Interim Results

Associated British Foods PLC 14 April 2004 14 April 2004 ASSOCIATED BRITISH FOODS plc Interim Report Associated British Foods announces 10% increase in adjusted profit before tax and 11% increase in first interim dividend Interim results for 24 weeks ended 28 February 2004 Highlights • Adjusted operating profit up 10% to £224m* • Group sales up 5% to £2,372m • Adjusted profit before tax up 10% to £238m** • Adjusted earnings per share up 11% to 21.4p ** • First interim dividend per share up 11% to 5.25p • Net cash funds of £1,025m • Basic earnings per share up 9% to 20.2p • Profit before tax up 9% to £223m Peter Jackson, Chief Executive of Associated British Foods, said: ' This is another strong set of results which has been delivered against a background of significant movements both in key commodity input costs and currency exchange rates.' * before amortisation of goodwill ** before profits less losses on the sale of businesses and fixed assets and amortisation of goodwill All figures stated after profits less losses on the sale of businesses and fixed assets and amortisation of goodwill are shown on the face of the consolidated profit and loss account. For further information please contact: Associated British Foods: Until 1500 only Peter Jackson, Chief Executive Geoff Lancaster, Head of External Affairs John Bason, Finance Director Mobile: 07860 562 659 Tel: 020 7638 9571 Jonathan Clare/Chris Barrie/Sara Batchelor, Citigate Dewe Rogerson Tel: 020 7638 9571 After 1500 John Bason, Finance Director Tel: 020 7589 6363 ASSOCIATED BRITISH FOODS plc INTERIM REPORT FOR THE 24 WEEKS ENDED 28 FEBRUARY 2004 CHAIRMAN'S STATEMENT Trading over the period has been against a background of significant movements in the prices of some of the key commodities used by our businesses as well as in currency exchange rates. In these conditions, profits and earnings have developed well. Operating profit, before amortisation of goodwill, increased by 10% to £224m reflecting advances in many of our businesses. There was a significant increase in profit from the hot beverages business partly due to a full contribution from Ovaltine which was acquired in November 2002. Twinings and Ovaltine also improved their underlying results and the integrated management of these important brands will show further benefits in the future. Our UK grocery businesses continued investment in both product and brand development. The UK bakery business improved its profits while absorbing substantially higher wheat prices but, in Australia, the bakery business faced pricing pressure which held back results. Meanwhile the construction of the new Sydney bakery remains on schedule to open towards the end of this calendar year. The US oils business has faced a challenging period with sharply increased raw material costs. As a result the profit of this business declined and was further affected in sterling terms by the impact of the US dollar weakness. Prices have been increased and some improvement is expected as the year develops. In primary food and agriculture, British Sugar UK had an exceptionally good campaign with excellent operational efficiency and high yields. Profit also benefited from the strength of the euro in the early part of the year although some of this benefit has been eroded as the year advanced. Our overseas sugar operations were still affected by weak prices, although some signs of improvement are now appearing. The animal feeds operations continued to improve their results in difficult trading conditions. Overall, our ingredients businesses showed good progress with continued recovery in bakery ingredients following action in the previous year and welcome advances elsewhere. With a strengthened management team we anticipate further development in the future. Primark performed impressively in the period with strong like-for-like sales growth and the benefit of additional retail space. Margins improved with the result that operating profit was 19% higher than a year earlier. Where space has permitted the range of goods offered to customers has been broadened with successful results. New store openings over the coming months will add further selling space as the management continue their emphasis on finding suitable sites. We believe there is still substantial scope to extend our coverage in the UK. Net