Interim Results - 24 Weeks Ended 4 March 2000

Associated British Foods PLC 18 April 2000 ASSOCIATED BRITISH FOODS plc INTERIM ANNOUNCEMENT FOR THE 24 WEEKS ENDED 4 MARCH 2000 Robust first half performance from Associated British Foods Key points - Worldwide sales up 4% to £2,072 million - Operating profit up 6% to £155 million* - Investment income of £23 million (£448 million returned to shareholders in May 1999) - Profit before tax £170 million compared to £185 million * - Earnings per share up 6% to 15.0p* - Dividend per share maintained at 4.25p - Investment of £143 million in new assets and acquisition of businesses * before exceptional items of £74 million in 1999 and amortisation of goodwill Peter Jackson, Chief Executive of Associated British Foods, said: 'Associated British Foods has produced a resilient performance against a background of tough trading conditions in all its main businesses. Management is determined to reduce costs and to ensure that all sectors of its business add value for shareholders.' For further information please contact: Before 1400 only Peter Jackson, Chief Executive John Bason, Finance Director Tel: 020 7638 9571 After 1400 only Peter Jackson, Chief Executive John Bason, Finance Director Tel: 020 7589 6363 Geoff Lancaster - Head of External Affairs Tel: 01733 422901 Jonathan Clare/Andrew Cornelius, Citigate Dewe Rogerson Tel: 020 7638 9571 Notes to editors Associated British Foods (ABF), is an international food, ingredients and retail group with annual sales of over £4.3 billion and 34,000 employees. The group is one of Europe's largest food companies, and has significant businesses in Australia, New Zealand, China, and the United States. The Board team is led by Harry Bailey, Acting Chairman; Peter Jackson, Chief Executive; and John Bason, Finance Director. Agricultural Processing and Services: British Sugar is Europe's most efficient sugar producer; Allied Mills is one of the UK's biggest flour producers. ABF operates at the heart of the UK agricultural industry: ABN and Fishers are leading suppliers of animal feeds, while Allied Grain, Fishers and Germains are leaders in grain trading, merchanting, seed production and processing. Ingredients and oils: ABF is increasingly focusing on high added value ingredients. It applies its skills in producing functional ingredients from natural products, which are widely used by the food industry. ABF is transferring its skills to new growth areas such as the cosmetics and pharmaceutical sector. Abitec Corporation in North America is a leading supplier of such ingredients to brand leaders in personal care products worldwide. Grocery: ABF produces market leading brands including Allinsons, Burtons, Kingsmill, Twinings, Silver Spoon, Speedibake and Ryvita. Retail: ABF has a significant presence in High Street retailing with almost 100 stores through its fast growing Primark value fashion and clothing chain. Australia and New Zealand: George Weston Foods is a major food processor in both Australia and New Zealand operating in the areas of flour milling, bread, biscuits and baking products, meat and dairy. KEY POINTS - Worldwide sales up 4% to £2,072 million - Operating profit up 6% to £155 million * - Investment income reduced from £48 million to £23 million - Earnings per share up 6% to 15.0p * - Dividend per share maintained at 4.25p - Investment of £143 million in new assets and acquisition of businesses * before exceptional items and amortisation of goodwill CHAIRMAN'S STATEMENT Garry Weston continues to make excellent progress following his stroke in September last year. Operating profit of £155 million, before exceptional items and amortisation of goodwill, was ahead of last year by £9 million, an increase of some 6 per cent. This increase was achieved despite writing off £14 million (1999 - £10 million) of restructuring and reorganisation costs. Trading conditions for our manufacturing companies in the United Kingdom and overseas have again been extremely competitive. Many of the markets in which our companies operate still suffer from surplus capacity and the dominance of powerful customers. The result has been continued pressure on selling prices and demands for improved supply chain efficiencies. Combined with this has been the impact of the further strengthening of sterling which, since the last financial year, has increased in value against the euro by 5 per cent. This alone has adversely impacted British Sugar's profit by some £10 million. This economic climate, which will not abate in the immediate future, has given added impetus to our continuing drive to improve efficiencies and significantly reduce operating costs. It is against this background that the resilience of ABF's results should be