 108 Notes to the Accounts continued 16. Derivative financial instruments continued Group and Company continued Group At 30 January 2016 Financial assets not measured at fair value Foreign exchange contracts used for hedging Trade receivables Cash and cash equivalents Financial liabilities measured at fair value Contingent consideration (note 12) Financial liabilities not measured at fair value Finance lease liabilities Unsecured bank borrowings Trade payables Company At 28 January 2017 Financial assets not measured at fair value Foreign exchange contracts used for hedging Trade and other receivables and amounts due from subsidiary companies Cash and cash equivalents Financial liabilities measured at fair value Contingent consideration (note 12) Financial liabilities not measured at fair value Foreign exchange contracts used for hedging Unsecured bank borrowings Finance lease liabilities Trade payables and amounts due to other subsidiary companies Carrying amount Fair value Fair value – hedging instruments £m Loans and receivables £m Other financial liabilities at amortised cost £m Total £m Level 2 £m 1.1 – – 1.1 – – – – – – – 50.0 6.8 56.8 – – – – – – – – – – 4.5 4.5 0.2 18.0 8.4 26.6 1.1 50.0 6.8 57.9 4.5 4.5 0.2 18.0 8.4 26.6 1.1 50.0 6.8 57.9 4.5 4.5 0.2 18.0 8.4 26.6 Carrying amount Fair value Fair value – hedging instruments £m Loans and receivables £m Other financial liabilities at amortised cost £m Total £m Level 2 £m 0.1 – – 0.1 – – 0.3 – – – 0.3 – 48.3 6.0 54.3 – – – – – – – – – – – 4.5 4.5 – 0.4 20.8 88.4 109.6 0.1 48.3 6.0 54.4 4.5 4.5 0.3 0.4 20.8 88.4 109.9 0.1 48.3 6.0 54.4 4.5 4.5 0.3 0.4 20.8 88.4 109.9 A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts109 Company At 30 January 2016 Financial assets not measured at fair value Foreign exchange contracts used for hedging Trade and other receivables and amounts due from subsidiary companies Cash and cash equivalents Financial liabilities measured at fair value Contingent consideration (note 12) Financial liabilities not measured at fair value Unsecured bank borrowings Finance lease liabilities Trade payables and amounts due to other subsidiary companies Carrying amount Fair value Fair value – hedging instruments £m Loans and receivables £m Other financial liabilities at amortised cost £m Total £m Level 2 £m 1.1 – – 1.1 – – – – – – – 50.3 4.4 54.7 – – – – – – – – – – 4.5 4.5 18.0 21.1 73.6 112.7 1.1 50.3 4.4 55.8 4.5 4.5 18.0 21.1 73.6 112.7 1.1 50.3 4.4 55.8 4.5 4.5 18.0 19.7 73.6 111.3 Cash and cash equivalents held by the Group have an original maturity of three months or less. The carrying amount of these assets approximates to their fair value. 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. 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 value of the non-current borrowings is based on cash flows discounted using the current variable interest rate charged on the borrowings of 1.5%, a discount rate of 1.5% and are within level 2 of the fair value hierarchy. Contingent consideration The Group has agreed to pay the former owners of Funkin a contingent consideration based on the achievement of certain financial targets by Funkin in the two years from the date of its acquisition by the Group. The potential undiscounted amount of all future payments that the Group could make under the acquisition agreement is between £nil and £4.5m. The fair value of the contingent consideration arrangement of £4.5m was estimated by assessing the expected growth of Funkin over the two years trading post acquisition. No discount rate has been applied to the fair value estimate of the contingent consideration as due to the short time period the effect of discounting has a negligible effect on the fair value. The Group expects to make a payment of £4.5m within 6 months of the year ended 28 January 2017 (note 12). A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance110 Notes to the Accounts continued 17. Investment in subsidiaries Opening investment in subsidiaries Investment in year Closing investment in subsidiaries 2017 £m 84.3 – 84.3 2016 £m 62.3 22.0 84.3 During the year the following dormant subsidiary companies were dissolved: Hampshire Mineral Water Company Limited Barr Leasing Limited Rubicon Beverages Limited Rubicon Products Limited St Clements (UK) Limited Funkin France Limited The investment made by the Company in the year to 30 January 2016 was in relation to the acquisition of Funkin Limited. The carrying value of the investment represents the fair value of the consideration paid at the date the investments were acquired. The principal subsidiaries are as follows: Principal subsidiary Principal activity Funkin Limited Funkin USA Limited Rubicon Drinks Limited Distribution and selling of cocktail solutions Distribution and selling of cocktail solutions Manufacture, distribution and selling of soft drinks Country of incorporation England England England Country of principal operations UK USA UK A.G. BARR p.l.c. holds 100% of the equity and votes of the subsidiaries. The subsidiaries have the same year end as A.G. BARR p.l.c. and have been included in the Group consolidation. The companies listed are the trading subsidiaries. Refer to note 32 for a full list of subsidiary companies. 18. Cash and cash equivalents Cash and cash equivalents Group Company 2017 £m 10.1 2016 £m 6.8 2017 £m 6.0 Cash and cash equivalents include the following for the purposes of the cash flow statements: Cash and cash equivalents Bank overdrafts (note 21) Group Company 2017 £m 10.1 (0.4) 9.7 2016 £m 6.8 (0.6) 6.2 2017 £m 6.0 (0.4) 5.6 2016 £m 4.4 2016 £m 4.4 (0.6) 3.8 The credit quality of the holder of the Cash at bank is A3 rated (2016: AA(-) rated). A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts19. Inventories Materials Finished goods 20. Trade and other receivables Trade receivables Less: provision for impairment of receivables Trade receivables – net Prepayments Amounts due by subsidiary companies 111 Group Company 2017 £m 7.1 10.2 17.3 2016 £m 4.8 10.8 15.6 2017 £m 7.1 9.6 16.7 Group Company 2017 £m 48.7 (0.4) 48.3 3.1 – 51.4 2016 £m 50.6 (0.6) 50.0 2.7 – 52.7 2017 £m 46.9 (0.3) 46.6 4.1 1.7 52.4 2016 £m 4.7 10.5 15.2 2016 £m 49.2 (0.6) 48.6 3.8 1.7 54.1 The fair values of the trade and other receivables are taken to be their book values less any provision for impairment, as there are no interest bearing receivables. The amounts due from subsidiary companies are considered to be fully recoverable. The Group’s and Company’s most significant customer, a UK major customer, accounts for £6.1m of the trade receivables carrying amount at 28 January 2017 (30 January 2016: £7.3m). The ageing of the Group and Company’s trade receivables and their related impairment at the reporting date was: Group Not past due Past due 1 to 30 days Past due 31 to 60 days Past due 61+ days Total Company Not past due Past due 1 to 30 days Past due 31 to 60 days Past due 61+ days Total Trade receivables overdue in excess of 30 days Gross 2017 £m 43.2 3.6 0.6 1.3 48.7 Gross 2017 £m 42.4 2.8 0.4 1.3 46.9 Impairment 2017 £m – (0.1) (0.2) (0.1) (0.4) Impairment 2017 £m – (0.1) (0.1) (0.1) (0.3) Gross 2016 £m 44.9 3.4 0.3 2.0 50.6 Gross 2016 £m 44.4 2.7 0.3 1.8 49.2 Group Company 2017 3.9% 2016 4.6% 2017 3.6% Impairment 2016 £m (0.1) (0.1) (0.1) (0.3) (0.6) Impairment 2016 £m (0.1) (0.1) (0.1) (0.3) (0.6) 2016 4.4% A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance112 Notes to the Accounts continued 20. Trade and other receivables continued The maximum exposure for both the Group and the Company to credit risk for trade receivables at the reporting date by type of customer was: Major customers Direct to store customers Total Group Company 2017 £m 46.1 2.6 48.7 2016 £m 48.6 2.0 50.6 2017 £m 44.3 2.6 46.9 2016 £m 47.2 2.0 49.2 The carrying amount of the Group and Company’s external trade and other receivables are denominated in the following currencies: UK Sterling Euro Group Company 2017 £m 50.7 0.7 51.4 2016 £m 51.7 1.0 52.7 2017 £m 50.0 0.7 50.7 Movements in the Group and Company’s provisions for impairment of trade receivables were as follows: Group and Company At start of year Net provision released during the year At end of year Group Company 2017 £m 0.6 (0.2) 0.4 2016 £m 1.0 (0.4) 0.6 2017 £m 0.6 (0.3) 0.3 2016 £m 51.4 1.0 52.4 2016 £m 1.0 (0.4) 0.6 The provision allowance in respect of trade receivables is used to record impairment losses unless the Group and Company are satisfied that no recovery of the amount owing is possible. At that point, the amounts are considered irrecoverable and are written off against the trade receivable directly, with a corresponding charge being recorded in administration costs. Where trade receivables are past due, an assessment is made of individual customers and the outstanding balance. No provision is required in respect of amounts owed by subsidiary companies. The creation and release of the trade receivables provision has been included within administration costs in the income statement. The other classes within trade and other receivables do not contain impaired assets. 