investment income increased from £12m to £14m as a result of higher average funds available for investment and recent increases in UK interest rates. Profit before taxation, adjusted for profits less losses on the sale of fixed assets and businesses and before amortisation of goodwill, rose by 10% from £216m to £238m. The group's underlying effective rate of taxation of 29.2% was in line with the last full year. Adjusted earnings per share increased by 11% to 21.4p. The group's strong cash generation continued and net cash funds totalled £1,025m compared with £836m a year earlier even after expenditure in the past year of £257m on fixed assets and acquisitions including debt assumed. The food brands of G Costa were acquired during the period which added the Blue Dragon range of products to the UK grocery portfolio. Since the period end we have announced the acquisition, subject to regulatory clearance, of the Capullo and Mazola cooking oil brands in Mexico for $110m in cash. We successfully integrated Mazola in the US and this provides us with the opportunity to take our expertise into a new and growing market. The new stores acquired for Primark will require further investment to fit them out. These investments demonstrate our commitment to extend our operations both by acquisition in related areas and by the growth of existing businesses. Dividend The first interim dividend will be 5.25p per share, an increase of 11% in line with growth in adjusted earnings in the period. This dividend will be paid on 31 August 2004 to shareholders registered at close of business on 30 July 2004. We are launching a new service providing shareholders with a simple and cost effective way to build their shareholding in the company by using their cash dividend to buy additional shares. Full details will be posted to shareholders with the interim report. Outlook Currency fluctuations and raw material price changes will be a continuing feature of the rest of the year. The former is particularly likely to impact on our results both in trading terms and in translation of profits to sterling. In this environment we will continue to focus on efficiency, on developing our products for the benefit of our customers and on expanding the range of our offering. We will also continue to assess opportunities for new investment in our existing businesses and by acquisition. We expect to report further progress for the full year. Martin Adamson Chairman 14 April 2004 OPERATING REVIEW Group sales increased by 5% to £2,372m and adjusted operating profit increased by 10% to £224m. This is another strong set of results which has been delivered against a background of significant movements both in key commodity input costs and currency exchange rates. All business areas made progress with very strong performances from Primark and primary food & agriculture. In grocery, however, profit in our US oils business, ACH, was hit by sharply increased soy and corn oil costs in the first half but prices have been increased and we expect a better performance in the second half. The UK grocery business was strengthened by the acquisition of G Costa which includes the Blue Dragon range of products. Grocery 2004 2003 Sales £m 1,169 1,053 Operating profit £m 71 70 Our international grocery businesses continued to grow with sales up 11% to £1,169m and profit up 1% to £71m. Although strong progress was made by our hot beverages business, which benefited from a full contribution from Ovaltine and good underlying growth, grocery profit was held back by the raw material cost increases experienced at ACH. The integration of Twinings and Ovaltine is now complete and both brands benefited from the introduction of new products. Growth in Ovaltine is in line with our expectation and in Switzerland there have been major promotions to mark the centenary of the brand. Following the poor European grain harvests last year, wheat costs rose significantly and resulted in UK bread price increases. Both the growth in the Kingsmill brand, supported by the new product introductions in morning goods and a variant in the Toastie range, and cost reductions resulted in an improvement in profit at Allied Bakeries. Our frozen bakery operation in the UK continued to suffer from tough market conditions and operating difficulties. Elsewhere in UK grocery, Ryvita enjoyed strong