Preliminary results
Associated British Foods PLC
06 November 2007
6 November 2007
Associated British Foods plc preliminary results for year ended 15 September
2007
Recent major investment drives strong revenue and profit growth
Financial Highlights
• Group revenue up 13% to £6.8bn
• Adjusted operating profit up 11% to £622m*
• Adjusted profit before tax up 10% to £613m **
• Adjusted earnings per share up 4% to 52.9p**
• Dividends per share up 4% to 19.5p
• Net investment in capital expenditure and acquisitions of £489m
• Net debt of £311m
• Operating profit up 28% to £556m, profit before tax up 21% to £508m and
basic earnings per share up 23% to 46.7p.
George Weston, Chief Executive of Associated British Foods, said:
'This year's strong growth in revenue and operating profit reflects the recent
major investment made by the group in capital expenditure and acquisitions. The
scale and range of our sugar activities are being transformed and Primark is now
the second largest clothing retailer in the UK by volume. Our grocery business
was strengthened with the acquisition of Patak's, and Agriculture and
Ingredients performed well. I am very encouraged that the considerable progress
made places us well for growth in the future.'
* before amortisation of non-operating intangibles, profits less losses on
the sale of PP&E and exceptional items.
** before amortisation of non-operating intangibles, profits less losses on
sale of PP&E, profits less losses on the sale and closure of businesses and
exceptional items.
Adjusted earnings per share reflect much higher minority interests
following the acquisition of Illovo.
All figures stated after amortisation of non-operating intangibles, profits
less losses on the sale of PP&E and losses on the sale and closure of
businesses are shown on the face of the consolidated income statement.
For further information please contact:
Associated British Foods:
Until 1500 only
George Weston, Chief Executive Geoff Lancaster, Head of External Affairs
John Bason, Finance Director Mobile: 07860 562 659
Tel: 020 7638 9571
Jonathan Clare/Chris Barrie/Hannah Seward, Citigate Dewe Rogerson
Tel: 020 7638 9571
After 1500
John Bason, Finance Director
Tel: 020 7399 6500
Notes to Editors
1. Associated British Foods is a diversified international food, ingredients
and retail group with sales of £6.8billion and 85,000 employees in 43
countries. It has significant businesses outside Europe in southern
Africa, the US, China and Australia.
Its aim is to achieve strong, sustainable leadership positions in markets
that offer potential for profitable growth. We look to achieve this
through a combination of growth of existing businesses, acquisition of
complementary new businesses and achievement of high levels of operating
efficiency. The group has established a track record of successful value
adding acquisitions including a 51% stake in Illovo Sugar, Africa's biggest
cane sugar producer with extensive agricultural and manufacturing
operations in six African countries, AB Mauri (its leading international
yeast and bakery ingredients business), Littlewoods stores for Primark and
the grocery brands Mazola, Ovaltine and Patak's.
2. The group has strong positions in the markets in which it operates:
Sugar ABF is the second largest sugar producer in the world with
some two thirds of volume originating from outside the
regulated EU market and with limited exposure to the
cyclical world sugar price. British Sugar is Europe's most
efficient producer, is the sole processor of the UK sugar
beet crop and has a strong position in Poland. It has a
successful cane sugar business in southern China and is
investing in the beet sugar industry in the north east.
Illovo is the largest sugar producer in Africa and is one of
the world's leading low cost producers.
Retail Primark is a major value clothing retail group, employs over
22,500 people and operates 170 stores in the UK, Ireland and
Spain. Primark is the UK's second largest clothing retailer
by volume (TNS).
Grocery The international hot beverages business comprises Twinings,
the world's leader in speciality teas and infusions, and
Ovaltine, a leading brand of nutritional, malt-based
beverages which, from its foundation in western Europe, has
built a significant business in emerging markets,
particularly Asia.
George Weston Foods is Australia's second largest grocery
company and ACH has the leading corn oil brand, Mazola, in
the US and the premium brand, Capullo, in Mexico.
The combination of the UK's leading, authentic Indian
cuisine brand, Patak's, with our pan-oriental foods brand,
Blue Dragon, has created a retail 'world foods' business.
This is augmented by Westmill Foods' leading presence in the
supply of ethnic foods to the ethnic wholesale channel.
In the growing 'better for you' category, Ryvita is
synonymous with healthy eating and is now developing a
strong position in the healthy snacking area.
Allied Bakeries is a leading UK bread supplier with famous
brands such as Kingsmill, Burgen, Allinson and Sunblest.
Ingredients AB Mauri has a global presence in bakers' yeast with
significant market positions in the Americas, Europe and
Asia and is a technology leader in bakery ingredients. It
operates from 50 plants in 28 countries. ABF Ingredients
comprises businesses operating in speciality proteins,
enzymes, and yeast extracts.
3. We continue to invest strongly in the future growth of the group. The net
expenditure in the year of £489m includes an acquisition spend of £150m,
primarily on Patak's and a 20% interest in Jordans, £175m on the
acquisition and fit out of new stores for Primark and £252m spent in the
existing businesses. £88m proceeds were received from the sale of
businesses and fixed assets.
CHAIRMAN'S STATEMENT
The group has made good progress in the past year and these results reflect the
benefit of recent major investment. They include a contribution from our 51%
investment in Illovo Sugar for the first time, and reflect the rapid roll-out of
new Primark stores largely driven by the conversion of the former Littlewoods
stores. These results have been achieved in the face of a weak US dollar and
extremely sharp cost increases in some key commodities.
Revenue was 13% ahead at £6.8bn. Adjusted operating profit increased by 11% and
adjusted profit before tax by 10%. Adjusted earnings per share, which reflect
much higher minority interests, rose by 4% to 52.9p.
Our sugar activities have been transformed and now extend across nine countries
in three continents. Further investment has been authorised to upgrade and
extend our facilities. In Europe we have improved processing efficiency
positioning the business to meet the challenges of the revised EU sugar regime.
In southern Africa we are excited by the development potential of Illovo and new
investment is being made to increase capacity and extend the range of its
operations. In China additions have been made to our cane sugar capacity in the
south and we are investing for the first time in the beet sugar industry in the
north east. We are committed to developing our EU sales by harnessing the quota
and tariff free trading available from 2009/10 to the Least Developed Countries.
Illovo processes cane sugar in four of these countries.
Profit from our sugar business benefited from Illovo's contribution which
exceeded our expectations. The acquisition was earnings enhancing in its first
year. While profit pressure from sugar regime reform continued in Europe, an
excellent result was achieved in China.
At the beginning of this year it became clear that the voluntary renunciation of
sugar quota was going to fall substantially short of the target set by the
European Commission to achieve market balance. Extended discussions within the
industry and with the EU Commission demonstrated a welcome willingness to get
the reform back on course and reduce the transitory turbulence associated with
the initial reforms. Short-term measures, including an extended export
programme and a temporary quota cut, were introduced to stabilise the market in
2007/8.
More importantly for the long term, in September the Agriculture Council agreed
a series of adaptation proposals which offered incentives to growers and
processors to opt for permanent renunciation of quota from the 2008/9 marketing
year. We anticipate that a significant level of renunciation will now take
place as a result of these changes, in addition to the 2.2m tonnes already
surrendered.
There have been major developments by British Sugar in the emerging biofuel
market. It has commissioned the UK's first bioethanol plant at Wissington,
which uses sugar beet as feedstock. In June 2007 we announced a major new joint
venture with BP and DuPont to build a world-scale plant in the UK and the design
phase is on schedule. We will continue to monitor developments in biofuels to
identify opportunities where use of the group's capabilities would offer
satisfactory long-term returns.
Primark grew rapidly during the year with a 37% increase in retail selling space
since last year end. The last Littlewoods store has been refitted and opened in
Brighton in October. Significant new openings during the year were Oxford
Street in London in April, and Liverpool in September, both of which have traded
strongly.
Expansion at this year's rate was a major challenge for Primark's management.