measured. Primark, our retail clothing business, continues to achieve considerable growth with a 24 per cent increase in profitability for the period to £26 million. Ten new stores were opened during the period which have added 200,000 square feet of retail space, including outlets at Hammersmith and Romford. Sales in these new openings are exceeding budget. Further openings are planned during the remainder of this year and negotiations are in hand for further city centre locations. Investment income was substantially lower than the comparable period last year. In part this was due to the loss of income on the £448 million returned to shareholders in May 1999 and in part due to lower rates of return available on our managed funds. Adverse currency movements on overseas liquid investments also contributed to the reduction in investment income from £48 million last year to £23 million in the current period. Profit on ordinary activities before taxation increased from £109 million to £167 million. Adjusting for exceptional items and amortisation of goodwill, profit before tax declined from £185 million to £170 million reflecting the lower investment income, but earnings per share increased 6 per cent from 14.2p to 15.0p as a result of fewer shares in issue following the consolidation of share capital in May last year. During the half year some £48 million was invested in new acquisitions in Europe, Australia and the US and since acquisition results from these have been in excess of initial expectations. Reaffirming our strategy of investing in high added value ingredient activities, we acquired Rohm Enzyme, a world leader in the manufacture of enzymes for the food, industrial and animal feed sectors. The group continues to search for further suitable investment opportunities. Following a review of our branded and own-label ice cream activities, we have recently announced the disposal, subject to the approval of the Office of Fair Trading, of our ice cream manufacturing business to one of its competitors, further consolidating this industry. This is in pursuit of our policy of disposing of non-core activities, where margins have been under considerable pressure for some time. The food manufacturing sector is undergoing major rationalisation and restructuring. Companies, whether international or national in the scope of their operations, are being forced to focus their activities into fewer, more cost effective and profitable channels. The resulting changes, whilst causing market disruption, are also throwing up market opportunities. ABF is actively seeking ways not only to sharpen its own focus through rationalisation but also to strengthen core areas through acquisition. Board changes Shareholders will have read in our previous report and accounts that Martin Adamson was appointed as a non-executive director in October. Dividends The directors have declared a first interim dividend of 4.25p per share (1999 - 4.25p), which will be paid on 1 September 2000 to shareholders registered at the close of business on 4 August 2000. Harry Bailey Acting Chairman OPERATING REVIEW The group's businesses, with certain exceptions, performed well in the first half of the financial year. During the period under review, the management team launched a number of significant marketing initiatives and is taking steps to make major reductions in costs. Our operating assumption is that difficult market conditions in most of our sectors will be with us for the foreseeable future and this has reaffirmed our intent to focus on businesses in those areas that can best provide growth and a satisfactory return for shareholders. Agricultural sector - primary processing and services The first half of the year saw British Sugar process the second largest crop in its history. Nearly 1.55 million tonnes of sugar were produced with all factories delivering high levels of efficiency. Production costs continued to be a major focus and a second combined heat and power plant was commissioned at Bury St Edmunds in time for the processing campaign. This major investment, like the comparable unit at Wissington, reduces energy costs and produces a significant year round income stream from the sale of electricity to the grid. At the year end we reported on the impact of the strengthening of sterling on British Sugar. Under the European regulatory sugar regime, institutional sugar prices, which are fundamental to the profitability of the business, are set in euros and had therefore reduced in sterling terms. In the first half of this financial year, sterling has further strengthened against the euro with a corresponding adverse effect on British Sugar. The strength of sterling, together with continued low world market prices for