growth in UK crispbread and the ethnic food business of Westmill increased with growth in noodles and rice. Progress on the new factory for Westmill in Manchester is in line with plan and microwaveable rice and noodles are already in production. The acquisition of G Costa, another specialist in the ethnic foods market, adds Blue Dragon to our portfolio of retail brands with wide UK distribution through the major multiples. Sharply increased raw material costs in the US had a significant impact on ACH's profit in the first half which was also depressed in sterling terms by the weakness of the US dollar. Action to recover cost increases has been taken and we expect benefit from this in the second half. Since the half year we have announced the acquisition from Unilever of the Capullo and Mazola cooking oil brands in Mexico. Capullo is the leading Mexican premium canola oil brand and provides us not only with an entry to the growing Mexican market but also the opportunity to introduce the brand to the US where ACH already has a strong franchise with Hispanic consumers. A new sales and management organisation will be created over the next year and Unilever will provide the services required in the interim. Tough competition in the Australian bread market had an adverse effect on the result in the first half. Construction of the new bakery in Sydney is progressing to plan and the closure of the Chatswood bakery in north Sydney has now been announced and the associated rationalisation costs have been charged against operating profit. Price competition also continued to affect the meat & dairy business. The sale of the biscuit business was completed during the half year. Primary food & agriculture 2004 2003 Sales £m 749 676 Operating profit £m 85 73 Sales were up 11% at £749m with profit up 16% to £85m. Although the sugar crop at 1.37 million tonnes was 60,000 tonnes lower than last year's excellent crop, the exceptional growing conditions throughout its development produced very high quality beet. This resulted in record levels of processing efficiency in the factories. Although profits benefited from the strength of the euro, particularly in the early part of the year, we expect to see erosion of this in the second half of this year if the current euro sterling exchange rate continues. British Sugar in Poland also experienced good sugar beet growing conditions and excellent processing efficiencies in its factories. Although pricing suffered in the first half from market oversupply, this is expected to improve and become less volatile on Poland's accession to the EU in May this year. In China, we achieved record sugar yields and prices have firmed from their low levels in the first half as a result of the poor crop. In agriculture, margin was adversely impacted in wheat based animal feeds but improved in sugar beet based ruminant feeds. Profit increased with volumes ahead of last year and a significant improvement in China following success in overhead reduction. During the period we sold our ruminant compound feeds business. This was a low margin business and our exit will enable us to focus on developing our supply chain partnerships and service offerings. Ingredients 2004 2003 Sales £m 133 141 Operating profit £m 15 13 Our ingredients business is focused on high technology products for both food and non-food applications. Profit benefited especially from recovery in bakery ingredients and strong growth in speciality ingredients in the US. Sales were affected by the removal of unprofitable lines in bakery ingredients and discontinued low margin business in lipid technologies. Profit grew 15% to £15m and sales declined 6% to £133m. Major progress was made in Cereform, our bakery ingredients business in the UK and US, and margin improved through operational efficiencies. Unprofitable product lines were removed and sales growth in the US is now expected from the introduction of low carbohydrate variants of its bakery mixes. In the US, the speciality food polyols business of SPI benefited from strong market development in low carbohydrate and sugar-free product introductions. Additionally, our functional grain-based ingredients business saw continued growth in its sales to the fast growing US nutritional bar market. Sales in lipid technologies declined as we exited a number of low margin businesses