Many new staff were recruited and trained, a new central UK warehouse was
brought into operation while the impact of trading in the new stores on some
existing stores was absorbed. In this context, and with summer trading affected
by unusually wet weather, like-for-like sales growth of 1% was encouraging.
Overall sales grew by 37% and profit by 20%. The most recent UK market data
shows Primark is now the second largest clothing retailer in the UK by volume
and the largest in the important value sector. This demonstrates the strength
of Primark in the UK high street. It is also very encouraging that performance
at Penneys in Ireland has been excellent.
We are pursuing further opportunities to expand selling space in our established
markets in the UK and Ireland, but this is likely to be at a less rapid rate
than in the last two years. We expect to build on our encouraging start in
Spain.
The Grocery businesses have also been strengthened, particularly by the
acquisition of Patak's. The combination of this authentic Indian food brand
with Blue Dragon will greatly strengthen our position in the growth orientated
world foods market. In addition we have increased our presence in 'better for
you' foods with the acquisition of a 20% stake in Jordans.
Good progress was made in many of our Grocery businesses. It was particularly
satisfying to see the major improvement in the Australian bakery business driven
by the good performance from our new bakery in Sydney. However, Allied Bakeries
in the UK performed poorly, although there was significant improvement in the
second half of the year following the relaunch of the Kingsmill brand.
Net capital expenditure on existing businesses and on acquisitions less
disposals totalled £489m and represents further major investment in the group.
This included expansionary capital of some £200m to extend capacity at our
plants and on new Primark stores. It also included the acquisition of our
interests in Patak's and Jordans. Despite this level of investment the group's
continuing strong cash flow limited the increase in net borrowings to £13m,
rising from £298m last year to £311m. The group remains very well placed to
back the growth of our businesses by further investment based on its strong
balance sheet and cash flow.
Board changes
In my half year statement I reported that Jeff Harris had retired from the Board
on 18 April. Peter Smith was appointed to the Board on 28 February and has
succeeded Jeff as chairman of the Audit committee.
Lord MacGregor has advised that he will retire from the Board at the end of the
annual general meeting on 7 December. He was appointed a director in 1994 as
one of two independent non-executive directors and later became senior
independent director in 2003. Based on his wide experience of government and
business, John has combined shrewd advice with the ability to challenge
constructively. His contribution has been immense and will be greatly missed.
Mike Alexander has also indicated that he will not seek reappointment at the
annual general meeting after nearly six years as a director. Mike's quick,
clear thinking and wide operational experience have been of great value to the
Board over a period of major development for the group.
Employees
85,000 people now work in the group and it is their efforts that have made these
results possible. The tremendous range of their talent is a prime strength of
the group. I would like to thank all our employees for their efforts in the
past year, often in demanding conditions. In many of the diverse communities
where we operate, our companies are a focus for local services. For example, in
Africa healthcare issues are vital and Illovo has addressed this with first
class programmes tailored to the country of operation. The group is committed
to supporting these services where appropriate and to helping the development of
all employees' skills.
Dividends
A final dividend of 13p is proposed to be paid on 11 January 2008 to
shareholders on the register on 7 December 2007. Together with the interim
dividend of 6.5p paid on 2 July 2007, this will make a total of 19.5p, an
increase of 4%.
Outlook
The continued development of the group's businesses and the associated
investment will result in further progress in 2008. Although reform of the EU
sugar regime will have a further large negative effect on profit for the coming
year, we expect the shape of the regime to be resolved finally after a long
period of uncertainty. High commodity costs will continue to put pressure on
margins but we are seeing some success in recovery through prices. As the group
benefits from the realisation of recent major capital investment and
rationalisation it is well positioned for longer term growth.
Martin Adamson
Chairman
OPERATING REVIEW
The last seven years have seen a considerable change in the shape and scale of
the group. Revenue and operating profit have both grown by more than 50%. In
2000 the group was dominated by the profit contribution from our UK sugar
operation. Today Sugar and Agriculture account for one third of the group and
its composition has changed with a concentration on the growth markets of China
and Africa. Primark has increased four fold and is now nearly one third of the
group's profit. Geographically the UK now accounts for only 41% of profit,
there is a good balance in the scale of our businesses in the Americas, Asia
Pacific, Europe and Africa and we have a significant and growing presence in
emerging markets.
2007 was another year of substantial growth with revenue ahead by 13% to £6.8bn
and adjusted operating profit 11% higher at £622m. These sizeable increases are
largely a function of the Illovo acquisition and a 37% increase in Primark's
retail selling space but also include good performances from a number of the
Grocery businesses and Agriculture. The UK bakery business underperformed the
previous year but following the relaunch of Kingsmill in February, it made
progress in increasing bread volumes and improving operating efficiency.
Ingredients suffered from the weakness of the US dollar in translating its
results into sterling but made good progress in local currencies.
Each of our businesses has continued to evolve and there have been a number of
landmarks this year which have contributed to a transformation of the group.
The Chairman has already referred to the development of our sugar business and
indeed the significance of these changes is reflected in our re-naming of the
business segment from Primary Food to Sugar. The investment in Illovo gives us
leadership in one of the world's fastest developing sugar markets, Africa, and
we have embarked on major expansion projects to enable us to maximise our
advantageous position for export opportunities.
We are also expanding our sugar business in the rapidly developing Chinese
market. The investment in the beet sugar industry represents an opportunity to
use our considerable technological expertise to make dramatic improvements in
agricultural yields and process efficiencies.
Our entry into the important area of renewable fuels has been marked by the
start of production at the UK's first bioethanol plant alongside our sugar
factory at Wissington. Renewables already play an important part in the group's
operations, representing nearly half of the fuel we consume running our
factories. Our biofuels operation goes a step further offering to the market a
viable and sustainable alternative to fossil derived transport fuels.
In Grocery, the Patak's brand represents a particularly good fit with our
existing businesses specialising in ethnic foods.
This year was significant for Primark. Many records were broken during the year
and enormous customer and media interest continues to mark every opening of each
new store. Oxford Street in London captured the national imagination but
similarly successful openings featured throughout the UK, Ireland and also in
our new market of Spain where we have demonstrated that good ideas travel.
I am enormously encouraged that the considerable progress made over recent years
places us well for growth in the future.
SUGAR & AGRICULTURE
Sugar 2007 2006
Revenue £m 1,151 671
Adjusted operating profit £m 199 115
This was a very significant year in the development of our international sugar
business. Revenue and profit were strongly ahead of last year driven by the
first year contribution from Illovo, which exceeded our expectations, and a
substantial increase in profit from China. Our European sugar businesses also
performed well but profit was affected by the temporary quota cut and the net
cost of the restructuring levy.
We have taken a number of steps which have transformed this business. We
acquired Illovo Sugar, the largest producer in Africa, we announced a major
investment in the beet sugar industry in north China and we developed our
biofuel business. The enlarged business is now the world's second largest sugar
producer with some two thirds of volume originating from outside the regulated
EU market and it has limited exposure to the cyclical world sugar price. We now
have a strong presence in the growth markets of China and a number of southern
African countries and we have plans for significant capacity expansion here. In
addition, the Illovo acquisition provides the opportunity to develop quota and
tariff free exports to the EU as a result of four of the six countries in which
they operate having Least Developed Country status.
Based in the southern hemisphere, Illovo's operating season runs from April to
March and so our financial results include the contribution from the second half
of Illovo's 2006/7 season and the first half of their 2007/8 season. Cane
production in the 2006/7 season was in line with the previous year but sugar
production was substantially below expectations at 1.7m tonnes, primarily due to
poor weather conditions in South Africa and Tanzania. Factory performance was
satisfactory with record sugar production in Malawi and record output in a
number of downstream products. Revenue and profit benefited from higher
domestic sales, better regional and world prices and continued cost savings.
The current season, 2007/8, is progressing well with own cane production broadly
in line with last year and sugar production forecast to increase to 1.9m tonnes.
Factory performance has been broadly in line with plan. Growth in profit for
the 2007/8 season is anticipated.
