ag._barr-pdf-final.pdf

A.G. Barr PLC (LSE: BAG)

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A.G. BARR (LSE: BAG)Current Market Price: 553.00Fair Price (Conservative): 632Expected Return: 15%Address A.G. Barr PLC

Westfield House,4 Mollins Road, Westfield,Cumbernauld, G68, ScotlandTelephone: +44 1236852400E-mail: [email protected]

Website http://www.agbarr.co.ukExchange London Stock Exchange (LSE)Industry Beverages - Soft DrinksMarket Cap 636.4 Mill52 Week Range 346.00-1,245.33Beta 0.52Price/Book 5.1Price/Earnings (Forward) 19.4Price/Earnings 17.7

Fundamental Analysis

INDUSTRY ANALYSISThe Beverage Industry is a fairly broad sector and includes companies that market nonalcoholic and alcoholic items.Among the two segments the non-alcoholic especially soft drink has played a significant role in changing theeconomics of beverage industry.

The soft drinks market consists of sale of bottled water, carbonates, concentrates, functional drinks, juices, RTD teaand coffee, and smoothies. Strong population growth and higher disposable income are key factors to the growth ofthe industry and prosperity. Despite the slowdown of the economy the industry has witnessed sharp growth in thepast few years with an expectation to reach $1,347 billion by 2017 with a 4.6 percent CAGR over 2012-2017.

The soft drink industry seems to have matured in the developed countries compelling companies to diversify theirproduct. Companies are finding new ways to combat the declining domestic market by focusing on exports to keypartner nations and emerging markets. The three main players, CocaCola, PepsiCo and Dr. Pepper Snapple Group,account for over 80 percent of the domestic market share.

Recent research shows that consumer expenditure on soft drinks has risen by $138bn over the past five years in aglobal market now worth $469bn. Despite economic pressures consumer appetite for soft drink refreshment showslittle signs of slowing.



According to an international research firm the volume of soft drink production is expected to increase 1.4 percentper year to 22.1 billion gallons in 2014. The industry is expected to take a positive turn with an expansion of 27percent by 2015.

While it is anticipated that the demand will soften as consumers become health conscious causing a change in thebehavior. While demand for carbonated soft drinks is slowing, and in certain markets in decline, energy drinks andbottled water are fueling market growth as consumers seek drinks that not only deliver health benefits but also newand exciting formats and flavors.

The global soft drinks industry will continue to straddle two different worlds: the mature developed markets wheregrowth has stagnated and developing markets where previously high growth rates have slowed, but still offer thegreatest upside.



INDUSTRY PEST ANALYSISPolitical

Strict adherence of Food and Drug regulation imposed by the government in everynation.Governments and laws are restricting ads directed towards children. Any changes in the laws and regulations requires the company to change theiroperations and procedures to avoid penalties and fines, or even worse to shut down. Waste management mandates require every companiy to avoid any operations whichcould negatively impact the environment.

Economical

Economic slowdown forced the companies to launched low priced product. Consumers of soft drinks have continued to spend their money frugally over the past fewyears.Cost of raw materials can rise in case of weak econmy. The industry is expected to take a positive turn with an expansion of 27% by 2015.

Social

Culture and lifestyle is one of the key positive driving forces for the Industry. Age is the most important characteristic when evaluating consumer choice, the oldergeneration is more health conscious and tends to consider nutritional factors.About one-third of Americans are considered obese and studies have shown a linkbetween soft drink consumption and obesity Social media is one of the best platforms to keep the consumers connected with thebrands.

Technological

Technology is one of the key driving forces for the industryNew tech advancement in manufacturing and quality improvement concepts areimproving operations efficiency.High product volume requires high levels of automation and advanced technologies inmanufacturing.Technological advancement can enhance the supply chain and cut the distributioncosts.High costs for new technology can be a barrier to entry for new competitors.



