Final Results - Operating Profit Up 3%

Associated British Foods PLC 8 November 1999 PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 18 SEPTEMBER 1999 FINANCIAL HIGHLIGHTS - Worldwide sales up 3% to £4,308 million - Operating profit up 3% to £326 million * - Return of capital of £448 million by way of a special dividend of 50p per share - Investment income reduced from £119 million to £84 million - Adjusted earnings per share unchanged at 31.7p * - Investment of £412 million in new assets and acquisition of businesses - FRS 11 fixed asset write down of £84 million * before exceptional items and amortisation of goodwill CHAIRMAN'S STATEMENT Shareholders will have read that in early September the chairman, Garry Weston, suffered a mild stroke. It was originally expected that his recovery would be accomplished in a period of several weeks. This is not now the case and, although he is progressing, the Board are advised that Mr Weston's return to health will take several months. I am sure that shareholders will join with me and my fellow directors in forwarding our very best wishes to him for a return to full health. The Board met on 6 September 1999 and it was unanimously agreed that I would fulfil the role of acting chairman for this interim period. I have agreed with my colleagues that I will be available in that role at least until December 2000. At the 1998 annual general meeting Garry Weston announced his intention to separate the roles of chairman and chief executive and the appointment of Peter Jackson as chief executive. Mr Jackson took up his new duties in June this year. John Bason was appointed finance director in May 1999 and the following report is the first to be presented by the new management team. The past year has been one of zero or negative food price inflation in virtually all the markets in which the group operates, both in the UK and overseas. In such an environment it is a considerable achievement that profits of £326 million at the operating level, before exceptional items and amortisation of goodwill, are up by £10 million, an increase of 3 per cent. In the interim report reference was made to the impact of the new FRS11 accounting standard on the carrying value of fixed assets. The charge of £84 million in respect of the resulting reduction in fixed asset carrying values shows an increase of £10 million over the charge included at the half year and has been treated as an exceptional item. In addition, changes to the accounting standard concerning the treatment of goodwill give rise to a further charge of £5 million in respect of the amortisation of capitalised goodwill. Investment income has, in recent years, formed a significant part of group income at the pre-tax level, particularly in 1998 when at £119 million it contributed no less than 30 per cent of pre-tax profit. The current year was notable for a drop in the level of UK short-term interest rates from 7.5 per cent to 5 per cent and this, together with the return of £448 million in cash to shareholders in May 1999 by way of the special dividend, accounted for substantially all of the decline in investment income to £84 million in the current year. Group profit on ordinary activities before taxation, but after charging the above mentioned exceptional item and amortisation of goodwill of £89 million, totalled £300 million. At the post-tax level earnings per share declined from 29.6p to 21.4p but adjusted for exceptional items and amortisation of goodwill earnings per share were level at 31.7p. It has been the consistent policy of the group to write off against the profits of the year the costs of restructuring and reorganising its business activities and meeting the non-recurring exceptional costs of dealing with such extraneous factors as the millennium bug. In total the charge against profit in respect of these costs for the current year amounted to £35 million. Despite the intense pressure on operating margins, group cash flow, before the payment of dividends and acquisition expenditure, remained strongly positive. Capital expenditure of £259 million was the highest in the group's history and investment in new subsidiaries totalled a further £153 million. It has been your Board's strategy in recent years to direct new investment to regions and areas of activity where long-term prospects offer the opportunity for profitable growth. Supported by the group's strong cash flow we have been able to invest in these selected areas both at home and overseas. Whilst we have largely eschewed new investment into the packaged food industry in the United Kingdom we have committed substantial funds in a focus on high added value ingredients and processes for the food and pharmaceutical markets. From this UK base we have built up Abitec Corporation in the US. Abitec is now a leading supplier of a wide range of personal care products to some of the largest consumer product companies in the world. In the past 12 months we have further expanded our presence in the food and pharmaceutical area by the acquisition of SPI Holdings, one of the leading suppliers of polyols in North and South America. At the same time AC Humko has been building on its base business in the US edible oils market by expanding its presence in the manufacture and sale of high value nutritional ingredients. We believe that this is an area which will offer long-term enhanced shareholder value. Although we have had an increasing investment in textile retailing for some time, our rate of investment and profit growth has accelerated in the past five years. At a time when much of the retail clothing industry has suffered