The development potential of Illovo was demonstrated by the announcement of a
major expansion of sugar and cane production in Zambia. We are investing £100m
to increase, by 50%, the area of irrigated cane developed by Illovo and its
growers to increase factory capacity and to build the wider infrastructure
necessary to support a much larger operation. Sugar production is planned to
increase from 240,000 tonnes to 440,000 tonnes by the 2009/10 season. Projects
for substantial further expansion are being developed.
The recent investments in capacity in our four cane sugar factories in south
China enabled us to process a record crop this year. For a number of years,
growth in sugar consumption has exceeded growth in domestic production leading
to a deficit in the Chinese market and firm sugar prices. The combination of
crop and prices has driven a substantial increase in profit.
In August we announced an investment in the Chinese beet sugar industry. This
is centred in the north east where the provinces have abundant, high quality
arable land with ideal weather conditions to produce high sugar content in the
beet. Government approval has recently been given for the creation of a joint
venture, to be called BoTian, with the Hebei Tian Lu Sugar Group. ABF holds 51%
of the joint venture. BoTian will initially operate four beet sugar factories
in the northern provinces of China but negotiations are well advanced for a
further five factories and more are being considered. A significant increase in
sugar production is planned. There is a major opportunity to improve beet
yields by the application of British Sugar's European beet sugar expertise
through better agricultural practices and technology transfer. In addition
refinery capacity will be increased through investment and efficiency
improvements.
The UK business benefited from a very efficient campaign, the additional quota
of 83,000 tonnes acquired and lower energy costs. However, as expected, these
factors were offset by the further impact on profit of sugar regime reform
arising from the temporary quota cut and the cost of the restructuring levy
which exceeded reduced beet costs. Sugar prices were more stable. Although the
Allscott factory was closed at the end of the campaign, in light of the European
Commission proposals announced in May 2007 to make further changes to the EU
sugar regime reform, British Sugar decided to reconsider its plans for its
operations in the UK, and specifically activities on the York site. As a
consequence, an application for restructuring will be made to the UK government.
The future and extent of operations at the York site will be determined once
this application for restructuring has been approved. The cost of closure of
both factories was provided for in last year's accounts. In Poland profit was
level with last year with the benefits of an excellent campaign, the additional
quota of 11,000 tonnes acquired and factory rationalisation offsetting the
impact of regime reform. The Glinojeck factory performed ahead of expectations
following completion of its major expansion programme. Juice processing is now
firmly established here. This process was pioneered in our UK factories,
permitting out of season sugar refining, and is a major driver in improving
asset utilisation. The sugar produced was 1.16m tonnes in the UK and 0.21m
tonnes in Poland.
In recent months the European Commission has announced measures to redress the
imbalance in supply and demand for sugar in the EU. For the current marketing
year, 2007/8, it announced a temporary quota withdrawal of 2.1m tonnes. It has
now allowed exports of up to 1.4m tonnes of quota sugar and has allocated a
proportion of the remaining sugar in intervention for non-food uses. Profit in
our EU businesses is expected to be lower next year because of the substantial
increase in the restructuring levy, from €126 per tonne to €173, and the
temporary quota withdrawal of 193,000 tonnes mitigated in part by the reduction
in beet costs.
The adaptation package agreed in September by the European Commission primarily
offers new incentives directly to growers to renounce quota permanently from the
2008/9 marketing year onwards. Its aim is to encourage additional renunciation
of at least 13.5% of the European quota in addition to the 2.2m tonnes already
renounced, with relief from the restructuring levy in 2007/8 and the benefit of
compensation for the processor. British Sugar plans to renounce quota in the UK
and Poland from 2008/9 as a consequence of these measures. A quota reduction of
13.5% would be 193,000 tonnes.
The Wissington biofuel plant has been commissioned and is producing bioethanol
for blending with petroleum in the UK. The plant uses sugar beet as feedstock
and has the capacity to deliver 70m litres a year. Vivergo Fuels, the joint
venture with BP and DuPont in which ABF has a 45% interest, has now been
established and is working on the detailed design for a world-scale bioethanol
plant which will use wheat as feedstock. It is expected to cost £200m and will
be built at BP's chemical site at Saltend, Hull. Its capacity will be 420m
litres of bioethanol per year and is planned to come on- stream in late 2009.
ABF expects a return on its investment ahead of its cost of capital in the first
full year of operation. The plant will initially produce bioethanol, but the
partners will look at the feasibility of converting it to biobutanol once the
technology is available. It is expected that formal agreements will be entered
into by the joint venture with AB Agri and Frontier Agriculture. The supply of
locally grown wheat would be arranged by Frontier which is the UK's leading
grain marketer and supplier of agricultural inputs. The major co-product of
bioethanol production, distillers' grain, would be sold to AB Agri. It will use
its highly specialised sales and marketing business, which sources and develops
co-products from the food, drink and energy industries, to market the
distillers' grain as an alternative feed for livestock.
Agriculture 2007 2006
Revenue £m 687 623
Adjusted operating profit £m 18 15
AB Agri performed well and its strategy to focus on working with large-scale
suppliers and livestock producers is delivering new opportunities for growth
alongside those created by its technology-based feed ingredients business.
The UK delivered excellent results with full year benefits from restructuring,
cost saving initiatives and firmer pricing. Frontier performed ahead of
expectations and recent investment in systems, a low cost base and national
trading have strengthened the business. Following our decision to focus on
co-products, our ruminant feed operations have benefited from the increasing
demand in the UK dairy sector. In pig and poultry, where our focus continues to
be on compound feeds, our strategy of building strong supply chain relationships
with the key players in the industry has further strengthened our business.
However, in China, margins were lower following substantial increases in the
cost of raw materials, particularly for soy, and reduced pig and poultry numbers
following the outbreak of disease. Raw material costs remain high but price
increases are being negotiated to recover these costs. A new feed mill was
built in Harbin during the year bringing the total number of mills in China to
six at the year end.
RETAIL
2007 2006
Primark
Revenue £m 1,602 1,168
Adjusted operating profit £m 200 166
Littlewoods
Revenue £m - 141
Adjusted operating profit £m - 19
Once again Primark's results were very strongly ahead of last year, revenue was
up 37% and profit up 20%. The revenue increase was driven by the opening of
substantially more retail selling space. Like-for-like sales growth was 1% and
our estimate of like-for-like sales growth, in stores unaffected by new
openings, is 7%. This was achieved despite the impact, common to other clothing
retailers, of poor weather over the summer months. Operating profit margin was
affected by a higher depreciation charge, arising from the recent investment in
new stores, and by a higher level of discounting of the summer season stock to
make way for the autumn range.
Retail selling space increased by 1.3m sq ft during the year to 4.8m sq ft at
the year end. 32 new stores were opened, five smaller stores were closed,
bringing the total to 170 stores at the year end.
New store openings:
UK
Aberdeen Dundee London - Oxford Street
Bedford Dunfermline Londonderry
Birmingham - Merryhill Eastbourne Oldham
Blackpool Glasgow - Parkhead Plymouth
Burton-on-Trent Greenock Poole
Camberley Hanley Redditch
Cheltenham Inverness Sheffield - Meadowhall
Chesterfield Irvine Swindon
Coventry Lincoln Wolverhampton
Doncaster Liverpool - Church Street
Ireland
Ballina Dublin - Swords
Spain
Murcia
Stores closed (all resites):
Aberdeen Doncaster Swindon
Burton-on-Trent Dundee
Highlights during the year included the opening of London's Oxford Street store
in April. This was extremely successful, selling one million items in its first
ten days of trading, and attracting considerable media coverage. The 85,000 sq
ft Liverpool store was opened in September and was greeted with a similar level
of enthusiasm both by customers and the media. Primark has demonstrated success
in trading from very large premises and now has 25 stores trading from over
50,000 sq ft of which eight trade from over 70,000 sq ft. Over the last two
years the average store size has risen by more than 50% from 19,000 sq ft to
29,000 sq ft.
