Final Results

Associated British Foods PLC 05 November 2002 5 November 2002 Associated British Foods delivers strong profit growth with substantial cash generation Preliminary results for year ended 14 September 2002 Highlights â€¢ Operating profit up 13% to Â£395 million * â€¢ Group sales up 3% to Â£4,545 million â€¢ Investment income down from Â£66 million to Â£57 million â€¢ Profit before tax up 9% to Â£430 million ** â€¢ Adjusted earnings per share up 14% to 38.7p ** â€¢ Dividends per share up 12% to 13.25p â€¢ Cash generated, before acquisitions and disposals, of Â£229 million â€¢ Net cash funds of Â£1,050 million * before exceptional items and amortisation of goodwill ** before exceptional items, profits on the sale of fixed assets and amortisation of goodwill Peter Jackson, Chief Executive of Associated British Foods, said: ' These are strong results and we have again delivered double digit operating profit growth across four of our five business categories. 'Good market positions have been strengthened, strong management teams have been reinforced and a more international ABF is emerging with first rate new businesses being acquired in North America, Europe and Asia. We have an excellent platform for continued growth in the future.' For further information please contact: Associated British Foods: Until 1500 only Peter Jackson, Chief Executive John Bason, Finance Director Tel: 020 7638 9571 After 1500 only John Bason, Finance Director Tel: 020 7589 6363 Geoff Lancaster, Head of External Affairs Mobile: 07860 562 659 Jonathan Clare/Chris Barrie/Sara Batchelor, Citigate Dewe Rogerson Tel: 020 7638 9571 Notes to Editors 1. Associated British Foods (ABF) is an international food, ingredients and retail group with annual sales of over Â£4.5 billion and 35,000 employees. The group is one of Europe's largest food companies, and has significant businesses in Australia, New Zealand, Asia and the US. 2. These 2002 preliminary results represent the second consecutive year of double digit growth in four of the five business groups. Substantial progress has been made over the last four years in achieving sustained profits growth with strong cash flow. Â£m 1998 1999 2000 2001 2002 Adjusted operating Profit 316 326 340 351 395 Cash flow before acquisitions/ 98 42 140 108 229 disposals Special dividends in 1998 and 1999 excluded 2001 excludes payment of European Commission fine of Â£27m 3. While the traditional commodity businesses represented in the Primary Food and Agriculture group remain strongly profitable and cash generative, their contribution to overall group performance is reducing as stronger market positions in Grocery, Ingredients and Oils, and Retail are built. During the 2002 calendar year, ABF spent nearly Â£500 million on acquisitions - primarily Mazola and Ovaltine/Ovomaltine - financed from the cash generated by the group during the year. April 2002 Acquisition of Mazola, a leader in food oils in North America, from Unilever for Â£235 million. October 2002 Acquisition of Ovaltine and associated brands from Novartis for Â£171 million. 4. In the attached statement ABF today announces the appointment of Martin Adamson as Non-Executive Chairman. Biography below: Martin Adamson, 63, is a qualified chartered accountant and is a member of the Institute of Chartered Accountants in Scotland. He was a senior partner at KPMG until 1996 and was a member of KMPG's Board and partner responsible for risk management. He was appointed a director of the ABF Board in October 1999. He is also Chairman of Compass Group Pension Trustee Company Limited. ASSOCIATED BRITISH FOODS plc PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 14 SEPTEMBER 2002 For release 5 November 2002 CHAIRMAN'S STATEMENT In my interim statement I referred to the solid progress which had been achieved in the first six months of the year and I am delighted to report that our operational performance in the second half has maintained that rate of growth. Operating profit, before exceptional items and amortisation of goodwill, increased by Â£44 million, or 13 per cent, to Â£395 million. It is particularly noteworthy that this performance has been achieved against the background of a global market characterised by excess capacity and declining consumer confidence. All divisions, with the exception of Australia, achieved double-digit profit increases maintaining the trend established in the first half. Primary food & agriculture again produced strong profit growth. Despite a smaller UK beet crop, British Sugar achieved a satisfactory increase in profit. This could not have been achieved without the ongoing rationalisation and cost reduction programme which has been a constant focus in recent years. Despite an improved operational performance, our overseas sugar business in Poland was hit by adverse market prices resulting in a fall in profit. Although faced with a poor wheat harvest, Allied Mills and our arable business achieved strong gains in profitability. Here again restructuring and cost reduction has been a constant theme. In agriculture, traditionally the most volatile sector of our operations, we were able to overcome the trailing impact of disease and adverse weather conditions to record strong gains in our animal feeds business. Given the continuing problems of pricing, financial instability and over capacity in the farming industry, the achievement of double-digit growth in a shrinking sector of the UK economy is a remarkable result. With one exception, the ingredients & oils businesses put in an outstanding performance. ACH significantly increased its profit and this is particularly pleasing because it was achieved before including any contribution from the Mazola oils acquisition, which was only purchased towards the end of the financial year. The integration of Mazola is going according to plan and it is expected to make a substantial contribution to the profit growth of ACH in the coming year. SPI, our polyols business, has made a recovery from the operational problems experienced last year and achieved a significantly improved profit. It is disappointing to report that our Abitec ingredients business faced problems in reorganising and integrating its existing and newly acquired bakery ingredients businesses in the UK and the US. The result was a decline in profit but, despite this setback, we are confident that growth will be resumed in the current year. Our grocery businesses again produced an excellent result. Allied Bakeries continued to grow branded volume in the multiple retail sector. With contributions from a bread price increase, cost reductions and operational efficiency improvements, Allied Bakeries achieved a significant improvement in its results. Twinings maintained its strong performance in worldwide sales, market share and profit growth. A strong feature in this growth story in recent years has been the successful development of its product range into the herbal and fruit infusion markets both in the UK and overseas. Primark has again achieved outstanding growth in both sales and profit. We continue to acquire and develop stores in new city centre locations and we are confident that the growth of this business can be maintained in an increasingly competitive sector. The poor performance of George Weston Foods in Australia continued into the second half of the financial year. Despite a highly successful performance by the milling and baking businesses, our meat and biscuit operations continued to underperform. During the year we sold, at a profit, our loss-making starch manufacturing operation. Since the financial year end we have completed the buyout of the minority shareholders in the company. We are now in a position to take positive action to best position this business for growth. This will be a major focus in the coming year. The disposal of redundant properties continued resulting in a profit of Â£8 million in the year. Despite an increased level of expenditure on fixed assets and acquisitions at over Â£450 million, the strong cash flow from our operating activities ensured that at the year end our net liquid funds were in excess of Â£1 billion, a level virtually unchanged from the previous year. Improved returns on these invested funds in the second half of the year enabled us to restrict the decline in the level of investment income as a result of