from falling sales and profitability, our Penneys/Primark business, offering good value merchandise with a policy of every day low prices, has gone from strength to strength. Before the end of the current year we shall have opened our 100th store and will be trading from 1.5 million square feet of selling space. We shall continue to follow a policy of selective expansion of this division and we are budgeting for further profit growth. In the Far East, principally in China, we now have a significant presence in the sugar refining, glucose and animal feed industries. In the past year, we have completed and successfully commissioned a new pharmaceutical dextrose plant at Lianhua and a new animal feeds facility at Liaohe. The economic problems of this region are well documented and our present policy is to ensure the operational and profitable development of our existing activities. Nevertheless our sugar investments made good progress and broke even in a difficult over-supplied market environment. We believe that these investments will achieve the long-term plans set for them. In total, in the last five years we have invested some £530 million in the areas of activity outlined above. All of this additional investment has been made from the group's internal cash flow. Nevertheless, the need to sharpen further the focus of our traditional food manufacturing operations in the UK and Australia has increased in recent months. The UK food manufacturing industry has struggled in recent years to meet the increased costs of doing business in an economic environment of zero food price inflation whilst endeavouring to service the demands of the powerful food retailers. In Australia conditions are equally difficult. Your company has consistently invested to reduce cost and improve efficiencies both at the manufacturing level and in the supply chain. The further consolidation of food retailing and the competition to preserve or increase share in a mature retail market will place increased pressure on suppliers. In such a climate even the largest global manufacturers are being forced to reassess their product lines and brand strategies. The requirement to protect shareholder value where performance levels are inadequate has resulted in management undertaking a rigorous review of both our branded and own label product strategies. In some instances this may lead to decisions to rationalise certain sectors of our existing activities, particularly in markets suffering from over capacity and where the group does not have a leading presence. At the time of writing this statement we are some two months away from the arrival of year 2000. Our programme to address the group's exposures has enabled all divisions to prepare, we believe, adequately for the event. Equipment and systems checks were completed for the most part on schedule and recent months have been spent preparing and testing contingency plans. It has been stated that there can be no absolute guarantees that the group will not be subject to a year 2000 failure. We have, however, taken every action to ensure that if failures do occur they will not be critical to any of our operations. I have referred to the pressures on food manufacturers of operating in a non-inflationary environment. Despite these pressures we continue to generate a strong cash flow and to maintain a powerful balance sheet. In the past five years, including the £448 million returned to shareholders in 1999, we have generated over o1 billion in additional shareholders' equity, an almost 50 per cent increase on shareholders' funds since 1994. This financial strength will be used not only to improve the competitiveness of our existing core activities but also to accelerate the acquisition and development of new growth opportunities. Board changes Shareholders were informed in the interim report of the appointment to the Board of John Bason as finance director and George Weston as the chief executive of our Allied Bakeries division. In October of this year the appointment of an additional non-executive director, Martin Adamson, was announced. Mr Adamson, aged 60, was until he retired in 1996 a senior partner of KPMG and a member of that firm's board. He brings a great depth of knowledge and experience of the commercial environment and will make a valuable contribution to the Board's decision making processes. After 27 years' service Trevor Shaw will be retiring in December from his full time executive position as company secretary with responsibility for legal matters. On behalf of the Board I would like to thank Mr Shaw for the significant contribution he has made to the company in this role. Dividends The directors have declared a second interim dividend of 6.50p per share (1998 - 6.25p) which will be paid on 21 February 2000 to shareholders registered at the close of business on 28 January 2000. This makes a total dividend for the year of 10.75p, an increase of 2 per cent on the previous year excluding the special dividend payment. Employees The results of the company and its future depend on the involvement of all who work for it. I would like to express my gratitude to all my fellow employees for their efforts in the past year and their commitment to the continued success of the company. Harry Bailey Acting Chairman CHIEF EXECUTIVE'S REPORT Sales for the group increased 3% to £4,308 million and operating profit, before exceptional items and amortisation of goodwill, increased 3% to £326 million. The textile retail business demonstrated remarkable growth and the manufacturing businesses have held up well in the face of difficulties in a number of