Since the year end we have opened a new store in Brighton which brings to a
conclusion the conversion of the 41 former Littlewoods stores. This highly
successful development programme has driven significant growth in the number of
stores and selling space in the UK. Primark is now established as a major
clothing retailer on the UK high street. TNS ranks Primark as the UK's second
largest clothing retailer by volume and Verdict Research now places Primark as
the leading retailer in value clothing.
The stores in Oxford Street and Liverpool showcase the new fit-out in our larger
stores. The high standard aims to meet customers' expectations of prestigious
high street locations. A range of finishes, colours and textures has been used
to create zones within the spacious store interiors which reinforce and
differentiate the departments. An electronic 'call forward' system is being
introduced to speed customer transaction times and minimise queuing.
Whilst the main focus for development has been the UK, trading in Ireland
continued to be very strong last year. The Irish estate expanded with the
opening of two new stores and extensions to existing stores, particularly at the
successful location at Blanchardstown, west of Dublin. Trading in our two
stores in Spain exceeded expectation. Like-for-like growth in Madrid, just over
a year from opening, is very strong and the sales density exceeds the average
for the UK and Ireland.
UK Ireland Spain Total
Stores
At September 2006 107 35 1 143
Net additions 24 2 1 27
At September 2007 131 37 2 170
Retail selling space m sq ft
At September 2006 2.8 0.7 - 3.5
Net additions 1.1 0.1 0.1 1.3
At September 2007 3.9 0.8 0.1 4.8
Plans are currently in place to open nine stores in the next financial year
including Ealing and Basingstoke in the UK and Cork in Ireland. Five stores are
expected to open in Spain: Jerez, two in Madrid, Bilbao and Oviedo.
9% of all clothing purchases in the UK takes place at Primark (TNS).
Voted 'Best Value High Street Fashion' by GMTV and ITV viewers.
GROCERY
2007 2006
Revenue £m 2,605 2,578
Adjusted operating profit £m 153 182
Revenue for the year was in line with last year but profit declined from £182m
to £153m. Adverse currency translation, particularly as a result of US dollar
weakness, affected both revenue and profit. At constant currencies, revenue
increased by 4% and profit was impacted by £7m. Operating profit was further
reduced by losses incurred at Allied Bakeries, margin pressure at Silver Spoon
and a charge of £8m for factory rationalisation at ACH in the US and Blue
Dragon.
Our international hot beverage brands, Twinings and Ovaltine, continued to
deliver strong growth with the benefit of marketing investment in their
strategic markets. Twinings growth was driven by green tea and the strong
growth of Everyday tea in the UK. We made good progress in developing our
market shares around the world, but most notably in the UK, which is at an all
time high, in Italy where we enjoy over one third of speciality tea sales, and
in France. The introduction of new packaging in the US had a significant
impact, raising the Twinings share to record levels. In August we signed an
agreement with an existing Japanese distributor to establish a joint venture in
Japan to provide a platform for developing our presence in one of the five
biggest tea markets in the world. We sold our Scandinavian food distributor in
October 2006, and the profit on this disposal is included in the income
statement below operating profit.
The Ovaltine brand again performed well. Disappointing sales in Switzerland
during the poor ski season were more than offset by good growth achieved in Asia
and a successful targeting of developing markets, notably Brazil, Nigeria and
Vietnam, all of which had strong double digit growth. Ready-to-drink had a
particularly strong year and the new product development programme continued
apace. Early success has been achieved in raising prices in key markets to
recover recent rises in world commodity prices, particularly in dairy and
barley. Restructuring of our factory at Neuenegg in Switzerland, to reduce
costs and improve operating flexibility, is progressing according to plan with
most of the major work now completed.
At Silver Spoon, significant business gains were made in the wholesale sector,
despite continued margin pressure on sugar. Billington's and Allinson were
completely re-launched and several new products have been introduced resulting
in significant new listings in major retailers. Working closely with Illovo, the
business has more than doubled its fairtrade sugar volume both under the
Billington's brand and in own label. An innovative brown sweetener was
introduced under the Silver Spoon branding which has achieved encouraging
listings.
After a difficult first half, the crispbread market returned to growth in the
second half of the year stimulated by a continued trend towards more premium
variants, new product launches from Ryvita and vigorous marketing support.
Ryvita extended crispbread into sweet snacking with the launch of Muesli Crunch
and provided a convenient format with the introduction of Sesame and Multigrain
Snackpacks. Healthy snacking has continued to grow but these markets have
become increasingly competitive. However, Ryvita Minis strengthened its position
within the Healthy Bagged Snacks segment and we extended our offering within
cereal bars with the launch of Ryvita Luxury Goodness bars which combine great
taste with strong health credentials.
In September 2007 we acquired 20% of the highly successful UK breakfast cereal
and cereal bar business, Jordans. The brand has a strong and differentiated
consumer position based on its use of natural and Conservation Grade(R)
ingredients. It is well positioned to benefit from consumers' growing desire
for natural ingredients and healthy eating. This investment is an exciting
development for our UK branded grocery business which already has extensive
interests and expertise in cereal-based branded foods both in the UK and
internationally. It will be a strong partner to ensure the further development
of the Jordans business.
Westmill Foods is the leading supplier of ethnic foods to the ethnic wholesale
channel in the UK. Profit was sharply ahead following the successful
integration of the brands acquired last year and the completion of a new
integrated warehouse at Enfield. New packing lines for the Rajah spice brand
were installed and this brand, together with Lucky Boat noodles and Green
Dragon, recorded double digit sales growth. Scarcity of non-GM, long grain rice
from the US affected sales of the Tolly Boy brand but this was offset in part by
strong growth in sales of our basmati brands.
The pan-oriental retail brand, Blue Dragon, performed well this year and
delivered good growth. During the year we announced the relocation of
manufacturing from two factories in Wales to a new factory now being built in
Poland. The factory is due to open in spring 2008.
In September we completed the acquisition of Patak's, a leading brand in Indian
cuisine widely recognised for its authenticity. It was established in England
in 1957 and has grown strongly in the UK but has also established a wide
international presence. It manufactures, markets and distributes Indian cooking
sauces, curry pastes, chutneys and other meal accompaniments from the Indian
sub-continent. In the UK it supplies both retail and foodservice. Its main
factory is in Leigh, Lancashire.
The combination of Patak's with our existing businesses will create a leading
position in the UK for the supply of world foods to both the retail and
wholesale channels. These markets have grown strongly and this growth is
expected to continue. Our grocery business outside the UK will provide the
capability to drive the international growth of Patak's. The integration of
Blue Dragon and Patak's will begin in the next few months.
Allied Bakeries underperformed this year with a particularly poor first half
when lower volumes and non-recovery of higher wheat costs affected
profitability. Following this, the Kingsmill brand was relaunched in February
with improved products and new packaging. Recipes were improved to exclude
artificial preservatives and some loaves are now larger and have a softer
texture. The launch was supported by strong marketing and television
advertising. The combination of price increases to recover the increased wheat
costs from 2006, higher volumes and significant enhancements in operating
efficiency resulted in an improving performance in the second half.
Unprecedented increases in the cost of bread-quality flour over the summer of
2007 have resulted in the need for further bread price increases which are being
negotiated with the major retailers.
Our Australian grocery business saw sales and underlying profit substantially
ahead of last year. Milling & baking performed well with a strong improvement in
the performance of the New South Wales bakery. The substantial increase in the
cost of wheat during the year was recovered by a price increase in February.
Strong growth was enjoyed in '9 Grain' bread and Bazaar Breads of the World,
reflecting consumer preference for healthy breads and variety. Baking
operations have now expanded into China with the opening of a plant in Wuhan to
supply KFC with bread rolls. The bakery also sells Tip Top branded products
into the Wuhan retail market to meet the increasing demand of the Chinese
consumer for western style products. The performance of the meat & dairy
businesses continued to improve. Our two major brands, Don's and Watsonia,
benefited from relaunches, and the successful introduction of new shaved meat
products improved their market share.