Key Revenue growth drivers of A.G. Barr PLCA.G. BARR has delivered a strong financial performance in the last fiscal despite challenging markets. The businesshas continued to focus on delivering the basics well. The efforts have driven strong revenue and volume growth andhave continued to build its market share across the soft drink industry. The key revenue drivers of the company aredesigned to deliver long term sustainable growth in value and continues to focus on

Brands

The companys core group brands together with its franchise brand Rockstar, delivered total growth of 8.6percent. The highest selling brand, IRN-BRU sales grew by 1.4 percent, with a strong second half growth of almost 5percent. IRN-BRU is expected to grow in both Scotland and England despite the competition in the key take homechannel and difficult weather conditions across the year.

The other major brand is Barr, which showed strong growth by 13 percent throughout the year. Early 2013 adcampaigns and TV advertising should help the Barr brand grow and develop as a key part of consumers purchaserepertoire specifically in Scotland and increasingly in the rest of the U.K.

The launch of the new brands Love the Exotic and PET Rubicon pack targeting on the go" consumers delivered astrong second half growth performance of 21.3 percent. Company is enormously spending in the marketing of theirnewly launched brands to position itself in the market.

Market

The companys Scottish market grew by 4 percent, and the rest of the U.K. grew by 12 percent, reflecting both thesignificant future growth opportunities and the relatively modest share of this geography currently enjoyed by thecompanys brands. The company is relentlessly focus on developing and improving the execution capabilities acrosseach route to untapped market around Europe and other developing nations. It is constantly engaged in improvingthe quality and commitment of the business to build long term profitable customer relationships.

Partnerships

Companys key partnership brand in 2012 has been strong, building on long term relationships and excellence inmarketplace execution. Brand partners like Rockstar has helped the company growth 10p percent, reflecting theconsumer acceptance of a strong mix of brand affinity and product acceptability.

The Orangina brand strategy is now well positioned following several years of re-alignment, moving from a volumebased strategy to the current successful value based approach which reflects the brands quality niche positioning.Last year, Orangina outperformed the soft drinks market and grew revenues by a solid 6 percent. The outcome of thiseffective partnership will allow the company to develop as a stronger core offering to international markets and tosuccessfully accelerate growth in the future.

Innovation



Innovation is one of the key drivers of growth in this sector. For A.G.Barr, innovation played an important role across2012 in growing its business. The launch of Rubicon into the frozen category in 2012 was an exciting development forthe brand in the ice cream market. The sale of Rubicon is expected to grow in this sector across 2013, despitechallenging conditions in the ice cream sector.

Innovation across all of other core brands will continue to play a key role in the growth of the business by developingand building the brands to meet constantly evolving consumer needs.

SWOT ANALYSIS OF A.G. BARR PLC

Strength

Strong brand position acrossScotland, labeled as othernational drink

Specialized in different flavorsand packages.

Low cost product. Strong distribution channels

to route key markets.. Active participation in major

events such as 2012 London

Weaknesses

Poor personnel managementdue to recent acquisitions.

Poor working conditions andtraining program.

Weak economy raises the costof raw materials and chanceof currency volatility.

No alternatives offered forincreasing health conscioussegments.

Opportunities

Expansion of market across UK. Diversify into tea and coffee

segments. Opportunity to enter more

government sponsored eventsfor wide recognition of brands.

Rising demand of Health andenergy drinks offers anotherhuge market across USA.

Enter into developing countrieslike India and Brazil.

Threats

Health issues among theconsumers.

Environmental threats due toimproper waste management.

Increasing distribution costs.



COMPANY ANALYSISA.G. Barr soft drink, headquartered in Cumbernauld, UK has been making and selling soft drinks for over 130 years.The company has successfully developed its business through developing its range of brands in soft drinks and fruitjuice. The major brand includes IRN-BRU, Tizer, D'N'B, KA, Barr flavor range, Barr's Originals, Red Kola etc.

IRN-BRU was voted the Best Brand of the last 21 years at the 2007 Scottish Advertising Awards Ceremony inGlasgow.

A.G. BARR has continued to grow in terms of revenue, volume and profit despite a difficult marketplace andbackground of rising input costs. The company has grown in revenue and volume well ahead of the U.K. soft drinksmarket.