markets. We recognise that in certain of our traditional markets conditions will remain difficult for the foreseeable future. As a result, those businesses affected by these conditions must constantly adapt if they are to satisfy the company's requirement for continual improvement in results from all sectors. An emphasis on product development and cost reduction, supported by selective capital expenditure, will continue to be a feature of some of our more mature markets. At the same time we will look to invest heavily where necessary in growth opportunities, either from within our existing portfolio or, where appropriate, by acquisition. The group's food businesses can be broadly categorised into the agricultural sector, ingredients and oils and grocery. Businesses covered separately from these are retail, glass packaging and our Australian and New Zealand operations within our 78% owned subsidiary, George Weston Foods. Accordingly this review of the businesses follows this format. Agricultural sector - primary processing and services Many of our businesses interface closely with the farming world, either as major processors of agricultural crops, such as sugar and grain milling, or as providers of services to the agricultural community in the form of seed processing, the manufacture of animal feed or the provision of a range of other services. Despite the difficulties facing agriculture across the world, our businesses have, in the main, performed well. Amongst our sugar processing interests, British Sugar again had an excellent harvest resulting in a sugar production of 1.44 million tonnes which was higher than the five year average but lower than the previous year's record. This benefit was, however, offset by a steep fall in world sugar prices and a reduction in domestic prices caused by a relative weakening against sterling of the euro, which in Europe is the currency that governs all sugar's institutional prices. Sales levels remained high and the company had major efficiency gains, including the first year's contribution from the new combined heat and power plant at our Wissington factory which, as well as providing power for our own operations, sells energy into the National Grid and therefore provides a further source of income. A similar plant has now been installed at Bury St Edmunds and will give further savings and revenue during the 1999/2000 beet processing season. Sugar operations in Poland, including the newly acquired Michalow and Ciechanow factories, and China were also hit by the fall in world sugar prices. However, the effect was reduced by successful campaigns at all factories and efficiency gains in China. ABR, our wheat starch and glucose business based in Corby, had a disappointing year which saw prices fall as a result of excess supply throughout Europe. However, the impact of this fall in prices was again somewhat mitigated by cost savings obtained from our investment in a new combined heat and power plant at its site. Further action is being taken to reduce the cost base to make sure it is in line with our expectation of lower long-term output prices. Allied Mills continues to perform well although selling prices in general for flour declined throughout the year. The mills sought to offset this by improving their sales mix. Action included a successful launch of a range of certified organic flours. Capital expenditure continued with investments in new flour and semolina mills at Tilbury which will be commissioned during the current year. Despite a poor 1998 harvest in Scotland, Allied Grain maintained profits, exporting large quantities of grain mostly through the Tilbury facility. Capital expenditure to increase throughput and productivity at the seed plant at Diss was completed and a grain storage and drying plant near Aberdeen has been acquired. Allied Grain continued to develop its John K King business with the acquisition of an oil extraction plant which will add value to oil seed crops. One of the unique aspects of John K King is its expertise in managing the contract growing of specialist crops, often for the pharmaceutical and personal care industries. New customers were won in North America and New Zealand as well as in the UK. Fishers is a major contributor to the group's animal feeds business and was strengthened by the acquisition of the Fridaythorpe mill from Dalgety in November 1998 and by growing its blended feeds business which specialises in processing cereal based food factory by-products into an efficient source of animal nutrition. The poultry business of Fishers increased both turnover and profits despite the market conditions. Product quality and animal welfare are issues that are central to the retail sector and attention to these issues has led to an increase of 20% in its poultry customer base. Overall, our animal feeds business had a better year with ABN, which produces and markets Bibby, KW and Trident products, continuing to grow both in the UK and China. Increased profits and increased market share in the pig, poultry and cattle food sectors were obtained in the home market despite difficult conditions for farmers and increasingly strict hygiene regulations. ABN acquired mills in Dorset and Carmarthen, made a major investment at its Knockmore facility in Northern Ireland and established a new trials farm in Suffolk. The year also saw the successful launch of a range of organic feeds from the Enstone and Maldon mills. After the year end the animal feeds businesses of Fishers and ABN were strengthened by the acquisition of six mills from Dalgety Feed Limited. This will consolidate the group's position as a