ACH performed satisfactorily in both the US and Mexico. Mazola marginally lost
share in a US vegetable oil market which declined by 3% in the year. The cost
of vegetable oils increased sharply in the second half which led to some margin
pressure. Very strong demand for these oils, including demand for the
production of biofuels, is continuing to drive these commodity prices still
higher. Further price increases are planned to recover these higher input costs
in 2007/8. Consumer concerns over the use of trans fatty acids remained a
strong influence on the performance of our foodservice business. A number of
restaurant businesses have changed the oils used in food preparation with the
result that our profit declined. Our business is now having success with the
sale of oil formulations with no trans fatty acids. Oil processing at
Jacksonville has ceased and we have withdrawn from the supply of certain low
margin commodity products. Profit in Mexico increased with further progress
from Capullo and its other grocery brands.
ACH successfully launched extensions to its gourmet spice business with both the
introduction of a new packaging format, grinders, under the Spice Islands brand
and the launch of a new line of gourmet grilling spices under the Weber Grill
brand. Weber Grill is licensed from the manufacturer of Weber grills and is
synonymous with barbeques and outdoor grilling. Both launches have exceeded
initial expectations.
INGREDIENTS
2007 2006
Revenue £m 728 683
Adjusted operating profit £m 75 79
Our Ingredients businesses are almost entirely located outside the UK and are
therefore susceptible to the impact of movements in exchange rates on the
translation of their results. Reported revenue and profit were respectively 7%
ahead and 5% lower than last year. However, at constant exchange rates, revenue
increased by 12% and profit was level with last year. In addition, the strength
of the Real had a substantial adverse effect on our Brazilian operations through
competition from cheaper imports.
AB Mauri generated good sales growth in yeast, particularly in South America and
south and west Asia. Construction of the yeast finishing plant in Mexico was
completed during the year which, coupled with a bakery ingredients plant due for
commissioning in January 2008, will significantly increase our presence in this
large market. We have also completed the expansion of our yeast plant at Hebei
in China and are reviewing opportunities for further expansion in the region to
take advantage of continued market growth. Capital investment continued with an
automation project to improve the efficiency of the UK yeast plant in Hull.
During the year we bought out our joint venture partner in the Philippines which
enabled us to rationalise production in the region and announce the closure of
the old Philippines plant.
A key challenge across the yeast businesses is the effective treatment of waste
water. To enable a more co-ordinated approach to technical projects across the
regions we have reorganised our central technical resources under the new AB
Mauri Global Technology Group. One of its first initiatives was to identify the
most appropriate technologies for waste water management.
Subsequent to the year end we acquired certain of the European assets of the
yeast business of Gilde Bakery Ingredients. The acquired business comprises a
wet and dry yeast plant based in Casteggio, Italy; a 50% shareholding in the
Uniferm yeast and bakery ingredients plants in Germany; a number of West
European sales and distribution companies; and a 10% stake in Somadir, Morocco's
leading yeast manufacturer. Ownership of some of the businesses is dependent on
clearances by the relevant competition authorities. The acquisition also
included part of the dry yeast business together with ownership of the Fermipan
brand in a large number of markets throughout the world. This will significantly
improve our ability to offer excellent sales reach and customer service in
Europe, Africa, Middle East and south and west Asia.
In bakery ingredients we continued to share technology across the group and have
started to see the benefit in our global accounts. Our South American business
continued to expand and was able to recover raw material cost increases with
pricing.
We completed the sale of our commodity food polyols business in the US in
February and by the year end we had closed the old manufacturing plant in
Delaware and sold the site. The loss on disposal of this business, including
the write-off of goodwill and the costs of the plant closure, is charged in
these accounts. The business supplying antacids, excipients including polyols,
and drug delivery systems to pharmaceutical companies has been retained.
In ABF Ingredients, strong sales growth across all sectors has helped to drive
profit development with progress particularly in the US. We expanded both
within growing and established markets. Growth in enzymes was supported by
investment in capacity expansion at its Finnish plant. Capacity expansion has
also been achieved in proteins and yeast extracts. Such is the sales momentum
in these businesses that further expansion projects are planned in enzymes,
proteins and yeast extracts in the coming year, supported by investment in both
selling and research capabilities.
George Weston
Chief Executive
FINANCIAL REVIEW
GROUP PERFORMANCE
Group revenue increased by 13% to £6,800m. Operating profit, adjusted to
exclude exceptional items, the amortisation of non-operating intangibles and
profits on the sale of property, plant and equipment, increased by 11% to £622m.
The strength of sterling continued to have an adverse effect on the
translation of our overseas results. At constant currency, revenue increased by
16% and profit by 13%.
The improvement in adjusted operating profit before exceptional items was
delivered despite the adverse impact of sugar regime reform of some £30m and a
£13m adverse currency translation effect primarily as a result of the weak US
dollar. These were offset by a better than forecast first time contribution from
Illovo, another strong performance from Primark and good progress in many of our
food and ingredients businesses.
The disposal of properties, plant and equipment resulted in a profit of £8m
which compares with £10m last year. A net loss of £39m, including goodwill
written off of £27m, arose on business disposals during the year, primarily our
Scandinavian food distributor and the commodity food polyols business in the US.
Finance expense less finance income of £35m compares with a charge of £14m last
year. This year-on-year increase of £21m results primarily from the cost of
acquisition of Illovo at the end of last year and a substantial capital
investment programme. Other financial income of £26m includes £25m of net
pensions financing income, being the expected return on assets in the group's
pension schemes less the charge on pension scheme liabilities, and a £1m net
foreign exchange gain on financing activities.
Profit before tax increased from £419m to £508m. Last year's result included an
exceptional charge of £97m for the costs of closing two British Sugar factories.
Adjusted to exclude exceptional items, amortisation of non-operating
intangibles and profits and losses on the sale of businesses and fixed assets,
profit before tax increased 10% from £559m to £613m.
TAXATION
The tax charge of £108m included an underlying charge of £153m, at an effective
tax rate of 25.0% on the adjusted profit before tax described above. The
effective tax rate has reduced from last year's 26.8% as a result of an increase
in the profits subject to lower tax rates and the prospective effect of the
reduction of tax rates in the UK and elsewhere on deferred tax carrying values.
The overall tax charge for the year benefited from a £30m (2006 - £13m) credit
for tax relief on the amortisation of non-operating intangible assets and
goodwill arising from asset acquisitions. This credit, together with the tax
effect of the other exceptional items, has been excluded from the calculation of
adjusted earnings per share.
EARNINGS AND DIVIDENDS
Earnings attributable to equity shareholders increased by £68m to £369m and the
weighted average number of shares in issue remained at 790 million. Earnings per
ordinary share increased by 23% from 38.1p to 46.7p. A more consistent measure
of performance is provided by the adjusted earnings per share which excludes
exceptional items, profits on the sale of businesses and fixed assets and the
amortisation of non-operating intangibles net of any tax benefit. Adjusted
earnings per share increased by 4% from 50.9p to 52.9p.
The interim dividend was increased by 4% to 6.5p and a final dividend has been
proposed at 13.0p which represents an overall increase of 4% for the year. In
accordance with IFRS, no accrual has been made in these accounts for the
proposed dividend which is expected to cost £103m and will be charged next year.
The dividend is covered, on an adjusted basis, 2.7 times.
BALANCE SHEET
Non-current assets increased by £327m to £4,719m including £2,642m of property,
plant and equipment. The increase was driven by acquisitions which added £168m
and capital expenditure of £420m.
To determine the market value of the assets backing the Primark business we have
obtained an independent valuation of its freehold and long leasehold properties.
The net book value at the year end was £579m and the valuation on a vacant
possession basis is £1,002m. This valuation increases to £1,262m with the
benefit of the Primark covenant. These assets continue to be included in the
accounts at their depreciated historic cost.
Working capital, including tax accruals, decreased by £35m.
Net borrowings were £311m at the year end compared with £298m last year.
A currency loss of £28m arose on the translation into sterling of the group's
non-sterling net assets. This resulted from the continued strengthening of
sterling against the US dollar year on year.
The group's net assets increased by £282m to £4,464m.