The business performance was particularly pleasing in the second half of the FY2012, with double digit revenuegrowth leading to full year sales of 237.6m, an increase of 6.6 percent compared to the previous year. The companyhas continued to build upon its strong financial base leveraging its capacity for growth for the year ended Jan 2013.The firm witnessed an EBT increase by 4.3 percent to 35.0m compared to previous fiscal year.

The company has delivered growth across both the carbonated and still drinks segments. Overall turnover increasedby 14.7m (6.6 percent), driven by strong growth in volume which increased by 5.6%.

The other brands of the company outperformed the market despite challenging conditions of the UK market.

IRN-BRU sales grew by 1.4%, with a strong second half growth of almost 5%. KA delivered a strong second half growth performance of 21.3%, with full year growth of over 7%. Barr brands grew by over 13% across the year, benefiting from both new packaging and a highly relevant

value positioning in the market. Partner brands like Orangina outperformed the soft drinks market and grew revenue by a solid 6%. The Rockstar brand has almost doubled in the period, benefiting from market growth of 10%

The companys balance sheet has strengthened over the last year; its net assets increasing to 130.6m and the capitalexpenditure associated with building new production and distribution facility has driven an increase in property,plant and equipment of 14.6m.

The Return on capital employed (ROCE) has remained strong at 20.6 percent, reducing slightly from the reportedposition last year (22.8 percent) due to the inclusion of 17m of assets relating to Milton Keynes. Capital expenditureis anticipated to remain at similar levels as in 2012.

A free cash flow of 22.0m was generated in the period, representing an increase of 6.1m on the prior year. Shareswith a net value of 0.3m were purchased on behalf of various employee benefit trusts to satisfy the ongoingrequirements of the Group?s employee share schemes. The tax charge of 6.3m is 1.0m lower than the total chargefor the prior year and represents an effective tax rate of 19.7 percent.



The company merged with Britvic Plc and managed to become one of the leading soft drinks companies in Europe,with a strong portfolio of market leading brands. It offers an opportunity for both companies to enhance theirindustry position, and achieve significant synergies and shareholder value.

The company remains committed to its strategy of building brands for the long term and will continue to ensurehaving an efficient asset base capable of supporting the companys future growth ambitions. The company isimproving its operating performance across its existing asset base and investment in new operational capacity at theCrossley site in Milton Keynes is also making excellent progress. The U.K. economic outlook remains challenging.

However, A.G Barr seems quite optimistic and believes its future prospects are excellent. Overall, the business iswell positioned to deliver long term value for its shareholders. The balance sheet and finances are strong and willcontinue to deliver growth across the brands through the implementation of 2013/14 operating plans.

Key DataYear endedJan 13 Millions

Year endedJan 12 Millions

Year endedJan 11 Millions

Revenue 237 222 201Earnings pershare (Basic)

0.24 0.20 0.16Book Value PerShare

1.09 1.00 0.86Operating Margin

14.9% 14.2% 13.1%Return on Equity 23.10% 20.80% 18.58%Return on Assets 14.13% 11.46% 9.48%Net Margin 11.88% 10.16% 8.91%Asset Turnover 1.19 1.13 1.06Leverage 1.55 1.73 1.91

DUPONT ANALYSISROE=Net Profit Margin x Total Asset Turnover x Leverage

The firms revenue have significantly increased by 6.7 percent in FY2012 compared to FY2011resulting in rise of EPSand eventually ROE. As mentioned above EPS rose by 0.2 percent and return on equity by 11.05 percent in FY2012compared to FY2011.

The company has witnessed a significant growth in ROA in fiscal year 2012 compared to previous year. The netmargin is up 11.88 percent in FY2012 compared to 10.16 percent in FY2011. Asset turnover has increased slightlyevidencing efficient operations of the company.



The companys leverage dropped in the FY2012 compared to FY2011. The trend clearly allows the investor to expect apositive growth of the stock in near future and days ahead.

Important Highlights FY 2012

Financial Highlights

The companys revenue increased by 6.7% from 222m (FY2011) to 237m (FY2012)

EBITDA (pre exceptional items) of 41.7m was generated in the period, representing an EBITDA margin of 17.6%.

EBIT figures in FY2012 up by 4.3% ( 35.00 Million) from previous fiscal year.