major producer in the UK market. ABN is also one of the country's most efficient pig farmers. It has a unique production system in terms of quality and traceability and has been able to capture the added value in these processes through its most recent investment in meat processing. In China, following two years of talks, ABN announced a joint venture investment with Liaohe Feed Group in the north-east of the country. The joint venture, which operates six manufacturing sites, currently produces around 400,000 tonnes of animal feed each year, making it amongst China's largest producers. The company also has interests in animal nutrition research. These operations in China are profitable and it is anticipated that profit growth will continue due to increased market share and production efficiency. It is important to highlight our Germains seed coating operation which has achieved consistent profit growth in recent years as a result of using its unique technological skills in a wider range of vegetable crops and a broader range of geographical regions. By acquisition and organic growth, it now has successful seed processing facilities throughout North America and Europe. Ingredients and Oils During the early part of the year, the company purchased SPI, an ingredients company based in Delaware US that supplies products from factories in the US, France and from a joint venture in Brazil. This business has performed to expectations with the market for polyols being particularly strong. It has now been streamlined into two divisions, SPI Foods and SPI Pharma. SPI Foods supplies a range of polyols, which are alternative sweeteners, and has traditionally served manufacturers of sugarless chewing gum and toothpaste. It has a strong position in North America and during the year its products were introduced to four new markets - sugar free cookies, therapeutic chewing gum, flavour encapsulation and hard candy. The company's technology allows customers to improve the shelf life of their product by reducing the calorific content. SPI Pharma concentrates on selling products based on the active ingredients in antacids, which are used in the pharmaceutical industry. Our increasing focus on high added value ingredients and processes for the food and pharmaceutical markets has been further reinforced by the success of the Abitec Corporation in North America which is now a leading supplier of a wide range of ingredients for personal care products to market leaders world-wide. This business, which has had an excellent year, has reinforced its position by the completion of a new warehouse at Janesville, Wisconsin and a cosmetics applications laboratory at Columbus, Ohio. Work has started on new production facilities and a laboratory and office complex at Janesville. Abitec Corporation in North America is a sister company to AB Ingredients and AB Technology in the UK. AB Ingredients is a leader in Europe in its provision of bakery ingredients and is in the process of transferring its European technology into the North American market. AB Technology maintained sales volumes in the face of stiff competition. Strong sales growth was achieved in South Africa and Canada and this is expected to continue. During the year, the company became the only producer of emulsifiers and speciality ingredient chemicals in Europe to have kosher registration of its entire product range, a strong selling point in the US. Recently, Abitec's business has been reinforced by the acquisition of Rohm Enzymes, one of the world's leading enzyme producers for the food, industrial and animal feed markets. This technically advanced business will provide an excellent fit with the group's other food ingredient businesses. The combination of enzymes with our existing operations will allow the company to substantially improve its product offering and enhance its geographical spread. The business is headquartered in Darmstadt in Germany, with production and industrial enzyme facilities in Rajamaki, Finland. AC Humko, based in Memphis, with a core business in edible oils, has increased its product range to include rice products, non-dairy cheeses, bakery mixes and icings, encapsulated flavour systems and a newly emerging presence in the manufacturing and sale of high value nutritional ingredients. AC Humko's development this year has been somewhat marred by operational problems at two of its main sites but we are confident that we now have management of the calibre to remedy these teething difficulties and push forward to further profit growth. Grocery Our UK based grocery businesses experienced tight market conditions with on-going pressures on margins. We see no reason for this situation to change. Price competition in the UK bread industry was well publicised during the year, with retailers reducing the shelf price of a loaf of economy bread to 7p for a period of eight weeks. This activity distorted market price differentials and generated increased sales of economy bread at the expense of the standard and premium sectors. Allied Bakeries felt the full impact of this but responded positively by streamlining its business and looking to further improve customer service. Production ceased entirely at Nottingham and Norwich and bread production finished at Chester whilst the new bread plant at West Bromwich, installed during the previous year, became fully operational. A similar new plant was installed in Glasgow which will be operational during the current year and will lead to substantial cost savings. Kingsmill continues to be developed into the market leading brand, with the addition of new variants including a