Despite the high level of investment made this year in acquisitions and capital
expenditure, the return on capital employed for the group was consistent with
last year at 18.8%. Return on capital employed is defined as operating profit
before exceptional items and the amortisation of non-operating intangibles
expressed as a percentage of average capital employed for the year.
CASH FLOW
Net cash flow from operating activities was £696m compared to £419m last year.
This increase reflects a positive working capital movement year on year of
£184m.
The group invested a net £489m in capital expenditure and acquisitions during
the year. Capital expenditure amounted to £420m of which £175m was spent on the
acquisition of new stores and the refitting of existing Primark stores. The
balance was used to upgrade, expand or build new manufacturing facilities
including commissioning of the new biofuels plant at British Sugar's Wissington
factory, construction of a new factory in Poland for Blue Dragon and
rationalisation of the Ovaltine factory in Switzerland and the ACH oils plant at
Jacksonville in the US.
£150m was spent on the acquisition of Patak's, a 20% interest in Jordans and a
number of smaller businesses to complement our Grocery and Agriculture
operations. £58m was realised on the disposal of the Scandinavian distribution
business and SPI Foods in the US resulting in a net cash outflow on acquisitions
and disposals of £92m.
FINANCING
This year's acquisitions were financed in part by the surplus cash funds that
have historically been managed by professional investment managers. All such
funds have now been liquidated. Cash and cash equivalents totalled £411m at the
year end and were managed during the year by a central treasury department
operating under strictly controlled guidelines, which also arranges term bank
finance for acquisitions and to meet short-term working capital requirements,
particularly for the sugar beet and wheat harvests.
At the beginning of the year the company refinanced its external borrowings and
negotiated a multicurrency $1.2bn syndicated loan facility with its existing
banking group, with a term of five years including two one-year extension
options. £412m was borrowed under this facility at the year end, drawn down in
euros, £248m, and US dollars, £164m.
PENSIONS
Pensions are accounted for in accordance with IAS 19 - employee benefits. The
total pension expense for the year was £71m compared with £67m last year.
On an IAS 19 basis, the net surplus (employee benefit assets less liabilities)
in the group's defined benefit pension schemes increased from £127m last year to
£276m this year benefiting from more favourable market conditions.
Following the merger of the British Sugar and Associated British Foods pension
schemes in April 2006, the company agreed with the Pension Trustees to make two
payments of £14.5m to eliminate the funding deficit, at that date, in the
British Sugar section of the newly-merged scheme. The first payment was made in
October 2006 and the second in October 2007. A full actuarial valuation of the
combined scheme is planned to take place with the normal triennial cycle in
April 2008. Total contributions to defined benefit plans in the year amounted
to £61m (2006 - £48m).
For defined contribution schemes the charge for the year is equal to the
contributions made which amounted to £24m (2006 - £21m).
FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES
There have been no changes to International Accounting Standards this year that
have a material impact on the group accounts.
We have refined our policy of excluding intangible amortisation from the
calculation of adjusted profit and earnings. The amortisation charge in respect
of intangible assets that arise on a business combination, non-operating
intangibles, will continue to be excluded from the adjusted profit and earnings
measures. Amortisation arising on intangibles that are purchased in the
ordinary course of business, operating intangibles, such as licences and
information technology expenditure, is charged to adjusted operating profit. No
amortisation of operating intangibles has historically been excluded from the
adjusted measures hence there has been no need for restatement.
POST BALANCE SHEET EVENTS
The acquisition of certain of the European assets of Gilde Bakery Ingredients,
and the disposal of our German yeast business, was agreed on 2 October 2007.
The acquisition of the operations in Spain, Portugal and Germany is dependent on
clearances by the relevant competition authorities. Gilde will continue to
operate these businesses until competition clearance has been received.
John Bason
Finance Director
The annual report and accounts will be available on 8 November 2007 and the
annual general meeting will be held at Congress Centre, 28 Great Russell Street,
London. WC1B 3LS at 11am on Friday, 7 December 2007.
CONSOLIDATED INCOME STATEMENT
for the year ended 15 September 2007
2007 2006
Continuing operations Note £m £m
Revenue 1 6,800 5,996
Operating costs before exceptional items (6,262) (5,486)
Exceptional items
- impairment of property, plant & equipment - (64)
- restructuring costs - (33)
538 413
Share of profit after tax from joint ventures and associates 10 10
Profits less losses on sale of property, plant & equipment 8 10
Operating profit 556 433
Adjusted operating profit 1 622 561
Profits less losses on sale of property, plant & equipment 8 10
Amortisation of non-operating intangibles (74) (41)
Exceptional items - (97)
Profits less losses on sale of businesses (39) (4)
Provision for loss on termination of an operation - (8)
Profit before interest 517 421
Finance income 20 32
Finance expense (55) (46)
Other financial income 26 12
Profit before taxation 508 419
Adjusted profit before taxation 613 559
Profits less losses on sale of property, plant & equipment 8 10
Amortisation of non-operating intangibles (74) (41)
Exceptional items - (97)
Profits less losses on sale of businesses (39) (4)
Provision for loss on termination of an operation - (8)
Taxation: - UK (excluding tax on exceptional items) (46) (89)
- UK (on exceptional items) - 29
- Overseas (62) (51)
2 (108) (111)
Profit for the period 400 308
Attributable to
Equity shareholders 369 301
Minority interests 31 7
Profit for the period 400 308
Basic and diluted earnings per ordinary share (pence) 4 46.7 38.1
Dividends per share paid and proposed for the year (pence) 3 19.50 18.75
CONSOLIDATED BALANCE SHEET
at 15 September 2007
2007 2006
£m £m
Non-current assets
Intangible assets 1,570 1,542
Property, plant & equipment 2,642 2,479
Biological assets 48 46
Investments in joint ventures 46 54
Investments in associates 33 15
Employee benefits assets 308 169
Deferred tax assets 70 82
Other receivables 2 5
Total non-current assets 4,719 4,392
Current assets
Assets classified as held for sale 48 53
Inventories 765 681
Biological assets 53 51
Trade and other receivables 967 896
Other financial assets 17 70
Cash and cash equivalents 411 349
Total current assets 2,261 2,100
TOTAL ASSETS 6,980 6,492
Current liabilities
Liabilities classified as held for sale (7) (11)
Interest-bearing loans and overdrafts (125) (531)
Trade and other payables (1,167) (972)
Other financial liabilities (26) (25)
Income tax (82) (85)
Provisions (36) (49)
Total current liabilities (1,443) (1,673)
Non-current liabilities
Interest-bearing loans (598) (176)
Provisions (14) (21)
Deferred tax liabilities (430) (398)
Employee benefits liabilities (31) (42)
Total non-current liabilities (1,073) (637)
TOTAL LIABILITIES (2,516) (2,310)
NET ASSETS 4,464 4,182
Equity
Issued capital 47 47
Other reserves 173 173
Translation reserve (49) (29)
Hedging reserve (1) (6)
Retained earnings 4,074 3,773
4,244 3,958
Minority interests 220 224
TOTAL EQUITY 4,464 4,182
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 15 September 2007
2007 2006
£m £m
Cash flow from operating activities
Profit before taxation 508 419
Profits less losses on sale of property, plant & (8) (10)
equipment
Profits less losses on sale of businesses 39 4
Provision for loss on termination of an operation - 8
Exceptional items - 97
Financial income (20) (32)
Financial expense 55 46
Other financial income (26) (12)
Share of profit from joint ventures and associates (10) (10)
Amortisation 79 41
Depreciation 214 177
Change in the fair value of biological assets (59) -
Share-based payment expense 6 -
Pension costs less contributions (14) (1)
Increase in inventories (38) (29)
Increase in receivables (58) (178)
Increase in payables 151 78
Decrease in provisions (17) (62)
Cash generated from operations 802 536
Income taxes paid (106) (117)
Net cash from operating activities 696 419
Cash flows from investing activities
Dividends received from joint ventures 1 1
Dividends received from associates 2 3
Purchase of property, plant & equipment (420) (432)
Purchase of intangibles (7) (13)
Sale of property, plant & equipment 30 181
Purchase of subsidiaries (132) (496)
Sale of subsidiaries 58 -
Purchase of joint ventures and associates (18) -
Interest received 20 36
Net cash from investing activities (466) (720)
Cash flows from financing activities
Dividends paid to minorities (26) (6)
Dividends paid to shareholders (150) (144)
Interest paid (58) (47)
Decrease in other current investments 52 216
Financing:
Decrease in short-term loans (307) (46)
Increase/(decrease) in long-term loans 417 (365)
(Increase)/decrease in own shares held (9) 1
Net cash from financing activities (81) (391)
Net increase/(decrease) in cash and cash 149 (692)
equivalents
Cash and cash equivalents at the beginning of the 198 894
period
Effect of movements in foreign exchange 2 (4)
Cash and cash equivalents at the end of the period 349 198
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 15 September 2007
2007 2006
£m £m
Actuarial gains on defined benefit schemes 110 43
Deferred tax associated with defined benefit (25) (12)
schemes
Effect of movements in foreign exchange (32) (88)
Net gain on hedge of net investment in foreign 4 14
subsidiaries
Movement in cash flow hedging position 7 (17)
Deferred tax associated with movement in cash flow (2) 4
hedging position
Net gain/(loss) recognised directly in equity 62 (56)
Profit for the period 400 308
Total recognised income and expense for the period 462 252
Adjustments relating to adoption of IAS 32 and IAS 39 on - 7
18 September 2005 (equity shareholders)
462 259
Attributable to:
Equity shareholders 439 246
Minority interests 23 6
462 252
NOTES TO THE PRELIMINARY ANNOUNCEMENT
for the year ended 15 September 2007
1. Segmental analysis
Segment reporting is presented in respect of the group's business and
geographical segments. The primary format, business segments, is based on the
group's management and internal reporting structure and combines businesses with
common characteristics. Inter-segment pricing is determined on an arm's length
basis. Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on a reasonable
basis. Unallocated items comprise mainly corporate assets and expenses, cash,
borrowings, employee benefit balances and current and deferred tax balances.