The tax charge of 6.3m lower than the total charge for the prior year representing an effective tax rate of 19.7%, areduction of 80 basis points from the prior year.

Earnings per share basic also increased 24.7 in FY2012 from 22 representing an increase of 10.9% on the prioryear.

The firms balance sheet has strengthened, with net assets increasing to 130.6m.

Return on capital employed has remained strong at 20.6%, reducing slightly from the reported position last year(22.8%).

A free cash flow of 22.0m was generated in the period, representing an increase of 6.1m on the prior year.

Operational Highlights

Total operating expenses increased to 76 million in FY 2012 from 68 million reported in the same period ofprevious fiscal.

Capex reached 21 Million in FY2012 compared to 6 million in FY2011 due to mergers and new construction ofoperational sites.

Net debt reduced to 6.7M.

Net margin decreased by 21% in FY2012 compared to FY2011.

Dividends paid per share in FY2012 increased by 7.6% over the prior year.

RELATIVE VALUATIONIndustry

BAG COCACOLA

NICL NRX OLVAS SPA



(Data Source: www.morningstar.com)

A.G. Barr Plc is one of the leading company in soft drink and juice market after Coca Cola. The company has seenconsiderably grown in the past few years bagging one of the bestselling brands in UK and Scotland.

MarketCap

$ 2802Million

636Million

$8,235Million

324Million

461.1Million

- 278.1Million

Revenue(2011)

- 237Million

8,062Million

$108

Million

254Million

285

Million

197Million

Price/Earnin

gs TTM- 17.7 16.9 22.9 31.2 18.6 38.5

Price/Book - 5.1 3.9 8.4 1.9 2.9 2.9Price/Sales

TTM- 2.0 1.4 3.1 1.7 1.4 1.4

Rev Growth(3 Yr Avg)

- 11.8 7.4 20.7 39.6 8.7 -1.7

EPS Growth(3 Yr Avg)

- 18.3 9.8 64.9 18.4 2.1 -

OperatingMargin %

TTM- 14.0 11.5 18.5 11.1 9.0 4.8

Net Margin% TTM

- 11.2 8.4 13.7 5.5 7.4 3.7

ROE TTM - 22.4 24.2 40.0 7.0 17.1 7.8Debt/Equity - - 1.1 - 0.4 0.3 -Price/Earnin

gs- 17.7 16.9 22.9 31.3 18.6 38.5

Price/Book - 5.1 3.9 8.4 1.9 2.9 2.9

Price/Sales - 2.0 1.4 3.1 1.7 1.4 1.4

Price/CashFlow

- 24.9 12.1 21.7 37.2 7.7 41.2

DividendYield %

- 1.8 1.8 2.0 0.2 2.0 0.9



Despite economic challenges company has witnessed excellent turnover, volume and profit growth. The group hasdelivered performance ahead of a robust soft drinks market, increasing market penetration and continuing to buildbrand equity. Looking at the trend of the industry and figures, the company should continue to outperform.

FAIR PRICE CALCULATIONPROFIT AND LOSS ESTIMATESFiscal year ends in January. Pounds in thousandsexcept per share data.

Projected

Full Year 2013

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Conservative OptimisticRevenues 141,876 148,377 169,698 201,410 222,366 236,998 237,595 262,169 262,169

Costs and ExpensesCost of revenue 71,453 76,068 84,962 98,153 107,987 118,253 129,591 132,370 130,812Depreciation and amortization 5,814 6,901 7,358 7,885 7,717 7,301 6,772 9,888 8,076Total Operating Expenses 46,275 45,019 54,194 69,044 75,124 76,219 69,444 84,023 84,314Exceptional Item 2,761 468Operating Income(Loss) 15,573 19,921 23,184 26,328 31,538 35,225 31,788 35,888 38,966

Other income (expense) 781 912 25 (1,878) (1,102) 192 34 (57) 212Income before taxes 16,354 20,833 23,209 24,450 30,436 35,417 31,822 35,831 39,179Provision for income taxes 3,163 3,995 6,134 6,502 7,851 7,271 6,258 7,864 8,043Net Income 13,191 16,838 17,075 17,948 22,585 28,146 25,564 27,967 31,135