lower interest rates. At Â£57 million this was Â£9 million, or 14 per cent, below last year. Adjusting for exceptional items, profits on the sale of fixed assets and amortisation of goodwill, group profit before tax increased by 9 per cent to Â£430 million. Adjusted earnings per share were 14 per cent ahead of last year at 38.7p. Your company is renowned for its defensive strengths and its cash generating capability. These results, achieved against a background of increasing global uncertainty and decreasing investor confidence, demonstrate not only the strength and resilience inherent in our core businesses but their capacity for producing further growth. Management effort continues to be focused on improving the efficiency of our businesses. This is not only a process of reducing our cost base but of improving the level of performance by our operating management both by developing the best of our existing executives and targeted recruitment of stronger managers where required. Spending on acquisitions in the year totalled Â£268 million including Â£235 million for the purchase of Mazola in the US. This bottled corn oil business is an ideal fit with ACH oils and enables us to broaden our product offering into the branded retail segment of the market as well as to rationalise production and distribution costs. This acquisition will have a positive impact on earnings in our 2003 financial year. Since the end of the financial year we completed the purchase of the minority shareholdings in George Weston Foods in Australia at a cost of Â£58 million. In early October we announced the purchase of Ovaltine, the branded malted drinks business, from Novartis of Switzerland for a consideration of Â£171 million. The acquisition includes Ovaltine and associated brands throughout the world except the US. The addition of this internationally known brand to our product portfolio will enhance our presence in the international consumer market for hot beverages. This acquisition is forecast to be earnings enhancing in its first year under our ownership. In my last annual report I stated that the outlook for the year ahead was one of escalating uncertainty and of reduction in consumer confidence. Financial markets throughout the world over the past year have reflected that in moving consistently lower. I believe that the coming months will bring little in the way of relief from these pressures as the global economy faces up to the possibility of war in the Middle East, a seemingly unending financial crisis in Japan and low to zero growth in the US and Europe. No company as large and widespread in its activities as ours can be totally immune from these influences. Despite this gloomy outlook I believe that this company can face the coming year with the confidence that it will maintain its positive growth in sales and operating profit. In the past year, we have invested over Â£450 million on acquisitions and capital expenditure in our existing businesses. Such is the strength of our cash flow that we have financed all this without any significant reduction in the level of our net liquid funds. These investments and the further acquisitions since our year end will have a positive effect on our operating performance in the coming year. The growth of your company has been financed from its own resources. The value of this long-held and important discipline is clearly demonstrated in today's hostile financial environment where the very existence of many companies is threatened by their inability to service debt taken on in more expansionary times. Our objective is to grow at a steady and sustainable pace funding our development from cash flow and a strong balance sheet. The base of our business has been significantly reshaped in the past three years. We have sought to eliminate areas of weakness or irrelevance to our planned growth but at the same time we have sought to strengthen and expand those sectors which can act as the framework for our future development. I am confident that your company can maintain its current momentum. Board Changes The appointment of Mike Alexander as an additional non-executive director was announced in January this year. Mr Alexander is executive director and chief operating officer of Centrica plc, having previously held a number of management positions with BP and latterly with British Gas. He brings a wealth of operational management experience and will make a strong contribution to our activities. Dividends The directors have declared a second interim dividend of 9.00p (2001 - 7.55p) which will be paid on 18 February 2003 to shareholders registered at the close of business on 17 January 2003. This makes a total dividend for the year of 13.25p, an increase of 12 per cent on the previous year. Employees The pace of change in our organisation owes much to our employees around the world who have not only risen to the challenges this poses but have made major contributions in taking us forward. The successes we are recording in this report are a testament to their efforts and I take this opportunity to thank them all. Chairman Your company is well placed to achieve further growth. It has an excellent management team and a solid financial base. Having served as a director for the last 23 years I feel that it is the appropriate time to step down and I have notified the board that I intend to retire immediately following the annual general meeting. My successor as Chairman will be Martin Adamson, a fellow board member who will bring to the role a wealth of business experience and a breadth of knowledge of your company's activities. I wish him and my colleagues every success in the years ahead. Harry Bailey Chairman CHIEF EXECUTIVE'S REPORT Businesses across the group again delivered excellent results, increasing operating profit, before exceptional items and amortisation of goodwill, by 13% to Â£395 million and increasing group sales by 3% to Â£4,545 million. Adjusted earnings per share rose by 14% to 38.7p. A particularly pleasing aspect of these results is that, for the second year running, four out of five of the business categories outlined in our segmental analysis delivered operating profit increases in excess of 10%, a clear indication of the breadth of progress being made across the group. Delivering sustained growth is however only one of our goals. The other major goal is the generation of strong cash flow, the means by which we will ensure our ongoing ability to invest heavily in the capital projects and acquisitions necessary to underpin future earnings growth. The cash flow generated by the group over the last year, after capital expenditure but before acquisitions and disposals, was Â£229 million. This result demonstrates the strong cash generating ability of the group. Although our shareholders and our employees should take some satisfaction from these financial results there have also been other signs of progress. Good market positions have been strengthened, strong management teams have been reinforced and a more international company is emerging with the first rate new businesses acquired in North America, Europe and Asia. There is however much still to do in order to bring the company closer to achieving its full potential. We need to do even more to develop our management teams and we must further increase the focus we place on the marketing of our products. We must also continue to review the performance and plans of all our businesses to determine those where we can achieve the best returns on our investment. A key element of our future is the further development, either organically or by acquisition, of very strong market positions that have the scale, cost base and breadth and depth of product offering necessary to make a major impact on their markets. We still have a place for efficient, smaller businesses with the potential to grow, but the development of larger scale positions will strengthen the base of our business and provide the platform for significant subsequent growth. One example of our ability to develop businesses is at ACH. Here the business has moved, in a two year period, from being a medium size refiner, bottler and marketer of private label cooking oils to becoming a leading player in the bottling and marketing of oil based food products in North America. In making this transition we outsourced the inefficient