Segment capital expenditure is the total cost incurred during the period to
acquire segment assets that are expected to be used for more than one year.
Business segments
The group is comprised of the following business segments:
- Grocery The manufacture of grocery products, including hot
beverages, sugar & sweeteners, vegetable oils, bread & baked
goods, ethnic foods, herbs & spices and meat & dairy
products which are sold to retail, wholesale and foodservice
businesses.
- Sugar The growing and processing of sugar beet and sugar cane for
sale to industrial users and to Silver Spoon, which is
included in the Grocery segment.
- Agriculture The manufacture of animal feeds and the provision of other
products for the agriculture sector.
- Ingredients The manufacture of bakers' yeast, bakery ingredients,
speciality proteins, enzymes, lipid technologies and
polyols.
- Retail Buying and merchandising value clothing and accessories
through the Primark and Penneys retail chains.
To reflect the changed nature of the former Primary Food segment it has been
renamed Sugar.
Geographical segments
The secondary format presents the revenues, profits and assets for the following
geographical segments:
- United Kingdom
- Europe, Middle East & Africa
- The Americas
- Asia Pacific
Geographically segmented revenues are shown by reference to the geographical
location of customers. Geographically segmented profits are shown by reference
to the geographical location of the businesses. Segment assets are based on the
geographical location of the assets.
Revenue Adjusted operating profit
2007 2006 2007 2006
£m £m £m £m
Grocery 2,605 2,578 153 182
Sugar 1,151 671 199 115
Agriculture 687 623 18 15
Ingredients 728 683 75 79
Retail 1,602 1,309 200 185
Central - - (26) (22)
6,773 5,864 619 554
Businesses disposed:
Grocery 7 78 - 3
Agriculture - 8 - 1
Ingredients 20 46 3 3
27 132 3 7
6,800 5,996 622 561
Geographical segments
United Kingdom 3,216 2,995 255 280
Europe, Middle East & Africa 1,251 668 158 70
The Americas 1,142 1,164 113 121
Asia Pacific 1,164 1,037 93 83
6,773 5,864 619 554
Businesses disposed:
United Kingdom - 8 - 1
Europe, Middle East & Africa 7 78 - 3
The Americas 20 46 3 3
27 132 3 7
6,800 5,996 622 561
1. Segmental analysis - for the year ended 15 September 2007
Business segments
Grocery Sugar Agriculture Ingredients Retail Central Eliminations Total
£m £m £m £m £m £m £m £m
Revenue from continuing businesses 2,616 1,250 689 775 1,602 - (159) 6,773
Businesses disposed 7 - - 20 - - - 27
Internal revenue (11) (99) (2) (47) - - 159 -
Revenue from external customers 2,612 1,151 687 748 1,602 - - 6,800
Adjusted operating profit from 153 199 18 75 200 (26) - 619
continuing businesses
Businesses disposed - - - 3 - - - 3
Adjusted operating profit 153 199 18 78 200 (26) - 622
Amortisation of non-operating (14) (32) - (28) - - - (74)
intangibles
Profits less losses on sale of - - - - 8 - - 8
property, plant & equipment
Profits less losses on sale of 7 - 1 (40) (7) - - (39)
businesses
Profit before financial income, 146 167 19 10 201 (26) - 517
financial expenses and taxation
Finance costs (35) - (35)
Other finance income 26 - 26
Taxation (108) - (108)
Profit for the period 146 167 19 10 201 (143) - 400
Segment assets (excluding investments 1,949 1,609 172 924 1,436 21 - 6,111
in associates
and joint ventures
Investment in associates and joint 25 10 31 13 - - - 79
ventures
Segment assets 1,974 1,619 203 937 1,436 21 - 6,190
Cash and cash equivalents 411 - 411
Employee benefits assets 308 - 308
Deferred tax assets 70 - 70
Other current investments 1 - 1
Segment liabilities (391) (427) (56) (119) (217) (35) - (1,245)
Interest-bearing loans and overdrafts (723) - (723)
Income tax (82) - (82)
Deferred tax liabilities (434) - (434)
Employee benefits liabilities (32) - (32)
Net assets 1,583 1,192 147 818 1,219 (495) - 4,464
Capital additions 85 113 6 44 139 - - 387
Depreciation 75 52 7 24 56 - - 214
Amortisation 14 37 - 28 - - - 79
Geographical segments
United Europe The Asia
Kingdom Middle East Americas Pacific Eliminations Total
& Africa
£m £m £m £m £m £m
Revenue from external customers 3,216 1,258 1,162 1,164 - 6,800
Segment assets 2,858 1,601 905 826 - 6,190
Capital additions 230 79 37 41 - 387
Depreciation 124 33 23 34 - 214
Amortisation 10 39 25 5 - 79
1. Segmental analysis - for the year ended 16 September 2006
Business segments
Grocery Sugar Agriculture Ingredients Retail Central Eliminations Total
£m £m £m £m £m £m £m £m
Revenue from continuing businesses 2,597 766 623 729 1,309 - (160) 5,864
Businesses disposed 78 - 8 46 - - - 132
Internal revenue (19) (95) - (46) - - 160 -
Revenue from external customers 2,656 671 631 729 1,309 - - 5,996
Adjusted operating profit from 182 115 15 79 185 (22) - 554
continuing businesses
Businesses disposed 3 - 1 3 - - - 7
Adjusted operating profit 185 115 16 82 185 (22) - 561
Exceptional items - (97) - - - - - (97)
Amortisation of non-operating (12) - - (29) - - - (41)
intangibles
Profits less losses on sale of 4 4 (1) - 2 1 - 10
property, plant & equipment
Profits less losses on sale of 3 (2) - (6) - 1 - (4)
businesses
Provision for loss on termination of - - - - (8) - - (8)
an operation
Profit before finance costs, other 180 20 15 47 179 (20) - 421
finance income, and taxation
Finance costs (14) - (14)
Other finance income 12 - 12
Taxation (111) - (111)
Profit for the period 180 20 15 47 179 (133) - 308
Segment assets (excluding investments 1,782 1,497 158 1,010 1,302 14 - 5,763
in associates
and joint ventures)
Investment in associates and joint 7 6 27 29 - - - 69
ventures
Segment assets 1,789 1,503 185 1,039 1,302 14 - 5,832
Cash and cash equivalents 356 - 356
Employee benefits assets 169 - 169
Deferred tax assets 82 - 82
Other current investments 53 - 53
Segment liabilities (303) (338) (48) (113) (214) (60) - (1,076)
Interest-bearing loans and overdrafts (707) - (707)
Income tax (86) - (86)
Deferred tax liabilities (398) - (398)
Employee benefits liabilities (43) - (43)
Net assets 1,486 1,165 137 926 1,088 (620) - 4,182
Capital additions 84 55 6 48 289 - - 482
Depreciation 71 36 7 30 33 - - 177
Amortisation 12 - - 29 - - - 41
Impairment - 64 - - - - - 64
Other significant non-cash expenses - 30 - - 10 - - 40
Geographical segments
United Europe The Asia
Kingdom Middle East Americas Pacific Eliminations Total
& Africa
£m £m £m £m £m £m
Revenue from external customers 3,003 746 1,210 1,037 - 5,996
Segment assets 2,519 1,533 1,023 757 - 5,832
Capital additions 343 52 30 57 - 482
Depreciation 101 18 26 32 - 177
Amortisation 4 7 18 12 - 41
Impairment 64 - - - - 64
Other significant non-cash expenses 40 - - - - 40
Other significant non-cash expenses include a provision of £30m for costs
associated with the closure of two UK sugar factories, announced on 4 July 2006,
and a provision of £10m for costs associated with the termination of
Littlewoods.