longer life sandwich loaf and the addition to the portfolio of Kingsmill Country Gold. The Allinson brand was re-launched to give an added boost to its traditional portfolio whilst introducing an organic range under the same name. Our Twinings tea business had a good year, increasing sales both in the UK and overseas. Strong competition from local manufacturers and the consolidation of major retail groups in many markets placed pressure on margins. However, profits increased as a result of relatively stable input costs and improved productivity. Brand leadership increased in the UK as a result of substantial marketing support and an extension of the product range with the launch of green, organic and herbal teas. Flavoured green teas in liquid form were launched in Continental Europe. Sales in Russia, which had collapsed along with the country's economy in late 1998, are recovering to previous levels using a new distributor. Danish food distributor, Carl Lange AS, was acquired in December 1998. This, together with the previous purchase of Haugen Gruppen in Norway, permits consolidation of Twinings Scandinavian food business and adds to its thriving distribution business. In contrast to our tea business, Allied Frozen Foods, the second largest producer of ice-creams in the UK by volume, had a poor year. The market for own label ice-cream was squeezed as a result of the increased shelf space being given to both new and established brands. New value added products were launched during the year and overheads were reduced. New cold stores were opened at both Ashford and Calne and new lines installed at Ashford, Devon and Calne. This business is one of the most innovative own label grocery suppliers in the country, developing many of the luxury products that have become so much a part of the ice-cream market in recent years. It also has excellent facilities for the production of less differentiated ice-cream products. High raw materials prices in the early part of the year depressed margins at Rowallan Creamery, the fats and margarines business. It was not until the second half of the year that lower input prices, lower packing costs, improved stock handling systems and reduced overheads enabled margins to be improved. The group's jams and preserves business, Nelsons of Aintree, maintained its return on investment by increasing UK sales of industrial jams and fillings to compensate for some loss of export trade. This business, which produces a range of products from the highest value retail jams to technically advanced industrial products, also benefited from the previous year's capital expenditure. Some of our largest recent investments have been made within Burton's Biscuits. New plant has been installed in Edinburgh in response to market demand for finger shortbread and at the Blackpool confectionery factory to produce both gums and jellies. Both these investments will allow further innovation in this sector which, together with further cost reductions, is essential to provide the necessary returns. Throughout the year Wagon Wheel volumes remained strong and a new double chocolate variant was launched from the Llantarnam bakery. Sales volumes at Ryvita were marginally lower than in the previous years but profits were improved by control of costs and improvement in factory operating procedures. Westmill Foods, supplying packed flour and rice products to the retail and ethnic sectors, also had a difficult year but showed notable progress towards the year end. A Chinese noodle business was purchased which, together with the acquisition of a basmati rice mill in Essex, added significantly to our ethnic foods portfolio. This will complement the improvements that will follow on from the launch during the past year of a range of Allinson organic flours which is already showing signs of offsetting the fall in demand for plain and self-raising flour in the retail market. Australia and New Zealand George Weston Foods produced improved results from its trading in the second half of the year despite continuing competitive conditions and sales in local currency increased by 4%. However £13 million of costs associated with upgrading its information technology resulted in a decline in operating profit from £25 million to £17 million. The milling division enjoyed strong domestic and export sales, although there was considerable pressure on margins following generally good harvests of animal feed grains. A number of major capital projects were completed during the year, including commissioning of a semolina mill at Brisbane, a new distribution centre in Sydney and refurbishment of the Narrandera mill. Investment is to continue with refurbishment of the Adelaide mill and construction of a new mill in Brisbane. Strong competition in the bread market continued throughout the year. In Australia, the key brands of the baking division, Tip Top, Golden and The White Stuff, were successfully re-launched in new packaging with new advertising campaigns. Other brands also benefited from new promotional activity. Results from Speedibake were disappointing mainly as a result of production difficulties but these problems have now been solved and performance is improving. The New Zealand baking and milling division produced improved results following the opening of its new 'state of the art' bakery in Auckland. This year was especially challenging for the biscuit and cake division where deep discounting affected margins and a programme of rationalisation and product innovation has been implemented to restore long-term profitability. The meat and dairy division enjoyed sales growth in spite of