and focused on growing higher value speciality emulsifiers for the food and non-food markets. Sales growth continued in the enzymes business although margin suffered from the strength of the euro against the US dollar. Retail 2004 2003 Sales £m 399 359 Operating profit £m 50 42 Primark, our retail textile business, again made excellent progress with sales up 11% to £399m and profit up 19% to £50m. The increase in sales was the result of top end of sector like-for-like growth of 5% and the impact of extensions to existing stores. In addition, profit reflected margin improvement arising from better buying decisions and currency benefits. Price deflation remains a feature of this market and was more pronounced during this half year making the like-for-like sales value growth of 5% all the more impressive. There are 116 stores trading in the UK and Eire. No new stores have been opened in the period but extensions have increased the retail space to 2.2 million square feet. During the first half the Irish flagship store at Mary Street, Dublin was fully re-opened following completion of its major extension and refit. New stores were acquired at Boscombe, Lincoln, Loughborough, Slough, Sunderland and Watford in the UK. These stores are currently being fitted out and we expect to open them later in the year. The programme of extensions will continue and will include an additional 25,000 square feet of retail space at Manchester to create our largest store at 100,000 square feet. Management attention remains focused on the search for new stores to bring Primark's popular high street offering to towns and cities not currently served. Peter Jackson Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT 24 weeks 24 weeks 52 weeks ended ended ended 28 February 1 March 3 September 2004 2003 2003 Note £m £m £m Turnover of the group including its share of 2,380 2,268 4,931 joint ventures Less share of turnover of joint ventures (8) (9) (22) Group turnover 1 2,372 2,259 4,909 Operating costs (2,176) (2,075) (4,508) Group operating profit 196 184 401 Share of operating results of - joint ventures 6 2 4 - associates 2 1 3 Total operating profit 1 204 187 408 Operating profit before amortisation of 224 204 450 goodwill Amortisation of goodwill (20) (17) (42) Profits less losses on sale of fixed assets (1) (6) 12 Profits less losses on sale of businesses 6 11 14 Investment income 24 26 53 Profit on ordinary activities before interest 233 218 487 Interest payable (10) (14) (30) Profit on ordinary activities before taxation 223 204 457 Adjusted profit before taxation 238 216 473 Profits less losses on sale of fixed assets (1) (6) 12 Profits less losses on sale of businesses 6 11 14 Amortisation of goodwill (20) (17) (42) Tax on profit on ordinary activities 2 (64) (58) (128) Profit on ordinary activities after taxation 159 146 329 Minority interests - equity - - 3 Profit for the financial period 159 146 332 Dividends - first interim (41) (37) (37) - second interim - - (78) Transfer to reserves 118 109 217 Basic and diluted earnings per ordinary share 3 20.2p 18.5p 42.1p Adjusted earnings per ordinary share 3 21.4p 19.3p 42.6p The group has made no material acquisitions nor discontinued any operations within the meaning of the Financial Reporting Standards during either 2004 or 2003. CONSOLIDATED BALANCE SHEET At At At 28 February 1 March 13 September 2004 2003 2003 (restated) (restated) £m £m £m Fixed assets Intangible assets - goodwill 475 515 510 Tangible assets 1,371 1,379 1,406 1,846 1,894 1,916 Interest in net assets of - joint ventures 13 9 9 - associates 11 13 12 Other investments 1 1 1 Total fixed asset 25 23 22 investments 1,871 1,917 1,938 Current assets Stocks 755 749 516 Debtors 567 583 544 Investments 1,305 1,296 1,542 Cash at bank and in hand 158 135 170 2,785 2,763 2,772 Creditors amounts falling due within one year Short- term borrowings (89) (198) (92) Other creditors (746) (779) (799) (835) (977) (891) Net current assets 1,950 1,786 1,881 Total assets less current liabilities 3,821 3,703 3,819 Creditors amounts falling due after one year Loans (349) (397) (382) Other creditors (7) (7) (7) (356) (404) (389) Provisions for liabilities and charges (147) (139) (143) 3,318 3,160 3,287 Capital and reserves Called up share capital 47 47 47 Revaluation reserve 3 3 3 Other reserves 173 173 173 Own shares