elements of our manufacturing operations and, with the acquisition of strong brands in both foodservice and retailing, created strong market positions with the scale necessary to optimise our distribution and buying efficiencies. In time this strength will inevitably provide further opportunities for significant growth. In a similar way we are looking to the recent acquisition of the Ovaltine brands from Novartis to work alongside our already successful Twinings business to give the scale, expertise and international market presence necessary to have a much stronger impact on the speciality beverages market. This will again provide a base for further growth. Many of our businesses can however achieve the necessary strength and scale in their markets without major acquisition but by organic growth supported by capital investment. During the past year Â£186 million was invested in capital projects including Â£51 million on new stores and refits in support of the remarkable growth of our Primark retailing operation. The skill of Primark's staff, their clarity of focus and their understanding of the customer have all contributed to a further strengthening of Primark's position in its chosen market. This last year has seen good performances from a range of businesses across the group. Many of these will be referred to later in the report. Examples of marketing successes include brand extensions at Ryvita and Twinings and innovative product launches at our SPI Pharma business. Amongst the many examples of effective cost reduction was a very strong performance in improving supply chain and distribution efficiencies at our UK bakery business. However, this business continues to trade in a tough market and much work is still needed before we achieve a satisfactory level of return from this investment. References to tough market conditions become repetitive and should now be seen as the norm for most industries. Many of our businesses have shown that success can be achieved in the toughest of markets. Since the end of the financial year we have acquired the minority shareholdings in George Weston Foods, our Australian business. Much has been said about the disappointing levels of performance from this business in recent times. The problems have centred on our meat and biscuit operations and should not detract from the qualities of the rest of the company which include a first rate milling and baking operation, some very good brands and some very good people. The change in ownership structure will allow us to simplify the business and should lead to an early improvement in results. Any overview of our performance would not be complete without a reference to sugar. British Sugar's results were impacted by a low crop, poor performance at the Wissington factory and, to a lesser extent, by low world sugar prices. Despite this we delivered a strong result which, although still a major part of our earnings, is becoming a smaller proportion of the whole as other parts of the business continue to grow. This reduces the group's exposure to the EU sugar regime which is a trend we expect to continue. I mentioned above the fluctuations in world sugar prices. Although they do not have a major direct effect on British Sugar, they have a major indirect effect on the profitability of our businesses in Poland and China. Lower sugar prices have impacted profits from these two businesses during the last year and I do not expect to see any improvement in the coming year. Across the board our businesses can face the future with confidence, aware that there is still much to do, but knowing from their achievements this year that they have both the ability and resources to continue on a very firm growth path. GROCERY Associated British Foods is a major manufacturer of both branded and private label grocery products, many of which are household names. Strong growth was achieved by our grocery businesses with sales up 5% to Â£902 million and profit up 35% to Â£50 million. This represented a good performance by all businesses except for a lower profit at Speedibake. Allied Bakeries made good progress in the year. Sales increased with continued volume growth by the Kingsmill brand and a sales price increase last autumn to recover increases in flour prices. Kingsmill growth was supported by the launch of Whole & White Rolls early in the year and increased marketing support. Profitability improved and was supported by a continuing programme of cost reductions, including the closure of the Sheffield bakery, and improved production efficiencies. Cost reductions at Allied Bakeries were achieved in distribution, systems and administration. A much strengthened management team was responsible for increased investment in the business. This investment was made in improvements to product quality, sales force effectiveness, distribution and systems, all of which are expected to yield further benefits in the future. Competitive pressure and increased input costs reduced profitability at Speedibake. Progress was made in streamlining the business. The Northampton factory was closed during the year and production was transferred to the other factories at Wakefield and Bradford. The business has been restructured to provide a greater focus on innovation and market development for its five core product streams: French bread, speciality bread, filled products, muffins and doughnuts. A new innovation centre opened in Wakefield, and has already made an important contribution to the flow of new products. Partnerships with our main customers have worked to stimulate consumer demand for in-store bakery products. Dating back to 1706, Twinings is one of the oldest tea brands, and is popular in more than 100 countries. It continued to make strong progress with increases in sales and profit. In the UK, the flagship black and gold speciality tea range was successfully relaunched in the autumn. There was continued good growth in the herbal and infusions sectors, and Twinings brands are also now leaders in green tea. Sales of iced tea grew strongly, supported by major sampling initiatives and in-store promotions. Export and international sales now represent nearly 80% of Twinings sales. The US operation performed particularly well and, in France, the La Tisaniere 'Bien Etre' range of herbal products grew substantially. The acquisition of Ovaltine and associated brands from Novartis was announced in October 2002. Ovaltine, or Ovomaltine outside the UK, is a large, growing international brand with leading market positions in Europe and Asia. The brand comprises a range of nutritional malt based beverages, snacks and confectionery. In addition to Ovaltine, the acquisition includes a number of strong national brands including positions in coffee and hot chocolate. Ovaltine provides sustained energy and nutrition benefits which are especially appealing to mothers, young children and teenagers. The combination of Ovaltine and Twinings will create a strong speciality hot beverage business with international scale. Both businesses will be strengthened with wider geographic opportunities, stronger distribution within markets and an enhanced international management team. Ryvita had another record year. It maintained its volumes and benefited from television advertising in the UK to support its brand leading position. Ryvita rice cakes were successfully launched in the year and have quickly become a brand leader. Silver Spoon is the UK's leading sugar brand, selling nearly one million 1kg packs of sugar a day. Market share was gained in the retail sugar market. Good progress in artificial sweeteners continued with 'Nothing Comes Closer to Sugar' which achieved significant sales growth and it now has a 10% share of its market. The Crusha milk shake syrup business, acquired in December last year, has now been fully integrated. Skilled marketing and strong trade relationships have resulted in increased listings and effective promotions. Its performance has exceeded all expectations, showing major volume growth despite the poor summer weather. Westmill Foods is a major supplier of rice and flours to supermarkets and specialist ethnic food stores. Good progress was made this year and its profit increased. Rice performed particularly well in the face of strong competition, by regaining lost sales from last year and launching Asli