sugar, has more than offset the benefit of the efficiency initiatives and the additional volumes that such a big crop made available for export. The Polish sugar operations benefited from an improvement in market conditions brought about by government action aimed at reducing domestic over-production and discouraging imports. Our Chinese sugar factories have improved their performance as a result of sharply rising prices even though a significant proportion of the crop suffered frost damage. The quality of the 1999 wheat harvest proved to be poorer than that in recent years but the technical skills at Allied Mills in gristing enabled them to produce flour successfully of a quality suitable for bread making. In November, Allied Mills completed the latest phase of its investment programme with the opening of its new flour and semolina mills at Tilbury. The Ipswich and Crayford mills closed as previously announced. In animal feeds, both Fishers and ABN are having some success in overcoming the difficult market conditions that prevail in UK agriculture with a continuous programme of cost reduction and a more focused approach to market share growth. The acquisition of six animal feed mills from Dalgety has allowed a greater streamlining of our manufacturing and marketing operations. The returns from ABN's pig farming business are very weak due to the current difficulties in this market and we are examining a number of options to improve this position. Ingredients and Oils The Abitec business has continued to grow despite difficult conditions in a number of its markets, especially the market for UK bakery ingredients. Its North American operations have been particularly successful with sales being well ahead of last year, helped by the introduction of new products for personal care and pharmaceutical customers. Rohm Enzyme, acquired in November, has been successfully integrated into group operations and trading performance in the period has been ahead of pre-acquisition expectations. SPI, our North American based polyols business, has seen strong demand in the period for its alternative sweeteners. Sales to the sugarless gum sector grew following customer launches of new high intensity mint varieties and also in the bakery sector with the growth of the new sugarless cookie market. AC Humko, our Memphis based oils and ingredients business, is working hard to make up lost ground following the settlement of the strike at its largest plant at Champaign, Illinois which ran for five weeks. Early action to tackle operational problems at its Greenville rice mill has led to significantly improved operating results in Humko's rice business. In November, Pacific Grain Products, a leading grain based ingredient manufacturer located in Woodland, California, was added to the group's ingredient portfolio. This business produces rice flour and flour blends, extruded particulates and other speciality food ingredients and its contribution since acquisition has been ahead of expectations. Grocery We have introduced several new products to the UK grocery market backed by extensive marketing support. Allied Bakeries continued its strategy of growing its business in the premium bread sector with the successful launch of Tasty Wholemeal in the autumn. A range of bakery snacks under the Mrs Beeton brand has also been launched. These will be followed shortly by Kingsmill Tasty Crust and a new range of rolls. Speedibake also achieved some success in offering new products in three of the UK's major supermarket groups. Twinings continues to build on its success with both product and packaging innovation. Sales of green teas have been particularly strong in most parts of the world driven by health concerns. Twinings has ensured its participation in this growth with a series of green tea launches. Twinings is introducing a new patented design featuring tamper evidence without the need for a cellophane over-wrapper for all herbal teas in the UK and for a number of speciality export lines. It is also launching a new range of ready to drink teas in an innovative cylindrical carton design. Burton's Biscuits has been pressured by fierce competition for shelf space in the face of retailer range reviews and has launched a major trade support package including its biggest television advertising campaign for five years in support of its main brands. Silver Spoon, the UK sugar retail brand, has added to its already comprehensive range of sugar and syrups with the acquisition of 'Sucron', a low calorie sugar/saccharin blend and the product 'Nothing Comes Closer to Sugar'. This aspartame/acesulfame-k artificial sweetener is available in tablet or granular form and since its launch in March has been listed by many of the major