held reserve (17) (14) (13) Profit and loss account 3,090 2,923 3,053 Equity shareholders' 3,296 3,132 3,263 funds Minority interests in subsidiary undertakings - 22 28 24 equity 3,318 3,160 3,287 The balance sheets at 1 March 2003 and 13 September 2003 have been restated to reflect the adoption of UITF Abstract 38 - Accounting for ESOP Trusts. Details of the impact of this change in accounting policy are provided in note 8. CONSOLIDATED CASH FLOW STATEMENT 24 weeks 24 weeks 52 weeks ended ended ended 28 February 1 March 13 September 2004 2003 2003 Note £m £m £m Cash flow from operating activities 4 16 83 630 Dividends from joint ventures 1 1 4 Dividends from associates 1 - 2 Return on investments and servicing of finance Investment income 25 27 52 Interest paid (13) (15) (27) Dividends paid to minorities - (16) (16) 12 (4) 9 Taxation (65) (63) (120) Capital expenditure and financial investment Purchase of tangible fixed assets (96) (66) (180) Sale of tangible fixed assets 5 5 40 (91) (61) (140) Acquisitions and disposals Purchase of subsidiary undertakings (33) (212) (215) Sale of joint ventures and associates 1 - - Sale of subsidiary undertakings 19 118 124 (13) (94) (91) Equity dividends paid (78) (71) (108) Net cash (outflow)/inflow before use of liquid (217) (209) 186 funds and financing Management of liquid funds 6 223 76 (173) Financing 5 (5) 127 13 Increase/(decrease) in cash 6 1 (6) 26 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 24 weeks 24 weeks 52 weeks ended ended ended 28 February 1 March 13 September 2004 2003 2003 £m £m £m Profit for the financial period 159 146 332 Currency translation differences on foreign (77) 30 52 currency net assets Tax on currency translation differences (1) 1 1 Total recognised gains and losses relating to the 81 177 385 period Prior year adjustment 4 Total recognised gains and losses since previous 85 year end RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS 24 weeks 24 weeks 52 weeks ended ended ended 28 February 1 March 13 September 2004 2003 2003 Note £m £m £m Opening shareholders' funds as previously 3,272 2,991 2,991 reported Prior year adjustment 8 (9) (10) (10) Opening shareholders' funds restated 3,263 2,981 2,981 Profit for the financial period 159 146 332 Dividends - first interim (41) (37) (37) - second interim - - (78) Goodwill written back (3) 11 11 Net (increase)/decrease in own shares held (4) - 1 Other recognised gains and losses relating to (78) 31 53 the period Closing shareholders' funds 3,296 3,132 3,263 NOTES TO THE INTERIM REPORT Group turnover Operating profit 24 weeks 24 weeks 52 weeks 24 weeks 24 weeks 52 weeks ended ended ended ended ended ended 28 February 1 March 13 September 28 February 1 March 13 September 2004 2003 2003 2004 2003 2003 £m £m £m £m £m £m 1. Segmental Analysis Analysis by business Grocery 1,169 1,053 2,311 71 70 151 Primary food & agriculture 749 676 1,544 85 73 174 Ingredients 133 141 314 15 13 32 Retail 399 359 752 50 42 87 Inter company sales (116) (89) (185) - - - Central costs - - - (9) (8) (16) Pension credit - - - 8 8 18 2,334 2,140 4,736 220 198 446 Businesses disposed: Grocery 18 66 86 - 2 - Primary food & agriculture 20 35 69 4 2 2 Packaging - 18 18 - 1 1 Pension credit - - - - 1 1 2,372 2,259 4,909 224 204 450 Amortisation of goodwill - - - (20) (17) (42) 2,372 2,259 4,909 204 187 408 Analysis by geography (by origin and destination) European Union (mainly UK and Ireland) 1,496 1,349 2,935 161 136 309 Australia & New Zealand 317 278 639 10 9 29 North America 386 405 862 33 40 77 Elsewhere 153 120 323 8 5 13 Intercompany sales (18) (12) (23) - - - Pension credit - - - 8 8 18 2,334 2,140 4,736 220 198 446 Businesses disposed: European Union 20 93 127 - 5 5 Australia & New Zealand 14 13 33 - (1) (3) North America - 11 11 - 1 1 Elsewhere 4 2 2 4 - - Pension credit - - - - 1 1 2,372 2,259 4,909 224 204 450 Amortisation of goodwill - - - (20) (17) (42) 2,372 2,259 4,909 204 187 408 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. Capital employed 24 weeks 24 weeks 52 weeks ended ended ended 28 February 1 March 13 September 2004 2003 2003 £m £m £m 1. Segmental analysis continued Analysis by business Grocery 740 787 704 Primary food & agriculture 904 854 699 Ingredients 125 130 134 Retail 317 292 293 Central capital employed (32) (50) (30) 2,054 2,013 1,800 Businesses disposed Grocery - 10 5 Primary food & agriculture - 16 11 2,054 2,039 1,816 Analysis by geography European Union (mainly UK and Ireland) 1,478 1,397 1,207 Australia & New Zealand 243 244 234 North America 182 209 210 Elsewhere 151 163 149 2,054 2,013 1,800 Businesses disposed European Union - 20 15 Australia & New Zealand - 10 5 Elsewhere - (4) (4) 2,054 2,039 1,816 Capital employed comprises tangible fixed assets, interests in joint ventures and associates, current assets (excluding deferred taxation, cash and investments), creditors (excluding borrowings, tax and dividends) and provisions for liabilities and charges excluding deferred taxation. 