basmati rice, which is aimed at the premium ethnic sector. In retail, branded rice sales increased following the launch by Patak of their dry rice. A range of microwaveable rices for the branded and private label sectors was launched in the spring and early reaction has been extremely favourable. There was further significant growth in the Allinsons breadmaking range. INGREDIENTS & OILS The group has an increasing focus on high added value ingredients and vegetable oils. It produces functional ingredients from natural products for use in the food, foodservice, pharmaceutical and personal care sectors. Strong growth this year, with sales up 13% to Â£800 million and profit up 26% to Â£53 million, was driven by ACH and SPI which more than offset a decline in Abitec. ACH Food Companies, our US oils business, made significant progress in the year. The sale of the loss-making Greenville, Mississippi rice milling operation was completed at the end of last year and the business benefited from lower manufacturing costs following the exit from commodity oil processing at Champaign, Illinois and the rationalisation of production following the closure of Columbus, Ohio. The branded foodservice and oils business acquired from Procter & Gamble in January 2001 has been fully and successfully integrated. Despite the initial negative effect on the foodservice market after the events of 11 September 2001, this business achieved higher volumes and profit with new business gained and new product offerings introduced. The purchase of the Mazola branded cooking oil and corn products business in the US, Canada and Puerto Rico from Unilever was completed in July. The main brands acquired were Mazola cooking oil, Argo and Kingsford's cornflour, Karo and Golden Griddle syrups. This acquisition is expected to be fully integrated with ACH's existing oil business by December 2002. Mazola is a premium brand with a strong loyalty in the trade and with the consumer and strengthens the retail position of ACH by adding the leading corn oil brand. The profit in the next financial year will reflect the significant cost savings arising from the integration and the benefits of creating stronger channels to market for Mazola. The profit contribution from the acquisition in this financial year has been offset by the one-time charges for the integration. There was a strong recovery at SPI, our US-based polyols business. Polyols are sugar-free sweeteners derived from carbohydrates which are used in a variety of applications in the food, confectionery, oral care, cosmetic and industrial markets. Sales growth, improvements in product mix towards higher value added products and cost reductions all contributed to this improvement. In addition, the organisation and operating processes were strengthened, which will provide further benefit in the future. In Food, sales rose sharply for the proprietary products based on maltitol which are targeted at the high growth sugar-free confectionery market in North America. These products function and taste like sucrose and allow the development of sugar-free versions of existing products without compromising taste. In Pharma, following its launch last year, Pharmagum is meeting expectations and has been joined this year by Pharmaburst - a quick-dissolve drug delivery system. Several pharmaceutical companies have filed for regulatory approvals employing this novel method of administration. The business continues to extend its technology base through partnerships with other suppliers to the pharmaceutical industry. Abitec is focused on three business areas: bakery ingredients, lipid technologies and enzymes. Operational problems were encountered in the reorganisation and integration of its bakery ingredients businesses, Cereform, in the UK and US and resulted in a reduction in profit in addition to the charge taken for the rationalisation. The rationalisation of the acquired SPP business in the UK with our existing business is now complete and has created the UK leader in the supply of technical bakery ingredients. In the US the concentration of mixes, icings and fruit fillings activities in Denver has also been completed. The management focus is now to overcome the operational difficulties and increase the margins and profit of this business. Lipid technologies delivered a good performance from its sales to the personal care and pharmaceutical markets. Following a slowing in the first half, the enzymes business continued its strong progress in the second half to deliver a year of profit growth. It continues its focus of developing innovative solutions for customers in sectors as diverse as animal feeds, beverages and textiles. Environmental applications have also been devised for paper manufacturers, who use enzymes to reduce the viscosity of pulp, thus saving energy, and to remove bleach from the whitening process. PRIMARY FOOD & AGRICULTURE Associated British Foods is UK agriculture's biggest customer. The group buys more primary products from British farmers than any other - adding value within the food chain through its sophisticated and efficient processing facilities to produce high quality, staple food ingredients such as flour and sugar. Good progress was made by British Sugar, Allied Mills and ABNA. However, profit in the Polish sugar business was impacted by a poor crop and lower market prices. British Sugar benefited in the year from lower costs arising from the rationalisation of its factories, better yields from processing and the strengthening of the euro. Following the closure of two factories in 2001, there was further rationalisation with Kidderminster being closed in February 2002 and Allscott being successfully upgraded. These benefits more than offset the impact of the lower sugar beet crop of only 1.22 million tonnes, compared to 1.325 million tonnes for the prior year, the processing problems at the Wissington factory and a fall in world sugar prices which affect the value of sugar exports. The profit this year included the release of a Â£7 million provision established some years ago for a potential fine which is no longer needed following a favourable judgement by the European Court of Justice. The Â£25 million resin separation plant at Wissington was successfully commissioned in the spring. This provides an important new revenue stream from the production of other beet-derived high value products. Our Chinese sugar business had a good year with sales volumes doubling, benefiting from the acquisition of a fourth factory at Wuxuan in October 2001. However, prices were lower than the previous year. Political uncertainty, oversupply in the market and a poor crop contributed to a disappointing performance by the Polish sugar business. The process of rationalising the company's ten factories is well underway, and the objective of becoming the lowest cost producer of quality sugar remains on track. Lower sugar prices in Poland and China are expected to continue in the short term. The Germain's Technology Group is a leader in the market for seed treatment and coatings. The UK and continental European operations delivered good results, but the North American business experienced difficult conditions with pressures on volumes and markets. The US sugar beet seed coating business has been restructured, and production is now focused at the plant in Fargo, North Dakota, following the closure of the Longmont, Colorado facility. Allied Mills had a good year as it benefited from reduced costs. Overheads were lower following the closure of two mills last year and the successful centralisation of administration. Poor weather resulted in the smallest UK wheat harvest since 1988 which in turn triggered increased wheat prices and the first flour price increase in five years. A new semolina packaging plant and warehouse opened at Tilbury in March. ABNA is the group's agriculture business, comprising grain marketing, animal feeds and 'identity-preserved' speciality crop production. Across all sectors, UK agriculture remains under severe economic and price pressures, compounded by the legacy of the foot and mouth and BSE crises. Against this difficult background, the business continued to outperform in its sector. In the arable sector, low prices have put pressure on farmers who are buying less seed. However, ABNA's arable business grew its share of the