multiples. All of our grocery businesses have continued to combat tough market conditions by cutting costs. Allied Bakeries has closed a further bakery and several depots. Burton's Biscuits has announced the closure of its head office in Bracknell and its transfer to the Blackpool factory site. On 3 April we announced the sale of our Allied Frozen Foods ice cream business for a consideration of £18.8 million. Australia and New Zealand George Weston Foods maintained the upward trend in its trading results reported at the year end and recorded an increase in first half sales of 14 per cent to £278 million and profit up 44 per cent to £13 million. Its businesses continue to operate in extremely competitive markets and the previously reported implementation of the new IT system continues to impact profitability. GWF strengthened its position in the meat smallgoods market through the acquisition in October of Don Smallgoods. The performance of Don's to date has been in line with expectations. The acquisition increases our critical mass in the smallgoods sector and will complement our existing brands of Watsonia, Chapmans, Huttons, Melosi and Maker's Choice. It was announced in October that a restructuring of its meat operations would result in the closure of the Chapman plant at Nairne, South Australia. The cost of this restructuring and rationalisation has been provided for in the half year. Baking and milling operations have both performed satisfactorily. In Australia the Tip Top and Golden brands have maintained their strong brand presence and it is expected that new product development will result in further improvement in the second half performances. The cereal division moved forward due to strong domestic sales despite margin pressure. Weston Bioproducts, the Australian starch business, has disappointed with market pressures leading to lower than hoped for results. GWF has announced some key changes in senior management. John Pascoe, previously Chief Executive, has been appointed non- executive Chairman. A new Chief Executive, Marvin Weinman, has been recruited from outside the business. Glass Packaging Our glass packaging operations have continued to grow volume in a static market. At the year end we reported on a major investment in new furnace equipment at Gregg's and this has been commissioned during the period. The plant is now producing to high quality and returning the anticipated efficiencies after some initial teething problems. Retail Primark, our retail clothing business, had an excellent half year, continuing to achieve considerable growth. Half year sales were up 20 per cent to £207 million and operating profit up 24 per cent to £26 million. Nine of the ten new stores acquired last year from the Co-op began trading during the period. New stores have opened in Hammersmith, Reading, Hereford, Barnstaple, Hemel Hempstead, Wrexham and Stevenage as well as Basildon and Romford. We also have a new store in Lisburn, Northern Ireland. Peter Jackson Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT 24 weeks ended 53 weeks ended 27 February 1999 18 September 1999 Contin- Contin- uing uing opera- opera- tions tions 24 wks before before ended excep- Excep- excep- Excep- 4 Mar tional tional tional tional 2000 items items Total items items Total Note £m £m £m £m £m £m £m Turnover of the group including its share of joint ventures 2,072 1,988 - 1,988 4,308 - 4,308 Less share of turnover of joint ventures (5) (3) - (3) (9) - (9) ---- ---- ---- ---- ---- ---- ---- Group turnover 1 2,067 1,985 - 1,985 4,299 - 4,299 Operating costs (1,918)(1,843) (74)(1,917)(3,982) (84)(4,066) ---- ---- ---- ---- ---- ---- ---- Group operating profit 149 142 (74) 68 317 (84) 233 Share of operating results of -joint ventures 1 1 - 1 2 - 2 -associates 2 1 - 1 2 - 2 ---- ---- ---- ---- ---- ---- ---- Total operating profit 1 152 144 (74) 70 321 (84) 237 Operating profit before exceptional items and amortisation of goodwill 155 146 - 146 326 - 326 Exceptional items - - (74) (74) - (84) (84) Amortisation of goodwill (3) (2) - (2) (5) - (5) Profits less losses on sale of properties 3 2 - 2 4 - 4 Investment income 23 48 - 48 84 - 84 ---- ---- ---- ---- ---- ---- ---- Profit on ordinary activities before interest 178 194 (74) 120 409 (84) 325 Interest payable (11) (11) - (11) (25) - (25) ---- ---- ---- ---- ---- ---- ---- Profit on ordinary activities before taxation 167 183 (74) 109 384 (84) 300 Tax on profit on ordinary activities 2 (50) (56) - (56) (115) - (115) ---- ---- ---- ---- ---- ---- ---- Profit on ordinary activities after taxation 117 127 (74) 53 269 (84) 185 Minority interests - equity (1) (1) - (1) (1) - (1) ---- ---- ---- ---- ---- ---- ---- Profit for the financial period 116 126 (74) 52 268 (84) 184 Dividends - first interim (34) (34) - (34) (34) - (34) - second interim - - - - (51) - (51) - special interim - (448) - (448) (448) - (448) ---- ---- ---- ---- ---- ---- ---- Transfer to/(from) reserves 82 (356) (74) (430) (265) (84) (349) ---- ---- ---- ---- ---- ---- ---- Basic and diluted earnings per ordinary share 14.7p 14.0p (8.2)p 5.8p 31.1p (9.7)p 21.4p Earnings per ordinary share before amortisation of goodwill 15.0p 14.2p (8.2)p 6.0p 31.7p (9.7)p 22.0p The group has made no material acquisitions nor discounted any operations within the meaning of the Financial Reporting Standards during either 2000 or 1999. CONSOLIDATED BALANCE SHEET At At At 4 March 27 February 18 September 2000 1999 1999 £m £m £m Fixed assets Intangible assets - goodwill 119 99 108 Tangible assets 1,547 1,459 1,528 ----- ----- ----- 1,666 1,558 1,636 ----- ----- ----- Interest in net assets of - joint ventures 12 2 7 - associates 9 9 8 Other investments 14 18 16 ----- ----- ----- Total fixed asset investments 35 29 31 ----- ----- ----- 1,701 1,587 1,667 ----- ----- ----- Current assets Stocks 725 745 464 Debtors 534 533 491 Investments 909 1,298 1,030 Cash at bank and in hand 30 88 51 ----- ----- ----- 2,198 2,664 2,036 ----- ----- ----- Creditors amounts falling due within one year Short term borrowings (124) (56) (53) Other creditors (727) (846) (680) Special interim dividend - (448) - ----- ----- ----- (851) (1,350) (733) ----- ----- ----- Net current assets 1,347 1,314 1,303 ----- ----- ----- Total assets less current liabilities 3,048 2,901 2,970 Creditors amounts falling due after one year Loans (159) (164) (157) Other creditors (4) (6) (10) ----- ----- ----- (163) (170) (167) Provisions for liabilities and charges (52) (54) (50) ----- ----- ----- 2,833 2,677 2,753 ----- ----- ----- Capital and reserves Called up share capital 47 47 47 Revaluation reserve 3 3 3 Other reserves 173 173 173 Profit and loss account 2,531 2,375 2,451 ----- ----- ----- Equity shareholders' funds 2,754 2,598 2,674 Minority interests in subsidiary undertakings - equity 79 79 79 ----- ----- ----- 2,833 2,677 2,753 ----- ----- ----- CONSOLIDATED CASH FLOW STATEMENT 24 weeks 24 weeks 53 weeks ended ended ended 4 Mar 27 Feb 18 Sept 2000 1999 1999 Note £m £m £m Cash flow from operating activities 3 (1) (44) 420 ----- ----- ----- Dividends from joint ventures 1 - 1 ----- ----- ----- Dividends from associates - - 2 ----- ----- ----- Return on investments and servicing of finance Dividends and other investment income 26 49 90 Interest paid (11) (11) (24) Dividends paid to minorities (1) (1) (2) ----- ----- ----- 14 37 64 ----- ----- ----- Taxation (39) (22) (120) ----- ----- ----- Capital expenditure and financial investment Purchase of tangible fixed assets (95) (114) (259) Sale of tangible fixed assets 7 5 16 Purchase of equity investments - - (1) Sale of equity investments 11 1 10 Purchase of own shares - - (1) ----- ----- ----- (77) (108) (235) ----- ----- ----- Acquisitions and disposals Purchase of new subsidiary undertakings (43) (140) (153) Purchase of joint ventures and associates (5) - (3) Advances to joint ventures - (1) - ----- ----- ----- (48) (141) (156) ----- ----- ----- Equity dividends paid (51) - (538) ----- ----- ----- Net cash outflow before use of liquid funds and financing (201) (278) (562) ----- ----- ----- Management of liquid funds 5 (96) (52) (423) Financing 4 (35) (21) (1) Decrease in cash 5 (70) (205) (138) ----- ----- ----- (201) (278) (562) ----- ----- ----- CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 24 weeks 24 weeks 53 weeks ended ended ended 4 March 27 Feb 18 Sept 2000 1999 1999 £m £m £m Profit for the financial period 116 52 184 Currency translation differences on foreign currency net assets (2) 31 26 ----- ----- ----- Total recognised gains and losses 114 83 210 ----- ----- ----- RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS 24 weeks 24 weeks 53 weeks ended ended ended 4 March 27 Feb 18 Sept 2000 1999 1999 £m £m £m Profit for the financial period 116 52 184 Dividends - first interim (34) (34) (34) - second interim - - (51) - special interim - (448) (448) ----- ----- ----- Transfer to / (from) reserves 82 (430) (349) Other recognised gains and losses relating to the period (2) 31 26 ----- ----- ----- Net increase / (decrease) in shareholders' funds 80 (399) (323) Opening shareholders' funds 2,674 2,997 2,997 ----- ----- ----- Closing shareholders' funds 2,754 2,598 2,674 ----- ----- ----- NOTES FORMING PART OF THE INTERIM STATEMENTS 24 weeks 24 weeks 53 weeks ended ended ended 4 March 27 Feb 18 Sep 2000 1999 1999 £m £m £m 1 Turnover Geographical analysis (by origin and destination): European Union, mainly United Kingdom and Ireland 1,441 1,377 2,962 Australia and New