21. Borrowings Current Bank borrowings Finance lease liabilities Non-current Bank borrowings Finance lease liabilities Total borrowings All of the Group’s borrowings are denominated in UK Sterling. A.G. BARR p.l.c. Annual Report and Accounts 2017 Group Company 2017 £m 0.4 0.1 – 0.1 0.6 2016 £m 0.6 0.1 17.5 0.1 18.3 2017 £m 0.4 1.3 – 19.5 21.2 2016 £m 0.6 1.3 17.5 19.8 39.2 Accounts113 During the year to 30 January 2016, the Group renegotiated a £35m revolving credit facility. A total arrangement fee of £0.1m was incurred and is being amortised over the life of the loan facility. The revolving credit facility was due to expire in January 2018, but has been replaced by a £20m revolving credit facility that will expire in January 2022 (see note 33). A further £10m revolving credit facility was arranged in the year to 26 January 2014 and expired in March 2017. During the year to 26 January 2014 certain property assets were transferred into A.G. BARR Scottish Limited Partnership and are being leased back to the Company under a 21 year lease agreement. Further details are included within note 27. The amortisation charge is included in the finance costs line in the income statement. Current bank borrowings Finance lease liability payable within one year Current loans and other borrowings disclosed in the statement of financial position Group Company 2017 £m 0.4 0.1 0.5 2016 £m 0.6 0.1 0.7 2017 £m 0.4 1.3 1.7 Group Company Non-current bank borrowings Unamortised arrangement fee Finance lease liability payable after more than one year Non-current loans and other borrowings disclosed in the statement of financial position The movements in the Group borrowings are analysed as follows: 2017 £m – – 0.1 0.1 2016 £m 17.5 (0.1) 0.1 17.5 Opening borrowings balance Borrowings made Repayments of borrowings Bank overdrafts (repaid)/drawn Closing borrowings balance Reconciliation to net funds/(debt): Closing borrowings balance Cash and cash equivalents (note 18) Net funds/(debt) 2017 £m – – 19.5 19.5 2017 £m 18.1 25.5 (43.0) (0.2) 0.4 2017 £m (0.4) 10.1 9.7 2016 £m 0.6 1.3 1.9 2016 £m 17.5 (0.1) 19.8 37.2 2016 £m 15.1 34.0 (31.5) 0.5 18.1 2016 £m (18.1) 6.8 (11.3) A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance114 Notes to the Accounts continued 21. Borrowings continued The undrawn facilities at 28 January 2017 were as follows: Revolving credit facility – three years, expires January 2018 Revolving credit facility – three years, expires February 2017 Overdraft The undrawn facilities as at 30 January 2016 were as follows: Revolving credit facility – three years, expires January 2018 Revolving credit facility – three years, expires February 2017 Overdraft The maturity profile of the borrowings is as follows: Less than one year One to two years Two to five years The gross value of finance lease liabilities for the Group is as follows: Gross finance lease liabilities – minimum lease payments: Less than one year Two to five years Later than five years Future finance charges on finance lease liabilities Present value of finance lease liabilities The present value of finance lease liabilities for the Group is as follows: Less than one year Two to five years Later than five years Total facility £m 35.0 10.0 5.0 50.0 Total facility £m 35.0 10.0 5.0 50.0 Drawn £m – – 0.4 0.4 Drawn £m 17.5 – 0.6 18.1 2017 £m 0.4 – – 0.4 2017 £m 0.1 0.1 – 0.2 – 0.2 2017 £m 0.1 0.1 – 0.2 Undrawn £m 35.0 10.0 4.6 49.6 Undrawn £m 17.5 10.0 4.4 31.9 2016 £m 0.6 – 17.5 18.1 2016 £m 0.1 0.1 – 0.2 – 0.2 2016 £m 0.1 0.1 – 0.2 The Group leases certain IT assets under a finance lease agreement. The lease term is 5 years. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsThe gross value of finance lease liabilities for the Company is as follows: Gross finance lease liabilities – minimum lease payments: Less than one year Two to five years Later than five years Future finance charges on finance lease liabilities Present value of finance lease liabilities The present value of finance lease liabilities for the Company is as follows: Less than one year Two to five years Later than five years 115 2017 £m 1.3 5.3 23.8 30.4 (9.6) 20.8 2017 £m 1.3 4.9 14.6 20.8 2016 £m 1.3 5.2 24.1 30.6 (9.5) 21.1 2016 £m 1.3 4.8 15.0 21.1 As well as the IT assets noted within the Group, the Company leases certain property assets under a finance lease agreement. The lease term is 21 years and further details can be found within note 27. 22. Trade and other payables Trade payables Other taxes and social security costs Accruals Contingent consideration (note 12) Amounts due to subsidiary companies Non-current Current Group Company 2017 £m 15.8 5.1 26.9 4.5 – 52.3 – 52.3 52.3 2016 £m 8.4 5.3 23.7 4.5 – 41.9 4.5 37.4 41.9 2017 £m 14.5 5.1 25.7 4.5 73.9 123.7 – 123.7 123.7 2016 £m 7.4 4.8 23.5 4.5 66.2 106.4 4.5 101.9 106.4 The tables below analyse the Group and Company’s financial liabilities into the relevant maturity groupings based on the remaining period to the contractual maturity date as at the statement of financial position date. The amounts disclosed in the table below are the contractual undiscounted cash flows: Group At 28 January 2017 0 to 6 months 7 to 12 months 1 to 2 years 2 to 5 years 5+ years Borrowings £m Finance lease liabilities £m Trade payables £m Financial instruments £m 0.4 – – – – 0.4 – 0.1 0.1 – – 0.2 15.8 – – – – 15.8 4.5 – – – – 4.5 Total £m 20.7 0.1 0.1 – – 20.9 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance116 Notes to the Accounts continued 22. Trade and other payables continued At 30 January 2016 0 to 6 months 7 to 12 months 1 to 2 years 2 to 5 years 5+ years Borrowings £m Finance lease liabilities £m Trade payables £m Financial instruments £m 0.7 0.1 0.2 17.5 – 18.5 – – 0.1 0.1 – 0.2 8.4 – – – – 8.4 – – 4.5 – – 4.5 Total £m 9.1 0.1 4.8 17.6 – 31.6 As trade payables are not interest bearing, their fair value is taken to be the book value. The movement in the borrowings analysis from 30 January 2016 to 28 January 2017 reflects the repayments of the revolving credit facility that was outstanding at 30 January 2016. Disclosures relating to borrowings are included in note 21. Company At 28 January 2017 0 to 6 months 7 to 12 months 1 to 2 years 2 to 5 years 5+ years At 30 January 2016 0 to 6 months 7 to 12 months 1 to 2 years 2 to 5 years 5+ years Borrowings £m Finance lease liabilities £m Trade payables £m Financial instruments £m 0.4 – – – – 0.4 0.6 0.7 1.3 4.0 23.8 30.4 14.5 – – – – 14.5 4.5 – – – – 4.5 Borrowings £m Finance lease liabilities £m Trade payables £m Financial instruments £m 0.7 0.1 0.2 17.5 – 18.5 0.6 0.6 1.3 4.0 24.1 30.6 7.4 – – – – 7.4 – – 4.5 – – 4.5 Total £m 20.0 0.7 1.3 4.0 23.8 49.8 Total £m 8.7 0.7 6.0 21.5 24.1 61.0 As trade payables are not interest bearing, their fair value is taken to be the book value. Disclosures relating to borrowings are included in note 21. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts23. Provisions Group and Company Opening provision Provision created during the year Provision utilised during the year Closing provision 117 2017 £m 0.1 0.9 (0.1) 0.9 2016 £m 1.0 – (0.9) 0.1 The closing provision relates to the redundancy costs associated with the business reorganisation that has taken place in the year. During the prior year, provisions related to redundancy costs associated with the closure of the Tredegar manufacturing facility. 24. Deferred tax assets and liabilities Group At 25 January 2015 Credit to the income statement (note 9) Charge to other comprehensive income Deferred tax arising on acquisition Transfer between asset and liability categories Charge to other reserves At 30 January 2016 (Charge)/credit to the income statement (note 9) Credit to other comprehensive income Transfer between asset and liability categories Charge to other reserves At 28 January 2017 Retirement benefit obligations £m Share- based payments £m 2.6 0.4 (2.5) – (0.5) – – – – 1.2 – 1.2 0.7 0.1 – – – (0.5) 0.3 (0.2) – – (0.1) – Foreign exchange contract hedge £m 0.1 – – 0.2 – – – – – – – Total deferred tax asset £m Retirement benefit obligations £m Foreign exchange contract hedge £m Accelerated tax depreciation £m Total deferred tax liability £m Net deferred tax liability £m (11.1) (12.1) (8.7) 0.8 – 0.8 1.3 – (2.8) (1.5) (1.5) (1.5) (1.0) – – – – – – – 0.5 – (0.5) (0.2) – (0.2) – – 0.3 – (11.8) (12.5) – (0.5) (12.2) 3.4 0.5 – (0.3) (0.5) 0.3 (0.3) (2.8) (0.2) (1.0) – 1.0 – (0.2) – 2.7 0.2 1.2 (0.1) 1.2 (1.2) – – – – – – – – 2.9 2.9 (1.2) – – (0.1) (9.6) (10.8) (10.8) A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance118 Notes to the Accounts continued 24. Deferred tax assets and liabilities continued Company At 25 January 2015 Credit/(charge) to the income statement (note 9) Charge to other comprehensive income Transfer between asset and liability categories Charge to other reserves At 30 January 2016 (Charge)/credit to the income statement Credit to other comprehensive income Transfer between asset and liability categories Charge to other reserves At 28 January 2017 Retirement benefit obligations £m Share- based payments £m 2.6 0.4 (2.5) (0.5) – – – – 1.2 – 1.2 0.7 0.1 – – (0.5) 0.3 (0.2) – – (0.1) – Foreign exchange contract hedge £m 0.1 – 0.2 – – – – – – – Total deferred tax asset £m Retirement benefit obligations £m Foreign exchange contract hedge £m Accelerated tax depreciation £m Total deferred tax liability £m Net deferred tax (liability)/ asset £m 3.4 0.5 (0.3) (0.5) 0.3 (1.0) – – 0.5 – (0.5) – – – (0.2) – (0.2) (2.4) (3.4) – (0.1) (0.1) 0.4 – – – – (2.8) 0.3 – – (0.5) (2.9) (2.5) (3.2) (0.2) (1.0) – 0.4 (0.6) (0.8) – 2.7 0.2 1.2 (0.1) 1.2 (1.2) – – – – – – – – (2.1) 2.9 2.9 (1.2) – (2.1) – (0.1) (0.9) (0.3) (2.8) No deferred tax asset is recognised in the statement of financial position for unused capital losses of £4.0m (2016: £2.4m). 25. Lease commitments The total future minimum lease payments under non-cancellable operating leases are as follows for the Group and Company: No later than one year More than one year but not more than five years Due beyond five years Total lease commitments 2017 £m 3.1 6.7 – 9.8 2016 £m 3.1 9.1 2.7 14.9 26. Financial risk management 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 Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out in accordance with policies approved by the board of directors. Management identifies, evaluates and manages financial risks in close co-operation with the Group’s business units. The Board provides guidance on overall market risk management including use of derivative financial instruments and investment of excess liquidity. In addition, treasury matters are dealt with by the Treasury Committee. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts 119 Market risk Foreign exchange risk The Group operates internationally. The Group primarily buys and sells in Sterling but does make purchases and sales denominated in US Dollars and Euros. Due to the hedging arrangements that have been in place for the year ended 28 January 2017, if Sterling had weakened/strengthened by 10% against the US Dollar or Euro, with all other variables held constant, there would have been an immaterial effect on post-tax profit (year ended 30 January 2016: immaterial impact on post-tax profit). The Group periodically enters into forward option contracts to purchase foreign currencies for known purchases where the value and volume of trading purchases is known. The Treasury Committee assesses whether hedge accounting should be applied for each forward option contract. Price risk The Group is not exposed to equity securities price risk because no such investments are held by the Group other than within Pension Scheme assets. The Group purchases a wide range of commodities in the ordinary course of business. Exposure to changes in the market price of certain of these commodities, including sugar, plastic, aluminium and mango, is managed through the use of forward physical supply contracts, primarily to convert floating or indexed prices to fixed prices. The use of such contracts to hedge commodity exposures is governed by the Group’s risk management policies and is continually monitored by the Treasury Committee. Commodity derivatives also provide a way to meet customers’ pricing requirements whilst achieving a price structure consistent with the Group’s overall pricing strategy. All of the Group’s commodity derivatives are treated as “own use” contracts, which are outside the scope of IAS 39, since they are both entered into, and continue to be held, for the purposes of the Group’s ordinary operations, and are not net settled (the Group takes physical delivery of the commodity concerned). “Own use” contracts do not require accounting entries until the commodity purchase actually crystallises. The majority of the Group’s forward physical contracts and commodity derivatives have original maturities of less than one year. As all of the commodity contracts qualify for the “own use” treatment, no sensitivity analysis has been carried out. Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash inflows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from long term borrowings. Borrowings obtained at variable rates expose the Group to cash flow interest rate risk, which is partially offset by cash held at variable rates. For the year ended 28 January 2017, if interest rates on Sterling-denominated borrowings at that date had been 0.5% higher/ lower with all other variables held constant, there would have been an immaterial change in the post-tax profit for the year (year ended 30 January 2016: immaterial impact). Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to major and direct to store customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of “A” are accepted. If major customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control processes assess the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set by the management committee based on internal or external ratings. The utilisation of credit limits is regularly monitored. Sales to direct to store customers are largely settled in cash in order to manage credit risk from smaller, independent stores. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance120 Notes to the Accounts continued 26. Financial risk management continued Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying business, the Group maintains flexibility in funding by maintaining sufficient cash reserves and the availability of borrowing facilities. Management monitors rolling forecasts of the Group’s liquidity reserve (which comprises undrawn borrowing facilities and cash and cash equivalents) on the basis of expected cash flows. This is carried out at a Group level and involves projecting forward cash flows and considering the level of liquid assets necessary to meet excesses of expenditure relative to income. Capital risk management The Group defines “capital” as being net cash/(debt) plus equity. The Group’s objective when managing capital is to maintain an appropriate capital structure to balance the needs of the Group, whilst operating within its bank covenants. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group has a number of options available to it including modifying dividend payments to shareholders, returning capital to shareholders or issuing new shares. In this way, the Group balances returns to shareholders between long term growth and current returns whilst maintaining capital discipline in relation to investing activities and taking any necessary action on costs to respond to the current environment. The Group monitors existing equity in issuance on the basis of the (net cash/(debt))/EBITDA ratio. Net cash/(debt) is calculated as being the net of cash and cash equivalents, interest-bearing loans and borrowings. The net debt position is discussed in the Financial Review on pages 26 to 30. The (net cash/(debt))/EBITDA ratio enables the Group to plan its capital requirements in the medium term. The Group uses this measure to provide useful information to financial institutions and investors. The Group believes that the current (net cash/(debt))/EBITDA ratio together with existing shares in issuance provides an efficient capital structure and an acceptable level of financial flexibility. For the year ended 28 January 2017, there was a net cash surplus of £9.7m (year ended 30 January 2016: net debt of £11.3m). The Group monitors capital efficiency on the basis of the return on capital employed ratio (“ROCE”). In the financial year ended 28 January 2017, ROCE increased to 20.2% from 18.8%. 27. Retirement benefit obligations During the year the Company operated two pension schemes, the A.G. BARR p.l.c. (2005) Defined Contribution Scheme and the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme. The latter is a funded defined benefit scheme based on final salary which also includes a defined contribution section for the pension provision of new executive entrants. Under the defined benefit scheme, the employees are entitled to retirement benefits based on final pensionable pay. No other post-retirement benefits are provided. Defined benefit scheme: actuarial valuation The assets of the schemes are held separately from those of the Company and are invested in managed funds. A full valuation of the defined benefit scheme was conducted as at 5 April 2014 using the attained age method. A surplus of £12.2m was determined at the valuation date. The defined benefit scheme exposes the Group to actuarial risks such as longevity risk, interest rate risk and market investment risk. Responsibility for governance of the plans, including investment decisions and contribution schedules, lies jointly with the Company and the board of trustees. The board of trustees is composed of representatives from the Company scheme members as set out in the plan’s rules. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts121 Defined benefit scheme: IAS 19 information The full actuarial valuation carried out at 5 April 2014 was updated to 28 January 2017 by a qualified independent actuary. The valuation used for the defined benefit schemes has been based on market conditions as at the Company year end. The amounts recognised in the statement of financial position are as follows: Group and Company Present value of funded obligations Fair value of scheme assets Deficit recognised in the statement of financial position The movement in the defined benefit obligation over the year is as follows: Group and Company At 30 January 2016 Current service cost Past service cost Curtailment gain Interest income/(expense) Total cost recognised in income statement Remeasurements – changes in financial assumptions – actuarial return on assets excluding amounts recognised in net interest Total remeasurements recognised in other comprehensive income Cashflows Employer contributions Benefits paid Premiums paid Total cash outflow As at 28 January 2017 2017 £m (139.2) 111.8 (27.4) 2016 £m (120.2) 107.3 (12.9) Fair value of plan assets £m Present value of obligation £m Total £m 107.3 (120.2) (12.9) – – – 3.9 3.9 – 3.5 3.5 2.6 (5.5) – (2.9) (0.4) (1.3) 7.0 (4.4) 0.9 (25.4) – (25.4) – 5.5 – 5.5 (0.4) (1.3) 7.0 (0.5) 4.8 (25.4) 3.5 (21.9) 2.6 – – 2.6 111.8 (139.2) (27.4) On 1 May 2016 the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme was closed to future accrual following a negotiated agreement between the Company and the board of trustees. A curtailment gain of £7.0m arose on the closure to future accrual. A past service cost of £1.3m has also been recognised as active members were awarded one year’s further service as part of the negotiated closure. Following the closure the Company incurred a further £0.2m of costs in relation to the closure of the Scheme to future accrual. These three items have been treated as exceptional items in the year to 28 January 2017 (note 7). The Company made a £1.0m contribution to the scheme in May 2016 and will make a further £1.0m contribution to the scheme in May 2017. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance122 Notes to the Accounts continued 27. Retirement benefit obligations continued Defined benefit scheme: IAS 19 information continued The movement in the defined benefit obligation in the year to 30 January 2016 was as follows: Group and Company At 25 January 2015 Current service cost Curtailment gain Interest income/(expense) Total cost recognised in income statement Remeasurements – changes in financial assumptions – actuarial return on assets excluding amounts recognised in net interest Total remeasurements recognised in other comprehensive income Cashflows Employer contributions Benefits paid Premiums paid Total cash outflow As at 30 January 2016 Fair value of plan assets £m Present value of obligation £m 112.7 (131.0) – – 3.6 3.6 – (7.3) (7.3) 2.4 (4.0) (0.1) (1.7) (1.9) 0.2 (4.3) (6.0) 12.7 – 12.7 – 4.0 0.1 4.1 Total £m (18.3) (1.9) 0.2 (0.7) (2.4) 12.7 (7.3) 5.4 2.4 – – 2.4 107.3 (120.2) (12.9) Asset backed funding arrangement During the year to 26 January 2014 the Company established the A.G. BARR Scottish Limited Partnership (“the Partnership”) and through the Partnership has entered into a long term pension funding arrangement with the Pension Scheme. Under this arrangement certain property assets were transferred into the Partnership and are being leased back to A.G. BARR p.l.c under a 21 year lease agreement, generating an income stream of £1.1m per annum for the pension scheme, increasing annually in line with inflation. The Partnership is controlled by A.G. BARR p.l.c. and its results are consolidated by the Group. The value of the properties transferred into the Partnership remains included on the Group’s and Company’s balance sheet at carrying values at the date of transfer with the Group and Company retaining full operational control over these properties. At the end of the term of the relevant lease, or earlier if the Scheme becomes fully funded to the extent that the members’ benefits can be secured with an insurance company, the Company has the option to repurchase the properties in the Partnership for an agreed fixed price. Financial assumptions Discount rate Future salary increases Inflation assumption 2017 3.0% 4.7% 3.7% 2016 3.7% 4.2% 3.2% A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts123 Mortality assumptions Average future life expectancy (in years) for a male pensioner aged 65 Average future life expectancy (in years) for a female pensioner aged 65 Average future life expectancy (in years) at age 65 for a male non-pensioner aged 45 Average future life expectancy (in years) at age 65 for a female non-pensioner aged 45 2017 25 25 27 27 2016 25 24 27 27 The mortality tables adopted in finalising the fair value of the liabilities