seed, fertiliser and grain markets, despite a significantly smaller cereal crop. This success is a direct result of delivering added value services to farmers and the establishment of long term marketing contracts with end-users, farming groups and co-operatives. The animal feeds business has also grown its market share. Crucial to this has been the continuing development of supply chain partnerships, and the implementation of a new feed grain procurement policy in partnership with the arable business. New products introduced during the year included organic sugar beet pulp and pressed apple pulp, as well as a new feed for enhanced milk production. ABNA is now looking to benefit from the integration of its arable and animal feeds businesses with improved logistics and new systems. When implemented, these are expected to result in an enhanced service offering to both customers and suppliers. Kings is a specialist business devoted to plant-derived oils, which have a wide and expanding range of applications. These include pharmaceuticals, dietary supplements, personal care and industrial chemicals. During the year, a new base was established in North Carolina, taking advantage of the southern state's climate to grow specific, high value crops for pharmaceutical companies. An increasing number of customers are looking for absolute integrity of crops, and with the business focused on identity preserved production and processing, it has significant potential for growth. RETAIL & PACKAGING Primark has a winning retail formula of providing quality merchandise at affordable prices. Allied Glass Containers is one of Europe's leading producers of premium glass packaging. PRIMARK Very strong growth continued at Primark driven by new store openings, particularly in the second half of last year, and like-for-like sales growth of 4% over last year. Sales increased by 27% to Â£654 million and profit was up by 20% to Â£72 million. As mentioned in the interim report, operating profit margins were reduced, mainly as a result of the overheads arising from the substantial increase in capacity following the opening of our warehousing facility at Magna Park last year. Primark is now a major retail group employing nearly 10,000 people and operating 114 stores in the UK and Ireland (where it trades as Penneys). Targeted at fashion conscious under 35s, Primark offers stylish, quality merchandise at very competitive prices in a pleasant shopping environment. The ranges on offer are constantly updated, and buyers work directly with suppliers to develop and source exclusive products and negotiate the best prices on high volumes of merchandise. Computerised customs clearance and dedicated warehousing and distribution services allow stores to maintain complete control of their stock to support sales. Selling price deflation is now a factor in many departments in retail textiles reflecting market competition and lower input costs. Primark's like-for-like sales value increase of 4% in this environment demonstrates the strength of its offering. Six new stores were opened during the year, including the company's flagship store in Manchester in October. In a prime city centre location, it occupies 70,000 square feet and is the company's largest store to date. Other stores were opened in Lewisham, Glasgow, Torquay, Bromley and in Blanchardstown, near Dublin. The existing store in Wandsworth was relocated. Primark is now trading from almost 2 million square feet of retail selling space. Major refits were started in 11 existing stores, to update the format and to increase selling space at certain stores. The first of these, at Stevenage, has expanded into space upstairs and has reopened very successfully with sales double those of last year. Primark is continuing actively to seek additional locations for new stores. Contracts have already been signed for new stores in Birmingham, due to open in December, East Kilbride and, in the Republic of Ireland, at Dundrum. ALLIED GLASS CONTAINERS The UK market for glass packaging showed moderate growth with a significant increase in the premium packaged spirits sector but a substantial decrease in food. The continued overcapacity in the market resulted in price pressure during the year. Although volumes at Allied Glass Containers declined in this competitive environment, cost reductions and an increase in added value sales contributed to an increase in profit. The reorganisation of production facilities started last year was completed, resulting in increased use of three larger, more efficient furnaces at Leeds and Knottingley and a significant reduction in operating cost. Capital investment during the year focused on this reorganisation, and included a replacement bottle forming machine which increased output. Allied Glass Containers remains focused on short run, high quality packaging. Its design innovation skills have been recognised through winning the food and spirits sections of the national Shine Awards, which showcase excellence in glass packaging, with the spirits winner taking the overall prize. Development work is continuing to produce lighter bottles, with a 15% lighter standard whisky bottle now being offered to the market. AUSTRALIA & NEW ZEALAND George Weston Foods is a major processor and producer of primary and branded food products in Australia and New Zealand. Sales for the continuing business increased 6% to Â£580 million. However, cost and competitive pressures continued to affect the business, particularly the meat and biscuit operations. As a result, the underlying profit declined from Â£21 million to Â£18 million. In addition, the poor performance of the meat business has resulted in a fixed asset impairment provision of Â£6 million which reduced the profit for the financial year to Â£12 million. Baking performed very strongly with increases in sales and profit. New products, volume growth and cost savings more than offset the effects of a competitive market and increased flour costs. The launch of Noble Rise Crunchy Toast, White and Fruit varieties, the relaunch of the Bergen range and the launch of the Holsom range were all successful during the year. Sales of Noble Rise increased again to strengthen its position as a leader in the premium bread segment. In August, a new addition to the Tip Top range was launched, Tip Top-Up, which is enriched with omega-3 oils aimed at the increasing number of health conscious families. Early indications are very promising. In June, fire destroyed our largest bakery in Australia at Fairfield in Sydney. Restoration of very high levels of customer service within days is a testament to the professionalism and speed with which our employees reacted to the problems. The loss is insured and plans are well advanced for a replacement bakery. In milling, significant cost savings were achieved and margins improved. There was a focus on increasing market share in the 'low cost to serve' industrial markets. The New Zealand operation benefited from a new warehouse and distribution centre in Auckland and the commissioning of a blending facility to produce locally, higher value bakery mixes. Sales were maintained in the biscuit and cake business but profitability was affected by higher input costs and a competitive market. The product range was strengthened with a number of new product launches including extensions to the popular Wagon Wheels and Ryvita brands. A new range of products featuring Winnie the Pooh and Toy Story characters was launched. George Weston Foods is the leading cake manufacturer in Australia with its Top Taste brand. The meat and dairy business produces some of Australia's best known brands including Don, Watsonia, Melosi and Chapmans. However, substantially higher meat prices, continuing distribution and operational problems combined with reduced volumes had a significant impact in reducing its profitability. A new senior management team is focused on resolving the problems and improving margins and profitability. Elsewhere, Jasol enhanced its presence in the Australian speciality chemical manufacturing and service market. Several new products were launched during the year, including a range of oxygen-based sanitising and bleaching products. The underperforming starch business was sold in March 2002. On 20 September 2002, George Weston Foods became a wholly-owned subsidiary and its