strong competition. The Don Smallgoods business, based in Melbourne, was acquired on 5 October 1999. Don's is one of Australia's best known brands. This business complements the strong existing presence already enjoyed in Australia with Watsonia in Western Australia and Melosi in New South Wales. Retail The group's textile retailing operations in Ireland, together with Primark in the UK, reported another excellent result with sales up 23% to £364 million and operating profit up 87% to £43 million. This result not only reflects the steady expansion of the store base over recent years, including the One-Up stores acquired some three years ago, but also the growth in contribution from the increased sales far exceeding the overheads needed to support them. The remarkable growth is a tribute to the management of these businesses who have shown an ability to stay close to their market despite having to manage a major store growth programme. New stores added to the portfolio during the year include sites at Lisburn, Clydebank and Reading, as well as a further 10 stores purchased from the Co-op. Of these, only the store at Clydebank opened during the year and all but two of the remainder should be open before Christmas 1999. Although we have incurred substantial expenditure in acquiring and refitting these new stores and in investment in working capital no benefit was reflected in this excellent result. We look forward to increased sales and profit when these stores are trading. The group continues to invest in the refurbishment of existing stores with major work taking place at a number of sites. Glass Packaging Our glass packaging business based at two plants in Yorkshire, Lax & Shaw and Gregg & Company, is a major supplier to the UK grocery sector. This year it increased its production of containers despite a decline in the UK market. The main event this year was a o15 million capital spend on new furnace equipment at Gregg's which will significantly improve the business' ability to respond flexibly and quickly to the market. We expect to see the benefit to shareholders of this investment in the coming year and over the next few years. Peter Jackson Chief Executive The annual report and accounts will be available on 16 November 1999 and the annual general meeting will be held at The Park Lane Hotel, London at 11am on Thursday 9 December 1999. Enquiries to: Harry Bailey Acting Chairman Peter Jackson Chief Executive John Bason Finance Director Telephone: 020 - 7589 6363 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended For the year ended 18 September 1999 12 September 1998 Continuing Continuing operations operations before before except- Except- except- Except- ional ional ional ional items items Total items items Total Note £m £m £m £m £m £m Turnover of the group including its share of joint ventures 4,308 - 4,308 4,202 - 4,202 Less share of turnover of joint ventures (9) - (9) (7) - (7) Group turnover 1 4,299 - 4,299 4,195 - 4,195 Operating costs (3,982) (84) (4,066) (3,878) (19) (3,897) Group operating profit 317 (84) 233 317 (19) 298 Share of operating results of - joint ventures 2 - 2 (3) - (3) - associates 2 - 2 2 - 2 Total operating profit 1 321 (84) 237 316 (19) 297 Operating profit before exceptional items and amortisation of goodwill 326 - 326 316 - 316 Exceptional items - (84) (84) - (19) (19) Amortisation of goodwill (5) - (5) - - - Profits less losses on sale of properties 4 - 4 (3) - (3) Investment income 84 - 84 119 - 119 Profit on ordinary activities before interest 409 (84) 325 432 (19) 413 Interest payable (25) - (25) (22) - (22) Profit on ordinary activities before taxation 384 (84) 300 410 (19) 391 Tax on profit on ordinary activities 2 (115) - (115) (124) - (124) Profit on ordinary activities after taxation 269 (84) 185 286 (19) 267 Minority interests - equity (1) - (1) (2) - (2) Profit for the financial year 268 (84) 184 284 (19) 265 Dividends - interim 3 (85) - (85) (94) - (94) - special interim 3 (448) - (448) - - - Transfer (from)/to reserves (265) (84) (349) 190 (19) 171 Basic and diluted earnings per ordinary share 31.1p (9.7)p 21.4p 31.7p (2.1)p 29.6p Earnings per ordinary share before amortisation of goodwill 31.7p (9.7)p 22.0p 31.7p (2.1)p 29.6p The group has made no material acquisitions nor discontinued any operations within the meaning of the Financial Reporting Standards during either 1999 or 1998. CONSOLIDATED BALANCE SHEET As at As at 18 September 12 September 1999 1998 £m £m Fixed assets Intangible assets - goodwill 108 - Tangible assets 1,528 1,439 1,636 1,439 Interest in net assets- joint ventures 7 3 - associates 8 6 Other investments 16 17 Total fixed asset investments 31 26 1,667 1,465 Current assets Stocks 464 428 Debtors 491 481 Investments 1,030 1,570 Cash at bank and in hand 51 70 2,036 2,549 Creditors amounts falling due within one year Short term borrowings (53) (44) Other creditors (680) (682) (733) (726) Net current assets 1,303 1,823 Total assets less current liabilities 2,970 3,288 Creditors amounts falling due after one year Loans (157) (157) Other creditors (10) (13) (167) (170) Provisions for liabilities and charges (50) (55) 2,753 3,063 Capital and reserves Called up share capital 47 47 Revaluation reserve 3 3 Other reserves 173 173 Profit and loss account 2,451 2,774 Equity shareholders' funds 2,674 2,997 Minority interests in subsidiary undertakings - equity 79 66 2,753 3,063 CONSOLIDATED CASH FLOW STATEMENT For the For the year ended year ended 18 September 12 September 1999 1998 Note £m £m Cash flow from operating activities 4 420 448 Dividends from joint ventures 1 1 Dividends from associates 