are the 2013 VITA tables based on the member’s year of birth. This assumes that the expected age at death for both males and females is 90 to 92 depending on their age at 28 January 2017. The fair value of scheme assets at the year end dates is analysed as follows: Equities Bonds Property Cash Buy-in policy Total market value of scheme assets 2017 £m 46.4 28.2 0.5 5.2 31.5 111.8 2016 £m 41.6 60.7 0.4 4.6 – 107.3 2015 £m 46.8 59.9 0.3 5.7 – 112.7 2014 £m 49.5 43.1 – 4.6 – 97.2 2013 £m 56.8 25.9 – 4.2 – 86.9 Sensitivity review The sensitivity of the overall pension liability to changes in the weighted principle assumptions is: Change in assumption Year to 28 January 2017 Year to 30 January 2016 Impact on overall liabilities Discount rate Increase/decrease by 0.1% Decreases/increases liabilities by £2.3m Decreases/increases liabilities by £2.2m Rate of inflation Increase/decrease by 0.1% Increases/decreases liabilities by £2.0m Increases/decreases liabilities by £1.5m Life expectancy Increase/decrease by 1 year Increases/decreases liabilities by £5.6m Increases/decreases liabilities by £4.3m Methods and assumptions used in preparing the sensitivity analyses The sensitivities disclosed were calculated using approximate methods taking into account the duration of the Scheme’s liabilities. They have been calculated consistently with last period’s disclosures, however these change over time with financial conditions and assumptions. Risks to which the Scheme exposes the Company The nature of the Scheme exposes the Company to the risk of paying unanticipated additional contributions to the Scheme in times of adverse experience. The most financially significant risks are likely to be: – Asset volatility The Scheme’s liabilities are calculated using a discount rate set with reference to corporate bond yields in line with the requirements of IAS 19R. If the Scheme assets underperform this yield, this will create a deficit. The plan holds investments in a portfolio of equity and bonds which are expected to outperform corporate bonds in the long term but provide volatility and risk in the short term. The Trustees have made a number of steps to control the level of investment risk within the Scheme over the last 12 months. The Trustee and the Company agreed in April 2016 to purchase an annuity policy with Canada Life to cover all future pension payments to certain members of the Scheme. This policy was purchased at a cost of £34.7m and secures the total amount of future pension payments for 100 of the Scheme’s pensioner members. The Trustees will continue to review the risk exposures in light of the longer term objectives of the Scheme. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance124 Notes to the Accounts continued 27. Retirement benefit obligations continued Risks to which the Scheme exposes the Company continued – Changes in bond yields A decrease in corporate bond yields will increase plan liabilities. In the event of a reduction in the corporate bond yields there will be an increase in the value of the Scheme’s bond holdings. – Inflation risk The Group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. The majority of the Scheme’s assets are either unaffected by inflation (fixed interest bonds) or loosely correlated with inflation (equities), meaning that an increase in inflation will also increase the deficit. – Life expectancy The Scheme’s obligation is to provide benefits for the life of the members. An increase in life expectancy will result in an increase in the Scheme’s liabilities. Policy for recognising gains and losses The Company recognises actuarial gains and losses immediately, through the remeasurement of the net defined benefit liability. Asset-liability matching strategies used by the Scheme or the Company The Trustees’ current investment strategy, having consulted with the Company, is to invest circa 40% of the Scheme’s assets in a mix of equities and diversifying return seeking assets, with the balance in an annuity policy, long dated gilts and corporate bonds, in order to strike a balance between: – maximising the returns on the Scheme’s assets; and – minimising the risks associated with the lower than expected returns on the Scheme’s assets. Description of funding arrangements and funding policy that affect future contributions The Schedule of Contributions dated 9 January 2015 sets out the current contributions payable by the Company to the Scheme. This was revised based on the actuarial valuation performed as at 5 April 2014 to allow for the rental income stream from the asset backed funding arrangement effectively being a commitment which will offset the requirement for future deficit contributions. Expected contributions over the next accounting period A.G. BARR p.l.c. expects to contribute approximately £1.0m to the A.G. BARR p.l.c. (2008) Pension and Life Assurance Scheme in the period ending 28 January 2017, and the Scheme expects to receive further contributions of approximately £1.2m from the asset backed funding arrangement in which the Scheme holds an interest. The weighted average duration of the defined benefit obligation is 20 years. The expected maturity analysis of the undiscounted defined benefit pension benefit, estimated on the Scheme’s funding is as follows: Less than one year One to two years Two to five years Greater than five years Proportion of total pension benefits to be paid as at 5 April 2016 Proportion of total pension benefits to be paid as at 5 April 2015 1% 1% 1% 1% Defined contribution scheme The pension costs for the defined contribution schemes are as follows: Defined contribution costs 3% 3% 2017 £m 3.1 95% 95% 2016 £m 2.8 A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts125 28. Share capital Group and Company Issued and fully paid 2017 Shares 116,768,778 2016 Shares 116,768,778 £m 4.9 £m 4.9 The Company has one class of ordinary shares which carry no right to fixed income. During the year to 28 January 2017 the Company’s employee benefit trusts purchased 203,410 (2016: 913,724) shares. The total amount paid to acquire the shares has been deducted from shareholders’ equity and is included within retained earnings. At 28 January 2017 the shares held by the Company’s employee benefit trusts represented 1,103,160 (2016: 1,254,095) shares at a purchased cost of £6.3m (2016: £8.9m). 29. Share-based payments As disclosed in the Directors’ Remuneration Report the Group runs a number of share award plans and share option plans: – Savings Related Share Option Scheme which is open to all employees – LTIP and ESOS options which are granted to executive directors – AESOP awards that are available to all employees Savings Related Share Option Scheme (“SAYE”) All SAYEs outstanding at 28 January 2017 and 30 January 2016 have no performance criteria attached other than the requirement for the employee to remain in the employment of the Company and to continue contributing to the plan. Options granted under the SAYE must be exercised within six months of the relevant award vesting date. The SAYE is open to all qualifying employees in employment at the date of inception of the scheme. Options are normally exercisable after five years from the date of grant. The price at which options are offered is not less than 80% of the average of the middle-market price of the five dealing days immediately preceding the date of invitation. The movements in the number of share options outstanding and their related weighted average exercise prices are as follows: At start of the year Granted in the year Forfeited Exercised At end of the year 2017 2016 Options 1,413,428 – (163,567) (46,468) 1,203,393 Average exercise price in pence per share 471p – 332p 326p 469p Options 1,418,930 819,858 (98,477) (726,883) 1,413,428 Average exercise price in pence per share 305p 567p 449p 256p 471p None of the options listed above were exercisable at the respective year end dates. The outstanding options at the year end had exercise prices of £3.58 and £5.67 (2016: £2.54, £3.58 and £5.67). The weighted average share price on the dates that options were exercised in the year to 28 January 2017 was £5.11. The weighted average remaining contractual life of the outstanding share options at the year end is 2 years (2016: 3 years). A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance 126 Notes to the Accounts continued 29. Share-based payments continued LTIP During the year, an award of shares was made to the executive directors as disclosed in the Directors’ Remuneration Report. The weighted average fair value of the share awards made during the period was determined using the Black-Scholes valuation model. The significant inputs to the model were as follows: Date of grant Number of share awards granted Share price at date of grant Contractual life in years Dividend yield Expected outcome of meeting performance criteria (at grant date) Fair value determined at grant date 7 April 2016 272,785 527p 3 2.19% 50% 493p AESOP As described in the Directors’ Remuneration Report, there are two elements to the AESOP. The partnership share element provides that for every three shares that a participant purchases in A.G. BARR p.l.c., up to a maximum contribution of £150 per month, the Company will purchase one matching share. The matching shares purchased are held in trust in the name of the individual. There are various rules as to the period of time that the shares must be held in trust but after five years, the shares can be released tax free to the participant. The second element of free shares allows participants to receive shares to the value of a common percentage of their earnings, related to the performance of the Group. The maximum value of the annual award is £3,600 and the shares awarded are held in trust for five years. Under the terms of the AESOP rules, any award of free shares to employees is made by the Trustee of the AESOP subject to the Company’s consent. 