shares were delisted from the Australian Stock Exchange on 27 September. Peter Jackson Chief Executive FINANCE DIRECTOR'S REPORT GROUP PERFORMANCE Group sales increased by 3% to Â£4,545 million, and operating profit, before exceptional items and amortisation of goodwill, increased by 13% to Â£395 million. Operating profit included the benefit of the release of a Â£7 million provision established by British Sugar some years ago for a potential fine which is no longer needed following a favourable judgement by the European Court of Justice. In the light of the poor performance by the meat & dairy business in George Weston Foods, a fixed asset impairment provision of Â£6 million has been made in arriving at the results of the Australian business. On 2 July 2002, ACH completed the acquisition of Unilever's branded corn oil and corn products business in the US, Canada and Puerto Rico. We also acquired two ingredients businesses, the Crusha milk shake syrup business and the Wuxuan cane sugar mill in China. The total acquisition spend in the year was Â£268 million. Proceeds from the disposal of businesses were Â£34 million which related to the completion of the sale of Nelsons of Aintree and the ACH rice processing business at Greenville, Mississippi, both of which were accounted for last year, and Â£16 million for the sale of the Australian starch business in March 2002. We continued to dispose of properties that are no longer required by the group, although not at the same rate as last year, resulting in a reduction in the profit on disposal of fixed assets from Â£20 million to Â£8 million. Investment income fell from Â£66 million to Â£57 million this year mainly reflecting lower interest rates. Interest payable reduced from Â£24 million to Â£22 million as a result of lower average overseas borrowings and the repayment of the unsecured loan stock. Profit before tax increased from Â£369 million to Â£420 million. Adjusted to exclude exceptional items, profits on the sale of fixed assets and the amortisation of goodwill, profit before tax increased 9% from Â£393 million to Â£430 million. TAXATION The tax charge of Â£95 million included an underlying charge of Â£122 million, which is an effective tax rate of 28.4% on the adjusted profit before tax and compares to 30.0% in 2001. FRS 19 'Deferred Tax' has been adopted in these accounts for the first time. This has had the effect of increasing the underlying tax charge by Â£11 million in the current year and by Â£12 million, an additional 3 percentage points on the tax rate, last year. Accumulated tax losses in the US have been recognised this year in a deferred tax credit of Â£23 million. The acquisition of Mazola and the improved performance of our US businesses now provides the necessary assurance that these losses will be utilised. In addition, the tax charge for the year benefited from a Â£4 million credit for tax relief on the amortisation of goodwill arising on asset acquisitions in the US. Both of these credits have been excluded from the calculation of adjusted earnings per share. EARNINGS AND DIVIDENDS Earnings increased by Â£79 million to Â£322 million and the weighted average number of shares in issue remained constant at 789 million. Earnings per ordinary share increased from 30.8p to 40.8p. A more consistent measure of performance is provided by adjusting earnings per share to exclude exceptional items, profits on the sale of fixed assets and amortisation of goodwill net of the tax benefit. Adjusted earnings per share on this basis increased by 14% from 33.8p to 38.7p. The first interim dividend was maintained at 4.25p and a second interim dividend has been declared at 9.00p representing an overall increase of 12% for the year. Dividends will cost a total of Â£105 million. Dividend cover, on an adjusted basis, is 2.9 times (2001 - 2.9 times). Â£217 million will be transferred to reserves. ACCOUNTING FOR PENSION COSTS The charge for pension costs in the accounts has been calculated in accordance with SSAP 24 based on the most recent actuarial valuations. In the case of the group's main UK scheme, the last formal valuation was undertaken at April 1999 since when the market value of investments has deteriorated. A new valuation was undertaken as at April 2002 but has yet to be finalised. The draft report indicates that the scheme remains in surplus and there would have been no change to the SSAP 24 charge were this valuation to have been adopted for the preparation of these accounts. However, in light of the changes in market conditions since April 2002, an informal valuation was conducted as at September 2002 by the scheme's actuaries. Although the informal September valuation revealed a further reduction in the surplus there still remains a modest surplus. If current financial market conditions prevail, the company will recommence some level of contribution to the main UK scheme. BALANCE SHEET Fixed assets increased by Â£228 million to Â£1,804 million principally due to the additional goodwill arising on acquisitions in the year. Net cash funds, being current asset investments and cash at bank less short-term borrowings and loans, were virtually level with last year at Â£1,050 million with the cash generated by the group in the year being almost sufficient to fund an acquisition spend, net of disposals, of Â£234 million and capital expenditure of Â£186 million. The acquisition of Mazola was financed by a medium term US dollar floating rate bank facility which accounts for the increase in loans falling due after one year. Working capital, including tax and dividend accruals, reduced by Â£34 million mainly as a result of higher tax and trade accruals. The group's net assets increased by Â£201 million to Â£3,066 million. A currency loss of Â£16 million, net of tax relief, arose on the translation into sterling of the group's non-sterling net assets principally in the US. Return on capital employed, defined as the operating profit before exceptional items and amortisation of goodwill expressed as a percentage of year end capital employed, improved from 18.8% to 21.0% for the continuing businesses of the group. Strong profit and margin improvements were made in primary food & agriculture, ingredients & oils and grocery. Although margins declined at Primark, the return on capital employed improved as a full year profit was realised on the large number of stores opened towards the end of the last financial year. The difficulties at George Weston Foods were reflected in declines in profit and return on capital employed. CASH FLOW Net cash flow from operating activities was Â£523 million, Â£96 million higher than last year, as a result of the strong increase in profit before depreciation and amortisation of goodwill and a lower increase in working capital, compared to last year. Capital expenditure during the year was Â£186 million of which Â£51 million was spent on the acquisition or refitting of Primark stores and the balance was used principally to upgrade, modernise and expand existing manufacturing facilities. The net expenditure on acquisitions less proceeds from disposals amounted to Â£234 million. TREASURY POLICY AND CONTROLS The group's cash and current asset investments totalled Â£1,501 million at the year end including some Â£942 million placed with professional investment managers who have full discretion to act within closely monitored and agreed guidelines. The investment objective is to preserve the underlying assets, whilst achieving a satisfactory return. The investment guidelines are kept under constant review with the objective of monitoring and controlling risk levels. The guidelines require that investments must carry a minimum credit rating of AA- and also set down conditions relating to sovereign risk, length of maturity, exchange rate exposure and type of investment instrument. Aggregate limits for each category of investment and risk exposure are set for each manager. The group's UK cash balances are managed by a central treasury department operating under strictly controlled guidelines, which also arranges term bank finance, as and when necessary, to finance short-term working capital requirements particularly for the sugar beet and wheat harvests. Futures contracts used as hedges in commodity trading operations are tightly controlled within set limits and transactions of a speculative