Zealand 278 244 548 North America 288 312 665 Elsewhere 60 52 124 ----- ----- ----- Group turnover 2,067 1,985 4,299 ----- ----- ----- Business sector: Manufacturing 1,860 1,812 3,935 Retail 207 173 364 ----- ----- ----- Group turnover 2,067 1,985 4,299 ----- ----- ----- Profits Geographical analysis (by origin): European Union, mainly United Kingdom and Ireland 133 127 284 Australia and New Zealand 13 9 17 North America 9 12 26 Elsewhere - (2) (1) ----- ----- ----- Total operating profit before exceptional items and amortisation of goodwill 155 146 326 Exceptional items - European Union - (74) (84) Amortisation of goodwill - North America (3) (2) (5) ----- ----- ----- Total operating profit 152 70 237 ----- ----- ----- Business Sector: Manufacturing 129 125 283 Retail 26 21 43 ----- ----- ----- Total operating profit before exceptional items and amortisation of goodwill 155 146 326 Exceptional items - manufacturing - (74) (84) Amortisation of goodwill - manufacturing (3) (2) (5) ----- ----- ----- Total operating profit 152 70 237 ----- ----- ----- Exceptional items relate to the impairment of fixed assets. 2 Tax on profit on ordinary activities United Kingdom 37 41 89 Overseas 12 14 25 Joint ventures and associates 1 1 1 ----- ----- ----- 50 56 115 ----- ----- ----- 3 Cash flow from operating activities Operating profit 149 68 233 Impairment of fixed assets - 74 84 Amortisation of goodwill 3 2 5 Depreciation 81 81 142 (Increase) / decrease in working capital - stocks (252) (297) (17) - debtors (42) (35) 1 - creditors 58 64 (25) Provisions 2 (1) (3) ----- ----- ----- (1) (44) 420 ----- ----- ----- 4 Analysis of changes in financing Issue of short term loans (44) (18) (46) Repayment of short term loans 10 5 46 Issue of loans over one year (1) (7) (3) Repayment of loans over one year - 2 2 Shares issued to minority shareholders - (3) - ----- ----- ----- (35) (21) (1) ----- ----- ----- 5 Changes in net funds Decrease in cash (70) (205) (138) Financing (note 4) (35) (21) (1) Management of liquid funds (96) (52) (423) Shares issued to minority shareholders - 3 - Purchase of equity investments - - 1 Sale of equity investments (8) - (6) Changes in market value (2) - 9 Arising on acquisition of subsidiary undertakings - - (8) Effect of currency changes (4) 2 (2) ----- ----- ----- Movement in net funds for the period (215) (273) (568) Opening net funds 871 1,439 1,439 ----- ----- ----- Closing net funds 656 1,166 871 ----- ----- ----- Analysis of net funds Current asset investments 909 1,298 1,030 Cash at bank and in hand 30 88 51 Short term borrowings (124) (56) (53) Loans falling due after one year (159) (164) (157) ----- ----- ----- 656 1,166 871 ----- ----- ----- 6 Other information The figures shown for the financial year ended 18 September 1999, which have been abridged from the group's 1999 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 (4) of the Companies Act 1985. The figures for the 24 weeks ended 4 March 2000 and 27 February 1999 are unaudited. ACCOUNTING POLICIES Basis of preparation These financial statements have been prepared under the historical cost convention as modified by the revaluation of certain assets, and in accordance with applicable accounting standards and the Companies Act 1985. FRS 15 and FRS 16 have been adopted in the period. There is no material affect on the comparative figures for the 24 weeks ended 27 February 1999 or for the 53 weeks ended 18 September 1999. 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 24 weeks ended 4 March 2000, 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 15 January 2000, and the North American subsidiary undertakings are made up to 12 February 2000. Acquisitions The consolidated profit and loss account includes the results of new subsidiary undertakings, joint ventures and associates attributable to the period since change of control. Disposals The results of subsidiary undertakings, joint ventures and associates sold are included up to the dates of change of control. The profit or loss on the disposal of an acquired business takes into account the amount of any related goodwill previously written off directly to reserves, or the net amount of goodwill remaining unamortised, as appropriate. Intangible fixed assets Intangible fixed assets consist of goodwill arising on acquisitions since 13 September 1998, being the excess of the fair value of the purchase consideration of new subsidiary undertakings, joint ventures and associates over the fair value of net assets acquired. Goodwill is capitalised in accordance with FRS 10 and amortised over its useful economic life, not exceeding 20 years. Goodwill previously written off against reserves has not been reinstated. Foreign currencies Assets and liabilities