2 1 Return on investments and servicing of finance Dividends and other investment income 90 113 Interest paid (24) (22) Dividends paid to minorities (2) (2) 64 89 Taxation (120) (127) Capital expenditure and financial investment Purchase of tangible fixed assets (259) (226) Sale of tangible fixed assets 16 10 Purchase of equity investments (1) (3) Sale of equity investments 10 3 Purchase of own shares (1) (8) (235) (224) Acquisitions and disposals Purchase of new subsidiary undertakings (153) (57) Purchase of joint ventures and associates (3) (1) (156) (58) Equity dividends paid (538) (135) Net cash outflow before use of liquid funds and financing (562) (5) Management of liquid funds 5 (423) (107) Financing 5 (1) (11) (Decrease)/increase in cash 5 (138) 113 (562) (5) CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the For the year ended year ended 18 September 12 September 1999 1998 £m £m Profit for the financial year 184 265 Currency translation differences on foreign currency net assets 26 (59) Total recognised gains and losses 210 206 CONSOLIDATED STATEMENT OF HISTORICAL COST PROFITS There is no material difference between the group results as reported and on an unmodified historical cost basis. Accordingly no note of historical cost profits and losses has been prepared. RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS For the For the year ended year ended 18 September 12 September 1999 1998 £m £m Profit for the financial year 184 265 Dividends- interim (85) (94) - special interim (448) - Transfer (from)/to reserves (349) 171 Other recognised gains and losses relating to the year 26 (59) Goodwill acquired and written off to reserves (32) Net (decrease)/increase in shareholders' funds (323) 80 Opening shareholders' funds 2,997 2,917 Closing shareholders' funds 2,674 2,997 NOTES TO THE PRELIMINARY ANNOUNCEMENT For the For the year ended year ended 18 September 12 September 1999 1998 £m £m 1.Analysis of turnover and profits Turnover Geographical analysis (by origin and destination): European Union, mainly United Kingdom and Ireland 2,962 3,023 Australia and New Zealand 548 534 North America 665 557 Elsewhere 124 81 Group turnover 4,299 4,195 Business sector: Manufacturing 3,935 3,900 Retail 364 295 Group turnover 4,299 4,195 Profits Geographical analysis (by origin): European Union, mainly United Kingdom and Ireland 284 268 Australia and New Zealand 17 25 North America 26 22 Elsewhere (1) 1 Total operating profit before exceptional items and amortisation of goodwill 326 316 Exceptional it- European Union (84) (13) - elsewhere - (6) Amortisation of goodwill - North America (5) - Total operating profit 237 297 Business sector: Manufacturing 283 293 Retail 43 23 Total operating profit before exceptional items and amortisation of goodwill 326 316 Exceptional items - manufacturing (84) (19) Amortisation of goodwill - manufacturing (5) - Total operating profit 237 297 Other net income 63 94 Profit on ordinary activities before taxation 300 391 Exceptional items in the year relate to an FRS 11 impairment charge in respect of fixed assets within the group's UK manufacturing activities, based on their estimated value in use, using a weighted average cost of capital of 12.5%. In the previous year, exceptional items related to an increase in provisions of £13 million for the British Sugar European Commission fine and a charge of o6 million for a write down within our joint ventures. For the For the year ended year ended 18 September 12 September 1999 1998 £m £m 2.Tax on profit on ordinary activities United Kingdom 89 93 Overseas 25 29 Joint ventures and associates 1 2 115 124 3.Dividends of Associated British Foods plc First interim dividend of 4.25p per share (1998 - 4.25p) 34 38 Second interim dividend of 6.50p per share (1998 - 6.25p) 51 56 85 94 Special interim dividend of 50.00p per share (1998 - nil) 448 - 533 94 4.Cash flow from operating activities Operating profit 233 298 Impairment of fixed assets 84 - Amortisation of goodwill 5 - Depreciation 142 151 (Increase)/decrease in working capital - stocks (17) (16) - debtors 1 7 - creditors (25) 6 Provisions (3) 2 420 448 5.Analysis of changes in net funds (Decrease)/increase in cash (138) 113 Financing (1) (11) Management of liquid funds (423) (107) Shares issued to minority shareholders - 5 Purchase of equity investments 1 1 Sale of equity investments (6) (1) Changes in market value 9 3 Arising on acquisition of subsidiary undertakings (8) (8) Effect of currency changes (2) (16) Movement in net funds in the year (568) (21) Net funds at 12 September 1998 1,439 1,460 Net funds at 18 September 1999 871 1,439 6.Analysis of net funds Current asset investments 1,030 1,570 Cash at bank and in hand 51 70 Short term borrowings (53) (44) Loans falling due after one year (157) (157) 871 1,439 7.Other information The financial information set out above does not constitute the group's statutory financial statements for the years ended 18 September 1999 and 12 September 1998, but is derived from them. The 1998 financial statements have been filed with the Registrar of Companies whereas those for 1999 will be delivered following the company's annual general meeting. The auditor's opinions on these financial statements were unqualified and did not include a statement under section 237 (2) or (3) of the Companies Act 1985. ACCOUNTING POLICIES Basis of preparation These financial statements have been prepared under the historical cost convention as modified by the revaluation of certain assets, and in accordance with applicable accounting standards and the Companies Act 1985. FRS 10 - 'Goodwill and intangible assets', FRS 