47153 AG Barr Annual Report 2025 AW4 SQ WEB - Flipbook - Page 65
Strategic Report
Viability statement
In accordance with provision 31 of the UK Corporate Governance
Code 2024, the directors have assessed the viability of the
Company over a six year period to January 2031, taking account of
the Group’s current financial and market position, future prospects
and the Group’s principal risks, as detailed in the Strategic Report.
The directors have determined that a six year period is an
appropriate time frame given the dynamic nature of the FMCG
sector and given that this is in line with the Group’s strategic
planning period. The starting point for the viability assessment is
the strategic and financial organic growth plan (not including any
M&A activity) which makes assumptions relating to the economic
climate, market growth, input cost inflation and growth from the
Group’s performance drivers. The prospects of the Group have
been taken into account, including the size of the current market,
the strength of the Group’s brands and past production capacity
investment. The model was then subject to a series of theoretical
“stress test” scenarios based on the materialisation of principal
risks, with input from the business functions.
The directors have considered the impact of a number of severe
but plausible scenarios associated with the principal risks, including
those set out in the table below:
The directors also measured the combined impact of two
simultaneous scenarios: a cyberattack on the Company causing
a full business shutdown with no sales for 2 weeks, followed by
a separate major reputational hit to the IRN-BRU brand. It was
deemed most plausible that these two scenarios could occur
at the same time. Finally a reverse “stress test” was performed
allowing the Board to assess circumstances that would render
its business model unviable.
As part of our Task Force on Climate-related Financial Disclosures
(TCFD) the Group has assessed potential financial impacts from
climate change to the business. The financial plan for the Group
includes the best estimate of the impacts of climate change on
financial performance, including material cost inflation, an increase
in climate related regulatory costs, and a change to consumer
behaviour. None of the physical and transition risks which are
considered material to our business would present a risk to viability
over the planning period. These risks are detailed on pages 41 to 42.
Credit facilities
The outputs of these scenario tests were reviewed against the
Group’s current and projected future net cash/debt and liquidity
position. The Group closed the financial year with net cash at
bank* of £63.9m. In addition the Group had £20m of unutilised
Scenario
Estimated Impact
Disruption as a result of cyber-attack, resulting in factories
ceasing production.
No sales across the entire business for two weeks following the attack.
Significant incremental one off costs as a direct result (ransom
amount, repair, rebuild, further protection) amounting to £5m.
Significant adverse damage to one of the Group’s principal brands
(e.g. IRN-BRU).
A sizeable reduction (in the region of 25%) in brand revenue,
recovering to 15% sales loss in year 2, 10% sales loss in year 3
and then back to plan until the end of the viability period.
Significant shifts in consumer preferences and governmental influence
following the introduction of a Deposit Return Scheme (DRS).
The DRS having a greater negative impact on sales volumes
than forecast could lead to a £3m per year reduction in ongoing
profits, from the proposed implementation date until the end of
the viability period.
The impact of a pandemic (e.g. COVID-19), associated restrictions,
and a consequent channel shift and reduction in consumer demand.
A reduction in revenue (in the region of 10%) for one year, to the
extent experienced during the COVID-19 pandemic.
Corporate Governance
Accounts
committed debt facilities, consisting of one revolving credit facility
with one bank. The revolving credit facility has two financial
covenants, relating to interest cover and leverage, and a material
adverse change clause. The facility is set to expire in February 2026
and at this point we have no plans to renew it. The directors believe
the Group could access short-term credit facilities if needed.
Result of stress tests
Under the most severe but plausible combined scenarios above,
and with no cost mitigation, the Group’s liquidity requirements
would be satisfied within existing credit facilities. Should the
financial loss be worse than this scenario assumes, sizable cost
mitigation opportunities, such as a reduction in brand investment,
a reduction in capital investment, a reduction in discretionary
overhead spend, reduced dividend payments, and business
reorganisation, would be available to the Group to further
preserve viability.
The reverse stress test showed that a volume drop significantly
beyond our severe but plausible scenarios, both in depth and
duration, would be required in order to render the business model
unviable. These circumstances are therefore considered implausible.
The results of these tests were reviewed taking into account the
Group’s current position, the Group’s experience of managing
adverse conditions in the past and mitigating actions available
to the Group. Based on this assessment, the directors have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
six year period to January 2031.
The Strategic Report set out on pages 1 to 63 of this annual report
has been approved by the Board.
By order of the Board
Julie A. Barr
Chief Legal and Sustainability Officer
25 March 2025
63