30. Related party transactions Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation. Details of transactions between the Company and related parties are as follows: Rubicon Drinks Limited Funkin Limited Sales of goods and services Purchase of goods and services 2017 £m 41.1 – 2016 £m 40.3 0.5 2017 £m 53.4 – 2016 £m 52.4 – The amounts disclosed in the table below are the amounts owed to and due from subsidiary companies that are trading subsidiaries. The difference between the total of these balances and the amounts disclosed as amounts due by (note 20) and to subsidiary companies (note 22) are balances due by and due to dormant subsidiary companies. Rubicon Drinks Limited Funkin Limited Findlay's Limited Amounts owed by related parties Amounts due to related parties 2017 £m – 0.5 – 2016 £m – 0.5 – 2017 £m 72.0 – 2.9 2016 £m 62.2 – 2.9 A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts127 Compensation of key management personnel The remuneration of the executive directors and other members of key management (the management committee) during the year was as follows: Salaries and short term benefits Pension and other costs Share-based payments 2017 £m 3.2 0.5 – 3.7 2016 £m 3.3 0.5 0.1 3.9 The Directors’ Remuneration Report can be found on pages 51 to 76. Retirement benefit plans The Group’s retirement benefit plans are administered by an independent third party service provider. During the year the service provider charged the Group £0.4m (2016: £0.3m) for administration services in respect of the retirement benefit plans. At the year end £nil (2016: £nil) was outstanding to the service provider on behalf of the retirement benefit plans. 31. Going concern The directors are confident that it is appropriate for the going concern basis to be adopted in preparing the financial statements. The statement of financial position shows consolidated net assets of £181.8m (2016: £180.1m) and the Company has sufficient reserves to continue making dividend payments. Further the Group’s net cash position has increased from a deficit of £11.3m at 30 January 2016 to a surplus of £9.7m at 28 January 2017. 32. Subsidiaries The Group’s subsidiaries at 28 January 2017 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Name of entity Findlay's Limited Funkin Limited Funkin USA Limited Rubicon Drinks Limited UK A.G. BARR Capital Partner Limited UK A.G. BARR General Partner Limited A.G. BARR Pension Trustee Limited UK A.G. BARR Scottish Limited Partnership UK UK Robert Barr Limited UK Mandora St Clements Limited UK Taut (UK) Ltd UK Tizer Limited Jersey Groupe Rubicon Limited Place of business/ country of incorporation Address UK UK USA UK Ownership interest held by the Group 2017 % 100 100 100 100 100 100 100 100 100 100 100 100 100 2016 % Principal activities 100 Non-trading entity 100 Distribution and selling of cocktail solutions 100 Distribution and selling of cocktail solutions 100 Manufacturing, distribution and selling of exotic soft drinks 100 Investment holding company 100 Investment holding company 100 Investment holding company 100 Investment holding company 100 Non-trading entity 100 Non-trading entity 100 Non-trading entity 100 Non-trading entity 100 Non-trading entity Cumbernauld Milton Keynes Milton Keynes Milton Keynes Milton Keynes Cumbernauld Cumbernauld Cumbernauld Cumbernauld Milton Keynes Milton Keynes Milton Keynes Jersey The full address for Cumbernauld is: Westfield House, 4 Mollins Road, Cumbernauld, G68 9HD. The full address for Milton Keynes is: Crossley Drive, Magna Park, Milton Keynes, England, MK17 8FL. The full address for Jersey is: PO Box 87, 22 Grenville Street, St Helier, Jersey, JE4 9PX. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance128 Notes to the Accounts continued 33. Subsequent events In February 2017 the Group entered into three revolving credit facilities over periods of 3-5 years with Royal Bank of Scotland plc, Bank of Scotland plc and HSBC Bank plc. These facilities provide £60m of Sterling debt facilities to 2019/20, reducing to £20m for the period to 2021/22. On 1 February 2017 the Group completed on the sale of the Walthamstow distribution site. The asset was held for sale at 28 January 2017 (refer to note 14). Total proceeds of £3.8m were received against a net book value of £1.3m, giving rise to a gain on sale of £2.5m, which will be recognised in the year to 27 January 2018. The Group has entered into a 3 year operating lease to continue to operate from the site for the short term. The Board has approved a share repurchase programme of up to £30m, as part of the Group’s approach to capital allocation and under the authority to repurchase up to 10% of its own shares granted at the AGM in May 2016. This programme is anticipated to commence in the spring of 2017 and complete within 24 months. The AGM in May 2017 will be requested to approve the renewal of the authority for the Board to repurchase up to 10% of the Company’s own shares. The Directors do not believe that the repurchase programme will have any material impact on the Group’s ability to secure acquisition opportunities should these be identified. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsReview of Trading Results 129 Revenue Cost of sales Gross profit Other income Distribution costs (including selling costs) Administration costs Operating expenses Operating profit before exceptional items Exceptional items Operating profit after exceptional items Finance income Finance expense Net finance expense Profit before tax Tax on profit Profit after tax 2017 £m 2016 £m 2015 £m Restated 2014 £m Not restated 2013 £m Not restated 257.1 (136.4) 120.7 0.7 (57.6) (20.7) (77.6) 43.1 0.7 43.8 – (0.7) (0.7) 43.1 (7.5) 35.6 258.6 (137.5) 121.1 260.9 (141.0) 119.9 254.1 (137.9) 116.2 237.6 (129.6) 108.0 – 0.7 – – (57.3) (21.7) (79.0) 42.1 – 42.1 0.1 (0.9) (0.8) 41.3 (7.0) 34.3 (57.2) (21.3) (77.8) 42.1 (3.3) 38.8 0.1 (0.3) (0.2) 38.6 (8.6) 30.0 (50.2) (27.4) (77.6) 38.6 (3.8) 34.8 0.2 (0.5) (0.3) 34.5 (6.1) 28.4 (47.4) (25.7) (73.1) 34.9 (3.2) 31.7 0.2 (0.4) (0.2) 31.5 (6.2) 25.3 Earnings per share on issued share capital (pence) 30.49 29.37 25.69 24.13 21.74 Dividends recognised as an appropriation in the year (pence) Closing share price 13.50 5.02 12.37 5.28 11.30 6.25 2.83 16.90 6.05 5.50 The results to 25 January 2015 were restated in the year to 30 January 2016 to reflect the change in accounting policy for the recognition of some logistics and warehouse related costs within cost of sales, which more accurately reflected the costs incurred in manufacturing products. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance130 Glossary Non-GAAP measures are provided because they are tracked by management to assess the Group’s operating performance and to inform financial, strategic and operating decisions. The term “underlying” has been used to improve comparability between the 52 week reporting period ended 28 January 2017 and the 53 weeks ended 30 January 2016. In the 53 week reporting period ended 30 January 2016 the Group received non- recurring income associated to the termination of the Orangina franchise and incurred one-off transaction fees associated to corporate development activities including Funkin Limited. The underlying figures for the 53 week reporting period ended 30 January 2016 have been adjusted for the revenue and profit associated to week 53 and the non-recurring Orangina franchise and one-off corporate development transaction fees. The underlying figures for the period ended 28 January 2017 are the reported figures before exceptional items as disclosed in the consolidated income statement. Capital expenditure is a non-GAAP measure and defined as the cash purchases of property, plant and equipment as disclosed in the consolidated cash flow statement. Carbonates gross margin is a non-GAAP measure calculated by dividing the gross profit for carbonates by the revenue for carbonates using the values disclosed in the segment reporting note. EBITDA is a non-GAAP measure defined as operating profit before exceptional items, depreciation and amortisation. It is reconciled in the free cash flow statement. EBITDA margin is a non-GAAP measure and calculated as EBITDA divided by revenue. EBITDA to free cash flow conversion is a non-GAAP measure and calculated as free cash flow divided by EBITDA. Expansionary capex is a non-GAAP measure and is defined as the purchase of property, plant and equipment that is not the normal replacement of property, plant and equipment that has come to the end of its useful life. Maintenance capex is a non-GAAP measure and is defined as the purchase of property, plant and equipment that is the normal replacement of property, plant and equipment that has come to the end of its useful life. Expansionary capex and maintenance capex add together to the value of purchase of property, plant and equipment that appears in the consolidated cash flow statement. Free cash flow is a non-GAAP measure and is defined as the net cash flow as per the cash flow statement excluding the movements in borrowings, expansionary capex, the net cash flow on the purchase and sale of shares by employee benefit trusts, dividend payments and non-cash exceptional items. Full year dividend per share is a non-GAAP measure calculated as the sum of all interim dividends declared during the reporting period plus any proposed dividend payable in respect of that reporting period. Gross margin is a non-GAAP measure calculated by dividing gross profit by revenue. Market capitalisation is a non-GAAP measure and defined as the closing share price at the end of a reporting period multiplied by the number of issued and fully paid shares of the Company. Net asset growth is a non-GAAP measure and defined as the increase in net assets from one reporting period to another. Net assets is a non-GAAP measure and defined as total assets less current liabilities less non-current liabilities. Operating margin is a non-GAAP measure calculated by dividing operating profit by revenue. Operating margin before exceptional items is a non-GAAP measure calculated by dividing operating profit before exceptional items by revenue. Operating profit before exceptional items is a non-GAAP measure calculated as operating profit less any exceptional items. This figure appears on the income statement. Profit before tax and exceptional items is a non-GAAP measure calculated as profit before tax less any exceptional items. This figure appears on the income statement. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts131 Revenue (underlying basis) adjusts the reported revenue for the 53 weeks ended 30 January 2016 by the revenue in the final week and non-recurring revenue related to the terminated Orangina franchise, to provide a comparable 52 week period. Revenue growth is a non-GAAP measure calculated as the difference in revenue between two reporting periods divided by the revenue of the earlier reporting period. ROCE is a non-GAAP measure and defined as operating profit before exceptional items as a percentage of invested capital. Invested capital is a non-GAAP measure defined as period end non-current plus current assets less current liabilities excluding all balances relating to any provisions, financial instruments, interest-bearing liabilities and cash or cash equivalents. Reconciliation of underlying measures 52 weeks to 28 January 2017 2016/17 as reported 52 week period ended 28 January 2017 Exceptional items Underlying 53 weeks to 30 January 2016 2015/16 as reported 53 week period ended 30 January 2016 Week 53 Orangina franchise Corporate development Underlying Reconciliations of non-GAAP measures Free cash flow Net increase/(decrease) in cash and cash equivalents Expansionary capex* Dividends Acquisition of subsidiary (net of cash acquired) Acquisition of intangible assets Purchase of Company shares by employee benefit trusts Proceeds from disposal of Company shares by employee benefit trusts New loans received Loans repaid Bank arrangement fees paid Free cash flow Revenue £m Gross profit £m Operating profit £m Profit before tax £m 257.1 120.7 – – 257.1 120.7 43.8 (0.7) 43.1 43.1 (0.7) 42.4 Revenue £m Gross profit £m Operating profit £m Profit before tax £m 258.6 (4.2) (1.2) – 121.1 (2.2) (0.3) – 42.1 (2.2) (0.3) 0.8 41.3 (2.2) (0.3) 0.8 253.2 118.6 40.4 39.6 2016/17 2015/16 £m £m 3.5 6.9 15.6 – – 1.0 (1.3) (25.5) 43.0 – (19.1) 12.9 14.3 15.7 4.8 5.1 (3.1) (34.0) 31.5 0.1 43.2 28.2 A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance132 Glossary continued Reconciliations of non-GAAP measures continued ROCE Profit before tax Exceptional items Profit before tax and exceptional items Intangible assets Property, plant and equipment Inventories Trade and other receivables Current tax Assets held for sale Trade and other payables Capital employed ROCE 2016/17 2015/16 43.1 (0.7) 42.4 106.0 89.4 17.3 51.4 (2.7) 1.3 (52.3) 210.4 41.3 – 41.3 107.5 85.3 15.6 52.7 (3.6) – (37.4) 220.1 20.2% 18.8% A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsNotice of Annual General Meeting 133 THE FOLLOWING INFORMATION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to any matter referred to in this report or as to the action you should take, you should seek your own personal financial advice from: (i) a stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom; or (ii) another appropriately authorised independent financial adviser if you are not resident in the United Kingdom. If you have sold or otherwise transferred all of your shares in A.G. BARR p.l.c., please pass this report, together with the accompanying documents, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares. Notice is hereby given that the one hundred and thirteenth annual general meeting of A.G. BARR p.l.c. (the “Company”) will be held at the offices of Deloitte LLP, 110 Queen Street, Glasgow, G1 3BX on Wednesday 31 May 2017 at 11.00 a.m. to consider and, if thought fit, pass the resolutions set out below. Resolutions 1 to 15 (inclusive) will be proposed as ordinary resolutions and Resolutions 16 and 17 will be proposed as special resolutions. 1. To receive and approve the audited accounts of the Group and the Company for the year ended 28 January 2017 together with the directors’ and auditor’s reports thereon. 2. To approve the directors’ remuneration policy set out on pages 52 to 63 of the Company’s annual report and accounts for the year ended 28 January 2017. 3. To receive and approve the annual statement by the chairman of the remuneration committee and the Directors’ Remuneration Report as set out on page 51 and pages 51 to 76 of the Company’s annual report and accounts for the year ended 28 January 2017. 4. To declare a final dividend of 10.87 pence per ordinary share of 4 1/6 pence for the year ended 28 January 2017. 5. To re-elect Mr John Ross Nicolson as a director of the Company. 6. To re-elect Mr Roger Alexander White as a director of the Company. 7. To re-elect Mr Stuart Lorimer as a director of the Company. 8. To re-elect Mr Jonathan David Kemp as a director of the Company. 9. To re-elect Mr Andrew Lewis Memmott as a director of the Company. 10. To re-elect Mr William Robin Graham Barr as a director of the Company. 11. To re-elect Mr Martin Andrew Griffiths as a director of the Company. 12. To re-elect Ms Pamela Powell as a director of the Company. 13. To re-elect Mr David James Ritchie as a director of the Company. 14. To appoint Deloitte LLP as the Company’s auditor, to hold office until the conclusion of the next general meeting at which accounts are laid, and to authorise the audit committee of the board of directors of the Company to fix their remuneration. 15. THAT the board of directors of the Company (the “Board”) be and it is hereby generally and unconditionally authorised pursuant to and in accordance with section 551 of the Companies Act 2006 (the “2006 Act”) to exercise all the powers of the Company to allot shares in the capital of the Company and to grant rights to subscribe for or to convert any security into shares in the Company: (a) up to an aggregate nominal amount of £1,621,788.50; and (b) up to a further aggregate nominal amount of £1,621,788.50 provided that: (i) they are equity securities (within the meaning of section 560 of the 2006 Act); and (ii) they are offered by way of a rights issue in favour of the holders of shares (excluding the Company in its capacity as a holder of treasury shares) on the register of members of the Company on a date fixed by the Board where the equity securities respectively attributable to the interests of such A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance134 Notice of Annual General Meeting continued holders are proportionate (as nearly as practicable) to the respective numbers of shares held by them on that date subject to such exclusions or other arrangements as the Board deem necessary or expedient to deal with: (a) equity securities representing fractional entitlements; (b) treasury shares; or (c) legal or practical problems arising in any overseas territory, the requirements of any regulatory body or any stock exchange or any other matter whatsoever, provided that this authority shall expire on the earlier of 27 July 2018 and the conclusion of the next annual general meeting of the Company after the passing of this resolution, save that the Company may before such expiry make an offer or enter into an agreement which would or might require shares to be allotted, or rights to subscribe for or to convert securities into shares to be granted, after such expiry and the Board may allot shares or grant such rights in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. 16. THAT, subject to the passing of resolution 15 set out in the notice of the annual general meeting of the Company convened for 31 May 2017 (“Resolution 15”), the board of directors of the Company (the “Board”) be and is hereby generally empowered, pursuant to sections 570 and 573 of the Companies Act 2006 (the “2006 Act”), to allot equity securities (within the meaning of section 560 of the 2006 Act) (including the grant of rights to subscribe for, or to convert any securities into, ordinary shares of 4 1/6 pence each in the capital of the Company (“Ordinary Shares”)), wholly for cash either pursuant to the authority conferred on them by Resolution 15 or by way of a sale of treasury shares (within the meaning of section 560(3) of the 2006 Act) as if section 561(1) of the 2006 Act did not apply to any such allotment or sale, provided that this power shall be limited to: (a) the allotment of equity securities, for cash, in connection with a rights issue, open offer or other pre-emptive offer in favour of holders of Ordinary Shares (excluding the Company in its capacity as a holder of treasury shares) on the register of members of the Company on a date fixed by the Board where the equity securities respectively attributable to the interests of such holders are proportionate (as nearly as practicable) to the respective numbers of Ordinary Shares held by them on that date subject to such exclusions or other arrangements in connection with the rights issue, open offer or other offer as the Board deem necessary or expedient to deal with: (i) equity securities representing fractional entitlements; (ii) treasury shares; or (iii) legal or practical problems arising in any overseas territory, the requirements of any regulatory body or any stock exchange or any other matter whatsoever; and (b) the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £243,268.00. provided that this authority shall expire on the earlier of 27 July 2018 and the conclusion of the next annual general meeting of the Company after the passing of this resolution, save that the Company may before such expiry make an offer or enter into an agreement which would or might require equity securities to be allotted after the expiry of this authority and the Board may allot equity securities pursuant to such an offer or agreement as if the authority conferred hereby had not expired. 17. THAT the Company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Companies Act 2006 (the “2006 Act”) to make one or more market purchases (within the meaning of section 693(4) of the 2006 Act) of ordinary shares of 4 1/6 pence each in the capital of the Company (“Ordinary Shares”), on such terms and in such manner that the directors think fit, provided that: (a) the maximum aggregate number of Ordinary Shares hereby authorised to be purchased shall be 11,676,877; (b) the maximum price (exclusive of expenses) which may be paid for an Ordinary Share is an amount equal to the higher of: (i) 105% of the average of the middle market quotations for an Ordinary Share as derived from the London Stock Exchange Daily Official List for the five dealing days immediately preceding the day on which the Ordinary Share is purchased; and (ii) the higher of the price of the last independent trade of an Ordinary Share and the highest current independent bid for an Ordinary Share on the trading venue where the purchase is carried out; (c) the minimum price which may be paid for an Ordinary Share is an amount equal to its nominal value (in each case exclusive of associated expenses); (d) unless previously renewed, varied or revoked, the authority hereby conferred shall expire on the earlier of 27 July 2018 and the conclusion of the next annual general meeting of the Company after the passing of this resolution, but a contract to purchase Ordinary Shares may be made before such expiry which will or may be completed wholly or partly thereafter, and a purchase of Ordinary Shares may be made in pursuance of any such contract; and A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts (e) an Ordinary Share so purchased shall be cancelled or, if the directors so determine and subject to the provisions of applicable laws or regulations of the Financial Conduct Authority, held as a treasury share. 