nature are not undertaken. FOREIGN CURRENCY The businesses operate mainly in their local currency and as a result the group's transaction exposure to exchange rate movements is minimal. Significant cross-border transactions are covered by forward purchases and sales of foreign currency, or foreign currency options as appropriate. The group does not hedge the translation effect of exchange rate movements on the profit and loss account. Although the Mazola acquisition was financed by a five year US dollar loan, generally the group regards its interest in its overseas subsidiary undertakings as long term investments and does not hedge the translation effect of exchange rate movements on them. POST BALANCE SHEET EVENTS On 20 September 2002, the minority shareholdings in George Weston Foods in Australia were acquired at a cost of Â£58 million. The company was subsequently delisted from the Australian Stock Exchange on 27 September 2002. On 8 October 2002, we announced the acquisition of the food and beverage business, comprising Ovaltine and associated brands, from Novartis for Â£171 million. Net tangible assets are estimated to be Â£45 million at completion. Completion will follow the grant of appropriate regulatory approvals. FINANCIAL REPORTING STANDARDS AND ACCOUNTING POLICIES No new financial reporting standards have been issued during the year. FRS 17 - 'Retirement Benefits', requires additional disclosures to be made this year and these have been included in the notes to the accounts. The Accounting Standards Board is currently reviewing the date for full adoption of the standard. FRS 19 - 'Deferred Tax', has been adopted in the accounts for the year ended 14 September 2002. With the exception of the adoption of FRS 19, there have been no changes to the group's accounting policies from the previous year. John Bason Finance Director The annual report and accounts will be available on 6 November 2002 and the annual general meeting will be held at The Royal Garden Hotel, London at 11am on Thursday, 5 December 2002. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 15 September 2001 For the Before year ended exceptional Exceptional 14 September items items Total 2002 (restated) (restated) (restated) Note Â£m Â£m Â£m Â£m Turnover of the group including its share of 4,567 4,434 - 4,434 joint ventures Less share of turnover of joint ventures (22) (16) - (16) ------- ------- ------- -------- Group turnover 1 4,545 4,418 - 4,418 Operating costs (4,175) (4,085) (62) (4,147) ------- ------- ------- -------- Group operating profit 370 333 (62) 271 Share of operating results of: - joint 3 3 - 3 ventures - associates 4 4 - 4 ------- ------- ------- -------- Total operating profit 1 377 340 (62) 278 Operating profit before amortisation of 395 351 - 351 goodwill Amortisation of goodwill (18) (11) (62) (73) Profits less losses on sale of fixed assets 8 20 - 20 Profits less losses on sale of businesses - - 29 29 Investment income 57 66 - 66 ------- ------- ------- -------- Profit on ordinary activities before interest 442 426 (33) 393 Interest payable (22) (24) - (24) ------- ------- ------- -------- Profit on ordinary activities before taxation 420 402 (33) 369 Adjusted profit before taxation 430 393 - 393 Profits less losses on sale of fixed assets 8 20 - 20 Exceptional items - - 29 29 Amortisation of goodwill (18) (11) (62) (73) Tax on profit on ordinary activities 2 (95) (118) - (118) ------- ------- ------- -------- Profit on ordinary activities after taxation 325 284 (33) 251 Minority interests - equity (3) (8) - (8) ------- ------- ------- -------- Profit for the financial year 322 276 (33) 243 Dividends - interim 3 (105) (93) - (93) ------- ------- ------- -------- Transfer to/(from) reserves 217 183 (33) 150 ===== ===== ===== ===== Basic and diluted earnings per ordinary share 4 40.8p 30.8p Adjusted earnings per ordinary share 4 38.7p 33.8p The group has made no material acquisitions nor discontinued any operations within the meaning of the Financial Reporting Standards during either 2002 or 2001. The results for the year ended 15 September 2001 have been restated to reflect the adoption of FRS 19 'Deferred Tax'. Details of the impact of this change are in the accounting policy note. CONSOLIDATED BALANCE SHEET As at As at 14 September 2002 15 September 2001 (restated) Â£m Â£m Fixed assets Intangible assets - goodwill 383 179 Tangible assets 1,421 1,397 ------- ------ 1,804 1,576 ------- ------- Interest in net assets of - joint ventures 9 9 - associates 12 9 Other investments 11 12 -------- ------- Total fixed asset investments 32 30 ------- ------- 1,836 1,606 Current assets -------- ------- Stocks 498 469 Debtors 552 551 Investments 1,362 1,195 Cash at bank and in hand 139 95 ------- ------- 2,551 2,310 ------- ------- Creditors amounts falling due within one year Short term borrowings (64) (82) Other creditors (736) (672) --------- ------- (800) (754) --------- ------- Net current assets 1,751 1,556 --------- -------- Total assets less current liabilities 3,587 3,162 --------- -------- Creditors amounts falling due after one year Loans (387) (157) Other creditors (8) (10) -------- -------- (395) (167) -------- -------- Provisions for liabilities and charges (126) (130) --------- -------- 3,066 2,865 ========= ======== Capital and reserves Called up share capital 47 47 Revaluation reserve 3 3 Other reserves 173 173 Profit and loss account 2,768 2,567 --------- -------- Equity shareholders' funds 2,991 2,790 Minority interests in subsidiary undertakings - equity 75 75 --------- -------- 3,066 2,865 ========= ======== CONSOLIDATED CASH FLOW STATEMENT For the For the year ended year ended 14 September 15 September 2002 2001 Note Â£m Â£m Cash flow from operating activities 5 523 427 -------- -------- Dividends from joint ventures 3 3 -------- -------- Dividends from associates 1 1 -------- -------- Return on investments and servicing of finance Investment income 60 66 Interest paid (22) (24) Dividends paid to minorities (4) (10) -------- -------- 34 32 -------- -------- Taxation (97) (127) -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (186) (212) Sale of tangible fixed assets 40 39 Purchase of equity investments - (1) Sale of equity investments 4 7 -------- -------- (142) (167) -------- -------- Acquisitions and disposals Purchase of new subsidiary undertakings (267) (121) Purchase of joint ventures and associates (1) - Sale of subsidiary undertakings 34 142 -------- -------- (234) 21 -------- -------- Equity dividends paid (93) (88) -------- -------- Net cash (outflow)/ inflow before use of liquid funds and financing (5) 102 Management of liquid resources (164) (76) Financing Borrowings due within one year - repayment of loans (102) (28) - increase in loans 103 42 Borrowings due after one year - repayment of loans (7) (13) - increase in loans 238 5 Increase in bank borrowings (16) - -------- --------- Increase in cash 47 32 ========= ========= CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the For the year ended year ended 14 September 15 September 2002 2001 Â£m Â£m Profit for the financial year 322 243 Currency translation differences on foreign currency net assets (21) (44) Tax on currency translation differences 5 7 -------- ------- Total recognised gains and losses relating to the period 306 206 Prior year adjustment (91) ======= -------- Total recognised gains and losses since previous year end 215 ======= 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 SHAREHOLDERS' FUNDS For the For the year ended year ended 14 September 15 September 2002 2001 Â£m Â£m Opening shareholders' funds as previously reported 2,881 2,763 Prior year adjustment (91) (91) -------- -------- Opening shareholders' funds restated 2,790 2,672 Profit for the financial year 322 243 Dividends (105) (93) Goodwill written back - 5 Other recognised gains and losses relating to the year (16) (37) -------- -------- Closing shareholders' funds 2,991 2,790 ======== ======== NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Segmental analysis Group Turnover Operating Profit Capital Employed 2002 2001 2002 2001 2002 2001 Â£m Â£m Â£m Â£m Â£m Â£m Analysis by business Primary Food & 1,761 1,867 195 172 788 769 Agriculture Ingredients & Oils 800 711 53 42 268 265 Grocery 902 858 50 37 317 319 Retail & Packaging 712 574 77 63 344 339 Australia and New 580 548 12 21 