2. Income tax expense 2007 2006
£m £m
Current tax expense
UK - corporation tax at 30% (2006: 30%) 37 37
Overseas - corporation tax 71 46
Over-provided in prior years (7) -
101 83
Deferred tax expense
UK deferred tax 14 21
Overseas deferred tax (12) 8
Under/(over) provided in prior years 5 (1)
Total income tax expense in income statement 108 111
Reconciliation of effective tax rate
Profit before taxation 508 419
Less share of profit from joint ventures and (10) (10)
associates
Profit before taxation excluding share of profit from joint ventures and 498 409
associates
Nominal tax charge at UK corporation tax rate of 30% (2006: 30%) 149 123
Lower tax rates on overseas earnings (46) (23)
Expenses not deductible for tax purposes 7 12
Adjustments in respect of prior periods (2) (1)
108 111
3. Dividends 2007 2006 2007 2006
pence pence £m £m
Per share
2005 final - 12.00 - 95
2006 interim - 6.25 - 49
2006 final 12.50 - 99 -
2007 interim 6.50 - 51 -
19.00 18.25 150 144
The 2007 interim dividend was declared on 24 April 2007 and paid on 2 July 2007.
The 2007 final dividend of 13.00p, total value of £103m, will be paid on 11
January 2008 to shareholders on the register on 7 December 2007.
Dividends relating to the period were 19.50p per share totalling £154m (2006 -
18.75p per share totalling £148m).
4. Earnings per share
The calculation of basic earnings per share at 15 September 2007 was based on
the net profit attributable to equity shareholders of £369m (2006 - £301m), and
a weighted average number of shares outstanding during the year of 790 million
(2006 - 790 million). The calculation of the weighted average number of shares
excludes the shares held by the Employee Share Option Scheme on which the
dividends are being waived.
Adjusted earnings per ordinary share, which exclude the impact of profits less
losses on the sale of property, plant & equipment and businesses, provision for
loss on termination of an operation, amortisation of non-operating intangibles,
exceptional items and the associated tax credits, is shown to provide clarity on
the underlying performance of the group.
The diluted earnings per share calculation takes into account the dilutive
effect of share options. The diluted, weighted average number of shares is 790
million (2006 - 790 million). There is no difference between basic and diluted
earnings.
2007 2006
£m £m
Adjusted profit for the period 418 402
Profits less losses on sale of property, 8 10
plant & equipment
Profits less losses on sale of businesses (39) (4)
Provision for loss on termination of an - (8)
operation
Exceptional items - (97)
Tax effect on above 15 26
Amortisation of non-operating intangibles (74) (41)
Tax credit on non-operating intangibles amortisation & 30 13
goodwill
Minority share of amortisation of 11 -
non-operating intangibles net of tax
Profit for the period attributable to equity 369 301
shareholders
2007 2006
pence pence
Adjusted earnings per share 52.9 50.9
Earnings per share on:
Sale of property, plant & equipment 1.0 1.3
Sale of businesses (4.9) (0.5)
Provision for loss on termination of - (1.0)
operation
Exceptional items - (12.3)
Tax effect on above 1.9 3.3
Amortisation of non-operating intangibles (9.4) (5.2)
Tax credit on non-operating intangibles amortisation & 3.8 1.6
goodwill
Minority share of amortisation of 1.4 -
non-operating intangibles net of tax
Earnings per ordinary share 46.7 38.1
5. Analysis of net funds/(debt)
At Cash flow Exchange At
16 September Acquisitions/ adjustments 15 September
2006 disposals 2007
£m £m £m £m £m
Cash at bank and in hand, cash 198 149 - 2 349
equivalents and overdrafts(1)
Short-term borrowings(1) (373) 307 3 - (63)
Other current Investments 53 (52) - - 1
Loans over one year (176) (417) (9) 4 (598)
(298) (13) (6) 6 (311)
(1) Cash and cash equivalents comprise cash balances, call deposits and
investments with original maturities of three months or less. 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 of the cash flow statement.
6. Other information
The financial information set out above does not constitute the group's
statutory financial statements for the years ended 15 September 2007 and 16
September 2006 but it is derived from them. The 2006 financial statements have
been filed with Registrar of Companies whereas those for 2007 will be delivered
following the company's annual general meeting. The auditors' opinions on these
financial statements were unqualified and did not include a statement under
Section 237 (2) or (3) of the Companies Act 1985.
SIGNIFICANT ACCOUNTING POLICIES
for the year ended 15 September 2007
Associated British Foods plc (the 'Company') is a company domiciled in the
United Kingdom. The consolidated financial statements of the Company for the
year ended 15 September 2007 comprise those of the Company and its subsidiaries
(together referred to as the 'group') and the group's interest in associates and
jointly-controlled entities.
The financial statements were authorised for issue by the directors on 6
November 2007.
Basis of preparation
The consolidated financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as
adopted by the EU.
The financial statements are presented in sterling, rounded to the nearest
million. They are prepared on the historical cost basis except that biological
assets and certain financial instruments are stated at their fair value. Assets
classified as held for sale are stated at the lower of carrying amount and fair
value less costs to sell. However, the financial information included in this
preliminary announcement does not in itself contain sufficient information to
comply with IFRS.
The accounting policies applied in preparing this financial information are
consistent with the group's financial statements for the year ended 16 September
2006. New accounting standards that came into force in the year did not require
restatement of comparatives.
The preparation of financial statements under IFRS requires management to make
judgments, estimates and assumptions about the reported amounts of assets and
liabilities, income and expenses and the disclosure of contingent assets and
liabilities. The estimates and associated assumptions are based on experience.
Actual results may differ from these estimates. The estimates and underlying
assumptions are reviewed on a regular basis. Revisions to accounting estimates
are recognised from the period in which the estimates are revised.
The consolidated financial statements of the Company are prepared for the 52
weeks ended
15 September 2007 except that, to avoid delay in the preparation of the
consolidated financial statements, the results of certain subsidiaries are
included up to 31 August 2007. The results of Illovo are included for the
period to 30 September 2007 in line with Illovo's local reporting date.
Adjustments are made for significant transactions or events occurring between 31
August and 30 September.
This information is provided by RNS
The company news service from the London Stock Exchange
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