11 - 'Impairment of fixed assets and goodwill', FRS 12 - 'Provisions, contingent liabilities and contingent assets', FRS 13 - 'Derivatives and other financial instruments: Disclosures' and FRS 14 - 'Earnings per share' have been adopted in the current year's financial statements. There have been no other changes to the group's accounting policies from the previous year. Basis of consolidation The group accounts comprise a consolidation of the accounts of the Company and its subsidiary undertakings, together with the group's share of the results and net assets of its joint ventures and associates. The financial statements of the company and its subsidiary undertakings are made up for the 53 weeks ended 18 September 1999, except that, to avoid delay in the preparation of the consolidated financial statements, those of the Australian and New Zealand group and China and Poland are made up to 31 July 1999, and the North American subsidiary undertakings are made up to 31 August 1999. Acquisitions The consolidated profit and loss account includes the results of new subsidiary undertakings, joint ventures and associates attributable to the period since change of control. Disposals The results of subsidiary undertakings, joint ventures and associates sold are included up to the dates of change of control. The profit or loss on the disposal of an acquired business takes into account the amount of any related goodwill previously written off directly to reserves, or the net amount of goodwill remaining unamortised, as appropriate. Intangible fixed assets Intangible fixed assets consist of goodwill arising on acquisitions since 13 September 1998, being the excess of the fair value of the purchase consideration of new subsidiary undertakings, joint ventures and associates over the fair value of net assets acquired. Goodwill is capitalised in accordance with FRS 10 and amortised over its useful economic life, not exceeding 20 years. Goodwill previously written off against reserves has not been reinstated. Foreign currencies Assets and liabilities denominated in foreign currencies are converted into sterling at rates of exchange ruling at the balance sheet date or at the contracted rate as appropriate. The assets and liabilities of overseas operations are converted into sterling at the rates of exchange ruling at the balance sheet date. The results of overseas operations have been translated at the average rate prevailing during the year. Exchange differences arising on consolidation are taken directly to reserves. Other exchange differences are dealt with as part of operating profits. Pensions The group has established separately funded pension schemes for the benefit of permanent staff, which vary with employment conditions in the countries concerned. Net pension costs are charged to income over the expected average remaining service lives of employees. Any differences between the charge for pensions and total contributions are included within pension provisions or debtors as appropriate. Research and development Expenditure in respect of research and development is written off against profits in the period in which it is incurred. Fixed asset investments Joint ventures and associates are accounted for in the financial statements of the group under the equity method of accounting. Other fixed asset investments in the group's accounts, and all fixed asset investments in the accounts of the company, are stated at cost less amounts written off in respect of any permanent diminution in value. Depreciation Depreciation, calculated on cost or on valuation, is provided on a straight line basis to residual value over the anticipated life of the asset. No depreciation is provided on freehold land or payments on account. Leaseholds are written off over the period of the lease. The anticipated life of other assets is generally deemed to be not longer than: Freehold buildings 66 years Plant, machinery, fixtures and fittings - sugar factories 20 years - other operations 12 years Vehicles 8 years Leases All material leases entered into by the group are operating leases, whereby substantially all of the risks and rewards of ownership of an asset remain with the lessor. Rental payments are charged against profits on a straight line basis over the life of the lease. Stocks Stocks are valued at the lower of cost or net realisable value, after making due provision against obsolete and slow-moving items. In the case of manufactured goods the term 'cost' includes ingredients, production wages and production overheads. Current asset investments Current asset investments are stated at the lower of cost or market value. Financial instruments Forward foreign exchange contracts and currency options are used to hedge forecast transactional cash flows and accordingly, any gains or losses on these contracts are recognised in the profit and loss account when the underlying transaction is settled. Derivative commodity contracts are used to hedge committed purchases or sales of commodities and accordingly, any gains or losses on these contracts are recognised in the profit and loss account in the same accounting period as the underlying purchase or sale. Gains or losses arising on hedging instruments which are cancelled due to the termination of the underlying exposure are taken to the profit and loss account immediately. Deferred tax Deferred tax represents corporation tax in respect of accelerated taxation allowances on capital expenditure and other timing differences, to the extent that a liability is anticipated in the foreseeable future.

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