207 217 Zealand Inter company sales (232) (255) - - - - Central costs / - - (15) (10) (32) (33) capital employed Pension credit - - 25 27 - - -------- -------- -------- --------- --------- --------- 4,523 4,303 397 352 1,892 1,876 Businesses disposed: Grocery - 33 - 2 - - Ingredients & - 47 - (1) - - Oils Australia & New 22 35 (2) (2) - 13 Zealand Amortisation of - - (18) (73) - - goodwill -------- -------- -------- --------- --------- --------- 4,545 4,418 377 278 1,892 1, 889 ======== ======== ======== ========= ========= ========= Analysis by geography (by origin and destination) European Union 2,998 2,911 301 246 1,328 1,320 (mainly UK & Ireland) Australia & New 580 548 12 21 207 217 Zealand North America 735 659 42 33 231 234 Elsewhere 233 204 17 25 126 105 Intercompany sales (23) (19) - - - - Pension credit - - 25 27 - - -------- -------- -------- --------- --------- --------- 4,523 4,303 397 352 1,892 1, 876 Businesses disposed: European Union - 50 - 3 - - North America - 30 - (2) - - Australia & New 22 35 (2) (2) - 13 Zealand Amortisation of - - (18) (73) - - goodwill -------- -------- -------- --------- --------- --------- 4,545 4,418 377 278 1,892 1, 889 ======== ======== ======== ========= ========= ========= Business segment operating profits include a pension charge that reflects the regular cost. The difference between this charge and that required under SSAP 24 is shown as a credit held centrally. Virtually all of the credit arises in the European Union. The amortisation of goodwill arises in Primary Food & Agriculture Â£2 million (2001 - Â£1 million), Ingredients & Oils Â£15 million (2001 - Â£71 million, including an exceptional charge of Â£62 million), and Grocery Â£1 million (2001 - Â£1 million). By geography, the charge arises in the European Union Â£3 million (2001 - Â£1 million), North America Â£13 million (2001 - Â£71 million) and elsewhere Â£2 million (2001 - Â£1 million). The exceptional write-down of goodwill in the year ended 15 September 2001 related to an FRS11 impairment charge based on the projected cash flows of the food business of SPI in the US, discounted at 12.5%. Capital Employed comprises tangible fixed assets, interests in joint ventures and associates, current assets (excluding cash, deferred taxation and investments), creditors (excluding borrowings, tax and dividends) and provisions for liabilities and charges excluding deferred taxation. For the For the year ended year ended 14 September 15 September 2002 2001 (restated) Â£m Â£m 2. Tax on profit on ordinary activities The charge for the year comprises: United Kingdom - corporation tax at 30% (2001 - 30%) 81 76 Overseas - income and corporation tax 24 28 Joint ventures and associates 2 2 -------- -------- Current tax charge 107 106 UK deferred taxation 10 12 Overseas deferred taxation (22) - -------- -------- Total tax charge 95 118 -------- -------- Add back: Tax credit on goodwill amortisation 4 - Exceptional credit on US deferred tax 23 - -------- -------- Underlying tax charge 122 118 ===== ====== 3. Dividends First interim dividend of 4.25p per share (2001 - 4.25p) 34 34 Second interim dividend of 9.00p per share (2001 - 7.55p) 71 59 -------- -------- 105 93 ===== ==== The first interim dividend was paid on 30 August 2002. The second interim dividend will be paid on 18 February 2003. 4. Earnings per ordinary share Adjusted profit for the financial year 305 267 Profits less losses on sale of fixed assets 8 20 Exceptional items 23 (33) Amortisation of goodwill (18) (11) Tax credit on goodwill amortisation 4 - ------- ------- Profit for the financial year attributable to shareholders 322 243 ===== ====== Adjusted earnings per ordinary share 38.7p 33.8p Earnings per ordinary share on: - sale of fixed assets 1.0p 2.5p - exceptional items 2.9p (4.1)p - amortisation of goodwill (2.3)p (1.4)p - tax credit on goodwill amortisation 0.5p - -------- ------- Earnings per ordinary share 40.8p 30.8p ===== ===== The weighted average number of ordinary shares in issue during the year was 789 million (2001 - 789 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 disposal of fixed assets, exceptional items, goodwill amortisation and the associated tax credit, 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 789 million (2001 - 789 million). For the For the year ended year ended 14 September 15 September 2002 2001 Â£m Â£m 5. Cash flow from operating activities Operating profit 370 271 Amortisation of goodwill 18 73 Depreciation 149 149 (Increase)/decrease in working capital - Stocks (18) 8 - Debtors (13) (31) - Creditors 27 (16) European Commission fine - (27) Other provisions (10) - --------- -------- Net cash from operating activities 523 427 ===== ===== 60. Reconciliation of net cash flow to movement in net funds Â£m Â£m Increase in cash 47 32 Management of liquid resources 164 76 Net increase in borrowings (216) (6) ----- ------- Change in net funds resulting from cash flows (5) 102 Effect of currency changes 4 (5) On acquisition of subsidiary undertakings - (17) Other - (10) ------- -------- Movement in net funds (1) 70 Opening net funds 1,051 981 ------- -------- Closing net funds 1,050 1,051 ==== ===== At Acquisition At 15 September Cash of subsidiary Exchange 14 September 2001 flow undertakings adjustments 2002 Â£m Â£m Â£m Â£m Â£m 7. Analysis of net funds Cash at bank and in hand 95 47 - (3) 139 Short term borrowings (82) 15 - 3 (64) Investments 1,195 164 5 (2) 1,362 Loans over one year (157) (231) (5) 6 (387) -------- -------- --------- -------- -------- 1,051 (5) - 4 1,050 ======= ====== ====== ===== ===== 8. Other information The financial information set out above does not constitute the group's statutory financial statements for the years ended 14 September 2002 and 15 September 2001, but is derived from them. The 2001 financial statements have been filed with the Registrar of Companies whereas those for 2002 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. 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 52 weeks ended 14 September 2002, 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 2002, and those of the North American subsidiary undertakings are made up to 31 August 2002. 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. Tangible fixed assets Tangible fixed assets are carried at their original cost less accumulated depreciation. Depreciation Depreciation is provided on the original cost of assets and is calculated on a straight line basis at rates sufficient to reduce them to their estimated residual value. 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, machine, fixtures and fittings - sugar factories 20 years - other operations 12 years Vehicles 8 years 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 impairment. 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. Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translated 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 translated 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. Group Turnover Turnover represents the net invoiced value of goods and services delivered to customers excluding value added tax. 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. 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. 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 that are cancelled due to the termination of the underlying exposure are taken to the profit and loss account immediately. Deferred tax The group has adopted FRS 19 'Deferred Taxation', whereby provision for deferred tax is made on all timing differences that have originated, but not reversed at the balance sheet date. A deferred tax asset is regarded as recoverable and therefore recognised only when it is regarded as more likely than not that there will be sufficient future taxable profits. Deferred tax is not discounted. Adoption of FRS 19 has the effect of increasing the underlying tax charge on profits by Â£11 million for the year ended 14 September 2002 (2001: Â£12 million). It also increases the profit on disposal of businesses in the year ended 15 September 2001 by Â£12 million. Shareholders' funds at 15 September 2001 have been reduced by Â£91 million. A prior year adjustment has been made and comparative figures have been restated. This information is provided by RNS The company news service from the London Stock Exchange

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