denominated in foreign currencies are converted into sterling at rates of exchange ruling at the balance sheet date, or at the contracted rate as appropriate. The assets and liabilities of overseas operations are converted into sterling at the rates of exchange ruling at the balance sheet date. The results of overseas operations have been translated at the average rate prevailing during the period. Exchange differences arising on consolidation are taken directly to reserves. Other exchange differences are dealt with as part of operating profits. Pensions The group has established separately funded pension schemes for the benefit of permanent staff, which vary with employment conditions in the countries concerned. Net pension costs are charged to income over the expected average remaining service lives of employees. Any differences between the charge for pensions and total contributions are included within pension provisions or debtors as appropriate. Research and development Expenditure in respect of research and development is written off against profits in the period in which it is incurred. Fixed asset investments Joint ventures and associates are accounted for in the financial statements of the group under the equity method of accounting. Other fixed asset investments in the group's accounts, and all fixed asset investments in the accounts of the company, are stated at cost less amounts written off in respect of any permanent diminution in value. Depreciation Depreciation, calculated on cost or on valuation, is provided on a straight-line basis to residual value over the anticipated life of the asset. No depreciation is provided on freehold land or payments on account. Leaseholds are written off over the period of the lease. The anticipated life of other assets is generally deemed to be not longer than: Freehold buildings 66 years Plant, machinery, fixtures and fittings - sugar factories 20 years - other operations 12 years Vehicles 8 years Leases All material leases entered into by the group are operating leases, whereby substantially all of the risks and rewards of ownership of an asset remain with the lessor. Rental payments are charged against profits on a straight-line basis over the life of the lease. Stocks Stocks are valued at the lower of cost or net realisable value, after making due provision against obsolete and slow- moving items. In the case of manufactured goods the term 'cost' includes ingredients, production wages and production overheads. Current asset investments Current asset investments are stated at the lower of cost or market value. Financial instruments Forward foreign exchange contracts and currency options are used to hedge forecast transactional cash flows and accordingly, any gains or losses on these contracts are recognised in the profit and loss account when the underlying transaction is settled. Derivative commodity contracts are used to hedge committed purchases or sales of commodities and accordingly, any gains or losses on these contracts are recognised in the profit and loss account in the same accounting period as the underlying purchase or sale. Gains or losses arising on hedging instruments which are cancelled due to the termination of the underlying exposure are taken to the profit and loss account immediately. Deferred tax Deferred tax represents corporation tax in respect of accelerated taxation allowances on capital expenditure and other timing differences, to the extent that a liability is anticipated in the foreseeable future. With the exception of FRS15 and FRS16, which were adopted in the period, these accounting policies are consistent with those used in the preparation of the financial statements for the 53 weeks ended 18 September 1999. COMPANY DIRECTORY Directors: Garry H Weston, Chairman Harold W Bailey, Deputy Chairman Peter J Jackson, Chief Executive John G Bason, Finance Director Trevor HM Shaw George G Weston WG Galen Weston OC Professor Sir Roland Smith + Rt. Hon. John RR MacGregor + Martin G Adamson + (appointed 11 October 1999) Secretary: Mark Geday (appointed 20 March 2000) Registered office: Weston Centre Bowater House 68 Knightsbridge London SW1X 7LQ Company registered in England, number 293262 Registrar's and Transfer office: Lloyds TSB Registrars Worthing West Sussex BN99 6DA Internet site: http://www.ABF.co.uk + Independent non-executive director Professor Sir Roland Smith is the senior independent director. Garry H Weston, Professor Sir Roland Smith, Rt. Hon. John RR MacGregor and Martin G Adamson are members of the Audit and Nomination committees. Garry H Weston, Professor Sir Roland Smith and Rt. Hon. John RR MacGregor are members of the Remuneration committee.

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