Net earnings per share:Basic (Pence) 69.95 86.75 89.12 46.84 58.84 73.43 22.06 24.13 26.87Diluted (Pence) 68.15 85.65 88.16 46.49 58.51 73.03 22.04 24.11 26.85

Weighted average sharesBasic 18,939 19,409 19,158 38,318 38,385 38,328 115,884 115,884 115,884Diluted 19,356 19,657 19,368 38,601 38,601 38,542 115,979 115,979 115,979

GROWTH RATES AND COST OF EQUITY CALCULATIONS

AT YEAR END Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13



Total assets118,631 123,699 186,912 191,869 202,174 196,250 214,838

Total Liabilities47,254 38,921 94,247 91,360 85,467 69,230 84,190

Total Stockholders equity71,377 84,778 92,665 100,509 116,707 127,020 130,648

Debt Ratio 0.40 0.31 0.50 0.48 0.42 0.35 0.39Debt/Equity 0.66 0.46 1.02 0.91 0.73 0.55 0.64Return on Assets 11.12% 13.61% 9.14% 9.35% 11.17% 14.34% 11.90%Return on Equity 18.5% 19.9% 18.4% 17.9% 19.4% 22.2% 19.6%

Capital Expenditure13,000 15,000 11,349 5,358 9,840 6,937 21,166

Non Cash Working Capital5,718 13,324 5,616 2,872 8,486 12,645 15,984

Change in Non Cash Working Capital -1,591 7,606 -7,708 -2,744 5,614 4,159 3,339

ROA 11.46%Retention Ratio 70%Debt/equity 0.71Interest rate 6.00%Tax Rate 20%Fundamental Growth Rate 11.3%

Income Growth Rates Forecast High GrowthPeriod

Weight

Analysts (Source) FT.com 14% 0.2Last Year Growth Rate 7% 0.3Fundamental Growth Rate 11% 0.5Weighted Average Forecasted Growth Rates 10.34%

Expected Debt Ratio 0.41

Beta 0.524Risk Free Rate 4.20%Return from Market 13.00% 3 Yr Avg Return

S&P500Cost of equity 9%

FREE CASH FLOW TO EQUITY AND FAIR PRICE CALCULATIONConservativeAll Figures in '000s except per share data High Growth Stable

Year 2013 E 2014 E 2015 E 2016 E 2017 Onwards



Growth in Revenue 10.34% 10.34% 10.34% 10.34% 4.0%Net Sales 262,169 289,285 319,205 352,220 366,309Depreciation 9,888 10,911 12,039 13,284 13,816Net Income 27,967 30,859 34,051 37,573 39,076CAPEX 16,809 18,548 20,466 22,583 23,486Change in Non Cash Working Capital (3,391) 1,303 1,437 1,586 677

Cash Flow to equity 30,045 36,121 39,857 43,979 45,166

Cost of Equity 9% 9% 9% 9% 9%

Terminal value 938,761

Present value of cash flows 27,612 30,508 30,937 644,274

FCFE (In '000) 733,330No of shares (In '000 115,979

Share price per share acc to valuationConservative 632Current Market Price 549Return 15%

OptimisticAll Figures in '000s except per share data High Growth Stable

Year 2013 E 2014 E 2015 E 2016 E 2017 OnwardsGrowth in Revenue 10.34% 10.34% 10.34% 10.34% 4.0%Net Sales 262,169 289,285 319,205 352,220 366,309Depreciation 8,076 10,911 12,039 13,284 13,816Net Income 31,135 30,859 34,051 37,573 39,076CAPEX 16,809 18,548 20,466 22,583 23,486Change in Non Cash Working Capital 1,343 1,303 1,437 1,586 677

Cash Flow to equity 37,065 36,121 39,857 43,979 45,166

Cost of Equity 9% 9% 9% 9% 9%



Terminal value 938,761

Present value of cash flows 34,064 30,508 30,937 644,274

FCFE (In '000) 739,782No of shares (In '000 115,979

Share price per share acc to valuationConservative 638Current Market Price 549Return 16%

ag._barr-pdf-final.pdf

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