24 weeks 24 weeks 52 weeks ended ended ended 2. Tax on profit on ordinary activities 28 February 1 March 13 September 2004 2003 2003 £m £m £m Tax charge comprises: UK corporation tax at 30% 38 38 82 Overseas income and corporation tax 18 9 35 Joint ventures and associates 1 - 2 Current tax charge 57 47 119 UK deferred taxation 3 2 2 Overseas deferred taxation 4 9 7 Total tax charge 64 58 128 Add back: Tax credit on goodwill amortisation 4 5 10 Tax credit on sale of fixed assets and businesses 1 1 - Underlying tax charge 69 64 138 3. Earnings per ordinary share Pence Pence Pence Adjusted earnings per ordinary share 21.4 19.3 42.6 Earnings per ordinary share on: Sale of fixed assets (0.1) (0.8) 1.5 Sale of businesses 0.8 1.4 1.8 Tax effect on above 0.1 0.2 - Amortisation of goodwill (2.5) (2.2) (5.3) Tax credit on goodwill amortisation 0.5 0.6 1.3 Minority share - - 0.2 Earnings per ordinary share 20.2 18.5 42.1 4. Cash flow from operating activities £m £m £m Operating profit 196 184 401 Amortisation of goodwill 20 17 42 Depreciation 72 72 142 (Increase)/decrease in working capital - stocks (259) (249) (11) - debtors (28) (36) 20 - creditors 15 85 30 Provisions - 10 6 16 83 630 5. Analysis of changes in financing Repayment of short-term loans (61) (49) (224) Issue of short-term loans 65 163 220 Repayment of loans over one year (6) (2) (3) Issue of loans over one year 1 15 4 Increase in bank borrowings - - 16 Net (decrease)/increase in borrowings (1) 127 13 Increase in own shares held (4) - - (5) 127 13 24 weeks 24 weeks 52 weeks ended ended ended 28 February 1 March 13 September 2004 2003 2003 £m £m £m 6. Reconciliation of net cash flow to movement in net funds Increase /(decrease) in cash 1 (6) 26 Management of liquid funds (223) (76) 173 Net decrease/(increase) in borrowings 1 (127) (13) Change in net funds resulting from cash flows (221) (209) 186 Effect of currency changes 17 6 15 On acquisition of subsidiary undertakings (9) (11) (13) Movement in net funds (213) (214) 188 Opening net funds 1,238 1,050 1,050 Closing net funds 1,025 836 1,238 At Acquisition At 13 September Cash of subsidiary Exchange 28 February 2003 flow undertakings adjustments 2004 £m £m £m £m £m 7. Analysis of net funds Cash at bank and in hand 170 1 - (13) 158 Short-term borrowings (92) (4) (5) 12 (89) Investments 1,542 (223) - (14) 1,305 Loans over one year (382) 5 (4) 32 (349) 1,238 (221) (9) 17 1,025 8. Basis of preparation The figures shown for the financial year ended 13 September 2003, which have been abridged from the group's 2003 financial statements, are not the group's statutory accounts. Those accounts have been reported on by the auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The figures for the 24 weeks ended 28 February 2004 and 1 March 2003 are unaudited. The interim financial information has been prepared on the basis of the accounting policies set out in the group's 2003 statutory accounts except for the adoption of UITF Abstract 38 - Accounting for ESOP Trusts. This abstract changes the presentation of an entity's own shares held in an employee share trust from requiring them to be recognised as assets to requiring them to be deducted in arriving at shareholders' funds. The impact of adopting UITF 38 has been to reclassify shares held by the Trust from fixed assets to reserves, reducing net assets by £10m at 1 March 2003 (13 September 2003 - £9m). In addition, the net cash outflow arising from the purchase of shares by the Trust has been reclassified from 'capital expenditure and financial investment' to ' financing'. This information is provided by RNS The company news service from the London Stock Exchange

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