135 By order of the Board Julie A. Barr Company Secretary 27 April 2017 Registered Office A.G. BARR p.l.c. Westfield House 4 Mollins Road Cumbernauld G68 9HD Registered in Scotland SC005653 Shareholders should also read the notes to this Notice of Annual General Meeting which are set out on pages 136 to 141 of this report. Those notes provide further information about shareholders’ entitlement to attend, speak and vote at the Annual General Meeting (or appoint another person to do so on their behalf). A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance 136 Notice of Annual General Meeting continued Explanatory Notes The following notes provide an explanation of the resolutions to be considered at the one hundred and thirteenth annual general meeting (the “AGM”) of A.G. BARR p.l.c. (the “Company”). Resolutions 1 to 15 (inclusive) will be proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than half of the votes cast must be in favour of the resolution. Resolutions 16 and 17 will be proposed as special resolutions. This means that for each of those resolutions to be passed, at least three-quarters of the votes cast must be in favour of the resolution. Resolution 1 – Receive and approve the reports and accounts Shareholders are being asked to receive and approve the audited accounts of the Group and the Company (as audited by KPMG LLP) for the year ended 28 January 2017 together with the associated reports of the directors and auditor. Resolutions 2 and 3 – Directors’ remuneration The directors’ remuneration report is now divided into three parts: the annual statement by the chairman of the remuneration committee, the directors’ remuneration policy and the Directors’ Remuneration Report. – The annual statement by the chairman of the remuneration committee (which is set out on page 51 of this report) provides a summary of the directors’ remuneration policy and the Directors’ Remuneration Report. – The directors’ remuneration policy (which is set out on pages 52 to 63 of this report) sets out the Company’s future policy on directors’ remuneration. – The Directors’ Remuneration Report (which is set out on pages 51 to 76 of this report) gives details of the payments and share awards made to the directors in connection with their and the Company’s performance during the year ended 28 January 2017. It also details how the Company’s policy on directors’ remuneration will be operated in 2017. Resolution 2 invites shareholders to approve the directors’ remuneration policy. This is a binding policy and, after it takes effect, the directors will not be entitled to remuneration unless such remuneration is consistent with the approved policy or shareholders otherwise approve the remuneration. If Resolution 2 is approved, the policy will take effect from the conclusion of the AGM. Shareholders will be given a binding vote on the directors’ remuneration policy at least every three years. Resolution 3 invites shareholders to approve the annual statement by the chairman of the remuneration committee and the Directors’ Remuneration Report (other than the directors’ remuneration policy) for the year ended 28 January 2017. Resolution 3 is an advisory vote and will not affect the way in which the Company’s pay policy has been implemented. Each year, shareholders will be given an advisory vote on the implementation of the directors’ remuneration policy in relation to the payments and share awards made to directors during the year under review. Resolution 4 – Final dividend Shareholders are being asked to approve a final dividend of 10.87 pence per ordinary share of 4 1/6 pence for the year ended 28 January 2017. If shareholders approve the recommended final dividend, it will be paid on 9 June 2017 to all shareholders on the Company’s register of members on 12 May 2017. Resolutions 5 to 13 inclusive – Re-election of directors The board of directors of the Company (the “Board”) complies with the provisions of the UK Corporate Governance Code whereby all directors are subject to annual re-election. Accordingly, all directors of the Company are retiring and offering themselves for re-election. Biographical details of the directors are set out on pages 36 and 37 of this report. The Board has confirmed that, following formal performance evaluation, all of the directors continue to perform effectively and demonstrate commitment to their roles. The Board therefore unanimously recommends the proposed re-election of the directors. Resolution 14 – Appointment of auditor The Company is required to appoint an auditor at each general meeting at which accounts are presented to shareholders. Following a competitive tender process, the Board recommends that Deloitte LLP is appointed as the Company’s new auditor for the financial year commencing 29 January 2017. More information in respect of the audit tender can be found in the Audit Committee report on page 50 of this report. In accordance with the Companies Act 2006, KPMG LLP has provided a “Statement of Circumstances” in connection with their resignation from office, which is set out on page 142. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts137 Resolution 15 – Authority to allot shares The directors may not allot shares in the Company unless authorised to do so by shareholders in general meeting. Sub- paragraph (a) of Resolution 15, if passed, will authorise the directors to allot shares having an aggregate nominal value of up to £1,621,788.50, representing approximately one third of the Company’s issued share capital as at 26 April 2017 (being the latest practicable date prior to the publication of this report). The directors have no present intention to exercise this authority. In line with guidance issued by the Investment Association, sub-paragraph (b) of Resolution 15, if passed, will authorise the directors to allot additional shares in connection with a rights issue having an aggregate nominal value of up to £1,621,788.50, representing approximately one third of the Company’s issued share capital as at 26 April 2017 (being the latest practicable date prior to the publication of this report). The directors have no present intention to exercise the authority sought under sub-paragraph (b) of Resolution 15. However, if such authority is obtained, it will give the Company greater flexibility to allot additional shares for the purpose of a pre-emptive rights issue. This authority will be used when the directors consider it to be in the best interests of shareholders. The authorities sought under Resolution 15 will expire on the earlier of 27 July 2018 (being the latest date by which the Company must hold its annual general meeting in 2018) and the conclusion of the annual general meeting of the Company held in 2018. Resolution 16 – Disapplication of statutory pre-emption rights If the directors wish to allot new shares for cash, the Companies Act 2006 states that the shares must be offered first to existing shareholders in proportion to their existing shareholdings. For legal, regulatory and practical reasons, it might not be possible or desirable for shares allotted by means of a pre-emptive offer to be offered to certain shareholders, particularly those resident overseas. Furthermore, it might, in some circumstances, be in the Company’s interests for the directors to be able to allot some shares for cash without having to offer them first to existing shareholders. To enable this to be done, shareholders’ statutory pre-emption rights must be disapplied. Accordingly, Resolution 16, if passed, will empower the directors to allot a limited number of new equity securities without shareholders’ statutory pre-emption rights applying to such allotment. The authority conferred by Resolution 16 would also cover the sale of treasury shares for cash. Sub-paragraph (a) of Resolution 16 would confer authority on the directors to make any arrangements which may be necessary to deal with any legal, regulatory or practical problems arising on a rights issue, an open offer or any other pre-emptive offer in favour of ordinary shareholders, for example, by excluding certain overseas shareholders from such issue or offer. Sub-paragraph (b) of Resolution 16 would disapply shareholders’ statutory pre-emption rights by empowering the directors to allot equity securities for cash on a non pre-emptive basis but only new equity securities having a maximum aggregate nominal value of £243,268.00, representing approximately 5% of the Company’s issued share capital as at 26 April 2017 (being the latest practicable date prior to the publication of this report). The authority sought under Resolution 16 will expire on the earlier of 27 July 2018 (being the latest date by which the Company must hold an annual general meeting in 2018) and the conclusion of the annual general meeting of the Company held in 2018. Resolution 17 – Purchase of own shares The Companies Act 2006 permits a company to purchase its own shares provided the purchase has been authorised by shareholders in general meeting. Resolution 17, if passed, would give the Company the authority to purchase any of its own issued ordinary shares at a price of not less than an amount equal to the nominal value of an ordinary share and not more than the higher of: (i) 5% above the average of the middle market quotations of the Company’s ordinary shares as derived from the London Stock Exchange Daily Official List for the five dealing days before any purchase is made; and (ii) the higher of the last independent trade of an Ordinary Share and the highest current independent bid for an Ordinary Share on the trading venue where the purchase is carried out. The authority will enable the purchase of up to a maximum of 11,676,877 ordinary shares, representing 10% of the Company’s issued ordinary share capital as at the date of the AGM, and will expire on the earlier of 27 July 2018 (being the latest date by which the Company must hold an annual general meeting in 2018) and the conclusion of the annual general meeting of the Company held in 2018. On 28 March 2017, the Company announced that the Board has decided to return up to £30 million to shareholders via an on-market share repurchase programme. Accordingly, the directors intend to use the authority granted by this resolution to make market purchases of the Company’s ordinary shares under the repurchase programme. The directors will only exercise the authority to purchase ordinary shares where they consider that such purchases will be in the best interests of shareholders A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance138 Notice of Annual General Meeting continued generally and will result in an increase in earnings per ordinary share. Purchases are expected to be financed out of distributable profits and shares purchased will either be cancelled (and the number of shares in issue reduced accordingly) or held as treasury shares. The Company operates two share option schemes under which awards may be satisfied by the allotment or transfer of ordinary shares to a scheme participant. However, in practice, the Company has always satisfied awards to participants by the transfer of ordinary shares from the trustee of each of the schemes. As at 1 April 2017 (being the latest practicable date prior to the publication of this report), options had been granted over 1,158,143 ordinary shares (the “Option Shares”) representing approximately 0.99% of the Company’s issued share capital at that date. If the authority to purchase the Company’s ordinary shares (as described in Resolution 17 were exercised in full, the Option Shares would have represented approximately 1.10% of the Company’s issued share capital as at 1 April 2017. As at 1 April 2017, the Company did not hold any treasury shares. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts139 Notes 1. Attending the annual general meeting (the “AGM”) in person If you wish to attend the AGM in person, you should arrive at the venue for the AGM in good time to allow your attendance to be registered. It is advisable to have some form of identification with you as you may be asked to provide evidence of your identity to the Company’s registrar, Equiniti Limited (the “Registrar”), prior to being admitted to the AGM. 2. Appointment of proxies Members are entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote at the AGM. A proxy need not be a member of the Company but must attend the AGM to represent a member. To be validly appointed, a proxy must be appointed using the procedures set out in these notes and in the notes to the accompanying proxy form. If a member wishes a proxy to speak on their behalf at the AGM, the member will need to appoint their own choice of proxy (not the Chairman of the AGM) and give their instructions directly to them. Such an appointment can be made using the proxy form accompanying this notice of AGM or through CREST. Members can only appoint more than one proxy where each proxy is appointed to exercise rights attached to different shares. Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). If a member wishes to appoint more than one proxy, they should contact the Registrar at Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 6DA. A member may instruct their proxy to abstain from voting on a particular resolution to be considered at the AGM by marking the “Withheld” option in relation to that particular resolution when appointing their proxy. It should be noted that an abstention is not a vote in law and will not be counted in the calculation of the proportion of votes “For” or “Against” the resolution. The appointment of a proxy will not prevent a member from attending the AGM and voting in person if he or she wishes. A person who is not a member of the Company but who has been nominated by a member to enjoy information rights does not have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below. 3. Appointment of a proxy using a proxy form A proxy form for use in connection with the AGM is enclosed. To be valid, any proxy form or other instrument appointing a proxy, together with any power of attorney or other authority under which it is signed or a certified copy thereof, must be received by post or (during normal business hours only) by hand by the Registrar at Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 6DA at least 48 hours before the time of the AGM or any adjournment of that meeting. If you do not have a proxy form and believe that you should have one, or you require additional proxy forms, please contact the Registrar at Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 6DA. 4. Appointment of a proxy through CREST CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual and by logging on to: www.euroclear.com. CREST personal members or other CREST sponsored members and those CREST members who have appointed (a) voting service provider(s) should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the Registrar (ID RA19) no later than 48 hours before the time of the AGM or any adjournment of that meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance 140 Notice of Annual General Meeting continued CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed (a) voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this regard, CREST members and, where applicable, their CREST sponsors or voting system provider(s) are referred to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 5. Appointment of a proxy by joint holders In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first named being the most senior). 6. Corporate representatives Any corporation which is a member can appoint one or more corporate representatives. Members can only appoint more than one corporate representative where each corporate representative is appointed to exercise rights attached to different shares. Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s). 7. Entitlement to attend and vote To be entitled to attend and vote at the AGM (and for the purpose of determining the votes they may cast), members must be registered in the Company’s register of members at 6.30 p.m. on Monday 29 May 2017 (or, if the AGM is adjourned, at 6.30 p.m. on the day two days prior to the adjourned meeting). Any changes to the Company’s register of members after the relevant deadline will be disregarded in determining the rights of any person to attend and vote at the AGM. 8. Nominated persons Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 (the “2006 Act”) to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her and the member by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights. 9. Website giving information regarding the AGM Information regarding the AGM, including information required by section 311A of the 2006 Act, and a copy of this notice of AGM is available from www.agbarr.co.uk. 10. Audit concerns Members should note that it is possible that, pursuant to requests made by members of the Company under section 527 of the 2006 Act, the Company may be required to publish on a website a statement setting out any matter relating to: (a) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the AGM; or (b) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the 2006 Act. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the 2006 Act. Where the Company is required to place a statement on a website under section 527 of the 2006 Act, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under section 527 of the 2006 Act to publish on a website. 11. Voting rights As at 26 April 2017 (being the latest practicable date prior to the publication of this notice), the Company’s issued share capital consisted of 116,768,778 ordinary shares of 4 1/6 pence each, carrying one vote each. As at 26 April 2017, the Company did not hold any treasury shares. Therefore, the total voting rights in the Company as at 26 April 2017 were 116,768,778 votes. A.G. BARR p.l.c. Annual Report and Accounts 2017 Accounts 141 12. Notification of shareholdings Any person holding 3% or more of the total voting rights of the Company who appoints a person other than the Chairman of the AGM as his/her proxy will need to ensure that both he/she, and his/her proxy, comply with their respective disclosure obligations under the UK Disclosure Rules and Transparency Rules. 13. Further questions and communication Under section 319A of the 2006 Act, the Company must cause to be answered any question relating to the business being dealt with at the AGM put by a member attending the meeting unless answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, or the answer has already been given on a website in the form of an answer to a question, or it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. Members who have any general queries about the AGM should contact the Company Secretarial Department by email to: companysecretarialdepartment@agbarr.co.uk. Members may not use any electronic address provided in this report or in any related documents (including the accompanying proxy form) to communicate with the Company for any purpose other than those expressly stated. 14. Documents available for inspection The following documents will be available for inspection on the day of the AGM at the offices of Deloitte LLP, 110 Queen Street, Glasgow, G1 3BX from 9.15 a.m. until the conclusion of the AGM: 14.1 copies of the service contracts of the Company’s executive directors; and 14.2 copies of the letters of appointment of the Company’s non-executive directors. A.G. BARR p.l.c. Annual Report and Accounts 2017 AccountsStrategic ReportCorporate Governance 142 Private & confidential The Directors A.G. BARR plc Westfield House 4 Mollins Road Westfield Cumbernauld G68 9HD 14 April 2017 Dear Directors KPMG LLP 319 St Vincent Street Glasgow G2 5AS United Kingdom Tel +44 (0) 141 226 5511 Fax +44 (0) 141 204 1584 Our ref as/mm/gch Statement to A.G. BARR plc (no. SC005653) on ceasing to hold office as auditors pursuant to section 519 of the Companies Act 2006 The reason connected with our ceasing to hold office is the holding of a competitive tender for the audit, in which we were not invited to participate. Yours faithfully KPMG LLP Audit registration number: 9188307 Audit registration address: 15 Canada Square Canary Wharf, London E14 5GL KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Registered in England No OC301540 Registered office: 15 Canada Square, London, E14 5GL For full details of our professional regulation please refer to ‘Regulatory Information’ under ‘About/About KPMG’ at www.kpmg.com/uk Document Classification - KPMG Confidential A.G. BARR p.l.c. Annual Report and Accounts 2017 A.G. BARR p.l.c. Westﬁeld House 4 Mollins Road Cumbernauld G68 9HD 01236 852 400 www.agbarr.co.uk Registered Office Westﬁeld House 4 Mollins Road Cumbernauld G68 9HD Secretary Julie A. Barr, M.A. (Hons.), L.L.B. (Dip.), M.B.A. Auditors KPMG LLP 319 St Vincent Street Glasgow G2 5AS Registrars Equiniti Ltd Aspect House Spencer Road Lancing West Sussex BN99 6DA Registered Number SC005653 agbarr.co.uk A . G . B A R R p . l . c . A n n u a l R e p o r t a n d A c c o u n t s J a n u a r y 2 0 1 7

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